Case Write Up
Ready-to-Eat Breakfast Cereal Industry- Group B-5
RTE Industry Boundaries
When looking at supply side of RTE cereal industry major costs to producers constitute of initial investment in production plant. Flexible manufacturing plants resulted in a rather high supply-side substitutability between different cereals. This implies that RTE cereal producers operate in a broader cereal industry as opposed to one for only a specific type, such as puffed or shredded wheat cereals.
However, differences exist between supply-side substitutability of well-established branded cereals, such as Kellogg's and private labels. Specifically, as private labels focus on fewer variations of cereals that are simpler and cheaper to produce, it is likely that that their supply-side substitutability will be lower than that of branded cereal producers. Additionally, as cereal producers started to include granola bars and other types of RTE snack food (Case A, 1997), we assume that producers now compete in a broader RTE cereal product industry than previously.
From the demand-side perspective, we distinguish between the substitutability of similar products made by different brands and the substitutability between different cereal types. Cereal consumers tend to be fickle when it comes to brand substitution, depending on current trade promotions offered by a particular producer (Case A, 1997). As such, the massive coupons use that occurred in the years preceding 1994 strengthened the demand-side substitutability in the industry. Consumers' propensity to switch between different cereal types largely depends on personal preferences. However, substitution remains high within subcategories (e.g. healthy cereals, granola,etc). Manufactures thus compete not only in the RTE industry as a whole but also within particular product cereal categories.
Reasons for Success in the RTE Breakfast Cereal Industry & changing success factors
The big three industry giants have not only successfully restrained internal competition, but also eroded the ease of entry for...