Essays academic service

1 why was the rte cereal industry so profitable for so many decades

Still there are few firms with the highest market share; three have more than fifty percent of the total market share. Actually there are new players that are obtaining more market share, such as private labels. Also there are a lot of buyers that are still growing, at a smaller rate than before.

Due to the big and widespread demand there are a lot of channel of distribution. Major RET cereal manufacturers owned national distributions systems in each region; those distribute the product to supermarkets and other stores. At the beginning the main distributors were the supermarkets but then along the time stores such as drug stores, convenience stores and discount retailers became more important. The cost structure was low for the general process, but to achieve a competitive advantage through differentiation also means a higher cost.

The biggest companies have higher costs than the small and private label, because to differentiate their products the use special package or new ingredients, that also improve quality; but it means higher costs.

Is absolutely necessary in this market to add or create new value to differentiate the products, wrought the time it allow to the biggest companies to acquired higher market share, because they were always innovating and creating different brands. The biggest firm in this market is Kellogg and it has 40 brands, and this allow it to reach different market segments.

Conduct The three biggest companies had been able to increase the price when they want and the amount that they want, increasing the gap with private labels. Also they use some promotion strategies such as discount to retailers and cash payments for especial in-store promotions, cooperative advertising, large sales staff, and these firms also encouraged supermarkets and other retailers to adopt a shelf space plan that ensure that their products will obtain the better position. Media expenditure in RET cereals had been always among the most advertising intensive of all industries.

Through these actions those companies achieved high awareness in the demand, but loyalty is official to have because of the diversity of brands and the intensive promotion.

Other action that has been common in this market is Co-branded, some of the biggest companies are producing and distributing new products but with another company brand name in order to achieve distinctiveness.

Ready to Eat Cereal Industry Paper

All these tactics are necessary in order to achieve differentiation, because there are huge amounts of brands. Innovate and create new products is a real challenge because the amount of different products. Another barrier is the relationship that these firms have with the distributors; obviously the distributors prefer give preferential treat to those firms that during years have had big volume sales.

Finally other important barrier is the capacity of these companies to increase tenet marketing Ana promotions techniques. All the market power that those few companies have allowed them to practices illusion. Over time when one of them increases the price the others firms increase the price; and they used it practice to set other strategies such as promotion too.

It has been change in the last year, and due to the new conditions of the market: The high prices that were charge to consumers, and the increasing demand over years help to this companies to achieve such profitability. Generally to satisfy the demand and reduce cost a single plant produce many brands of cereal and the production process is relatively similar for all cereals; so the main source of scale economies was bagging.

But due to the necessity of differentiate the products, new products had been developed and by the way new technology. Because the keys to success in this market are differentiation and it Just could be achieve through improvements in technology, and satisfy the demanded volume that also is related to the technology that is used.

Continuously development of new products with better characteristics increases the quality of the products that is usually used to segment the market. What can you say about the market concentration of the companies in this industry? Few companies have the higher market share that gives them the market power to set prices; and it is persistent through the time, for example Kellogg continue being the firm with the higher market power.

  • Breakfast cereals market in the US 2012- 2016;
  • Reduce cost is also important, but to maintain that policy with those promotion strategies could represent lose in awareness and by the end in market share too; so they need to balance it and try to be out of the standard of the industry;
  • The Wall Street Journal;
  • Two general cooking methods are employed in the industry—direct steam injection into the grain mass in rotating batch vessels and continuous extrusion cooking;
  • Retrieved November 15, 2013 from http;
  • Alina Kaveel Running head:

Also they created strong relationship with some important actors in this market such as the retailers and distributors that ensure the better shelf space for their products. The increasing demand and the low cost of the general process, allow them to accumulate big profits and be able to offer huge discounts or implement aggressive campaigns.

With all this things in favor of these companies they were able to create high awareness in the market and control the market between them. Such as the demand was huge and increasing, one company was not able to satisfy all the volume demanded and that is one reason why they used collusion as a strategy.

Why has RET cereal been such a profitable business? What changes have led to the current industry crisis? There are three main reasons why this business is so profitable: These companies are highly profitable because the process to produce cereals is simple and required high costs.

The higher cost in which this companies incurred were in those characteristic that differentiate their products such as the package or an additional ingredient for example.

Also the ability to allude and set high prices allowed them to increase their marginal contribution. When one company increase the price the others companies also do this. The nudge anemia Tanat was Increasing over time.

Also these companies were always innovating and satisfying new segments market.

That diversification of brands permitted them to obtain the high market share and by the way obtain high profits. But with the current crisis they will need to differentiated more their products in order to maintain their market power; ND if the sales continue falling down then they will have to reduce the price in some brands in order to maintain the volume sold. Other aspect that could be affected is the relationship between these big companies collusionbecause with the reduction in sales due to the decrease in demand and the entry of new competitors private labels could do more difficult move together in the same direction.

How do the cost structure of private label and branded cereal manufacturers differ? The unit cost is lower not Just because of the low quality raw material but also because they use simple package, they produce in less quantities, they invest a lot in marketing and promotion; and all these things make their cost structure totally different.

It means that they were able to satisfy low end segment market, that before satisfy for big companies due to the higher prices that these were charging.

How to cite this page

And this passive strategy allowed them to capture slowly that market share. What does General Mills hope to accomplish with its April 1994 reduction in trade promotion and prices? They know that the demand is been decreasing and it will represent for them less sales revenues, so in order to maintain or improve the profitability they need to reduce cost.

Over years they had been investing a lot in promotion and marketing, and its brands have certain level of awareness in the market, so the reduction in the budget for strategy promotion in the short term could not affect its demand. Also the reduction in prices will allow them to attract new customers and preserve its actual costumers.

In this way they can ensure the sales volume. With all these action they can expect an increase in market share that at the ND means increase in profits. What are the risks associated with these actions?

How do you expect General Mill? The main risk associated with this action is a price war, because considering the reduction in sales growth rate and the entry of competitor such as private labor, the other companies will try to reduce their prices too.

And the problem for General is that the other competitors can make a Digger reaction In prices, Ana In tans way ten price can Tall down until a level that they will not be able to achieve its objective of improve profits. Decrease a lot the ricers represent a hazard for it because a big company as Kellogg can implement an aggressive strategy to respond to it, and can have negative results for General Mills. What should General Mills do? If they want to pull some firms out of the market they can reduce the price, but due to the risk associated is better continue with the reduction because in he future will be more difficult to increase the prices again.

Reduce cost is also important, but to maintain that policy with those promotion strategies could represent lose in awareness and by the end in market share too; so they need to balance it and try to be out of the standard of the industry.

Another important point is continuing innovating and differentiating its products because that characteristic that defines the market competition over time is not going to change, at least in the short term. Despite the demand is decreasing, those companies who will be able to maintain competitive advantage will remain in the market.

How to cite this page Choose cite format: