The Breakfast Cereal Industry Li Li Jennifer Wang Xin Yiran AEM
4550 April 20,2011
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Outline Introduction Introduction Industry Analysis Industry
Analysis Advertising Strategies Advertising Strategies Investment
& Recommendation Investment & Recommendation
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Why the Breakfast Cereal Industry? Breakfast is the most
important meal of the day Metamorphosis, Franz Kafka, 1915
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) 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 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
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Industry Analysis
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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 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 Main activities involve manufacturing: - cold and
hot breakfast cereal - breakfast and snack bars
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Industry Structure
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HHI = 1822.86 HHI = 1822.86 C4 = 76% C4 = 76% Mergers will be
challenged since HHI >1800 Mergers will be challenged since HHI
>1800 Industry is an oligopoly with four main firms Industry is
an oligopoly with four main firms
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Industry Structure
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Industry Analysis Life Cycle Stage Mature Barriers to Entry
High Capital Intensity High Technology Change High Competition
Level High Regulation Level Heavy
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Key Success Factors Product Differentiation EOS Supply Contract
Adaptability Cost Control
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Industry Trend Expected Slower Growth Expected Slower Growth
-High price of wheat -Increasing price of coarse grains Attitude
change towards health consciousness Attitude change towards health
consciousness e.g. Lower sugar and cholesterol, more fiber e.g.
Lower sugar and cholesterol, more fiber More convenient product to
accommodate busy lifestyle More convenient product to accommodate
busy lifestyle e.g. Breakfast bars e.g. Breakfast bars
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Employment 20062007200820092010 Average Wage
($)64183.460770.761061.962173.363730
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Distribution
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Imports & Exports Insignificant as major companies own
facilities internationally Insignificant as major companies own
facilities internationally Major trading countries: Canada &
Mexico Major trading countries: Canada & Mexico Imports are
growing while exports are declining Imports are growing while
exports are declining
Persuasive Advertising Persuasive advertising is effective for
experience goods Persuasive advertising is effective for experience
goods Honey Bunches of Oats Theres a box here with your name on it!
Honey Bunches of Oats Theres a box here with your name on it!
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Honey Bunches of Oats Commercial
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Informative Advertising Direct Signaling Direct Signaling
Educational. Tells the consumer the health benefits Educational.
Tells the consumer the health benefits Cheerios: Cheerios:
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Informative Advertising Indirect Signaling Indirect Signaling
Match product to buyers effect Match product to buyers effect
Saturday morning cartoons Saturday morning cartoons Measurable
change in consumer preference and market share of advertised
products Measurable change in consumer preference and market share
of advertised products E.g. Kelloggs high fiber cereal E.g.
Kelloggs high fiber cereal
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Memory Jamming Repeated commercial plays Repeated commercial
plays Signaling efficiency effect Signaling efficiency effect
Recognizable Mascots Recognizable Mascots Catchy slogans and
Jingles: Catchy slogans and Jingles: Theyre Gr-r-r-eat! Kelloggs
Frosted Flakes Theyre Gr-r-r-eat! Kelloggs Frosted Flakes Silly
Rabbit, Trix are for kids! Trix Silly Rabbit, Trix are for kids!
Trix
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Memory Jamming
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Celebrity Endorsement Celebrities can increase brand equity
Celebrities can increase brand equity Wheaties: The Breakfast of
Champions Wheaties: The Breakfast of Champions Need to be careful
of impact on brand Need to be careful of impact on brand Michael
Phelps Michael Phelps
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Humor Keeps audience attentive Keeps audience attentive
Difficult to appeal to everyone because people have different
preferences Difficult to appeal to everyone because people have
different preferences Cocoa Puffs: Cocoa Puffs:
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Emotional Appeal Form stronger connection to consumer Form
stronger connection to consumer General Mills used special
promotion boxes with retro designs General Mills used special
promotion boxes with retro designs Seeks to motivate parents, by
using nostalgia Seeks to motivate parents, by using nostalgia
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Cheerios Commercial
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Promotions and Giveaways Incentive for the consumers to buy the
cereal Incentive for the consumers to buy the cereal Draws
attention Draws attention Include a toy or opportunity to win
Include a toy or opportunity to win Kashi Kick-Off Event at Cornell
Kashi Kick-Off Event at Cornell
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Segmentation Many commercials targeted children with highly
animated commercials Many commercials targeted children with highly
animated commercials Saturday morning cartoons is perfect time to
target the young audience Saturday morning cartoons is perfect time
to target the young audience Capn Crunch:
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Segmentation After FTCs warnings, cereal companies have shifted
toward targeting the adult audience After FTCs warnings, cereal
companies have shifted toward targeting the adult audience More
health-conscious More health-conscious Multi-Grain Cheerios:
Multi-Grain Cheerios:
