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The Breakfast Cereal Industry
The Breakfast Cereal Industry
Li Li
Jennifer Wang
Xin Yiran
AEM 4550
April 20,2011
Outline
Introduction
Industry Analysis
Advertising Strategies
Investment & Recommendation
Why the Breakfast Cereal Industry?
Breakfast is the most important meal of the day Metamorphosis, Franz Kafka, 1915
Body fasts for 6-9 hours the night prior break-fast- breaks the fasting
93% of respondents reported household use of cold cereal, 68% - hot cereal (Experian Simmons NCS data)
Americans buy 2.7 billion packages of breakfast cereal each year. If laid end to end, the empty cereal boxes from one year's consumption would stretch to the moon and back. Cerealizing America: The Unsweetened Story of American Breakfast Cereal
Industry Analysis
Industry Definition
US Cereal Production industry takes raw materials like corn, wheat, flour, and sugar from different sources and turns these ingredients into ready-to-eat cereals, hot cereals, and cereal bars
Main activities involve manufacturing:- cold and hot breakfast cereal
- breakfast and snack bars
Industry Structure
Industry Structure
HHI = 1822.86
C4 = 76%
Mergers will be challenged since HHI >1800
Industry is an oligopoly with four main firms
Highly Concentrated!!
Industry Structure
Major Companies
Major CompaniesKellogg CompanyGeneral Mills Inc.Ralhorp Holdings Inc.PepsiCo Inc.Other34.20000000000000319.89999999999999913.9824
Industry Analysis
Life Cycle Stage Mature Barriers to Entry High
Capital Intensity High Technology Change High
Competition Level High Regulation Level Heavy
Key Success Factors
Product Differentiation
Adaptability
EOS
Cost Control
Supply
Contract
Industry Trend
Expected Slower Growth
-High price of wheat
-Increasing price of coarse grains
Attitude change towards health consciousness
e.g. Lower sugar and cholesterol, more fiber
More convenient product to accommodate busy lifestyle
e.g. Breakfast bars
Employment
20062007200820092010Average Wage ($)64183.460770.761061.962173.363730
Distribution
Imports & Exports
Insignificant as major companies own facilities internationally
Major trading countries: Canada & Mexico
Imports are growing while exports are declining
Primary Advertising Methods
Persuasive Advertising
Informative Advertising
Memory Jamming
Celebrities
Humor
Emotional Appeal
Promotions & Giveaways
Segmentation
Persuasive Advertising
Persuasive advertising is effective for experience goods
Honey Bunches of Oats Theres a box here with your name on it!
Honey Bunches of Oats Commercial
Informative Advertising
Direct Signaling
Educational. Tells the consumer the health benefits
Cheerios:
Informative Advertising
Indirect Signaling
Match product to buyers effect
Saturday morning cartoons
Measurable change in consumer preference and market share of advertised products
E.g. Kelloggs high fiber cereal
Memory Jamming
Repeated commercial plays
Signaling efficiency effect
Recognizable Mascots
Catchy slogans and Jingles:
Theyre Gr-r-r-eat! Kelloggs Frosted Flakes
Silly Rabbit, Trix are for kids! Trix
Memory Jamming
Celebrity Endorsement
Celebrities can increase brand equity
Wheaties: The Breakfast of Champions
Need to be careful of impact on brand
Michael Phelps
Humor
Keeps audience attentive
Difficult to appeal to everyone because people have different preferences
Cocoa Puffs:
Emotional Appeal
Form stronger connection to consumer
General Mills used special promotion boxes with retro designs
Seeks to motivate parents, by using nostalgia
Cheerios Commercial
Promotions and Giveaways
Incentive for the consumers to buy the cereal
Draws attention
Include a toy or opportunity to win
Kashi Kick-Off Event at Cornell
Segmentation
Many commercials targeted children with highly animated commercials
Saturday morning cartoons is perfect time to target the young audience
Capn Crunch:
Segmentation
After FTCs warnings, cereal companies have shifted toward targeting the adult audience
More health-conscious
Multi-Grain Cheerios:
Segmentation
General Mills increased Hispanic-targeted media spending in 2009 and 2010
Cinnamon Toast Crunch particularly appeals to Hispanics
Baby Boomers- another key market
Highest per capita cereal consumption by people over 55
Seek to add fiber to diets (Fiber One, Multi-Grain Cheerios)
Cheerios Targeted Toward Both Children and Adults
Advertising Mediums
TV
Product Placement
Online
Television Advertising
Advertised mostly on Mon, Tues, Fri
Mostly Advertised during 7-8 PM, 9 AM
Dollars spent most on Cheerios, Fiber One, Mini-Wheats
Largest Ads Spending during July, Aug
Spent most on cold cereals especially the healthy category such as Honey Nut Cheerios, Fiber One, Multi-Grain Cheerios, but highest average dollar spent per advertisement on hot cereals
Television Advertising
Uses segmentation to target different audience
More colorful, energetic, and animated commercials for young children
