Ready To Eat Breakfast Cereal Industry Monday‚ September 09‚ 2013 3:09 PM The Big 3 and the industry before the 1990’s 1972 Federal trade Commission file a major antitrust suit against the big 3 (Kellogg‚ General Mills‚ and General Foods) Argued: Monopolized cereal market and had taken specific steps to deter entry by new firms How? Restrained competition amongst themselves through "unwritten agreements" to limit the in-pack premiums (free toys‚ gifts‚ e tc) -Refrain from trade
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The RTE Cereal Industry in 1994 Case Analysis Competitive Strategy Presented by: Raghav Keshav Why has RTE cereal been such a profitable business? The RTE cereal market is a classic oligopoly with the four dominant players controlling 85% of the market. The return on sales earned by the incumbents in this market (18%) is significantly higher compared to rest of the food industry (5%). Efficient markets typically entice new entrants when the returns are attractive. These returns are gradually
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boundaries of RTE cereal industry from a demand-side perspective and a supply-side perspective respectively. The boundaries from a demand-side perspective in this case are the fact that buyers have low switching costs. The cereal industry has a diversified range of products so consumers can easily substitute one type of cereal for another or one brand for another. From the supply-side perspective‚ boundaries are technological in nature such that larger firms can produce many different types of cereals in large
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Barriers-to-entry Examples Investment To achieve minimum efficient scale‚ it is estimated that a RTE cereal plant needed to produce 75 million pounds per year‚ which requires a capital investment in excess of $100 million and about 125 employees. High Research and Development Cost The RTE cereal industry spent about 1% of gross sales on R&D in 1993‚ whereas the food industry spent only 0.7% of gross sales. It requires 2-4 years and $5-10 million to develop a new brand Distribution barrier
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Reason for the high-profitability of the RTE cereal business: The "Big Three" cereal manufacturers have jointly monopolized the market and have reaped high profits from their monopoly pricing combined with the tacit co-ordination they share regarding price hikes. The "Big Three" have backed up their monopoly strategy with their strong relationships with each other and with regional and national grocers. This relationship allowed them to control or buy shelf space and ideal positioning of their product
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Executive Summary: The cereal market is a booming industry. It has been around for over one hundred years and continues to attract millions of customers’ everyday. The market structure of the cereal industry is an Oligopoly. This is because there are four large firms‚ Kellogg‚ General Mills‚ Post‚ and Quaker Oats‚ which dominate the industry. There are also a few small firms who are involved in the cereal industry as well. The cereal industry targets all different age groups from young kids to
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Q) Why‚ historically‚ has the soft drink history been so profitable? The soft drink industry is profitable as these drinks can be easily produced and that to with very less cost‚ so they followed a low cost strategy and by doing so they were able to earn huge profit margins and more quantity means more profit. They were also huge dealers for food chains like KFC‚ MCD etc and several other gas stations. Q) Compare the economics of the concentrate business to that of the bottling business: Why is
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SCP MODEL MARKET DEFINITION  Product Level The industry for these products is the Ready-to-Eat Breakfast Cereal‚ but recently some companies attend to extend the reach of its products into snack food.  Geographic Level The geographic level for the analysis of this industry is national. All the companies were focus on obtain market share from the whole industry in the United State. BASIC CONDITION Demand 1. Price Elasticity It is an elastic demand because it is influenced for
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1. Why was the soft drink industry so profitable? Soft drink industry observed growth rate from its inception 1886 to 1990‚ the consumption of soft drinks saw remarkable growth‚ below data shows the growth in United State’s consumption. Year | 1899 | 1970 | 1980 | 1990 | Consumption | 0.6 | 22.7 | 34.5 | 47.4 | #Consumption: Gallons per person per year Financial figures also back the growth story of the Soft Drink market. ROE % | 1972 | 1975 | 1980 | 1981 | 1982 | 1983 | 1984 | 1985 |
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Sales of private label cereal grew 50% from 1991-1994 in the Ready-to-Eat breakfast cereal industry. Some of the factors that contributed to the entry of private label cereal manufacturers and their subsequent growth include - lower costs related to manufacturing‚ packaging‚ marketing‚ R&D compared to the Big 3 cereal companies‚ product quality approaching that of branded products‚ higher margins for grocers‚ lower priced products. Some observers blamed higher prices and elaborate expenditure on
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