In the current economy, there is an increasing trend of adopting healthy eating habits and western dietary. One of the products being accustomed to by many families and individuals is breakfast cereals. This product is being taken up due to the modern busy lifestyle and people having less time to prepare food. There are also many health benefits accrued from consumption of cereals. Cereals is associated with having low levels of calorie and high fibre and carbohydrates which is beneficial for weight loss as desired by many individuals. The product has also been seen as having gained significant prominence within the infant foods owing to is high nutritional based values and easy preparation. Cereals preparation only requires addition of hot water or milk and is read for consumption. Moreover, women empowerment and having highly tedious tasks and working for long hours has also led to a higher demand for this product. Cereals has a readily available market in the urban markets. The industry hence proves to be viable and good for investment. Therefore a cereal manufacturing and marketing firm would be a good business to venture into.
The breakfast cereal industry is expected to have a tremendous growth over the coming years. From a previous research, revenue from breakfast cereals market is expected to be over USD 43.0 billion by 2022. This market is also expected to have a growth rate of higher hat 4% CAGR between 2015 and 2022 in the region (Schrioeder, 2014) . This is due to a highly increasing rate of consumer awareness toward the consumption of breakfast cereal. The profit margin growth in the recent past is seen to be increasing as per the research.
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Market Analysis and Economic Characteristics of Industry
The targeted market for the breakfast cereal products is vast. This is essentially because there is a high demand for the product amongst different age groups of both gender. The consumption of breakfast cereal has been identified to be best for infants, due to its high nutritional values vital for body growth. Students also have a significant share of consuming these cereals as they have short break periods between classes and want to account for their time and cut on costs. In this modern life, the busy schedules and hectic pace of the working class has also led to the desire of ready-to-eat (RTE) cereals hence they are a significant group of the targeted market (Persistence Market Research, 2014) .
In the current market, there exist a number of other breakfast cereal producers and marketers. These manufacturers pose as competitors when venturing into this business. These market players have been in existence for a long time and already established. Therefore as a new business venture, various strategies will be put in place to ensure the business is able to take root and eventually stabilize itself in the market. The big firms in this industry include firms like Nestle, Kellogg, MDD and Jordan’s. As at January 2017, they occupy 54.9 % of the market (Schrioeder, 2014) . From the existing performance of breakfast cereal producers and manufactures, there has been continuous growth in the revenues being generated over the past 5 years. Forecast on the expected revenue also shows that these firms continue to expect further growth in their profits. From this average performance of the industry, an investment in breakfast cereal is expected as it has a potential for growth and attaining long term stability as per the current trend.
Competitive Environment Analysis
In the macro environment of a business venture, it is essential to analyse the level of competition that faces the organization. The level of competition can result in the ultimate failure or success of a business. The business should be able to determine how its overall performance will be affected by the various forces of competition posed in its environment. It should also be in a position to determine its viability and level of success in case of too much threat from the competition. In order to carry out an analysis on the intensity of competition and the market attractiveness, Porter’s 5 force model of analysis was used. This model is useful in the understanding of the new business competitive level position (CGMA, 2013) . Though this strategic analysis, we are able to ascertain if the Breakfast cereal products will be potentially profitable. Moreover, the strengths in the different areas of the macro environment will be identified. This will allow for prompt identification of weaknesses and helps to avoid making mistakes. The 5 forces of competition is broken down as follows:
Competition in the industry
The number of competitors available in the breakfast cereal industry will determine the attractiveness of the market. The level of commitment of the competitors in the market and exit barriers also affects the profitability of a firm. The higher the number of competitors, the less attractive the market is for the new cereal manufacturing business. In the current market environment, there exist a number of well-established firms like, Nestle, Kellogg, MDD and Jordan’s. Competition is high amongst these firms due to price principally (Grand View Research, 2017) . However, most of the cereal products offered by these firms are similar and not differentiated in the ingredients used in making their products. Other strategic measure will also be put in place by the new business venture to ensure they have a competitive advantage over their competitors for survival tactics. Therefore there is potential for introduction of something new into the market in a bid to curb this competition.
Threat for substitutes
Substitute from competitors in the market is also a key determinant to whether the new business venture will thrive or fail. Substitute products are those that can be consumed instead of breakfast cereals, for example taking baked bread with milk for breakfast instead of cereals. Threat of substitution affects the potential of a firm to attain their desired profits. This is because potential customers can choose to purchase substitute products instead of the company products. There are several factors that affect the impact of substitute products on breakfast cereals. For instance, the price of these substitutes might be lower than that of cereals. The cheaper the substitute products the more the customer will be persuaded to purchase the substitute product rather than the cereals. Threat of substitute is also high depending on the quality of these many substitutes available in the market. Breakfast cereal however has proven to be having less negative impacts from its substitutes. This is because of the benefits attributed by cereals to the targeted customers; nutrients value addition, easy preparations and giving satisfaction, contents that result to weight loss and other benefits accrued makes cereals highly preferred by its users and a majority of them have not switched to using substitutes as evident in the growth of profits by its providers.
