Ready to Eat Cereal

5) Capital Requirements: in order to enter the industry, there were huge capital expenses to be sustained by firms, such as a minimum of $ 100 million for capital investments, and at least 125 employees to run a plant that could produce both packaging and cereals themselves. In this framework, advertising expenses may be added too, since they’re a great part of the expenditures a RTE Cereal firm has to face, and they also represent a great Barrier To Entry, being an amount close to 1/5 of the sales generated by the company.

This report examines the UK market for Breakfast Cereals. The market has grown substantially in the last 5 years with a high demand for quick meals in the morning due to busy lifestyles. This has had an advantage to the sales of the market.

the two largest firms Coles and Woolworths account for 80% of total sales of groceries in Australia. With this mush market share market distortion is created and a supplier who has to deal with someone with that much power works from a weak position. In an oligopolistic market competition is intense. Both non-price and price techniques are used to compete. The warranties and tricky advertisements are common aspect. In oligopoly mutually interdependence is a must. If policy of price change is adopted by one, then this will affect the sales of other firm in the market.

This results from the fact that it is a mature segment with many well established companies vying for market share. The industry is highly consolidated and very fragmented. To grow their businesses, companies rely heavily on mergers and acquisitions to capture additional market share. Historically, the grocery industry has been characterized by slow growth which results in strong price competition and the development of aggressive marketing campaigns between existing firms. Perceived product quality and strong brand recognition by consumers are the basis of competition among firms in the industry. The source of General Mills’ competitive advantage lies in its ability to develop innovative products and highly reputable brands. As a result, they hold cost leadership positions across a number of grocery categories. Exhibit 1 shows the top US companies according to their sale of packaged foods globally. Market leaders include Kraft Foods, PepsiCo, Nestle, Mars, Kellogg, and General Mills, however, neither company possess an overwhelming share of global sales. This is in part due to the large degree of product diversity throughout the industry and the strong brand rivalry of each competitor’s labels.

The recession, which started in 2008, has helped drive the need for private-label products, or as they are more commonly called, store brand products. These private-label products generally cost the consumers about twenty-five percent less than the major national brands that are offered. Throughout the supermarkets and other types of food retailers, the private-label sales grew by more than 9% from 2008 to 2009, and these types of private-label sales accounted for about 35% of Kroger’s overall sales. Most stores do not operate their own processing plants for these private-label items; Kroger does however operate their own plants for the private-label products. [ (Senauer & Seltzer, 2010) ]

This monopolistic competition market structure has a positive effect on Kudler because it allows Kudler and their speciality foods to carve out a niche that the competition will find it hard to enter. Kudler’s market strategy (locations and unique products) should be very effective in keeping out potential competitors and establish a large barrier to competitor entry. Since Kudler’s stores are located in areas with limited populations the ability of competitors to gain entry into their market is limited. Since competitors cannot enter their markets, Kudler should experience long-term profitability providing they keep their customers happy.

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

By not needing to maintain a high profit margin on the fooditems, this has allowed the supercenters to keep their food prices down in comparison with mosttraditional supermarkets.The recession, which started in 2008, has helped drive the need for private-label products,or as they are more commonly called, store brand products. These private-label productsgenerally cost the consumers about twenty-five percent less than the major national brands thatare offered. Throughout the supermarkets and other types of food retailers, the private-labelsales grew by more than 9% from 2008 to 2009, and these types of private-label sales accountedfor about 35% of Kroger’s overall sales. Most stores do not operate their own processing plantsfor these private-label items; Kroger does however operate their own plants for the private-labelproducts.

