RTE Cereal Outline:
Main Issue/Thesis: The oligopolistic industry leaders of the ready to eat breakfast cereal industry, General Mills, and Phillip Morris are suffering a decline in sales growth. Recent entry of private label brand competition is threatening market share and changing long-term relationships between these major brands.
Introduction:
- Key players-
- The Big Three: Kellogg, General Mills, Phillip Morris
- Other RTE Cereal Companies: Quaker Oats, Ralston
- CEO's
- Stephen Sanger- General Mills
-
o Private Labels
o Supermarkets and Super Centers
o Wholesalers/brokers
o FTC
- Key Issues:
- The RTE industry is highly concentrated with very few new successful entrants. This is an oligopolistic structure that prevents competition. In 1993, about 85 percent of the market was controlled by only 4 companies. (From 1960 to 1980, Kellogg was had <40% market share. This indicates a monopoly by current law.)
- The market has significant barriers to entry. The rapid introduction of new brands, product differentiation, and high cost of shelf space are likely explanations.
- The industry leaders enjoyed higher than normal profits for decades despite the lack of direct competition among each other. Because theses few firms dominated the market, the firms were not concerned about competing on price. Price coordination was apparent with the "lock step" movement of firms that followed Kellogg's usual price increase. (Analysis of price elasticity)
- The industry leaders have economies of scale that allow them to generate high expenditures on advertising and promotion; on the other hand, private labels compete in the market on price by using strategies of low advertising budgets and inexpensive packaging.
- Key Solutions/Recommendations
- The FTC took measures in order to promote competition within the industry. If the FTC were to follow through on its case, this would likely provide a solution to the concentrated market.
- The introduction of super centers provided a remedy for shelf space and allowed private label competition.
- General Mills' response to the new private label introduction is a turning point for the "Big Three". Proper risk analysis should be taken and corporate strategy should be developed in order to compete in the changing market.
- Industry leaders should direct their focus on competing on price. Reduction in promotions and on prices would allow for "healthy" market competition.
- Conclusion:
- Recap the possible FTC regulations that would promote competition in the industry.
- Reemphasize the impact of super centers and other solutions to barriers of entry.
- Recap that future actions and motives of the Big 3.
- Discuss the price competition and promotion reduction outlook for the industry.
Attachment:- MECO_Question.zip