Threat of new entrants into the market
A new business venture stability is also affected by new entrance force into the market. The ease of new entrants into the market affects the profitability of the existing businesses. After the establishment of a new breakfast cereal manufacturer and marketer, the less time and money it takes for other new companies to sprout out the more the position of the new business is being weakened. In addition, other barriers to entry such as government restrictions, access to distributing channels and cost of brand awareness also affects the rate of new entrants. This threat affects the existing players in the market in that, due to new entrants they can be forced to sell products at lower prices and also increase their costs in expenses such as marketing to maintain market share. Entrants result to pressure on existing market prices and costs. This hence creates a cap on the profit potential of the industry. From the analysis conducted, the cereal industry is an oligopolistic market. It is difficult for many firms to enter the market as they will have to incur relative high costs and set competitive prices for their products.
Buyers bargaining power
When powerful buyers exist in the market, they can force reduction of prices or demand for more quality products at the existing prices hence gaining more value to themselves. Power of customers is high on various occasions, for example, when the switching cost from the new cereal producers company to its competitors is low, when the client base for the new firm will be low, and if the cereal products are differentiated and have a significant cost on each buyer then the buyer bargaining power becomes significant. The different segments of buyers have different bargaining power. The new business should therefore strive to have strategies in place that will help increase its client base to reduce the bargaining power of its customers as it influences its profitability. From the analysis, the bargaining power in this industry is low and hence customers do not have a great impact in price setting of these products.
Suppliers bargaining power
All cereal manufacturers purchase various materials and inputs from suppliers, which account for certain proportions of their overall expenses. Powerful suppliers in the market can be able to use their leverage in negotiation in order to charge high prices for their supplies and demand for favourable terms from the competitors in the industry. This results to lowering a company’s potential to profitability. Suppliers are able to yield more bargaining power for instance when they are few in the market and offer essential products and if switching of suppliers is considered expensive and time consuming. It is therefore imperative for a firm to critically analyse the suppliers’ power in the market as they have a great influence on its profitability and potential for growth. This industry has a low supplier bargaining power as there are many suppliers of cereal raw materials in the market.
Critical Success Factors in the Industry
In order to determine the critical success factors of the new business venture, it is essential to carry out a value chain analysis of the activities of the firm. This analysis will enable the cereal manufacturing business to identify its primary and support activities in which value can be added so as to be used as a competitive advantage over is competitors. Through value addition a firm can be able to cut on costs or increase its differentiation. A firm that chooses to increase its value by differentiation will aim at performing its operations better than its competitors. Using Porters’ value chain model, the primary and support activities of the new cereal business was identified as follows;
Porter’s Value Chain Analysis
Primary Activities
| Firm Infrastructure | Human resource management |
| Procurement | Technology |
Source: (Jurevicius, 2013)
Support Activities
From the value chain analysis of the activities of the new cereal manufacturer venture, the most important activity is the marketing and sales. This involves various activities such as advertising and promotions, selection of distributing channels, pricing of the products, and management of customer relationships so as to ensure they have targeted the right consumer group. The new business will therefore have to formulate strategies they will use to add value to these activities and hence gain competitive advantage over their competitors in order to survive in the market. Some of the strategies used at this stage will include the following:
Implementing of lean management in their manufacturing process so as to ensure they are able to minimize on wastages. This will result to production of quality cereal products at minimum costs. Through this strategy, the firm will be able to charge reasonably lower prices hence having cost leadership as a form of competitive advantage over its competitors. Wastages can be reduced through:
Minimizing on the number of defective goods produced through having qualified and skilful workers.
Reducing lead time. This can be through measures such as avoiding delays in delivery of raw materials by suppliers by purchasing directly from manufacturers of the raw materials and avoiding middlemen.
Avoiding purchase of inventory that is to be used in future that leads to holding of excess inventory.
The new business venture should ensure that they are able to take appropriate marketing strategies to ensure they are able to make their products well conversant to the existing market and create additional awareness to its customers. The company can use methods such as giving promotions and giving free samples to its customers. A competent sales force should also be put in place. They should also put the right packaging into consideration for example selling products in containers that can be recycled instead of cartons.
Innovative strategies such as technological innovation that is able to work with economies of scale and producing large output. Taking advantage of economies of large scale will allow the new venture to enjoy discounts offers and hence it can afford to lower its prices.
