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Rte breakfast cereal industry in 1994 essay

What changes have lead to the current industry crisis?

Ready-To-Eat Breakfast Cereal Industry Essay

Since 1904, the RTE cereal industry has been characterized as highly concentrated with a few dominant players commanding most of the sales volume. The industry faced little competition from new entrants and became increasingly concentrated by the 1970s.

  • Since the market demand for cereal was elastic;
  • Efficiencies in production were achieved when a single cereal production line could be consolidated and fed to a larger multiple production line.

However, at this time, the Big Three then Kellogg, General Mills, and General Foods were facing increased scrutiny from the Federal Trade Commission FTC for possible implementation of anti-competitive practices and deterring new entrants. Significant barriers to entry seemed to include: While pieces of the cereal production process were simple, the extrusion process was complex, requiring significant engineering and production expertise. This step in the process provided manufacturers with a competitive advantage that new entrants could find difficult to duplicate.

RTE Breakfast Cereal Industry in 1994 Essay Sample

Efficiencies in production were achieved when a single cereal production line could be consolidated and fed to a larger multiple production line. Because of this, the RTE cereal plant was estimated to need to be a capacity of 75 million pounds per a year to achieve minimum efficient scale. The remaining sales would be made through wholesalers and brokers who would sell to smaller outlets.

With incumbents already dominating much of the space, new entrants had less flexibility to reshuffle brands by replacing failed brands with new ones. Additionally, the major manufacturers had large sales teams who were able to work closely with supermarkets to customize distribution and product placement for the needs of each customer.

In 1990s, firms began to use scanner data to better manage inventories and costs to the specific demands of the customers within in each sales region. Availability of customer data allowed the major firms to be better respond to changing customer preferences.

The Ready-to-Eat Breakfast Cereal Industry in 1994 Essay

By the mid-1990s, the cereal industry started to see some changes that affected the industry dynamic and the power of the Big Three. Characterized by consistent price increases, the major firms employed the use of coupons to appeal to customers and capture market share. With an increasing number of brands hitting the market, the industry became more fragmented. Soon no one brand accounted for more than a single market share point.

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Additionally, drug and convenience stores also had an increasing share of food sales. How do the cost structure of private label and branded cereals differ?

  1. The main substitute could be homemade breakfast.
  2. Moreover, the major cereal manufacturers also owned national distribution system and flooded the market with a wide variety of cereals. Get Full Essay Get access to this section to get all help you need with your essay and educational issues.
  3. They besides had a cost advantage because of both economic systems of range and graduated table due to stuffs managing flexibleness. The officeholders did non perceive private label manufacturers as a serious menace.
  4. Private labels came at a time when consumers were upset by the continued price increases in the branded cereals.
  5. They have a considerable competitory cost advantage over the new branded merchandises.

In the early 1990s, private labels finally found an opportunity to grow in the RTE cereal industry. In addition to the private labels, Ralston also developed a line of licensed cereals that would be tied to a movie or television show. The popularity of licensed cereals would decrease and Ralston would discontinue the cereals in 1993. While some of the major cereal firms did not see private labels as a threat, there were a few factors that led to the success and growth of the private label cereals.

For years private labels suffered from poor quality and limited product variety, so after the short-lived success in 1980s, private label manufacturers discovered that even a price-sensitive customers demanded a level of quality similar to branded products.

RTE Breakfast Cereal Industry in 1994 Essay Sample

The increase in technological competence of private label manufacturers finally made the quality of such cereals similar to those of branded products.

After prices of the Big Three spiraled upward in lockstep, private labels were able to gain a toehold in the market by undercutting prices.

With small advertising budgets and limited product differentiation, private labels spent limited funds on advertising.

Any advertising was used to show the price differences between them and the branded products. Private labels came at a time when consumers were upset by the continued price increases in the branded cereals. As a result, retailers were more willing to promote private labels in stores. How to cite this page Choose cite format: