Cereal Industry in 1994

Why has RTE cereal been such a profitable business? What changes have led to the current industry ‘crisis’?

First reason is low rivalry among existing competitors; the Big Three had restrained competition among themselves by achieving effective unwritten agreements to limit in-pack premiums, trade dealing, and vitamin fortification. All these could increase the market share for a firm. Second the bargaining power of suppliers is low; the Big three were controlling the suppliers. Third the bargaining power of buyers is low; Big three had built good relationship with retailers which improve their product sell. And it is also lack of new entrants.

The changes include entry of small firms and large food manufacturers, high cost advertising and coupons, price-promotion. There are also many new products introduced in the market. All these changes led to the current industry crisis.

What are the risks associated with these actions? How do you expect General Mills’ competitors to respond?

They may lose some of the sales without coupons, because consumers are used to buy their product with coupons. And if lower price didn’t gain higher sales, they also will lose a lot of profit.

Their competitors may respond with more coupons to gain price advantage. So it would be more disadvantageous for General Mills’.

What should General Mills do?

They should appropriately lower the price and not reduce coupons, collect customer feedback and improve the product quality. Improve customer loyalty and brand image by providing better service and good product.

What does General Mills hope to accomplish with its April 1994 reduction in trade promotions and prices?

They want to improve profit performance, the practice of pricing up and discounting back has become more