Ready-to-Eat Breakfast Cereal

Sarah Icke, Kamille Jackson, Julian Ordman

Presentation Overview• Introduction• Industry Overview• Advertising Strategies and Raw Data

Analysis• Concluding Analysis and Industry

Recommendation

Why Cereal?• Breakfast is the most important meal of

the day• “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

• An industry with extremely high brand loyalty

• An industry with one of the highest ad-to-sales ratios

Industry OverviewIndustry Definition

Source: IBISWorld

Industry OverviewAcquires raw materials such as wheat, flour, rice, and sugar

Key Supplying Industries:• Baking Mix & Prepared Food Manufacturing• Canned Fruit & Vegetable Processing• Corn Farming• Corn, Wheat & Soybean Wholesaling• Flour Milling• Seasoning, Sauce and Condiment Production• Sugar Processing

Source: IBISWorld

Industry OverviewProcesses raw materials into various cereal products, including ready-to-eat cereals, cereal bars, and hot cereals

Source: IBISWorld

Sells through sellers in various channels, including supermarkets, wholesalers, and food service providers

Industry Overview

Source: IBISWorld

Industry Profile

Source: IBISWorld

Industry ProfileKey External Drivers• Demand from grocery wholesaling• Per capita disposable income• Healthy eating index• Price of coarse grains• World price of wheat

Source: IBISWorld

Industry Profile

Source: IBISWorld

Industry ProfileKey Success Factors• Ability to adapt to change• Ability to pass on cost increases• Product differentiation• Supply contracts for key inputs• Economies of scale and scope

Source: IBISWorld

Industry ProfileMature Industry• Revenue: $11.7bn (2013)• Per capita consumption is stagnant• Revenue growth: -0.2% (2008-2013), 1% (2013-

2018)

Source: IBISWorld

Industry ProfileHighly Concentrated• HHI: 1770.57 (top 4 firms)• Top 4 firms: 74.7% market share• Oligopoly• High barriers to entry

Source: IBISWorld

Industry Profile

Source: IBISWorld

Industry ProfileHighly Competitive

Source: IBISWorld

Industry Profile

Source: IBISWorld

Industry Profile

Source: IBISWorld

Industry Profile

Source: IBISWorld

Highly Regulated •Expected to continue increasing.•Production & Labeling Standards

– FDA– FD&C Act– Fair Packaging and & Labeling Act

•Environmental Regulations– CWA, CAA, Pollution Prevention Act, RCRA

•Children advertising

Industry Profile

Source: IBISWorld

Industry ProfileRegulations Towards Child Advertising• Children’s food consumption heavily influenced by

advertising (Goldberg and Gorn, 1978) • Children’s Television Act (1990) – Limited amount of

commercial time dedicated to child-targeted products

• Children’s Food Better Advertising Initiative (CFBAI) – Pledge to devote at least 50% of child-targeted advertising promoting healthier foods and messages encouraging healthy lifestyles• Kellogg’s, General Mills, and Pepsi have all

increased nutritional content of child-oriented brandsSources:

Nutrition advertising targeting children. (2012). Retrieved April 8, 2013, from http://www.cdc.gov/phlp/winnable/advertising_children.htmlStitt, C., & Kunkel, D. (2008). Food Advertising During Children's Television Programming on Broadcast and Cable Channels. Health Communication,23(6), 573-584. doi:10.1080/10410230802465258 Under self regulation cereals advertised to children are less sugary. (2012). Retrieved April 8, 2013, from 

http://www.bbb.org/us/article/under-self-regulation-cereals-advertised-to-children-are-less-sugary-37619

Non-Compliance With Regulations• Often a lot of resistance• Fines• Reputation damage• Impairs producers credibility• Expensive recalls• Create liability to civil/criminal penalty

Industry Profile

Source: IBISWorld

Industry ProfileHighly Advertised• Advertising-to-sales ratios approximately 13% vs. 2-

4% in other food industries• Creates differentiation and demand inelasticity• Cultivates brand loyalty• Prisoners Dilemma

Source:Nevo, A. (2000). Mergers with differentiated products: The case of the ready-to-eat cereal industry. RAND Journal of Economics, 31(3), 395.

Brand Equity & Loyalty Brand Equity important to

create greater loyalty Loyalty crucial in order to

stand out among hundreds of brands

Makes demand less elastic to price

Studies show brand loyalty is a strong feature in consumer product markets Emotional branding

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. Source.:

Brand Equity & Loyalty• However, advertising overcomes brand loyalty in

this industry• Encourages “switching” behavior at the

household level • Persuades households to try new brands

• Advertising may be an effective option for new entrants

• An example of Brand Equity:• Blind vs. Branded Test• Choice increase from 47% to 59% when

Kellogg’s brand identified

Sources: Shum, Matthew. "Does advertising overcome brand loyalty? Evidence from the breakfast cereals market." Journal of Economics & Management Strategy. 13.2 (2004): 241-72. Print. Source.: Harris, Schwartz, Kelly Brownell, and Vishnudas Sarda. ”Evaluating the nutrition quality and marketing of children’s cereals." Cereal FACTS. (2009): 1-102. Online.