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Segmentation General Mills increased Hispanic-targeted media
spending in 2009 and 2010 General Mills increased Hispanic-targeted
media spending in 2009 and 2010 Cinnamon Toast Crunch particularly
appeals to Hispanics Cinnamon Toast Crunch particularly appeals to
Hispanics Baby Boomers- another key market Baby Boomers- another
key market Highest per capita cereal consumption by people over 55
Highest per capita cereal consumption by people over 55 Seek to add
fiber to diets (Fiber One, Multi-Grain Cheerios) Seek to add fiber
to diets (Fiber One, Multi-Grain Cheerios)
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Cheerios Targeted Toward Both Children and Adults
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Advertising Mediums TV Product Placement Print Online
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Television Advertising Advertised mostly on Mon, Tues, Fri
Advertised mostly on Mon, Tues, Fri Mostly Advertised during 7-8
PM, 9 AM Mostly Advertised during 7-8 PM, 9 AM Dollars spent most
on Cheerios, Fiber One, Mini- Wheats Dollars spent most on
Cheerios, Fiber One, Mini- Wheats Largest Ads Spending during July,
Aug 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 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
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Television Advertising Uses segmentation to target different
audience 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
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Average Advertising Cost per Day of Week
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Top 10 Brands with the Highest Total Advertising
Expenditures
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Top Program Types to Advertise On
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Healthy vs. Unhealthy Cereal Popular Program Types to Advertise
Healthy Cereal Popular Program Types to Advertise Unhealthy
Cereal
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10 Most Popular Shows to Advertise On
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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
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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
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Product Placement in Days of Our Lives
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Ad Spending of Top 4 Firms
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Ad-to- Sales Ratio Comparison
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Ad-to-Sales Ratio 1.2 times higher than the food sector 1.2
times higher than the food sector 3.5 times higher than the average
value for all other industries 3.5 times higher than the average
value for all other industries High profit margin High profit
margin
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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
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General Mills Brand Names: Cheerios, Fiber One, Kix, Wheaties,
Lucky Charms, Total Brand Names: Cheerios, Fiber One, Kix,
Wheaties, Lucky Charms, Total Invested heavily in R&D and
product innovation Invested heavily in R&D and product
innovation Target Large Cities e.g. New York, San Francisco, Boston
Target Large Cities e.g. New York, San Francisco, Boston
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Ralcorp Holdings, Inc. Brand Names: Honey Bunches of Oats,
Pebbles, Shredded Wheat, Post Raisin Bran, Grape-Nuts, Honeycomb
Brand Names: Honey Bunches of Oats, Pebbles, Shredded Wheat, Post
Raisin Bran, Grape-Nuts, Honeycomb Acquired Post Acquired Post Both
private label and branded cereals Both private label and branded
cereals New Orleans, Cincinnati, Green Bay New Orleans, Cincinnati,
Green Bay
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PepsiCo Inc. Brand Names: Quaker Foods North America (QFNA),
Quaker Oatmeal, Life, Cap'n Crunch Brand Names: Quaker Foods North
America (QFNA), Quaker Oatmeal, Life, Cap'n Crunch Richmond,
Jacksonville, Norfolk Richmond, Jacksonville, Norfolk
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Perceptual Map
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Print Advertising More informative (direct) but still
persuasive More informative (direct) but still persuasive More
targeted than TV ads More targeted than TV ads Less common nowadays
Less common nowadays 1926 2008
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Online Advertising Social media becoming a more popular
marketing tool 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)
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Social Media
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Brand Equity Crucial in order to stand out among hundreds of
brands Crucial in order to stand out among hundreds of brands Makes
demand less elastic to price Makes demand less elastic to price
Emotional branding Emotional branding
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Regulation Regulation level is high and increasing Regulation
level is high and increasing 2007 Self-regulation of marketing to
youth 2007 Self-regulation of marketing to youth Children's Food
and Beverage Advertising Initiative Kellogg said would not 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 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
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False Health Claims Kellogg Co. came under scrutiny in 2009 and
2010 because of false health claims in advertisements Kellogg Co.
came under scrutiny in 2009 and 2010 because of false health claims
in advertisements Frosted Mini-Wheats: 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 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
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Recommendation for Management Local newscast is among the
cheapest Local newscast is among the cheapest Sports events such as
baseball and basketball are expensive 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 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 Follow FTC regulation,
otherwise would be heavily penalized
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Recommendation for Investment High profit margin High profit
margin Branded revenue likely to increase as the US economy
recovers Branded revenue likely to increase as the US economy
recovers Breakfast bar has great growth potential Breakfast bar has
great growth potential
