Breakfast Food Industry Analysis And Strategic Marketing Essay

Breakfast, defined as the first meal of a day, has become a common diet of Americans since the rise of human civilization. 10,000 years ago Neolithic farmers learnt how to cultivate and so they created first a steady food supply. Romans revolutionized the first meal with a cereal version which has dominated the world since with wheat, oats and barley being the main ingredients. Cereal is currently the only major breakfast component in the present worlds and has built an 8 billon dollar industry in the 21st century. In 1890 John Harvey Kellogg single handedly built the first modern breakfast-food industry in greek Michigan. This led to dominion of four big cereal companies namely, Kellogg, General Mills, Post, and Quaker

Structure

Economic Analysis

There are four big cereal companies holding 86.4% and a few small companies holding 13.6% of the market share. Price competition is nonexistent. In 1993 the industry earned a net profit of 6.7% barriers to entry and numerous government attempts to finish it have failed. Cereal industry is at $8 billion any approach that can gain 1% increase is substantial for the companies.

Porter’s Model

Rivalry

The cereal being highly consolidated market. The dominance 1970 by the four companies to 90% of ready to eat cereal, which has dropped recently the market, is still consolidated

Buyer Power

Due to the fact that there are only a few major companies, consumers do not have a big impact on the industry because they purchase small quantities of cereal weekly. Hence Cereal Companies are not dependant to their views. Grocery stores are their main threats because they decide who gets shelf space and this is what cereal companies need.

Supplier Power

There are a few substitutes to cereal thus they give suppliers in cereal industry a lot of power since they are common and do not swing the consumer precedence. Secondly is there is a capability of suppliers merging with these substitute companies. For example sugar companies trying to merge with cereal company.

Substitutes In 1970’s and 1980’s pop Tarts and breakfast bars began to compete with cereals and consumers had more to choose from. Consumers need for a healthy diet led to another substitute i.e. hot cereal

Potential Competitors Cereal Companies has so much power due to lack of competition, but there are a few barriers which make this impossible. The cereal company takes advantage of the cost and economics of scale. This stems from advertising, in 1993, 1.3 million of advertisement aired costing 762 million dollars daily .with this amount a new company can create a new cereal. It there for becomes very difficult to compete with these large markets which have also used cartoon characters which have become related to children hence fixing their presence in consumers’ minds.

Technological Environment Technology creates a barrier in that most companies have spent many years developing new products hence this makes it impossible to innovate a new product of cereal . To maintain the crispy of cereal in milk is a technology question that poses as huge barrier.

Macro-Economic Environment With the American economy growing, and inflation steady the average person has more purchasing power and consumers are better able to afford cereals.

Social Environment – Demographics These are very vital in any industry. Currently, 49% of Americans consume cereals in the morning. This shows that the social environment has a major influence. With the increase of the median income from $31,341 in 1970 to $32,264 it suggests that income hasn’t increased proportionally. This means that consumers are paying more for breakfast. The economic scenario of both working parents has led to the need of a quick breakfast in order to get their kids to school and get to their own work place.

Political and Legal Environment In 1970s, the cereal industry rose to90% from 68% in 1940. This saw the critics come up with strategy of cooperating and creating a monopoly. The Trade commission started to investigate the alleged cooperation but the cereal industry blocked the allegations. In 1970s, there was a delay in handling of profits which went on until early 1980s, and FTC found barriers to break the industry. First a great relationship between manufacturers and congress members and the mass advertising budget, this continued for 15 years.

Strategies Competitive strategies of the industry cycle include: low-cost, differentiation, and focusers. However, The cereal industry, uses two of these strategies, low-cost and differentiation.

Low Cost Strategies The effective tolls of low cost strategies include use of coupon reduction was used in 1994 by general mills this year they cut it by $175million others have followed suit. The industry has turned to streamline marketing meaning a company marketing a variety of products to reduce marketing cost by using economies of scale the cereal industry also attempted to manufacture low-cost strategy. The companies in this industry use high capital production methods instead of labor intensive methods. This is proved by decreasing the amount of workers and the increasing the capital investments. It is also supported by high levels of value added in between raw materials and the final product

Differentiation Strategy

Cereal industry uses the strategy of differentiation. A range of name brands are produced aiming different market segments.ie for children and adults being health conscious, this is known as product proliferation that is pursuing a big product line. In the cereal industry, production of new products leads to completion. Now there are over 75 new brand names

Pricing Strategies Historically the company has worked with one pricing strategy, this being the price discrimination. But some of the key players now use price competition.

