Breakfast Cereal Industry Expert Answer

Introduction

The Woolsworth Group is planning for vertical integration and requires a detailed macro analysis and consumer behaviour to assess the cereal industry. The Industry for breakfast cereals consists of two groups, hot cereals which comprise of porridge, oats, mixes, etc. and ready-to-eat cereals which comprise of flakes and more. The ready to eat segment in the year 2018 had 87.4% market as compared to the 12.6% of hot cereals in Australia, the primary focus of companies is ready to eat cereals (MarketLine, 2019). Globally the breakfast cereal industry is growing at a constant number of 4.1% and forecasted to grow by 3% in the future (Barnes, 2020). However, this analysis will be based geographically for Australia.

Macro-Environmental Analysis

Globally, the environment is dynamic and is constantly evolving, it is essential for any manager or business to a constantly adopting competitively to the industry to keep the industry or business afloat. The macro-economic dimensions are the foundations to base opportunities and threats for any company (Del Marmol and Feys, 2015). PESTLE analysis is highly used in dynamic business environments (Gupta, 2013). PESTLE is an acronym formed by six categories Political; Economic; Socio-Cultural; Technological; Legal; and Environmental these allow the managers to consider business opportunities vs risks (Del Marmol and Feys, 2015). To analyse the macro environment of the cereal industry of Australia, PESTLE Analysis technique will be used followed by opportunities and threats.

Political

The industry requires complete compliance with the policies of the government. The Federal and state government of Australia oversee and regulate the manufacturing and selling of hot cereals and ready to eat cereals. The regulations and policies of the manufacturing side are controlled by the Federal government whereas the food laws which comprise of the preparation and composition of cereals are controlled by both state and federal. Any organisation needs to comply with the standards of Food Standard Australia New Zealand (FSANZ) which is operating under the FSANZ Act 1991. Compliance with policies for manufacturing/sourcing (as per the standard 2.1.1 of the food standards and all the other standards), packaging, labelling (list of ingredients, national information, best before date, allergen statements, and weight), and processing (as per nutritional guideline) are to be followed. It can also be analysed that the current industry players have low regulations on the advertisement of the cereals given the high sugar content in the product, the regulations also encourage for the organisation to enter the industry as promotion of food and agriculture is a focus of the Australian government (Youl, 2020).

Economic

With the population growth of 1% and a GDP growth of 3%, Australia has also constant increasing inflation and consumer price index. The overall breakfast cereal industry has a growth of 4.5% which is higher in comparison to other countries this growth is forecasted for the future is 3%, the current industry growth is beyond the global growth which is a positive sign for the industry (MarketLine, 2019). The current market leaders of the industry are Kellogg Company which are the pioneers of the cereal industry has a share of 31.1% in the year 2018, followed by Cereal Partners Worldwide with a market share of 21.1%, these two major players control over 52% of the market, whereas the other 48% is controlled by The Sanitarium Health & Wellbeing Company, nature first and other small organisations (Barnes, 2020; Marketline 2019; Youl, 2020). The industry was floating on high-profit margins when compared to other food industries, but there is a significant dip in recent years as the competition has increased, primary reasons being high labour cost which amounts to the 2^nd highest cost and increasing trend of healthy breakfast. Wheat and grains cost plays a major role, fluctuation in the price can significantly impact the profitability of the industry as the highly competitive nature of the industry would ensure that the competitor price would not be affected (Youl, 2020).

Social

The minimal regulation on advertising cereal as healthy products have created several ethical issues for society (Berning and Rabinowitz, 2017). Public awareness is currently discouraging the consumers due to its high sugar content which leads to obesity and health issues. However, it has been analysed by Nevo (2001) that advertising to sales ratio is at least 6 times more when compared to other products in the food industry as Frazier and Harris (2016) concluded that cereals are the most advertised product as compared to its other counterparts. The rising awareness has led to the demand for healthy alternatives and many companies like Kellogg’s are focused on this issue (MarketLine, 2019).

