Written Analysis Case: Ready-To-Eat Breakfast Cereal Industry in 1994

Written Analysis Case: Ready-To-Eat Breakfast Cereal Industry in 1994

1. Why had the breakfast cereal business been so successful historically?

Historically, the BIG Three where successful in the RTE cereals business because the industry, when they started, and in over a century after, was structured as an Oligopoly type of market. Kellogg’s being the dominant one in the industry leads the changes in product pricing and is automatically followed by the other two manufactures, General Mills and Philip Morris. The support in the numerous price increases in the cereal industry leaves consumers with no choice but to spend more to enjoy the product. The move among the BIG Three can be considered as CARTEL, since Kellogg’s being the dominant one in the industry dictates the price and is just followed by the rest of the company. This practice eradicates price competition amongst the BIG three, and gives them more resources to focus on further creations of additional cereal products, that would further segment the market, making it more impossible or difficult for new business to enter, while enjoying greater profit of margins. Such practice of coopetition, in terms of pricing is a major contributor in the success of any business in any given industry.

Comparing the Cereal and Cola industry, base on the case, some similarities are, creation of numerous different product to cater every market segment possible and that both industry run production of their products, in-house, from start to end, from raw ingredients to packaging. In terms of differences in the market structure, Cereal industry being an oligopoly type of market, in the Cola industry it is a monopoly among Coca-Cola and Pepsi products but with a mixture of perfect competition since the two cola firms try to out-do the other not only in terms of product quality and creation but also in product pricing. Pepsi, being a follower of Coca-cola does not follow the price they have set or dictated. Though it can be observed in the case of the Cola industry that Pepsi Cola thus follow whatever Coca-cola has initiated or started which has shown potential success, example would be creation of diet cola’s and the use of alternative sweeteners to make their come on as a healthier drink. Given the strategies implemented in the cola industry, this has created a better market for consumers unlike in the case of cereal industry where in they have no price option.

1. Where there barriers to entry in the breakfast cereal industry?

Base on how the industry was presented in the case, I believe there was indeed barriers to entry. One obvious barrier would be the cost of having your own plant from production to packaging, as the case have mentioned requires a capital investment in excess of $100 million. Only amongst the existing big corporations can come up with huge capital and compete head-on. Also another barrier would be, the Big Three was successful in creating every possible product to deepen their market segment and that they have become first in mind of the consumers for more than a century.