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The Breakfast Cereal Industry Li Li Jennifer Wang Xin Yiran AEM 4550 April 20,2011.

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Presentation on theme: "The Breakfast Cereal Industry Li Li Jennifer Wang Xin Yiran AEM 4550 April 20,2011."— Presentation transcript:

1 The Breakfast Cereal Industry Li Li Jennifer Wang Xin Yiran AEM 4550 April 20,2011

2 Outline Introduction Introduction Industry Analysis Industry Analysis Advertising Strategies Advertising Strategies Investment & Recommendation Investment & Recommendation

3 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

4 Industry Analysis

5 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

6 Industry Structure

7 HHI = HHI = 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

8 Industry Structure

9 Industry Analysis Life Cycle Stage Mature Barriers to Entry High Capital Intensity High Technology Change High Competition Level High Regulation Level Heavy

10 Key Success Factors Product Differentiation EOS Supply Contract Adaptability Cost Control

11 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

12 Employment Average Wage ($)

13 Distribution

14 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

15 Primary Advertising Methods Persuasive Advertising Persuasive Advertising Informative Advertising Informative Advertising Memory Jamming Memory Jamming Celebrities Celebrities Humor Humor Emotional Appeal Emotional Appeal Promotions & Giveaways Promotions & Giveaways Segmentation Segmentation

16 Persuasive Advertising Persuasive advertising is effective for experience goods Persuasive advertising is effective for experience goods Honey Bunches of Oats – “There’s a box here with your name on it!” Honey Bunches of Oats – “There’s a box here with your name on it!”

17 Honey Bunches of Oats Commercial

18 Informative Advertising Direct Signaling Direct Signaling Educational. Tells the consumer the health benefits Educational. Tells the consumer the health benefits Cheerios: Cheerios:

19 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. Kellogg’s high fiber cereal E.g. Kellogg’s high fiber cereal

20 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: “They’re Gr-r-r-eat!” – Kellogg’s Frosted Flakes “They’re Gr-r-r-eat!” – Kellogg’s Frosted Flakes “Silly Rabbit, Trix are for kids!” – Trix “Silly Rabbit, Trix are for kids!” – Trix

21 Memory Jamming

22 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

23 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:

24 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

25 Cheerios Commercial

26 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

27 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 Cap’n Crunch:

28 Segmentation After FTC’s warnings, cereal companies have shifted toward targeting the adult audience After FTC’s warnings, cereal companies have shifted toward targeting the adult audience More health-conscious More health-conscious Multi-Grain Cheerios: Multi-Grain Cheerios:

29 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)

30 Cheerios Targeted Toward Both Children and Adults

31 Advertising Mediums TV Product Placement Print Online

32 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

33 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 Mill’s Trix Rabbit -Focuses on nutritional content to target adults

34 Average Advertising Cost per Day of Week

35 Top 10 Brands with the Highest Total Advertising Expenditures

36 Top Program Types to Advertise On

37 Healthy vs. Unhealthy Cereal Popular Program Types to Advertise Healthy Cereal Popular Program Types to Advertise Unhealthy Cereal

38 10 Most Popular Shows to Advertise On

39 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

40 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

41 Product Placement in Days of Our Lives

42 Ad Spending of Top 4 Firms

43 Ad-to- Sales Ratio Comparison

44 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

45 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

46 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

47 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

48 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

49 Perceptual Map

50 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

51 Online Advertising Social media becoming a more popular marketing tool Social media becoming a more popular marketing tool  Kellogg’s 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)

52 Social Media

53 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

54 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”

55 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 child’s immunity,” with “25 percent Daily Value of Antioxidants and Nutrients – Vitamins A, B, C, and E” FTC delivered strong message – won’t tolerate false health claims FTC delivered strong message – won’t tolerate false health claims Kellogg prohibited from making claims about any health benefit unless backed by scientific evidence and not misleading

56 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

57 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

58

59 Videos Honey Bunches of Oats: Honey Bunches of Oats: Cocoa Puffs: Cocoa Puffs: Cheerios 1:b. bQpA Cheerios 1:b. bQpAhttp://www.youtube.com/watch?v=pDNgbQ- bQpAhttp://www.youtube.com/watch?v=pDNgbQ- bQpA Cheerios 2: Cheerios 2: Multigrain Cheerios: IZ9CL4phPk Multigrain Cheerios: IZ9CL4phPkhttp://www.youtube.com/watch?v=- IZ9CL4phPkhttp://www.youtube.com/watch?v=- IZ9CL4phPk Product placement: Product placement:


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