Kellogg and American Cereal Producers Look to Expand Profits

A recent Bloomberg article describes Kellogg’s plan to reduce costs by letting go of 7 percent of its labor force.  The inspiration for these cost-cutting measures is largely derived from decreased demand that stems from higher unemployment and decreasing income.  Another issue facing Kellogg is increased competition; the company is losing ground to competitors who offer healthier alternatives like yogurt and oatmeal bars.  To compete with rival firms, the company is developing cereals that offer a greater nutritious balance, as opposed to tastes.  Competitor General Mills is following a similar strategy and is focusing more on organic goods in its yogurt in order to maintain success.

This article offers interesting insight into an oligopolistic industry.  Only a few major firms (Kellogg, General Mills, Cereal Partners Worldwide, and Pepsico [Quaker]) control the majority of the market, and offer relatively homogenous goods.  While each of the firms offer similarly priced goods, this article shows how each follows a price leader in order to maintain high price levels.

While demand for cereal in the US is declining, another article describes how the four major cereal firms are fighting for market share on the international scale.  Fifty-four percent of the global consumption comes from the US, Canada, and Australia, which is only 6 percent of the population.  While Kellogg stands as leader in these countries, new opportunity for growth in other developing markets is an opportunity for the other three to close the gap.  Cereal sales are projected to grow in China by 38 percent and in India by 108 percent.

While competition in the US oligopoly is perpetuated through advertising, the major cereal firms are being forced to compete according to price.  Local popular breakfast providers offer prices significantly lower than American firms.  Popular low-priced alternatives add an interesting aspect to the scenario, as the four major firms no longer benefit from dominating the majority of the market.  However, advertising is still a highly-important component of competition in the developing markets.  Advertising is being relied upon to change consumers’ tastes to American style breakfasts and give an edge on competing American firms.  The higher levels of competition in developing markets gives opportunity for firms to increase profits despite a stagnant status quo in the US oligopoly.

4 thoughts on “Kellogg and American Cereal Producers Look to Expand Profits

  1. What kind of advertising is being used? Is Kellogg still utilizing persuasive advertising (which is costly and also increases prices for consumers) or are they switching more to informational advertising?

  2. I remember Tony the Tiger which appealed to little kids (including myself). I continue to enjoy sugary cereals and still enjoy frosted flakes when I can get a box at the store. However, I remember seeing many substitutes… off brand or coco puffs. I wonder if Kellogg will market the sugary old models in China and try to use the new “healthy” well balanced breakfast cereals in the US and Canada.

  3. The problem of a more health conscious consumer base also plagues the carbonated soft drink industry. The producers of soft drinks tried to shift to what they believed was a healthy alternative to soft drinks by producing processed juices. Although these processed juices are better than soft drinks, many of these health conscious consumers desired something even healthier: organic juices. Maybe the national producers of breakfast cereals should try and market organic products as a way to differentiate themselves from their competitors.

  4. I think that it is very important for Kellogg to expand into newer markets, especially when 94% of the world population only contributes to 46% of cereal sales. Whoever can successful market cereal in these new environments definitely has the possibility to greatly increase profits.

Leave a Comment!