The Ready-To-Eat Breakfast Cereal Industry

In early 1994, RTE breakfast cereal industry has reached a critical turning point in its evaluation. Surge in private label sales impacted the market share of dominant position of Big Three - Kellogg, General Mills and Philip Morris.

Prior to 1994, prominent Big Three firms had covered maximum market share of the breakfast cereal industry. Demand for cereal products was inelastic as no other products/substitutes were available apart from the products from these big Three firms for the consumers. Hence there was no negative impact  of periodic price increase on demand . Therefore, I think the market structure of the cereal industry was Oligopoly before the private labels entry in the cereal industry. The oligopoly market structure describes a market having a few closely related firms and it is distinguished by a noticeable degree of interdependence among the firms in the industry (BUS 5601: Essentials of Business Development 1, 2015, pg. 377).

As mentioned in the case study, all the big three firms were highly interdependent on each other in terms of price increase, new product launch, advertising and promotional activities (issuing coupons) Case study also states that “The RTE cereal industry was one of the most concentrated industry among the all U.S industries. Big three -the largest cereal manufacturing firms were extremely profitable (Corts, 1997, p.2 ). All these factors became barrier for other small firm’s entry in the cereal industry. Hence overall picture before 1994 of the cereal industry depicts that, relationship between price and quantity demanded was influenced by rival firms actions.

Today, cereal industry has become more competitive as large number of substitutes are available in the market.I think todays cereal industry comes under the monopolistic competition market structure with the argue of few dominant firms and a large number of competitive fringe firms. Good quality of products, technology advancement, simple packaging and the minimal price leads the private labels to become major substitute for big brands.

Result of successful entry of private labels in the cereal industry can be seen in the supermarkets where various products from big brands as well as small ones are demanded by the consumers. As mentioned in the case study “From 1991 to 1994, sales of private label cereal grew 50% to nearly $500 million or 9.2% of all cereal sales by volume (Corts,1997,p.9). Compared to twenty years ago today’s market structure is easy to enter and exit from the market as whole but there exist very substantial barriers to effective entry among the leading brands.

By far the most important distinguishing characteristic of monopolistic competition is that the outputs of each firm are starkly differentiated in some way from those of every other firm (BUS 5601: Essentials of Business Development 1, 2015, pg. 376). New products are getting introduced in the market as per the consumer trend. As people are now a days focusing on healthy breakfast, separation between “healthy” and “sugary” cereals can be seen from the cereal industry. For every box of Cap’n Crunch on the supermarket shelves, you can easily find a box of Grape Nuts or Kashi.