Technological

The technological aspect of the industry has not been through any major innovation in the last five years, where the technology assists in cost savings and greater automation but given the industry has limited players the technological aspect of the industry has little to moderate impact. Though, the only impact technology can bring is to create a technology where there is efficient automation with low labour which is the 2nd highest cost associated with the industry. Quality improvement can also be associated with the technological aspect which can give benefits to the over industry (Youl, 2020).

Environmental

New technology is implemented focused on low raw material, less energy, less environmental impact, and effective water disposal. It is essential to prevent the usage of any genetically engineered organism. It is required that the environmental footprint of production or retail is minimum, producing minimum carbon energy, source ingredients with complied suppliers, biodegradable packaging.

Legal

The recently introduced Modern Slavery Act of 2018 for the companies which have revenues of at least $ 100 million, will focus on the risk minimization of modern slavery in the operations and supply chain of the company, The MSA Act will ensure the corporations are efficiently sourcing with the organisation which is complying with the standards required by the country. In non-compliance with the legislation, statutes and other industry guidelines, industry actors can be subject to civil penalties, regulatory sanctions, injunctive relief and recalls. Consequently, failure to comply will adversely affect industry corporations’ income and competitive position. It may also generate major adverse publicity, undermining the credibility and public image of companies. (Youl, 2020).

Opportunities

• Capture the untapped market of healthy breakfast cereals
• Introduce automated technological process resulting in high quality and low cost
• High Forecasted Revenue Growth

Threats

• Highly Competitive Market
• Brand Development requires high investments
• Retailers and Wholesalers control the market
• Diversified Customer
• High Labour Cost

Consumer Behaviour Issues

The industry focus has shifted to premium products and marketing strategies to promote the breakfast cereals with targeted advertisements to young people to reduce the impact of reducing consumption by the consumers who prefer health and nutrition as a result of increasing public awareness (MarketLine, 2019). The consumer is shifting towards healthy breakfast alternatives as the health and well-being industry is on a rise, customers demand high nutrition food which contains low sugar or health sugar alternatives (Youl, 2020). The consumers now require labels with health nutrients content on the packages (Berning and Rabinowitz, 2017).The awareness of the society about nutrient and non-healthy products has now set a consumer behaviour into demanding for healthy products this gives a massive opportunity to the existing players in the market to tap the health-conscious customers.

Conclusion

Australian as well as on the world is now focusing on organic healthy food which has created its own space. As opposed to other Asian nations, Australia is a leading cereal industry. Australia sells goods, quality control challenges, trademarks and patents, standard, size, supply instability. Australians are gradually converting their unhealthy lifestyle to healthy, this effect has led the consumption of the cereals with a high content of sugar to reduce, however, the time-poor consumers are still looking for convenience. This has created three segments in society and consumers for breakfast cereals, healthy food-seeking, time-poor consumer, and healthy alternatives with time convenience. The industry is now shaping this trend by having a product mix of health and convenience. The growth forecast is high and if marketed with the current trends the investment in breakfast cereals can be fruitful for Woolsworth as they predominately have the control over retail and the industry for the large retailer has high power for the buyers which would give an immense advantage over this vertical integration by the company.

References

BARNES 2020. Worldwide Breakfast Cereal Manufacturing Industry Report. Worldwide Breakfast Cereal Manufacturing Industry Report. Barnes Reports.

BERNING, J. & RABINOWITZ, A. N. 2017. Targeted advertising in the breakfast cereal industry. Journal of Agricultural and Applied Economics, 49, 382-399.

DEL MARMOL, T. & FEYS, B. 2015. PESTLE analysis, 50Minutes.

FRAZIER, W. & HARRIS, J. L. 2016. Trends in television food advertising to young people: 2015 update. Rudd Brief, Storrs: University of Connecticut Rudd Center for Food Policy & Obesity.

GUPTA, A. 2013. Environment & PEST analysis: an approach to the external business environment. International Journal of Modern Social Sciences, 2, 34-43.

MARKETLINE 2019. Breakfast Cereals Industry Profile: Australia. Breakfast Cereals Industry Profile.

NEVO, A. 2001. Measuring market power in the ready‐to‐eat cereal industry. Econometrica, 69, 307-342.

YOUL, T. 2020. Cereal, Pasta and Baking Mix Manufacturing in Australia INDUSTRY REPORT C1162.