Ready-to-Eat Breakfast Cereal

1. Ready-to-Eat Breakfast Cereal Sarah Icke, Kamille Jackson, Julian Ordman

2. Presentation Overview • Introduction • Industry Overview • Advertising Strategies and Raw Data Analysis • Concluding Analysis and Industry Recommendation

3. 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

4. Industry Overview Industry Definition Source: IBISWorld

5. Acquires raw materials such as wheat, flour, rice, and sugar Industry Overview • 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

6. Industry Overview Processes raw materials into various cereal products, including ready-to-eat cereals, cereal bars, and hot cereals Source: IBISWorld

7. Industry Overview Sells through sellers in various channels, including supermarkets, wholesalers, and food service providers Source: IBISWorld

8. Industry Profile Source: IBISWorld

9. 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

10. Industry Profile Source: IBISWorld

11. 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

12. Industry Profile • Mature Industry • Revenue: $11.7bn (2013) • Per capita consumption is stagnant • Revenue growth: -0.2% (2008-2013), 1% (2013-2018) Source: IBISWorld

13. Industry Profile • Highly Concentrated • HHI: 1770.57 (top 4 firms) • Top 4 firms: 74.7% market share • Oligopoly • High barriers to entry Source: IBISWorld

14. Industry Profile Source: IBISWorld

15. Industry Profile Highly Competitive Source: IBISWorld

16. Industry Profile Source: IBISWorld

17. Industry Profile Source: IBISWorld

18. Industry Profile Source: IBISWorld

19. 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

20. 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 child-targeted products • Children’s Food Better Advertising Initiative (CFBAI) – Pledge to devote at least 50% of child-targeted 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

21. 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

22. 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.

23. 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.:

24. 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.

26. AdvertisingStrategies

27. 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

29. Advertising Mediums Television Social Media Websites In-store Marketing

30. 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.

31. 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.

32. Cereal Television Ads

33. Brand Percentage of Television Advertisements

34. Advertisement v. Time of day

35. Cereal Industry

36. Top 10 in 2011

40. Social Media • Myspace & Facebook • Several children and family brand cereals have significant presence. • Fan Pages

41. 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.

43. In-store Marketing • Banners • Packaging • In-store displays & promotions • Shelf Space

44. Persuasive Complementary Memory Jamming Informative Children’s Advertising Humor and Emotion Celeb Endorsement Sponsorship Online In-Store Marketing Social Media Product Placement Primary Advertising Strategies

45. Indirect Advertising • Match-products-to-buyer effect • Uninformative advertisements • Cartoon’s • Bright Packaging

46. 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.

47. 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

48. Persuasive Advertising

49. Memory Jamming Reinforce positive aspects of cereal Use of characters and catchy slogans Evident from high ad-to-sales ratios

50. 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