Cereal Industry. By Kenna Conway, Chris Groton, Kimmy Letzler and Ben Pham

Transcription

1 Cereal Industry By Kenna Conway, Chris Groton, Kimmy Letzler and Ben Pham

2 Agenda 1 Introduction 2 Industry Analysis 3 Advertising Strategies 4 Advertising Trends 5 Recommendation & Analysis

3 Why Cereal? Breakfast is the most important meal of the day Well-known brands Industry with one of the highest Ad-to-Sales ratios High brand loyalty ² According to the book Centralizing America, Americans consume 101 pounds or 160 bowls of cereal per person every year

4 Cereal Industry at a Glance $9.8 billion market 0.8% increased projected growth in next 5 years Exports total $694.1 million Major Players: Other Three Top Brands (in sales): 1. Honey Nut Cheerios 2. Frosted Flakes 3. Honey Bunches of Oats Ad-To-Sales Ratio is approximately 13%

5 Ad-To-Sales Ratio Advertising-to-sales ratios approximately 13% vs. 2-4% in other food industries 3.5 times higher than the average value for all other industries This creates differentiation and demand inelasticity Cultivates brand loyalty High profit margin Ad-to-Sales Ratio Comparison General Mills Pepsi Co. Kellogg Co.

6 Cereal Industry at a Glance The Four Major Players

7 Cereal Perception Map Good Nutrition Worse Tasting Better Tasting Poor Nutrition

8 Porter s Five Forces No commodity control Few inputs: sugar, grain, flour Supplier Power Barriers to Entry High capital intensity Heavy regulation Mature life cycle stage Competition/ Rivalry: HIGH Low consumer switching costs High customer loyalty High power of grocery stores and supermarkets Buyer Power Threat of Substitutes Hot cereals Grab and go Ready to eat

9 Cereal Substitutes 12% 35% Hot Cereals Cold Cereals 53% Cereal Bars Source: Ibis World

10 Combative Industry High HHI 2021 High Advertising-to-Sales ratios 13% Level of advertising respective to competitors Strong customer loyalty Demand for the advertised product becomes less elastic, driving prices higher Prisoner s Dilemma

11 Combative Trends Advertising Expenses by Year Advertising Expenses (Millions) Apple Jacks Cinnamon Toast Crunch Cocoa Pebbles Cocoa Puffs Froot Loops In recent years, advertisers have been reducing their advertising spending in tandem with one another

12 Recent Combative Trends Sales (millions) Kellogg's $13,525 $14,580 $14,792 $14,197 $13,198 General Mills $17,630 $17,910 $17,774 $16,658 $14,880 Advertising Expense (millions) Kellogg's $898 $1,094 $1,131 $1,120 $1,138 General Mills $823 $870 $895 $914 $844 Source: 10-K annual reports Holding companies have been reducing their advertising expenses without significantly affecting their sales

13 Advertising Strategies 1. Memory Jamming 2. Mascots 3. Celebrity Endorsements 4. EmoDonal & Humor Appeals 5. Persuasive AdverDsing

14 Memory Jamming Advertising influences the way consumers encode and recall their consumption experiences Memorable slogans Lucky Charms: They re magically delicious! Frosted Flakes: They re grrrreat! Paired with creative cartoons à easily recall figures and mascots

15 Cereal Mascots Lack of Female Mascots Character Eye Contact Long-Term Loyalty

16 Cereal Mascots Lack of Female Mascots Character Eye Contact Long-Term Loyalty

17 Cereal Mascots Lack of Female Mascots Character Eye Contact Long-Term Loyalty

18 Celebrity Celebrity Endorsements Frosted Flakes Cheerios Wheaties Features athletes to encourage healthy life styles ² Show Your Stripes campaign to Little League Baseball Use of both celebrity and mascots Multiple advertising campaigns combine different ad strategies ² Influence of pop culture in advertising like Usher Has used celebrity athletes on the cover of boxes for 80+ years A highly coveted honor The go-to brand for successful athletes ² Popular Slogan: The Breakfast of Champions

19 Celebrity Celebrity Endorsements Bruce Jenner The celebrity may overshadow the product being endorsed Greg Louganis The target audience may not be receptive to celebrity endorsers Steph Curry The celebrity may be overexposed, reducing his or her credibility Adrian Peterson The celebrity s behavior may pose a risk to the company

20 Message Appeal Options Emotional Appeals Form a stronger connection to consumer Seeks to motivate parents, by using nostalgia ² Cheerios uses family settings to engage in a sentimental side of consumers Humor Appeals Can attract and hold attention Often the best remembered Put the consumer in a positive mood ² Cinnamon Toast Crunch employed a Milkface commercial based off of a popular song

21 Persuasive Advertising Alters consumer tastes Creates spurious product differentiation Demand becomes inelastic Children-oriented cereals Promotions & Special Deals For moms, emphasis placed on nutritional content Adult-oriented cereals Emphasize health benefits & calorie count Key Takeaway: Persuasive Advertising increases consumer demand and WTP

22 Advertising Trends 1. Seasonality 2. Programming 3. Time of Day 4. Ad Content

23 Seasonality Total Ads vs. DOLS per Ad 30,000 $2,500 25,000 $2,000 20,000 $1,500 15,000 $1,000 10,000 5,000 $500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec $- Total ads DOLS Per Ad Clearly, there is a peak in warmer months for total ads; however, it is cheaper to purchase ads in the warmer months as well.

