Marketing Audit & Plan for Cheerios Cereal - Essay Example

? Marketing Audit & Plan [13th Nov George Stevens Last reviewed Contents Executive Summary......................................................................................................... Introduction..................................................................................................................... Company.......................................................................................................................... Competitors …................................................................................................................ Environment.................................................................................................................... SWOT Analysis............................................................................................................... Super SWOT Analysis.................................................................................................... Overall Strategic Objectives........................................................................................... Strategic Focus................................................................................................................ Objectives....................................................................................................................... Corporate Objectives...................................................................................................... Marketing Objectives...................................................................................................... The Marketing Mix ….................................................................................................... Product............................................................................................................................ Place................................................................................................................................ Price................................................................................................................................ Promotion........................................................................................................................ People.............................................................................................................................. Physical Evidence........................................................................................................... Processes......................................................................................................................... Segmentation................................................................................................................... Targeting......................................................................................................................... Positioning …................................................................................................................. Tactics............................................................................................................................. Communication Tools..................................................................................................... Resource Requirements ….............................................................................................. Proposed Pricing Model.................................................................................................. Monitoring...................................................................................................................... Bibliography.................................................................................................................... Appendix 1: External Audit............................................................................................ Appendix 2: Market Environment ….............................................................................. Appendix 3: Industry Analysis......................................................................................... Appendix 4: Cheerios & Nestle Internal Audit................................................................ Appendix 5 Competitor Analysis..................................................................................... Appendix 6 Further Internal Analysis …......................................................................... Appendix 7 Further Analysis of the External Environment …........................................ Executive Summary This report provides a marketing plan for Cheerios to be implemented between January 2013 and December 2015. The report identifies that Cheerios can be better of if it improves its health offerings to consumers, expand sales in the UK, export Cheerios directly to the developing world, apply technology to marketing, monitor competitors closely and keep production costs low through diversification. The key recommendations is to increase price by between 5% and 15% over the period and try to promote Cheerios through affiliate marketing and online sales and marketing. The brand must be positioned as a health brand that promotes livelihood and supports consumers to be wealth in the UK and presented as a symbol of social class in the developing world. A budget of about ?220 million is proposed for the project and with this, we expect the increment of market share from 25% to 35% this represents a net increase of ?550 million over the period. Introduction This report provides a critical market analysis of the environment within which the Cheerios brand operates. This involves the examination of the external and competitive factors that defines the environment within which Cheerios operates. The paper examines important elements and factors of the current situations and maps out the strengths, weaknesses, opportunities and threats to define the objectives of the marketing plan. The final section of the report will involve the definition of a marketing plan for Cheerios to be implemented in the three year period between January 2013 to December 2015. Company Cheerios has been a popular breakfast and cereal brand for the past sixty years. In the UK, Cheerios is produced by Nestle UK and Ireland which has nine different companies in the group (Nestle UK, 2012). Cheerios is treated as a strategic business unit