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The Breakfast Cereal Industry

The Breakfast Cereal Industry . Xandra Hompe , Dani Gredo ñ a , Stephanie Lau, and Shannon Tierney. Agenda. Industry Choice Industry Structure Advertising: Overview Advertising Mediums Advertising Strategies Analysis & Recommendations . Why Breakfast Cereals?. Products we know and love

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The Breakfast Cereal Industry

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  1. The Breakfast Cereal Industry XandraHompe, DaniGredoña, Stephanie Lau, and Shannon Tierney

  2. Agenda • Industry Choice • Industry Structure • Advertising: Overview • Advertising Mediums • Advertising Strategies • Analysis & Recommendations

  3. Why Breakfast Cereals? • Products we know and love • Product differentiation extremely important • Pricing not as important • High Ad-to-Sales Ratio • Spend more than any other packaged food category in marketing products to children • $229 million in 2006 • Demonstrates many different advertising strategies

  4. Industry Structure

  5. Industry: An Overview Revenue Annual Growth 07-12 Annual Growth 12-17 Profit $13.3bn 4.9% 0.9% $1.8bn |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  6. Products Ready-to-eat Cereal 53% Cereal Bars 35% |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  7. Supply Chain |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  8. Sales by Market Segments |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  9. Cost Structure |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  10. Key External Drivers |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  11. Operating Conditions • Life Cycle Stage: MATURE • Revenue Volatility: MEDIUM • Concentration Level: HIGH • Regulation Level: HEAVY • Technology Change: HIGH • Barriers to Entry: HIGH |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  12. International Trade • Domestic demand accounts for 95.9% of revenue • Exports  LOW and DECREASING • Imports  LOW and INCREASING • International facilities supply foreign markets directly |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  13. Industry Trends • Increase in per capita disposable income • Acquisitions/consolidation • Healthy private-label brand cereals • Convenient products • Breakfast bars • Stable profit margins |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  14. Industry Concentration • HHI = 1,539.19 • Four-Firm Concentration Ratio= 65.9 HiGHLY CONCENTRATED |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  15. Competition |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  16. Kellogg’s Company • Largest cereal manufacturer • 2011 Expected Revenue • $8.9 billion • Innovation is key • 2000 - Acquired Kashi brand • 2011- Gluten-free cereals like Rice Krispies |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  17. General Mills • 2nd largest producer of breakfast cereals • 2011 Expected Revenue • $10 billion • New products in 2011 • Chocolate Cheerios • Wheaties Fuel |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  18. PepsiCo • Leading global manufacturer, distributor, and marketer of food and beverages • 2011 Expected Revenue • $1.9 billion • 2001- Merger with Quaker Oats Company |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  19. Ralcorp Holdings • 2011 Expected Revenue • $4.7 billion • Private label brands • 2008 - Acquired Post Cereals |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  20. Government Regulation • Public health • Nutrition Labeling and Education Act • Food Ingredient Safety Program • Product labeling • FFDC Act, FPL Act • Environmental regulation • EPA- food processing • Advertising to Children • Children’s food marketing calls for change • Concerns of rising childhood obesity |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  21. Advertising: Overview

  22. Advertising Spending • Spend half of budgets on child and family brands • General Mills and Kellogg’s dominate cereal advertising |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  23. Advertising-to-Sales Ratio • Numerous introductions of new products • Grain Mills Product Industry (bulk is cereal): 1.2x higher than average value for food sector • Substantial product differentiation Companies |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  24. Number of Ads- Four Industry Leaders |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  25. Number of Ads by Brand |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  26. Advertising Effects on Target Markets • Primary target market: • Children: Age 5-12 • Children see 2x as many TV ads for cereal than adults • Compared to non-advertised products: • Advertised child-targeted cereals were purchased 13x more frequently • Family-targeted brand purchases were 10x higher • Adult-targeted cereals were purchased 4x more Source: Castetbon, Katia, Jennifer Harris, and Marlene Schwartz. "Purchases of ready-to-eat cereals vary across US household sociodemographic categories according to nutritional value and advertising targets." Public Health Nutrition. (2011): 1-10. Print. |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  27. Brand Equity • Blind vs. Branded Test • Choice increase from 47% to 59% when Kellogg’s brand identified • Sub brands within brand drive overall brand value • Kellogg’s Top 3 Brand Values • General Mills Source: Harris, Schwartz, Kelly Brownell, and VishnudasSarda. ”Evaluating the nutrition quality and marketing of children’s cereals." Cereal FACTS. (2009): 1-102. Online. |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  28. Advertising & Brand Loyalty • Studies show brand loyalty is a strong feature in consumer product markets • However, advertising overcomes brand loyalty in this industry • Encourages “switching” behavior at the household level • Persuades households to try new brands • Advertising may effective option for new entrants Source: Shum, Matthew. "Does advertising overcome brand loyalty? Evidence from the breakfast cereals market." Journal of Economics & Management Strategy. 13.2 (2004): 241-72. Print. |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  29. Advertising Mediums