Use character mascots to connect to kids such as Tony the Tiger, General Mills Trix Rabbit
Focuses on nutritional content to target adults
Average Advertising Cost per Day of Week
Top 10 Brands with the Highest Total Advertising Expenditures
Top Program Types to Advertise On
Healthy vs. Unhealthy Cereal
Popular Program Types to Advertise Healthy Cereal
Popular Program Types to Advertise Unhealthy Cereal
10 Most Popular Shows to Advertise On
Most Expensive Ad Spots for Cereal Ads
Show Ad Cost AMERICAN IDOL $ 823,700 GREY'S ANATOMY $ 577,800 AMERICAN MUSIC AWARDS $ 361,100 NCAA Basketball Playoff Game 22 $ 281,100 NCAA Basketball Playoff Game 21 $ 281,100
Product Placement
More common with the advent of Internet and TiVo
Popular shows feature consumption of certain cereal brands e.g. Frosted Flakes on Friends
Audience are forced to watch the ads
Careful not to overdo it
Effective if it is natural and integrated
Product Placement in Days of Our Lives
Ad Spending of Top 4 Firms
Ad-to- Sales Ratio Comparison
Ad-to-Sales Ratio
1.2 times higher than the food sector
3.5 times higher than the average value for all other industries
High profit margin
Kellogg Co
Corn Flakes, Frosted Flakes, All-Bran, Apple Jacks, Crispix, Rice Krispies, Froot Loops, Nutri-Grain
Highest Advertising Expenditure
Highest Ad-Sales Ratio
Focuses on eight top sellers and Kashi cereal
Kashi highlights healthy lifestyle, including consuming natural foods and staying active
Boston, Portland, LA
General Mills
Brand Names: Cheerios, Fiber One, Kix, Wheaties, Lucky Charms, Total
Invested heavily in R&D and product innovation
Target Large Cities e.g. New York, San Francisco, Boston
Ralcorp Holdings, Inc.
Brand Names: Honey Bunches of Oats, Pebbles, Shredded Wheat, Post Raisin Bran, Grape-Nuts, Honeycomb
Acquired Post
Both private label and branded cereals
New Orleans, Cincinnati, Green Bay
PepsiCo Inc.
Brand Names: Quaker Foods North America (QFNA), Quaker Oatmeal, Life , Cap'n Crunch
Richmond, Jacksonville, Norfolk
Better Tasting
Good Nutrition
Quaker Oatmeal
Cocoa Puffs
MultiGrain Cheerios
Kashi
Perceptual Map
Cheerios
Rice Krispies
Fiber One
Post Shredded Wheat
Special K
Worse Tasting
Poor Nutrition
Honey Nut Cheerios
Capn Crunch
Post Raisin Bran
Frosted Flakes
Cinnamon Toast Crunch
Print Advertising
More informative (direct) but still persuasive
More targeted than TV ads
Less common nowadays
1926
2008
Online Advertising
Social media becoming a more popular marketing tool
Kelloggs uses this for Special K and Frosted Mini-Wheats
Special K strong brand pioneer for new media advertising weight-loss management (support from peers important so social media is a great way to do that)
Social Media
Brand Equity
Crucial in order to stand out among hundreds of brands
Makes demand less elastic to price
Emotional branding
Regulation
Regulation level is high and increasing
2007 Self-regulation of marketing to youth
Children's Food and Beverage Advertising Initiative
Kellogg said would not promote foods in TV, radio, print or Web site ads that reach audiences at least half of whom are under age 12 unless a serving of the product follows specific guidelines
2008 Federal Trade Commission published study on food marketing to children and recommended that companies adopt and adhere to meaningful, nutrition-based standards for marketing their products to children under 12
False Health Claims
Kellogg Co. came under scrutiny in 2009 and 2010 because of false health claims in advertisements
Frosted Mini-Wheats: clinically shown to improve kids attentiveness by nearly 20%
Rice Krispies: now helps support your childs immunity, with 25 percent Daily Value of Antioxidants and Nutrients Vitamins A, B, C, and E
FTC delivered strong message wont tolerate false health claims
Kellogg prohibited from making claims about any health benefit unless backed by scientific evidence and not misleading
Recommendation for Management
Local newscast is among the cheapest
Sports events such as baseball and basketball are expensive
Talk show or soap opera as they target more towards women and they control more than 80% of spending
Follow FTC regulation, otherwise would be heavily penalized
Recommendation for Investment
High profit margin
Branded revenue likely to increase as the US economy recovers
Breakfast bar has great growth potential
Questions?
Videos
Honey Bunches of Oats: http://www.youtube.com/watch?v=em9thvkiS7I
Cocoa Puffs: http://www.youtube.com/watch?v=xBGpRLjNnzM
Cheerios 1:b. http://www.youtube.com/watch?v=pDNgbQ-bQpA
Cheerios 2: http://www.youtube.com/watch?v=aARf-XwDGFg
Multigrain Cheerios: http://www.youtube.com/watch?v=-IZ9CL4phPk
Product placement: http://www.youtube.com/watch?v=oGtig5DiTxc
Program TypeNumber of Ads
NEWSCAST (LOCAL ONLY)138348
SITUATION COMEDY93336
TALK59858
SLICE-OF-LIFE37354
Program TypeNumber of Ads
ANIMATION(LOCAL ONLY)18347
CHILDRENS/FAMILY ENTERTAINMENT4047
SITUATION COMEDY3976
FEATURE FILM2956