Ready to Eat Cereal Industry

Industry description

Very concentrated industry, big rivalry between 5 main players, with high barriers for new entrants and a lot of difference products in the market.

1. What are the barriers to entry in the RTE cereal industry?

Potential entrants in the RTE cereal industry will have to overcome different barriers if they want to be success in this business.

Capital requirements: The capital costs of becoming established in an industry can be very large. In the RTE Cereal industry we can see these capital requirements in different examples.

• Research & Development: The RTE cereal industry as a whole spent about one percent of gross sales (or $80 million) on R&D in 1993, compared with the food industry average of 0.7 percent.

• Advertising and brand image: The RTE Cereal Industry is well known for being one of the most advertising intensive of all industries. The 1993 media expenditures for the RTE breakfast cereal industry topped $800 million, accounting for 25%. Most of the established competitors have a strong brand image. To be success in this business it is necessary to have a recognized brand and this means a lot of money.

• Manufacturing Plants and stores

Access to Channels of Distribution: One of the barriers that a new entrant in the RTE industry is the access to different channels of distributions. While well established firms such as Kellogg or General Mills will have the best shelves and positions in the Supermarket, a new entrant will have to face two problems. The first problem, is to convince the retailers to sell its products, and the second one to get a good position in order to be able to compete with better positioned brands.

Technology: For a new entrant probably is nearly impossible to create the necessary technology to produce a different a product that can differentiate from others

Economies of scale: Probably at the beginning of this adventure, new entrants will have to accept a high cost per unit, unless they decided to...