  30. Advertising Mediums • Television • Internet • Child-targeted websites • Banner advertising • Social media marketing • In-Store • Product packaging • Shelf space allocation • Displays and promotions |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  31. Television • TV ad expenditures by cereal producers are second only to expenditures by automobile manufacturers • “There is a clear pattern of evidence showing that Saturday morning television advertising has an important influence on children’s asking for cereal and toy products.”-The Journal of Communication, Charles Atkin & Gary Heald Source: Nevo, A. (2001). Measuring market power in the ready-to-eat cereal industry.Econometrica, 69(2), pp. 307-342. Atkin, C. and G. Heald. “The Content of Children’s Toys and Food Commercials.” Journal of Communication 27(1), Winter 1977, pp. 107-114. |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  32. Number of Ads According to Daypart |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  33. Number of Ads According to Channel |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  34. Number of Ads According to Day of Week |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  35. Number of Ads according to Program Type |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  36. General Mills Advertising Distribution According to Program Type |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  37. Kelloggs’ Advertising Distribution According to Program Type |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  38. Ralcorp Holdings’ Advertising Distribution According to Program Type |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  39. Pepsi’s Advertising Distribution According to Program Type |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  40. Internet Advertising • 6% of youth advertising budgets • Forms of digital media • Child-targeted websites • Banner advertising • Social media marketing • Highly entertaining and interactive content Source: Harris, Schwartz, Kelly Brownell, and VishnudasSarda. ”Evaluating the nutrition quality and marketing of children’s cereals." Cereal FACTS. (2009): 1-102. Online. |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  41. In-Store Marketing • Child and family cereals ½ shelf space in cereal aisle; prime middle shelf; in-store displays and promotions • Cereal box • Child engagement messages • Average box: 1.4 • Health messages • Average box: 2.0 |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  42. Share of Shelf Space Data Source: Harris, Schwartz, Kelly Brownell, and VishnudasSarda. ”Evaluating the nutrition quality and marketing of children’s cereals." Cereal FACTS. (2009): 1-102. Online. |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  43. Advertising Strategies

  44. Primary Advertising Methods • Persuasive Advertising • Informative Advertising • Memory Jamming • Celebrity Endorsement • Humor • Emotional Appeal • Product Placement |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  45. Persuasive Advertising • Dangerous to those who don’t understand persuasive intent • Children limited in ability to detect until age 8 or 10 • Ex: Frosted Flakes “They’re grrreat!” • Effective for experience goods |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  46. Informative Advertising • Direct: Nutritional benefits • Ex: Cheerios • Indirect: • Match products to buyers • Ex: Lucky charms commercial • Signal efficiency effect • Ex: General Mills |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  47. Memory Jamming • Average preschooler sees 642 ads/year on TV • Memorable slogans • Lucky Charms: They’re magically delicious! • Paired with creative cartoons- easily recall figures and mascots |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  48. Celebrity Endorsement • Can strengthen brand’s equity, make claims of ad appear more credible • Wheaties: The Breakfast of Champions • Can pose great risks to the company too • Kellogg’s: Michael Phelps • Wheaties: Tiger Woods |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  49. Humor Appeals • Connection through humor is often delivered by cereal mascot • Mascot can be depicted in humorous situations |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

  50. Emotional Appeals • Consumers’ emotional connection to the ad can be strengthened by cereal mascot • Kellogg’s • Rice Krispies, Life: Family bonding • Mini-Wheats: claims help child do well in school |Advertising Mediums| |Advertising Strategies| |Industry Structure| |Advertising: Overview| |Analysis & Recommendations|

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