The whole Ready-to-Eat (RTE) breakfast cereal industry is a very

pro table industry in general with the Big Three: Kellogg, General
Mills, and Philip Morris dominating more than seventy percent
market share. By using 5-Force Analysis, we can have a deeper
insight of this Industry:
• Entry Barrier: High The Big Three has spent large amount of
money on advertising to establish brand recognition and to promote
sales. By paying grocers “slotting allowance”, the Big Three gain
shelf space advantage over private label brands. However with the
prosperity of drug stores, convenience store, discounted retailer
such as Wal-Mart that do not charge “slotting allowance”, private
label brands gained equal opportunities of brand demonstration,
which results to 3.6% growth up to 9.2% market share in three
years. The capital required is very high to establish production line,
to advertise and to pay wages. Another reason why the entry barrier
is high is the technology. The R&D accounts for one percent of
gross sales, higher than food industry. The Big Three has
competitive advantage of new product development and existing
product improvement.
• Substitute: Low The main substitute could be homemade
breakfast.
• Buyer Power: Medium High Buyers are supermarkets, drug stores,
convenience stores and discounted retailers. Supermarkets charge
“slotting allowance” from the Big Three for better shelf space.
Because customers are very price sensitive and have low switching
cost, for those retailers who do not charge “slotting allowance”, they
prefer to sell those “value-oriented” brands, which may not include
the Big Three.
• Supplier Power: Low Suppliers are raw ingredient suppliers,
equipment. Those substitutes could be easily found so suppliers
have low power.
• Rivalry: Medium Low The Big Three having unwritten agreements
to limit in-pack premium, coupled with the existence of “co-branded”
cereals shows that the relationship between the
fi