Value Chain Analysis for Starbucks

Global, European and Irish Markets are oligopolies; they are dominated by a few large companies. GlobalEuropeanIrish (Hot Cereals) Kellogg’sKellogg’sFlahavan’s General MillsCereal Partners WorldwideOdlum’s KraftWeetabix LtdKelkin OtherOther Breakfast Cereals Industry Profile: Europe 2009), (Breakfast Cereals Industry Profile: Global 2009) Scope of Competitive Rivalry (Appendix… 3) * The scope of competitive rivalry is multinational Buyer needs and requirements(Appendix… 4) * Supermarkets/Hypermarkets – need to meet consumer demand * Catering companies – need to buy in large bulk capacity * Hospitality industry – need smaller individual selection of boxes to meet consumer needs * Individual customers – all have different needs and requirements (taste preferences or health reasons) Degree of product differentiation(Appendix… ) * Packaging – Different colours and styles are used to differentiate products *

Taste – Different flavours of cereal are made to distinguish one product from another * Companies use huge advertising budgets to convince customers that there product is different and unique Product innovation(Appendix… 6) * Success driven by innovation * Large scale budgets spent on research and development * Co-branding products with other companies * Diversifying brands in new directions e. g. Coco Pops, Coco Wheels Supply/Demand conditions (Appendix… ) Supply * Farmers grow most of the ingredients that are used in breakfast cereals, such as wheat, grain and oats * Other suppliers include manufacturers of plastic and cardboard * The U. S. import sugar, so companies operating there are reliant on suppliers to supply them sugar Demand *

Customers can change brand or buy substitutes with little cost effect * Hypermarkets/supermarkets (retailers) decide who gets shelf space * Retailers have to stock popular brands to satisfy consumer demand Pace of Technological conditions(Appendix… ) * High pace of technological change in the cereal industry * New technologies are necessary to keep up with product innovation * New technologies are allowing the cereal industry to ship their raw materials globally were it can be manufactured cheaper * The internet is allowing these companies to order supplies, distribute products and communicate with customers quicker Vertical integration(Appendix… 9)

The Global cereal industry is a vertically integrated industry. Companies participate in more than one stage of the industry * Kellogg’s are involved in the manufacturing and marketing of their products, they operate in many countries * General Mills are involved the manufacturing, marketing and distribution of their products * Kraft Foods manufacture and market food and beverages in many different countries Economies of scale (Appendix… 10) The dominant companies in the industry are able to use a low cost strategy by using economies of scale * The major players can purchase supplies in large bulk, getting a reduced price on the costs of material required and producing at a lower cost * The breakfast cereal industry also uses streamline marketing, were two companies within the industry will market products together. This cuts marketing costs considerably Learning and experience curve effects(Appendix… 11) Must have knowledge of equipment required for manufacturing * Set up contacts with suppliers to get their materials to make the products * Access distribution channels, such as negotiating with grocery stores to get them to shelf their products *

Try to develop their brand into a household product, to gain brand recognition and build a customer base PESTEL(Appendix… 12) When researching the cereal industry, we conducted a PESTEL analysis, these are our findings: Political * Employment laws * Food and drug laws The US have freedom of business practices and trade regulations * Global Codes of Ethics * FDA regulates trade and tariff laws Economic * Interest rates * Exchange rates * Inflation rates * Due to recession people have less disposable income * Farmers are sowing less because their incomes have dropped Social * Demographics and the social environment * Different cultural attitudes towards breakfast * High unemployment * People want value for money * Less inclined to be brand loyal * More health conscious society Technological * Presents a barrier to entry to new companies New technology makes it easier to ship cereal and products globally * The internet is allowing these companies to order supplies, distribute products and communicate with customers quicker * Improvements in technology may help farmers grow raw materials such as grain more easily and efficiently Environmental *

Comply with environmental laws and regulations * Subject to various federal, state, local laws and regulations * In the US – Clean Air Act, Clean Water Act, Resource Conservation, Recovery Act and also the Superfund Legal Companies trading in the European market need to be aware of changing employment laws (Safety, Health and Welfare at Work Act 2005) * Comply with packaging laws * Irish Breakfast Cereal Association – new advertising code focusing on advertising for children Figure1. 3Industry Lifecycle Sales/ Revenue Maturity Shakeout Decline Growth Embryonic Time * Growth Slows and becomes stable * Remains like this for a sustainable period of time * Companies tend to develop accompaniments of the original product * This helps maintain a higher level of growth (Beginnermoney)

