Rte Cereal

Threat of entry: The big three cereal manufacturers have monopolized the cereal industry together and have reaped high profits. Another key factor is the coupon redemption process driving the customer’s demand. This marketing practice prohibited new independent players from entering into the market without deep pockets. Initial cost to setup, advertising, distribution channel, shelf space became barriers that are very high for new players. Between the three they launched products to serve every market category making it difficult for new entrants to cover the cost and efficiency in production. Threat of entry into this industry is LOW.

Threat of Substitute: There can be many substitutes to the RTE breakfast. These include Donut, Bagel, Fruit, Milk shakes, toast etc. These alternatives don’t have enough nutrition than the milk and cereal. Threat of Substitute in this industry is MEDIUM.

Suppliers power: The big three possess only medium power when buying from suppliers. Wheat will vary in price depending on many factors and extensive forces. The big three can’t force these farmers as there are other places where they can sell their grains at a higher price. Higher price paid by big three will be passed to consumers. Threat of Buyer power in this industry is MEDIUM.

Buyer Power: The big three don’t have their own outlets which make them dependent on grocery stores and other super markets. Large franchises dictate the terms of shelf space and the visibility. Customers have private label options. Threat of Buyers power in this industry is HIGH.

Industrial rivalry: The big three showed a great aptitude to work together on profit maximizing strategy rather than running for market share. This resulted in increasing the prices all at the same time and hence avoiding any price wars. Threat for industrial rivalry in this industry is LOW.

The RTE cereal market is a perfect Oligopoly, where few players are controlling the majority of the cereal market. The “Big 3”,...