Cat Fight in the Pet Food Industry: Rte Cereal
Autor: Shivanand Pawar • October 16, 2015 • Coursework • 478 Words (2 Pages) • 1,069 Views
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CASE WRITE-UP
Name: Shivanand Pawar Roll#: 144070
Section: A Date: 10/16/2015
Case title: The Ready-to-Eat Breakfast Cereal Industry in 1994 (A)
Why has RTE cereal been such a profitable business? What changes have led to the current industry crises?
Following are the reasons for the profitability of RTE cereal business.
- RTE industry was majorly concentrated by three big players and they had restrained competition among themselves by achieving effective unwritten agreements to limit in pack premiums.
- Return on the asset of the industry was very high which ranges from 15-30%.
- Companies can leverage economies of scale in manufacturing many brands of cereals in single plant.
- Technology requirement of manufacturing RTE cereals were not high
- Raw materials were cheap
- Manufactures were able to earn almost 14% profit margin which is very good as compare to other industries.
- Return on equity was high ranges from 20% to 40%.
Reasons of current industry crises are as follows.
- The strategy of increasing prices and promotions was no more effective.
- Coupons were neither benefiting customers nor manufacturers.
- Many private labels started to offer almost similar product at very cheap prices which led to increase in competition.
- Proliferation of brands also led to failure of many brands.
Why have private labels been able to enter into this industry successfully? How do the cost structures of private label and branded cereal manufacturers differ?
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