24 Seasonality Best-Selling Cereal Brands, 2014 Cheerios 994 FrosDes Muesli Special K 366 Kashi 351 Cinnamon Toast Crunch Lucky Charms Mini Wheats Froot Loops Malt-O-Meal Raisin Bran Total According to the Wall Street Journal, Cheerios is the leader in terms of sales. Life 153 Cap'n Crunch 138 Rice Krispies 137 Apple Jacks 131 Corn Flakes 120 Kix 105 Corn Pops 89 Trix 82 WheaDes

25 Seasonality Cheerios TV AdverNsing in ,000 7,000 6,000 5,000 4,000 3,000 2,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cheerios is the best indicator of warm weather vs. cold weather.

26 Seasonality Rice Krispies TV AdverNsing in ,400 1,200 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Rice Krispies is a brand that tends to model their advertising based around holiday seasons like Easter, Halloween and winter holidays.

27 Top Cereal Advertisers Top Advertisers (2011) # of AdverNsements (in thousands)

28 Lucky Charms: Ad Breakdown 650 Lucky Charms Advertising Portfolio SPONGEBOB SQUAREPANTS FAIRLY ODDPARENTS AVATAR: THE DRAGON BALL LAST AIRBEND Z KAI ICARLY MIGHTY B BACK AT THE BARNYARD FANBOY AND CHUM CHUM Lucky Charms targets heavily in animated and children-oriented shows.

29 Top Children Cereal Advertisers Cereals Targeted Toward Children Lucky Charms Froot Loops Frosted Flakes SPONGEBOB SQUAREPANTS FAIRLY ODDPARENTS ICARLY PHINEAS AND FERB ZEKE AND LUTHER Lucky Charms, Froot Loops and Frosted Flakes all advertise heavily on these programs. Out of each of their top 10 programs these 5 shows were included.

30 Rules Against Children s Advertising Must Not Over Glamorize Product No Exhortative Language, Such As Ask Mom to Buy Can t Use Only or Just in Regard to Price No Costumes or Props Not Available With the Toy No Shots Under One Second in Length

31 Top Cereal Advertisers Special K s Advertising Portfolio Special K tends to target stereotypical women-oriented shows like Project Runway and Oprah.

32 Top Cereal Advertisers Cheerios Advertising Portfolio FAMILY FEUD THAT '70S SHOW WAKE UP WITH AL NEWS WHAT/LIKE ABOUT YOU NANNY MY WIFE AND KIDS ARE YOU SMARTER TH/ 5TH G Cheerios, which is seen as more a family-centric brand, tends to advertise on primetime popular shows for the entire family like news programming and Family Feud.

33 Top Cereal Advertisers Fiber One Advertising Portfolio WEATHER CENTER RAMSAY'S KITCHEN NIGHTMA THAT '70S SHOW WAKE UP WITH AL NEWS FOX AND FRIENDS YOUR WEATHER TODAY Fiber One, like Cheerios, tends to advertise heavily on news programming and morning shows.

34 Time of Day Advertising by Time of Day Amount of Advertisements 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Early Morning Morning Afternoon Prime Time Late Night Overnight Total 30 Second Ads 15 Second Ads In 2011, cereal advertisers predominantly aired ads during the early morning and afternoon.

35 Special K Special K Advertising Amount of Advertisements 3,500 3,000 2,500 2,000 1,500 1, Early Morning Morning Afternoon Prime Time Late Night Overnight Total 30 Second Ads 15 Second Ads In 2011, Special K mainly advertised in the afternoon and used 30 second ads.

36 Cinnamon Toast Crunch Cinnamon Toast Crunch Advertising Amount of Advertisements 6,000 5,000 4,000 3,000 2,000 1,000 0 Early Morning Morning Afternoon Prime Time Late Night Overnight Total 30 Second Ads 15 Second Ads In 2011, Cinnamon Toast Crunch primarily advertised in the early morning and afternoon and used 15 second ads.

37 Raisin Bran Ad Content Feb Feb Feb Feb Feb-14 6-Mar-14 8-Mar-14 3-Apr-14 6-Apr Apr-14 6-May-14 9-May Jun-14 1-Jul-14 6-Jul Jul Jul Jul Jul Jul Jul Jul-14 1-Aug-14 2-Aug Aug Aug Aug-14 1-Oct-14 3-Oct-14 5-Oct-14 7-Oct Oct Oct 25-Oct-14 3-Nov-14 7-Nov-14 1-Dec-14 2-Dec-14 3-Dec-14 4-Dec-14 5-Dec-14 6-Dec-14 Raisin Bran employs numerous different ad campaigns throughout the calendar year. Each color is a different commercial.

38 Frosted Mini Wheats Ad Content Jun Dec Jun Aug Jun Sep Aug Oct Aug Sep Nov Sep-14 1-Jul Aug Sep Jun Aug Aug May Sep-14 2-Dec-14 2-Jun Jun Sep-14 3-Aug-14 3-Oct-14 4-Nov-14 5-Dec-14 5-Jun-14 6-Jun-14 6-Oct-14 8-Sep-14 In comparison to Raisin Bran, Frosted Mini Wheats employs two repeated ad campaigns that they use throughout the year.

39 Froot Loops Ad Content Aug-14 1-Jul-14 1-Nov Sep Aug Sep Aug Jul Sep Aug Jul Aug Dec Sep Aug Jul Aug Oct Oct Jul Oct Oct Oct Oct Aug Nov Oct Sep Aug Nov Aug Oct-14 3-Aug-14 3-Nov Aug Jun Nov Oct-14 4-Jul-14 5-Jul-14 7-Nov-14 8-Dec-14 8-Jul-14 8-Sep-14 9-Sep-14 Bring Back the Awesome In 2014, Froot Loops only used one advertisement the entire year.

40 Recommendation and Analysis Diversify Ad Campaigns Advertise based on consumer segments Emphasize advertising in warmer season months Increase use of Memory Jamming

41 Questions?