ready to eat breakfast industry

6266 WordsOct 23, 201326 Pages
w …‫(01/1ˈܡ‬W) Harvard Business School 9-795-191 Rev. February 14, 1997 The Ready-to-Eat Breakfast Cereal Industry in 1994 (A) 1 All is not well in the land of Tony the Tiger. In early 1994, the ready-to-eat (RTE) breakfast cereal industry had reached a critical turning point in its evolution. In an industry historically characterized by stability and above average profitability, slowing demand growth and a surge in private label sales threatened to undermine the dominant positions of the Big Three: Kellogg, General Mills, and Philip Morris. The 1993 year-end statistics showed that industry sales growth had slowed to under 2%, while private labels had topped 5% market share by sales and 9% by volume for the first…show more content…
Vitamin fortification, which first appeared during the second World War, presweetening, which gained wide popularity in the 1950s, and the surge of interest in granola and natural cereals in the 1970s and 80s fueled this growth. By 1993, the U.S. market consumed 2.82 billion pounds of cereal, grossing nearly $8 billion in sales for breakfast cereal manufacturers. The RTE cereal industry had historically been one of the most concentrated of all U.S. industries, and firm market shares showed great persistence (see Exhibit 1). The largest cereal manufacturers were extremely profitable, routinely posting ROAs for their cereal divisions in the 15-30% range. However, the profitability of the industry attracted no significant entry, and the industry continued to become more concentrated. As a result, in 1972 the Federal Trade Commission filed a major antitrust suit against Kellogg, General Mills, and General Foods (then the maker of the Post line). The FTC argued that the leading RTE cereal manufacturers had jointly monopolized the RTE cereal market. The FTC case was based on the fact that the industry was concentrated and highly profitable, and not on specific actions that the firms might have undertaken to achieve this. Nonetheless, it became clear that the FTC believed that the firms had effectively raised
Open Document