Ready to Eat Breakfast Cereal Industry in 1994 Discussion Points This case focuses mostly in industry analysis. Make sure you discuss what competition and strategy is like in this industry and what you believe will occur in the near future. In particular, your report should cover the following points:a) Industry analysis Five forces model. Discussion of key success factors in different strategic groups.b) Internal analysis Value chain analysis of a typical cereal company. Discussion of the strategy followed by the biggest two companies in the industry.c) Specific issues to address: What are the most critical issues that the biggest two firms will face in the near future? How are private-label companies affecting competition in this industry? What would you recommend specifically to the biggest two companies in the industry?

1. Why has cereal breakfast been such a profitable business?Cereal breakfast industry has been highly concentrated industry with top four firms accounting for 80% of market share in 1993. Return-On-Sales in this industry (18%) is also significantly higher than compared to those in general food industry (5%). Primary reason for high profitability is * Barrier to entry: Cereals breakfast industry although had no explicit regulatory barriers to entry, still the list mentioned below were acted as high deterrent for new firms to enter the market:

* Brand Proliferation: Big-3 had launched a very successful Brand proliferation strategy, by launching products to serve every foreseeable market category. This strategy also resulted in lowering market-share/brand and profit/brand, making it difficult for new entrants to cover the cost of initial capital.

* Advertising & Promotion: Advertising/sales ratio in Cereal industry has although reduced from 18% in 1960s to 10.2% in 1993, still it was higher than most of the other consumer product business. A typical spend of $20 million in the first year of a new brand can be enough to deter a new firm from entering the market.

* Retail Channel: With increase in number of brands to offer, prime shelf space in retail channel was of prime importance in success of a product. Securing prime shelf required providing slotting allowance, which could result in extra spend of $ 1m at national level. While the same was applicable to Big-3 too, but they had privilege to replace an unsuccessful brand with other brand.* Collaboration: Industry leaders in this market showed a great aptitude to work together on profit maximising strategy rather than running for market share. This resulted in simultaneous price increase by big-3 firms and hence avoiding any price..