The whole Ready-to-Eat (RTE) breakfast cereal sector is a very profitable industry generally with the Big Three: Kellogg, General Mills, and Philip Morris dominating more than seventy percent market share. By using 5-Force Examination, we can have got a more deeply insight of the Industry:
¢Entry Barrier: Large
The Big Three has spent large amount of cash on promoting to establish brand recognition and to promote product sales. By spending grocers “slotting allowance, the best Three gain shelf space advantage more than private label brands.
However with the prosperity of drug stores, convenience shop, discounted dealer such as Wal-Mart that do not really charge “slotting allowance, white label brands obtained equal possibilities of brand demonstration, which results to 3. 6% growth approximately 9. 2% market share in three years. The administrative centre required is extremely high to ascertain production line, to advertise and to pay wages. Another reason why the admittance barrier can be high is definitely the technology. The R&D makes up about one percent of gross sales, higher than meals industry.
The Big Three has competitive advantage of cool product development and existing product improvement.
¢Substitute: Low
The main alternative could be home made breakfast.
¢Buyer Power: Medium Substantial
Potential buyers are supermarkets, drug retailers, convenience stores and discounted stores. Supermarkets charge “slotting allowance from the Big Three for better corner space. Because customers are incredibly price sensitive and have low switching expense, for those retailers who will not charge “slotting allowance, that they prefer to offer those “value-oriented brands, which may not range from the Big Three. ¢Supplier Power: Low
Suppliers are organic ingredient suppliers, equipment. These substitutes could possibly be easily located so suppliers have low power.
¢Rivalry: Medium Low
The best Three having unwritten negotiating to limit in-pack high grade, coupled with the existence of “co-branded cereals shows that the relationship between the Big Three much more of co-operation instead of intense competition. However the developing of private labeled brands, your competition for business is getting bigger. Suggestions:
Statistically from 1991-1993, the Big Three has decreasing COGS and big increase of SGA, which usually did not cause the growth of sales and operating profits. That advises the failing of advertising and other over head. The case has mentioned that promoting discount to offset the high price is pricey and profitless and should be abandoned. It is very important for the best Three to learn what clients want also to advertise smartly. Considering the fact that the top Three offers technology advantages and work with more expensive ingredients than white label brands, this can be a good indicate advertise to differentiate all their product by private label brands and to establish a better brand image. As well the Big 3 is too diversified that it is too costly to produce several brands or products which often not have a major market share. Likewise those unpopular products within one company lower the of the entire brand. And so they should quit producing these unpopular types.
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