Cereal - Cornell

Report
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 Overview
Industry Definition
Acquires raw materials such as wheat, flour,
rice, and sugar
Processes raw materials into various cereal
products, including ready-to-eat cereals, cereal
bars, and hot cereals
Sells through sellers in various channels,
including supermarkets, wholesalers, and food
service providers
Source: IBISWorld
Industry Overview
Acquires 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 Overview
Processes raw materials into various cereal products, including
ready-to-eat cereals, cereal bars, and hot cereals
Source: IBISWorld
Industry Overview
Sells through sellers in various channels, including supermarkets,
wholesalers, and food service providers
Source: IBISWorld
Industry Profile
Key External Drivers
Key Success Factors
Life Cycle Stage
Concentration
Competition
Regulation
Source: IBISWorld
Industry Profile
Key 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 Profile
Key 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 Profile
Mature Industry
• Revenue: $11.7bn (2013)
• Per capita consumption is stagnant
• Revenue growth: -0.2% (2008-2013), 1% (2013-2018)
Source: IBISWorld
Industry Profile
Highly 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 Profile
Highly Competitive
Price-Based Competition
• Some consumers more price-sensitive
• Growing segment of private-label brands
Quality-Based
Competition
• Affect cereals with high brand equity
• Affect cereals with healthy additions (ex. dried fruit or fiber)
Differentiation
• Cereals designed to appeal to different segments
• Make demand more inelastic
Source: IBISWorld
Industry Profile
Source: IBISWorld
Industry Profile
Source: IBISWorld
Industry Profile
Source: IBISWorld
Industry Profile
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
Source: IBISWorld
Industry Profile
Regulations 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 childtargeted products
• Children’s Food Better Advertising Initiative (CFBAI) – Pledge to devote at least 50% of childtargeted advertising promoting healthier foods and messages encouraging healthy lifestyles
• Kellogg’s, General Mills, and Pepsi have all increased nutritional content of child-oriented
brands
Sources:
Nutrition advertising targeting children. (2012). Retrieved April 8, 2013, from http://www.cdc.gov/phlp/winnable/advertising_children.html
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
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
Industry Profile
Non-Compliance With Regulations
• Often a lot of resistance
• Fines
• Reputation damage
• Impairs producers credibility
• Expensive recalls
• Create liability to civil/criminal penalty
Source: IBISWorld
Industry Profile
Highly 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
Television
Social Media
Websites
In-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
Persuasive
Complementary
Memory Jamming
Informative
Children’s Advertising
Humor and Emotion
Celeb Endorsement
Sponsorship
Online
In-Store Marketing
Social Media
Product 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
Children
Brand Mascots
Slogans
Songs
Animated
Adults
Situational 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 brand
2011- 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

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