What factors are the driving industry changes and what impacts will they have? (Appendix… 13) The factors that are most likely to exert greatest influence in the breakfast cereal industry over the next one to three years are: economic factors, the economic driving forces will have a positive and negative effect on the industry. * Economic growth * Interest rates * Exchange rates * Inflation rates * Government legislation * Threats of substitutes is also a driver of change in the industry * Power of suppliers “By 2013 the global breakfast cereals market is forecast to have a value of $28. billion, an increase of 17. 1% since 2008”(Breakfast Cereals Industry Profile: Global 2009) That is impressive increase which will have a positive effect on the industry leaders regarding profitability and market share. Government legislation can affect the industry with introduction of new tax brackets this can have a negative effect on profits for the companies and buying power of the customers. A change in exchange rates may affect the breakfast industry in the following ways: * Exchange rates changes can increase or lower the price of a product sold abroad *

The price of imported raw materials may change The price of competitor’s products may change in the home market A change in interest rates might affect the breakfast industry in the following ways; * If the company have a series of loans then an increase in interest rates will mean higher repayments, reducing profits * If a company wants to borrow money to invest in new technology, then they are less likely to go ahead with the project when interest rates increase Inflation affects any economy in the world when it is high and volatile. To maintain the same level of living standards you would have to pay more * You would have to pay more for same amount of goods and services you had used prior to inflation. * The majority of the time, your income does not increase at the same rate as inflation * If a country is affected by high inflation they may lose competiveness and may seek to deploy their operations to a more cost friendly country Power of suppliers is only moderate in relation to the five forces model. This is due to the uncertainty of the raw material needed to produce the cereals.

Wheat for example will vary in price because of the extensive forces that affect the growing. The driving forces are making competition more intense, with the ongoing intense battles for market share. The industry leaders will try their utmost to keep rivalry high and to retain their customer loyalty. The potential industry growth would suggest that the driving forces will lead to higher industry profitability in the future. Figure 1. 5Strategic Group Map Competitors| Competitive Characteristics of Industry Firms| Kellogg’s CompanyGeneral Mills, Inc.

Kraft Foods, IncNestleQuaker OatsWeetabix| Price LocationBrand (Reputation/ popularity)QualityNutrient ValueTypesPackaging| Kraft and the other companies in the industry are clustered together indicating that there is a strong cross-group competitive rivalry between them. Kraft are probably in the worse position, they are competing directly with many others in the industry but also may struggle to reach Kellogg’s position, as Kellogg’s is a brand leader in this industry. The only way to compete is to lower prices.

General Mills are in the best position on the map as they have a good reputation and are able to compete with lowest prices in the market. They also have room to improve their reputation and then have more opportunity to lower prices further. There are gaps in the lower half of the graph, new entrants could target this industry at this position, offering low prices and then with time, recognition will grow. Global Breakfast cereal industry Figure 1. 6 Strategic Moves Companies| Kellogg’s| General Mills| Kraft Co. | Pricing| $$$| $$| $$$|

KeyIndustries| * Ready to eat cereal * Snacks * Convenience foods| * Ready to eat cereals * Snacks * Retail * Foodservice| * Ready to eat cereals * Snacks * Beverages * Dairy| Current Strategy| * Product innovation * Cost reduction * Invest in product research (‘Kellogg’s Marketing Strategy and Marketing Plans’)| * Focus on gluten free market * Advertise in gluten free magazines * Products to suit the need of Celiac sufferers(Slideshare)| * New product focus * Improve core brands * Improve brand awareness| Future Plans| October 2010Considering using laser technology to stamp their logo on each individual flake in order to stamp out imitation products. If successful, it should decrease the sales of imitation products and lose private companies market share. It should also increase sales of Kellogg’s products and increase their market share. BPCouncil)| 1st April 2010 – PRHaving recognised the desire for new properties, have optioned off the rights to three of their cereals to entertainment channel. The characters will appear in 3D movies and General Mills will include 3D glasses in their cereal boxes. Production will finish in April 2011. The money that is made from optioning off the rights will be used to purchase property| 23rd March 2010 – PR by Nicola WilkinsonAim to target the British market with new breakfast cereal biscuit product. (Slideshare)21st October 2010 – PR Announce that they are to raise prices in response to the rise in the price of grain and other commodity prices (Bloomberg 2010)They are to increase the number of cities that it operates in, in China. | European Breakfast Cereal Industry

Companies| Kellogg’s| Cereal Partners Limited| Weetabix Limited| Pricing| $$$| $$| $$| KeyIndustries| * Ready to eat cereal * Snacks * Staples| * Ready to eat cereals | * Ready to eat cereals * Snacks * Hot cereal| Current Strategy| * Outsourcing * Development of new products(Kellogg’s 2010)| * Cost reduction * Expand market share through joint ventures * Product Innovation(ReportBuyer December 2007)| * Product research and development * Cost reduction| Future Plans| Have recently created 50 more jobs at its European HQ in Dublin, extending the number of employees to 250, and enhancing their reputation. | N/A| N/A| Figure 1. 7Cereal Industry Key Success Factors (KSFs)

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