Advertising Strategies

Kellogg’s Company• Their Purpose: ”Nourishing families so they can

flourish and thrive.”• “Create foods and brands that help to fuel the

best in everyone everywhere.” Kellogg’s Website • Highest Advertising Expenditure• Highest Ad-Sales Ratio• Forbes, "World's Most Powerful Brands“ in 2012

and 2011• Interbrand, "Best 100 Global Brands“ in 2012 and

2011• Forbes, “World's Most Reputable Companies” in

2012 and 2011

Advertising Mediums

TelevisionSocial Media

WebsitesIn-store Marketing

Television• Most widely used medium to promote

cereal to children• Average child (6-11 yrs) viewed 721,

while average adults viewed 372 television advertisements.

• Purpose for children: to associate products with positive emotions.

• Humor is commonly used in Adult & Family cereal advertising.

The Effects of Advertising

• Compared to non-TV advertised ready-to-eat cereals:• TV Advertised child-targeted cereals

were purchased thirteen times more frequently

• Family-targeted brand purchases were ten times more frequently

• Adult-targeted cereals were purchased four times more frequently

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.

Cereal Television Ads

Brand Percentage of Television Advertisements

Advertisement v. Time of day

Cereal Industry

Top 10 in 2011

Social Media• Myspace &

Facebook• Several children

and family brand cereals have significant presence.

• Fan Pages

Websites• Banners & Advertising on 3rd party

websites• Children Websites• Kellogg’s: separate moderately large

websites for Apple Jacks, Froot Loops, Frosted Flakes– Engagement techniques: spokes

characters, logos, packaging, branded cereal itself.

In-store Marketing• Banners• Packaging• In-store displays & promotions• Shelf Space

Primary Advertising Strategies

PersuasiveComplementary

Memory JammingInformative

Children’s AdvertisingHumor and Emotion

Celeb EndorsementSponsorship

OnlineIn-Store Marketing

Social MediaProduct Placement

Indirect Advertising• Match-products-to-buyer effect• Uninformative advertisements

– Cartoon’s– Bright Packaging

Product Placement• Kellogg’s & The Next

Food Network Star• Results:

– 93% adults (18-49) could recall the brand after reviewing the episode.

• This was up 32% from the brand recall Kellogg’s normally has across cable universe.

Persuasive Advertising• Effect: increase consumer demand and WTP• Children-oriented cereals

– Promotions (ex. Kellogg’s Family Rewards)– Premiums– Emphasize nutritional content – “Nutrition at a Glance”

in 2007• Adult-oriented cereals

– Emphasize health benefits

Persuasive Advertising

Memory Jamming• Reinforce positive aspects of cereal• Use of characters and catchy slogans• Evident from high ad-to-sales ratios

Advertising to Children• Children heavily influenced by advertising• $264 million spent in 2011 promoting child-

targeted cereals (increase of 33% from 2008)• TV is the most effective medium

– Children exposed to > 1,000 hours of television annually– Half of advertising is for food products– Cereal is the most advertised food product to children

(one quarter of all food ads)

Sources:Kids' cereals are healthier, ads aren't. (2012). Retrieved April 8, 2013, from 

http://www.foxnews.com/health/2012/06/22/kids-cereals-are-healthier-ads-arent/Stitt, C., & Kunkel, D. (2008). Food Advertising During Children’s Television Programming on Broadcast and Cable Channels. Health Communication,23(6), 573-584. Doi:10.1080/10410230802465258

Advertising to Children• Marketing Strategies

– Memorable characters – more than 40% of kids cereals– Packaging– Placement on store shelf– Web advertising – “Advergames”

Advertising to Children

Humor and Emotion

• Keeps audience attentive• Increase adult motivation through emotional

appeal• Difficult to appeal to everyone because people

have different senses of humor and values

Humor and Emotion

ChildrenBrand Mascots

SlogansSongs

Animated

AdultsSituational Comedy

Family Values & Nostalgia

Children v. Adult Humor and Emotion

Complementary Advertising• Family values: Want to provide for your family

and have a great family dynamic• Especially target mothers

• Trend towards Healthy Living Lifestyle in the General Public

• Want a cereal that will promote healthy living • Trending Buzz words/values:

• “Good For You,” “Healthy,” “Active,” “Nutritious,” “Low-Fat,” “Gluten-Free,” “Low in Sugar”

• Make advertisements that link cereal to this lifestyle or set of values

• Kellogg’s Complementary “Healthy Lifestyle Advertising”:2000 - Acquired Kashi brand2011- Gluten-free cereal advertisement and

branding, such as Rice Krispies

Athletic Sponsorship• Major International

Athletic Events• Individual Amateur/

Professional Athletes• Usually American

• Charitable Athletic Events• Community athletic

events to raise awareness and funds for specific charities

Corporate Responsibility

Majority of charities sponsored either raise awareness and funds for hunger, healthy lifestyles, or children empowerment

Other Sponsorships• Non-Athletic Celebrity

Sponsorships• Only publicly

sponsor celebrities with charitable causes

• Blog Sponsorship

Analysis and Recommendation

Investment• Cash Cow• Mature Market• Little growth

Recommendations• New packaging• Market as “anytime” food• Focus on health benefits & keep up

with diet trends