The second force that I will use to analyze the Trader Joe’s company is the “the rivalry among established competitors”. Factors to consider when looking at the rivalries in the industry are industry demand, cost conditions, and exit barriers. Trader Joe’s competitors include The Kroger Co., Whole Foods Market, and Safewat Inc., and all super markets in general (Llopis, 2011). With that said, there seems to be a high demand for what Trader Joe’s offers, private labels. This means that the intensity in the industry is less compared to an industry with a flat demand. Trader Joe’s does not have to fight hard to sell their products because of the service they have created. Trader Joe’s brand can be considered “diversity on steroids” which has somewhat of a cult following among consumers (Llopis, 2011). Consumers that want unique experiences with their food are able to do exactly that at

With this in mind, buyers, e.g. supermarket chains, having strong bargaining power are switching between substitute products with only low switching costs and tend to buy their products from suppliers offering lower rates. As demonstrated by Barney (1991; 1995) the final step in the external environment analysis is the competitor environment which casts light on competitor’s objectives, assumptions, capabilities and strategy. Only with thorough understanding and interpreting of competitors’ actions, a firm can successfully compete against its rivals and create higher value for customers. When analysing its competitors and their trends, DSF should have seen that most of its competitors are multinational companies which control a great share of the foods industry and seek above average returns from imported and lower priced goods.

Analysis of the external environment suggests a fierce rivalry between Trader Joe’s and its competitors. This rivalry is brought on by the high bargaining power of buyers and high threat of new entrants into the market, both of which put pressure on companies to maintain low prices and provide high-quality products.

Twenty plus years ago, the terms “private label” or “own brand” were usually synonymous with “cheap knock offs.” These products were viewed as inferior to the national brands and just a low cost alternative for the extremely price conscious. However, in the last 20 years, the paradigm has changed. As major retailers sought ways to expand their brand and entice customers to become loyal to their stores, private label (“PL”) and own brand (“OB”) products became a more viable and significant component of their marketing and brand strategy. However, this came with the caveat that their PL/OB offerings had to meet or exceed the quality of the national brands but at a price point of 10-20% less.

There is research that shows half of shoppers bypass their closest store, typically for the lower prices. Kroger offers many private label products and keeps the prices low (Hartman group). They are able to sell at relatively low prices and still generate good financial return based on their cost structure. According to this marketing strategy, they attract and retain more customers. Kroger has private products and the customers more and more tend to buy value oriented merchandise. It will increase the demand for private label goods in the U.S. Kroger has three kinds of private label product--Private Selection, Banner Brand, and Kroger value to satisfy different customer’s requirements. Private selection is a premium quality brand, banner brand focus on taste and efficacy, and Kroger value is designed to deliver quality products and sell those at an affordable price (Bell).

Also, this increased competition among grocers resulted in some going out of business resulting in loss of sales for those vendors. Also, these large grocery chains demands exceeded the ability for small food companies to provide products in such large volume. This forced these small businesses to focus more on smaller markets and also to identify niches in the market that could be exploited. Small restaurants and food chains now became major purchasers of these products. Also, the frequency of the average American eating out increased further adding to the attractiveness of vendor sales to restaurateurs. Also, certain businesses expanded to meet these large demand markets in the grocery and restaurant market. These state of the art production facilities threatened smaller companies without a competitive product or established market. All of these changes resulted in certain drivers coming to the forefront. The first would be the need to reduce volatility. Competitors in the market would need to select markets wisely to reduce the risk of not being competitive or the uncertainty of the marketability of their product. They also would need to increase their ability to diversify into different products. Large food companies may monopolize a certain product making it necessary for other companies to become creative in developing other products or marketing strategies. On the plus side, the ability of a company

General Mills, as one of the Big Three companies that focused on diversification of consumer goods on cereal division, restaurant chains and packaged consumer foods. In 1994, the cereal industry was profitable and had been one of the most concentrated industries overall historically, and the big Three company had a dominant position in this industry. However, the problem was although the high profitability attracted fewer entry company due to the high entry barrier restrained by joint monopoly of the Big Three, they were facing the threat of private label companies which grew fast in market share by sales and volume. Therefore, what is General Mills strategy to increase revenue while dealing with the threat of private labels. This is a critical issue because General Mills need measure the trade-offs among strategies, and this determines whether General Mills would still be one of the top players in terms of market shares in the industry.