Price Discrimination Coupons have been a staple aspect used by cereal companies. They are designed to give consumers a lower price that is if they take time to obtain and use them

Price Slashing In 1994 share general millis slashed their prices but with little success. For the cereal industry, price cuts will not be hurting since profits are high

TRENDS The cereal business is all about market domination through marketing and promotion budgets causing evolution of four companies barriers to entry and promotional ware has led to market share for small companies unattainable.

Consumer Trends Consumers have finally let go the high-priced products opting for private labeled products because they are cheaper. Industries are aware of this problem and are pursuing a better solution

Trends in Product Development This is a strategy that will see the improvement of the product. For example, entirely coming up with a new product. New cereal flavor and many more will see to a company’s improvement

Growth Trends Global expansion as well as operating cost reductions may ensure success and growth in the Companies. Consumers are gaining a similar taste as a result of technology leading to a market growth.

Breakfast Cereals in Canada Overview

Market Definition

The ongoing emphasis on health and wellness as well as on breakfast being the most important meal of the day continued to drive consumer demand. In particular, high fibre has become a growing trend within breakfast cereals due to promotion of the nutritional value of wholegrain by dieticians, government and subsequently…

The Canadian breakfast cereals market consists of mainly hot cereals and ready-to-eat cereals. The ready-to-eat (RTE) cereal industry is uniquely qualified by a high concentration, a large advertising-to-sales ratio, high price-cost margins and a very aggressive entry of new products.

These facts have turned this industry into a concentrated differentiated-products industry where price competition is unanimously cooperative and brand rivalry is left to marketing, product promotion and new product development.

Due to this aggressive marketing, rapid development of new products and a certain surge in consumer awareness of natural cereals, the sales of breakfast cereals has grown steadily in recent times with the retail sales figures increasing by 3% last year alone. This translates to about C$ 1.4 billion and a volume of 181,000 tonnes of cereal. During this period, the structure of this industry changed dramatically into a more concentrated market from an earlier largely fragmented state.

Market Segments analysis

Among adults

• An equal number of women, 82 percent and men, 79 percent aged 20 years and above eat cereal daily.

• Older adults consume cereal more than younger adults.

• More Caucasian, 82 percent adults aged 20 and above eat cereal than do adults from all other races combined.

•19% percent of adults with a 12th grade educational level and below skip breakfast, compared to 15% of those with college education.

• About 75 percent of Canadians earning less than C$25,000 eat breakfast compared to 86 percent earning $75,000 and above.

Among Children and Adolescent

• Adolescent Girls are more likely to skip breakfast than boys

• White children are more likely to eat cereal for breakfast than black or Hispanic children.

• Children, 36% consume Whole grain cereals more frequently, followed by snacks, 33%, lunch and dinner, 15% each and brunch, 1%.

• Children and adolescents aged two to eighteen years who eat cereals, 30.9 percent, contribute the most to the whole grains diet, followed by corn and other chips at 21.7%, and yeast breads at 18.1%.

Strategies To Successfully Market MUESLI In Canada

• Develop an aggressive marketing campaign around the whole grain quality, tasty and a non-traditional breakfast cereal that is MUESLI.

• Advocate for an “on-the-go” MUESLI breakfast option. Suggest enjoyable ways such as portable breakfast for MUESLI consumers together with other fun beverages such as 100 percent fruit juice.

• Sell the MUESLI idea to parents and sensitize them on the importance of being good role models for children and teens over the breakfast meal.

• Sell the “natural whole grains cereal flakes, dried fruit, nuts and pumpkin seeds” by education to weight-conscious consumers on their effectiveness in weight management

• Since most of Cereal consumers are children, introduce MUESLI on a marketing gimmick that “fruits, nuts and seed” may actually sharpen their performance in school.

• Since economics is also a major player in cereal statistics, use the platform to launch MUESLI as a new affordable whole grain breakfast option.

•Concentrate in the participation of school breakfast programs which may be a very appropriate and cheap market launching pad.