in the Nestle UK and Ireland organisation (Nestle Cheerios, 2012). With a revenue base of ?1.3 billion in 2011 and a market share of 25% Nestle UK Ireland is the second largest manufacturer of breakfast cereals and controls 25% of the UK's market share (Nestle About Us, 2012). Its has the potential to expand further in the 2013 – 2015 period (See Appendix 4 for further details. Competitors The main competitors are the rivals of the industry which include Kellogs, the market leader and Malt-O-Meal and Quaker Oats (Appendix 5). There are other threats from supermarket brands like Tesco, ASDA and Sainsbury which will continue to compete with Cheerios for breakfast meals. Also, there is the threat of the traditional English breakfasts and this include bread, rolls, fats, spread and other items for the health-conscious like fruits. Environment The main elements of the PEST Analysis that are relevant for the 2013 – 2015 period include (see Appendix 7 for further details: 1. Political: EU pressures to improve the healthy content of their products and the reduction in sugar levels. Also there is a ban on advertising on children’s TV channels. 2. Economic: Growth in the UK economy and the expansion of the UK market to include new markets around the developing world through trade agreements over the past two years. 3. Sociocultural: Growth in health-consciousness around the UK and around the world. The increase in demand for quick and conveniently prepared breakfast products. The emergence of a middle class in developing countries particularly in the British Commonwealth. 4. Technological: Quest for better production systems in the cereal industry has led to better technologies. Use of the Internet and social media for advertising and reaching a higher section of the markets. SWOT Analysis Strengths Weaknesses Large financial resources Strong brand image Strong research and development department High sugar content Rising commodity prices Opportunities Threats Increased demand for quick convenient breakfasts. Growing demand for health conscious breakfasts Growth in UK economy. New buyers in developing world Development of complementary technology Promotion and marketing through internet and social media Rising commodity prices Alternative breakfast options Health consciousness increasing Growth in competitors. Super SWOT Analysis External Opportunities External Threats Internal Strengths 1 Use the strong capital and asset base to market and sell the products of Cheerios to the market that seek quick and convenient breakfast. 2 Conduct research and development campaigns to improve the health capabilities of products 3 Expand marketing into the UK and use pricing strategies to improve earnings in the strengthened economy 4 Acquire strategic assets and fund a sales campaign to the developing world. 5 Conduct research and fund technological development and marketing through the Internet 1 Use various insurance measures and diversifying methods to prevent reliance on single products in order to alternate between various products when prices change. 2 Spend more money in promoting Cheerios as an ideal breakfast choice ahead of alternatives 3 Conduct research into health conscious Cheerios development and assure customers of their health and safety 4 Maintain a proactive system of monitoring competitor activities and change from time to time to beat them Internal Weaknesses 1 Reduce sugar content in order to meet the high demand for breakfast cereals that is going to increase further in the UK and beyond 2 Use various techniques to diversify and invest in different ventures in order to avoid the effects of rising commodity prices 1 Create an optimal sugar content in order to win the competition on the markets 2 Reduce the effects of commodity price fluctuations through insurance, hedging and diversification in order to maintain stable prices. Overall Strategic Objectives From the environmental audit, the following objectives are defined for Cheerios 1. Improvement of health offering for consumers: Reduce sugar content by 10% by January 2013 and reduce it further to 30% by March, 2014 2. Expand sales in the UK: Increase revenue from UK sales by 25% by December 2013 and by 40% in June 2014. 3. Export and market Cheerios directly from the UK to markets in the developing world: Enter the markets of India, South Africa, Brazil and China directly by June 2013 and double sales each year after that. 4. Apply technology to advertising and marketing: Increase the presence of Cheerios online by 150% by December, 2013. 5. Keep cost of production low: Add four new sourcing units for cereals: look at four new producing markets and make minimal investments and increase gradually in order to keep prices in check through diversification. 6. Close monitoring of competitors: Set up a competitive intelligence unit that will track the prices and offerings of competitors and other relevant stakeholders. Strategic Focus Cheerios has 15 different brands that are sold in the UK. This plan for the coming year will be steeped in four different market segments. The leading brands that would fall in the four segments are as follows: 1. Honey Cheerios: Family 2. Chocolatey Cheerios: Children 3. Oats Cheerios: Adults 4. Cheerios Snack mix: Universal Objectives Corporate Objectives: To increase market share from 25% to 35% in December 2015 and expand Nestle UK directly to five international zones: China, India, South America, Southern Africa and the Middle East Marketing Objectives: To establish Cheerios as a healthy and affordable breakfast cereal in the UK and a symbol of world-class status in the five international zones. In doing this, the following objectives are required: 1. SMART Plan 1 – Cut down the level of sugar by by 30% and use organic and healthy products for some brands in the period under review. 2. SMART Plan 2 – Increase prices by 15% at the end of the period under review. 3. SMART Plan 3 – Rebrand Cheerios to be seen as a healthy, convenient, affordable [UK] and status product before the plan is implemented. 