From the analysis conducted this competency levels are not difficult to cope with and maintain. The strength and opportunities available to the business should also determine the strategies to be put in place by the organization.
Creation of a new business venture is seen to be more advantageous as compared to acquisition of an already existing business venture in the breakfast cereal manufacturing and marketing line. In comparing the two market entry methods, the following advantages and limitations of both methods were unveiled (Hill, 2013) .
Advantages of Acquisition of Business
Purchasing of an established business will mean there is ready availability of cash flow that was being used in carrying out its operations.
You will be able to acquire existing goodwill, suppliers, customers and stock that was already established by the market.
The business already has plans and procedures that have been put in place. The employees and managers of the organization before acquisition already have experience and knowledge in the business operation.
Disadvantages of Acquisition of Business
Not all businesses in the market are a good investment prospect. Most business owners sell their businesses due to under performance and unprofitability. Hence, acquisition of an existing business can be risky with the following disadvantages.
The established relationships and personality of the seller may come as a limitation to the business in case of pre-existing bad reputation and poor relationships with its stakeholders and partners.
A business that is currently underperforming will require heavy investment so as to revive it back to profitability.
There are high chances of the business having low morale amongst its staff, poor location or bad management by previous owners. The new executives have to go through staff hiring and motivation.
Internal factors for instance declining profits of the company and other external factors such as competition from other firms in the cereal industry due to the poor strategies that had been implemented will be a setback to running of the business back to good management.
Maintenance of old plants and machineries will also require huge capital investment to operating the business if the business was not using the latest technology in its operations
Advantages of Start-up Business Ventures
Business owner will have an opportunity of building good relationships with their stakeholders and create a good reputation for the business.
The owner of the cereal production firm will be able to exercise freedom of choice. This is in the sense that they will be in a position to determine its location and plan on how the operations of the business will be carried out. Creativity plays a big role in determining the success or failure of the business.
The owner can be able to start the business with less capital as at the start of the business and grow his capital base in the course of the business, unlike acquisition large capital investment at the start of the business.
The owner is able to ensure there is quality in the business. For instance on deciding its recruitment process and the level of skills required by is employee.
Financial independence is achieved as no previous bad debts have been attached to the new business venture.
Disadvantages of Start-up Business Ventures
The business might take too long to pick up and start remitting profits back into the business and cover the initial expenses.
The business faces high risk as success or failure of the business entirely depends on the entrepreneurial skill of the business owner. If one is not highly skilled and lacking sufficient knowledge about the industry they operate in, it could lead to the business down fall.
A high commitment level is required to start up the business. This is because one is required to fulfil various requirements before starting on operations. This will include preparations of a business plan, identifying customer base, establishing credible suppliers and other business partners to work with.
From the analysis, starting up a business venture is more preferred to acquisition as the business owner will be able to accrue more benefits with increased freedom to innovate.
Strategic Levels of Successful Firms in the Industry
The main competitors in the market have mainly undertaken low cost as a strategy of surviving in the market as compared to differentiation. There are few players in the market having influence over a large number of consumers hence he market is an oligopoly market.
Executive Summary and Recommendations
From the industry analysis, breakfast cereal manufacturing and marketing business is a viable venture that can be recommended to be invested in. It has proven to have potential for growth and have expected good performance in the market with a readily available market. There are expectations of long term stability in this industry. It is also advisable that a new business venture is used to enter the market rather than acquiring an existing business in the market as it has many shortfalls.
References
CGMA. (2013, June). Porter's Five Forces of Competitive Position Analysis. CGMA . Retrieved from http://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html
Grand View Research. (2017). Breakfasts Cereals Market Analysis, Market Size, Apllication Analysis, Regional Outlook, Competitive Strategies and Forecasts, 2015 - 2022. California. Retrieved from http://www.grandviewresearch.com/industry-analysis/breakfast-cereals-market
Hill, B. (2013). Buying an Existing Business vs Starting a Business. Chron . Retrieved from http://smallbusiness.chron.com/buying-existing-business-versus-starting-business-2477.html
Jurevicius, O. (2013, April). Value Chain Analysis. Strategic Management Insight . Retrieved from https://www.strategicmanagementinsight.com/tools/value-chain-analysis.html
Persistence Market Research. (2014). Global Market Study on Breakfasts Cereals: Global Revenues to cross US$43 Bn by 2019, North America to Lose Top Market Position to APAC. Retrieved from http://www.persistencemarketresearch.com/market-research/breakfast-cereals-market.asp
Schrioeder, E. (2014, February). Global breakfas cereal market to reach $43.2 billion by 2019. Bking business.com . Retrieved from http://m.bakingbusiness.com/articles/new-home/Trends/2014/02-Repor-Global-breakfast- cereal.aspx?
