In 1994, the ready-to-eat breakfast cereal industry was a highly competitive one. Marketing played a big role in determining which cereals were successful and which ones were not.
There were many different types of cereals on the market, from healthy options to sugary ones. Breakfast cereal companies had to find ways to stand out in a crowded marketplace.
Healthy cereals often had to compete with unhealthy ones that were marketed as being more delicious. Some companies tried to create hybrid products that were both healthy and tasty.
The most successful breakfast cereals were those that could appeal to a wide range of consumers. Quality and taste were important, but so was marketing. Breakfast cereal companies that could create catchy slogans and attractive packaging often did the best.
In the Ready-to-Eat breakfast cereal market, private label cereal sales increased by 50% from 1991 to 1994. The following are some of the reasons for the rise of private label cereal producers and their subsequent growth: inferior product quality compared to branded products, greater margins for grocers, lower priced goods with higher profits
The Big 3 companies – General Mills, Kellogg’s, and Nabisco – held an 80% share of the $9.1 billion US Ready-to-Eat breakfast cereal market in 1994. Marketing strategies used by the Big 3 included price promotions, new product introductions, line extensions, innovative packaging and advertising campaigns targeted at children.
The level of competition in the industry was high as evidenced by the large number of brands available to consumers – over 200. The three largest companies – General Mills, Kellogg’s and Nabisco – accounted for 80% of sales while the remaining 20% was split among more than 100 other companies. Price wars were common as companies engaged in price promotions and discounts to capture market share. New product introductions were also frequent as companies introduced line extensions and new flavors in an attempt to increase sales. Marketing campaigns targeted at children were particularly effective in driving cereal sales.
The ready-to-eat breakfast cereal industry was highly concentrated with the three largest firms accounting for 80% of industry sales. The industry was characterized by intense competition, with firms engaging in price wars and extensive marketing campaigns. Private label cereals accounted for a small but growing share of the market, as they benefited from lower costs and increased consumer acceptance.
The RTE cereal market used to be a highly concentrated one (Herfindahl index of 2140.29). However, since the Big 3 cereal firms took a strategy that avoided stimulating competition by avoiding short-term monetary gains – trade dealing, in-pack premiums, and vitamin fortification – internal rivalry was low.
Marketing was the primary tool to differentiate competing products and stimulate demand. Marketing expenditures were significant, representing 13.4% of industry sales in 1994.
The ready-to-eat breakfast cereal industry is one of the most fascinating industries to study from a marketing perspective. It is an $8 billion industry that is very concentrated, with the top three companies – Kellogg’s, General Mills and Philip Morris/Post – accounting for over 80% of sales. The industry is also quite mature, with few new products being introduced each year. In fact, in 1994 there were only 16 new product introductions, compared to 26 in 1993 and 35 in 1992.
Given the level of concentration and maturity in the industry, one might expect competition to be quite intense. However, this is not the case. The industry’s major competitors have pursued a strategy of avoiding practices that promote short-term benefits at the expense of long-term viability. For example, they have refrained from trade dealing (the offering of discounts to retailers in exchange for stocking their products), offered few in-pack premiums (such as toys or coupons) and avoided vitamin fortification (the addition of vitamins and minerals to breakfast cereals).
The primary tool that companies have used to differentiate their products and stimulate demand has been marketing. Marketing expenditures in the RTE cereal industry are significant, representing 13.4% of industry sales in 1994. This is higher than the average for all food and beverage industries, which was 12.1% in 1994.
Kellogg’s, General Mills and Philip Morris/Post have all been very aggressive in their marketing efforts, using a variety of tactics to reach consumers. Television advertising is the most important form of marketing for RTE cereals, accounting for 58.8% of total industry expenditures in 1994. Marketing mix strategies vary somewhat between the companies, but all three use a combination of television, print and radio advertising, as well as coupons, in-store displays and other promotions.
The intense level of marketing activity has helped to keep the industry growing, despite its maturity. Between 1989 and 1994, the RTE cereal industry experienced a compound annual growth rate (CAGR) of 3.4%.
The Big Three companies engaged in synchronized price hikes and product raises. They did not compete on price and devoted a lot of funds to R&D for new items while running big national advertising campaigns. The broadcasting choice might be partly influenced by a prisoner’s dilemma, which may deter prospective entrants from the RTE cereal market.
Marketing efforts were very important in the RTE cereal industry because it was a mature industry with little differentiation among products.
The industry’s profitability declined in the early 1990s as private label cereals increased their market share, and consumers switched to ready-to-eat oatmeals and other breakfast foods. The Big Three firms responded by repositioning their brands, changing recipes, and investing in new product development. Marketing mix variables were very important in the RTE cereal industry, especially advertising and price.
The RTE cereal industry was very concentrated, with the top three firms accounting for over 80% of sales. Marketing mix variables were important in this industry because they helped the firms to differentiate their products and build brand loyalty. The industry was also very Marketing-oriented, with firms investing heavily in advertising and promotions.
However, there are distinctions between well-known branded cereals like Kellogg’s and private-label brands. Private labels, for example, focus on fewer cereal variations that are less complicated and less costly to produce, which means their supply-side substitutability is likely to be lower than that of branded cereal producers. Furthermore, because granola bars and other forms of RTE snack food were included by cereal producers (Case A, 1997), we assume that they now compete in a broader RTE cereal product market than previously.
The RTE cereal industry is also characterized by a moderate level of advertising expenditures. Marketing strategies among the branded firms are similar, as each firm spends approximately 10 percent of revenues on advertising (ACNielsen Marketing Research, 1997). Although little public information is available on private label marketing strategies, it seems reasonable to assume that they spend much less on advertising, if they advertise at all.
In terms of the intensity of competition, we see two conflicting forces at work. On one hand, the existing branded firms have strong incentives to maintain market share and profits in the face of attacks by private labels. On the other hand, these branded firms must also defend themselves against each other. As a result, we would expect some degree of price competition and non-price competition (e.g., in the form of marketing and new product development) among the branded firms.
In summary, we expect the RTE cereal industry to be moderately concentrated, with a few well-established branded firms and a large number of private label brands competing. We also expect the industry to be characterized by moderate advertising expenditures and intense competition among the branded firms.