4. SMART Plan 4: Increase the reliance on online platforms for advertising and promotion by 50% in the period under review The Marketing Mix This section of the report emphasizes on how to project the marketing mix in order to attain the various objectives of the marketing plan and its related matters. Product The new Cheerios product needs to have a reduced sugar content across all the four main brand categories: children, adult, family and universal brands. For specific groups, important calorical reductions need to take place. This include the reduction of cholesterol products in the brands that target adults and the inclusion of more body building ingredients for the childrens' brands. A balance should be drawn for the family and universal brands so that it maintains the position of a healthy product. Also, innovative products should be served. This include improved tastes for children’s brands and the introduction of organic brands in order to consolidate the position of Cheerios as a healthy product in the 2013 – 2015 period. Place Cheerios' current sales outlets must be maintained. This include all the supermarket connections, sales shops and other pointers through which the brand is sold. There must be a review of the sales and distribution outlets in December 2013. Those outlets that are productive must be expanded by up to 25% and the results must be evaluated in June 2014. Those that continue to flourish must be increased further with an optimal percentage. The main addition to be maid is to expand online sales. This will mean investing up to 20% of what is invested in sales and development in building an appropriate online sales platform and affiliate portal. This can allow people to make direct orders and help affiliate marketers to sell our products. The investment must be nurtured to ensure that we yield at least 150% more from online sales by the end of 2015. International sales will be conducted through direct exports and partnership with sales companies in these new markets. By January 2014, we will evaluate plans of consolidating our hold by licensing in order to build medium term commitments with our foreign partners. Price Current prices must be maintained for the first quarter of 2013. This is to help consolidate the market share and since most people are likely to increase prices in light of improvements in the economy, we will maintain our prices for another three-month period. This will help maintain consumer confidence. In April, 2013, we will increase prices by 5% across board. This will be maintained until another increase of 15% comes to place in January, 2014. Promotion The message for promotion is going to be: “Healthy Breakfast for a Consumer who wants to Stay Wealthy” for the international consumers, the message will be modified into “Healthy Breakfast for the Discerning World Class Consumer”. These messages will build strong brand equity and consumers are likely to become more loyal to the Cheerios brand. There will be a cut of traditional advertisements by 5% in the year 2013. This amount will be used to subsidise online social media marketing and promote the use of modern techniques. This is going to be increased over the next year and quadrupled in the year 2015. People There will be the retraining of the staff members on the important changes that the new promotional strategy would involve. This will include several guidelines and important strategies for the alignment of their skills with the products and services that would be on offer. There would also be the training of affiliate marketers to understand and know techniques the relate to the internal values of the company and how to go about the online promotion of Cheerios. Affiliate marketers will be given an onsite training which will be done in given centres in the UK as well as online seminars that would be done for marketers in UK and around the world. Physical Evidence There would be changes in branding that would consciously present the new message in a clear manner. This will include a different packaging and a different set of coverings. Also, the languages for international brands would be changed and this will allow buyers in the five international zones to get packaging that they would fully understand and appreciate in their own local languages. Processes The primary sales would be done through the supermarkets. And this will follow the pattern in the current marketing plan. However, the new addition would be to increase the level of online sales through affiliate marketers. The fact that Cheerios cannot be advertised online will mean that we will replace adverts with souvenirs and raffles for younger consumers. We will have a raffle in the year 2013 and a second one in 2015. The raffles will focus on children but include all the universal brands. The raffle will be eligible for all buyers of Cheerios products and they will have to send a special code via their mobile phones to enter. Aside the raffles, there would be a campaign drive of souvenirs for childrens' packages of Cheerios. This will include toys and other directly redeemable products that will be placed in children's brands. This will done in 2014. Segmentation There would be four classes of consumers in the market: This will include: 1. Children under 4 2. Children under 13 3. Adults 4. Older Adults Children under 4 are to be given the Cheerios brands like Chocolatey Cheerios and they will be modified in a way and manner that they will provide the best nutritional needs for these young consumers. Children between 4 and 13 will be encouraged to eat the Chocolatey Cheerios type of brands as well as the Cheerios Snack mix at school. This will enable them to get a strong connection and attachment to the brand and through this, new brands can be added to the range in the 2013 – 15 period. Adults will be included in the family package and their products would be created in such a way that their health needs like the need to cut down on consuming too much sugar would be given so much priority and distinction. Older adults would also be given new brands and new packages like the Oats Cheerios since they have to eat healthy foods and stay away from fats and other rich foods because they exercise less than the other people. This will help to penetrate into the special market classes of the Cheerios consumers. Targeting Since the focus of the 2013 – 2015 marketing strategy is on creating healthy brands for Cheerios, the targeting will be based on the health needs of the various groups in the society. Low Cholesterol: This category includes customers who have low cholesterol needs. For such customers, the demographics will indicate the volume of lower cholesterol brands like Oats Cheerios that must be made available