The Ready-to-Eat Breakfast Cereal Industry in 1994 (A) -...

Sales of private label cereal grew 50% from 1991-1994 in the Ready-to-Eat breakfast cereal industry. Some of the factors that contributed to the entry of private label cereal manufacturers and their subsequent growth include - lower costs related to manufacturing, packaging, marketing, RD compared to the Big 3 cereal companies, product quality approaching that of branded products, higher margins for grocers, lower priced products. Some observers blamed higher prices and elaborate expenditure on coupon printing, distribution, redemption and reimbursement of grocers handling fee for market share gains made by private label cereal products. The policy of price up and spend back seemed to hurt the Big 3 firms. The RTE cereal industry was†¦show more content†¦The Big 3 had high advertising to sales ratios of 10-14%, also deterring entry, because average first year advertising cost for a new brand was over $20 million. We can conclude that total costs related to producing private label products are lower than new branded products. Private label products can offer greater margins to grocers and still sell at lower prices. They have a considerable competitive cost advantage over the new branded products. APPENDIX: Herfindahl index calculation: Cost estimations for a new brand entrant over and above private label producer: Cost breakdown per pound for a brand entrant and a private label producer SHEET1 Herfindahl Calculation Total Sales ($M) US Sales ($ millions) % in RTE in US sales RTE sales ($ millions) Market share Kellogg 6,294.0 3,784.0 80.0% 3,027.2 37.8% General Mills 8,517.0 5,554.0 30.0% 1,666.2 20.8% Phillip Morris 60,901.0 30,372.0 3.9% 1,184.5 14.8% Quaker 5,955.0 4,253.0 10.0% 595.5 7.4% Herfindahl index 2140.2878 Cost estimations for a new brand entrant over and above private label producer: Cost breakdown Increased costs for new brand entrants - over pvt label producers Raw materials 10-15% Per case Packaging 25% Per case Advertising and sales 10% Per case Slotting allowance $1,000,000 Per case CostShow MoreRelatedConsumer Behaviour- Corn Flakes Case4591 Words   |  19 PagesCORNFLAKES COMPANIES EXPAND THE CATEGORY? 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