Ready to Eat Cereal Case Study

1760 Words8 Pages
The value chain, Appendix B, in the RTE cereal industry consists of branded manufactures and private labels that receive their raw materials from suppliers and then distribute their product to food stores, drug stores, and mass merchandisers where the end consumer can eventually purchase the cereal product. Private labels rely on wholesalers and third-party distributors to get their product on the store shelves where the end consumer can purchase these items. In the RTE cereal industry, there were three large manufacturers, General Mills, Kellogg and Philip Morris that had a strong presence in the market. They were extremely profitable with pricing power and dominated the whole market with great market share; all this made it unattractive…show more content…
Private labels also had a better relationship with the grocers because of the better margins they offered to them. This was a bargaining tool Private Labels used to their advantage. Now their product was being placed in more strategically placed locations throughout the grocery store, which increased their sales and decreased the Big Three’s sales. In addition to allowing competitors into the industry, the Big Three hurt themselves by spending millions of dollars on coupons and advertising. There was little to no results that proved these methods were effective in gaining market share. For example, the RTE cereal industry spent $800 million in advertisements and trade promotions, but did not see much reward other than non-loyal consumers switching their products based on current trade promotions. Another factor of the industry crisis was due to the fact that the Big Three stopped their united front of raising prices together. The Big Three no longer made strategic moves together and in return made it easier for others to enter the industry. At the start of the RTE Cereal Industry the Big Three offered value to their customers, however over time their capabilities were possessed by many competitors, not making their organizations rare. This hurt their competitive advantage among the
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