at any given point in time. In the international markets that Cheerios would be sold, the emphasis will be on the health needs and the common sicknesses. In nations where cholesterol levels are high, like South Africa, the low cholesterol range would be sold in higher quantities and the promotions would make mention of that. In areas where cholesterol is not a problem, like China, there would be a lower volume of these low cholesterol brands of Cheerios. Low Protein and Fats: Other members of the society needs low protein and fats. This include people who are checking their weight and seek to maintain their current protein levels. For such persons, there would be offerings that have such lower levels of fats. High Protein and Energy Needs: For children and other growing adults who really need protein and energy to grow, the rich brands would be made available to them and they will be encouraged to buy them since this would help them grow and get a healthy life. Positioning In the UK, Cheerios would be positioned in the three-year period as a healthy product that has a wide range that is fit and appropriate for each and every group of people in the society. Also, the product will be presented as one that is global and has a local UK focus for the UK consumer. Internationally, Cheerios would be presented as a status symbol of the international world. This will be done through a campaign that shows that Cheerios is the symbol of the wealthy and the growing middle class in these foreign territories that the product would be sold. Tactics This section shows the actual activities that would be carried out to promote Cheerios in the 2013 – 2015 campaign. Communication Tools 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 Launch Online Marketing Campaign Expansion of Affiliate Marketing Teams Corporate Sales Drive Traditional Media Drive The elements of this plan would be launched in the first quarter of 2013. This will include a formal event that would be hosted and broadcast throughout the media in the UK and around the world. It would give the public the opportunity to hear about the new marketing plans of the company. The online marketing campaign of the company will begin in the second quarter of 2013. This will include advertising on the social networks. The Second quarter will include beginning new drives and campaigns. Once the campaigns are began, they would run through the third and forth quarters and monitored closely by the staff of the internet marketing team. In the first and second quarters of 2014, new campaigns on the internet would be launched. In the last two quarters, existing campaigns would be monitored. After that, the lessons learnt from the first two phases of the online communication would be applied and an all-out campaign would be launched in 2015. The affiliate marketing platform for Cheerios would be designed in the first quarters of 2013. Once they are alright, they would be launched and new affiliate marketers would be trained. The first set would be monitored in the first two quarters of 2014. The next set will be trained in the second half of the year and this process will be repeated in 2015. Giant corporate sales drives will be launched in the second quarter of each of the years and this will each expand on the business-to-business sales volumes in each of the years. Resource Requirements 2013 H1 2013 H2 2014 H1 2014 H2 2015 H1 2015 H2 Rebranding 1000 500 Expansion of Online Presence 10000 2000 2000 2000 5000 5000 Staff training 500 800 900 800 800 500 Raffles & Souvenirs 1500 1500 1500 1500 1500 1500 Launch of Programme 500 Traditional Media 20000 20000 20000 20000 20000 20000 Overseas Expansion 10000 10000 10000 10000 10000 10000 Totals 43500 34300 34900 34400 34400 34100 Grand Total 215600 Prices Shown in ?'000 The marketing budget for the year is going to be ?215,600,000 The expected end of the programme is to increase the market share from the current 25% of the UK market which yields a revenue of ?1.3 billion to 35% which will yield about ?550 million more and this is to be carried on if the earned market share is maintained. Proposed Pricing Model The prices of the products are to be maintained for the first quarter of 2013. However, after April 2013, the prices are to increase by an average of 5%. The prices are going to be increased gradually until the reach a 15% ceiling. Monitoring For each categories of items, there would be a monthly, quarterly and annual review of results against targets. These would be examined to ensure that the elements of the strategic objectives and the SMART plan are being met. Areas where results are attained would be left bear whilst those areas that require changes would be re-examined. Bibliography Breakfast Cereals Industry Profile: Global' 2011, Breakfast Cereals Industry Profile: Global, p. 1, Business Source Complete, EBSCOhost, viewed 19 October 2012. Brassington, F. Pettitt, S (2006). Principles of Marketing. 4th ed. Spain: Pitman publishing. 306 Cereal partners UK. (2012). Nestle. Available: http://www.cerealpartners.co.uk/brands/cheerios.aspx. Last accessed 19th oct 2012. Culliney, K. (2012). Nestle breakfast cereal reformulation needs tact warns specialist . Available: http://www.bakeryandsnacks.com/Formulation/Nestle-breakfast-cereal-reformulation-needs-tact-warns-specialist . Last accessed 19th oct 2012. Driver, A. (2011). UK retailers blamed for`excessive' food prices.Available: http://global.factiva.com/ha/default.aspx. Last accessed 19th oct 2012. Euromonitor (2012). Breakfast cereals in Turkey. November 2012 Euromonitor (2011). Breakfast cereals in UK, 2011 Euromonitor, (2012) CSR and the FMCG market response . Food chain centre. (2012). Cereals. Available: http://www.foodchaincentre.com/subtype.asp?type=1&subtype=7 . Last accessed 19th oct 2012. Food Alert (2012) UK Breakfast Cereals Markets to Show Further Growth [Online] Available at: http://www.bordbia.ie/industryservices/information/alerts/Pages/BreakfastCerealsMarket.aspx?year=2010&wk=42 Accessed: November 27th, 2012. General Mills Annual Report 2012. Accessed online 19th Ocotber 2012 at: http://phx.corporate-ir.net/phoenix.zhtml?c=74271&p=irol-irhome Kummer, C. CAN TECHNOLOGY SAVE BREAKFAST?. Smithsonian [serial online]. June 2012 issue 43(3):p74-p96. Available from: Academic Search Complete, Ipswich, MA. Accessed October 18, 2012. Mintel (2012). Breakfast Cereals in UK. August 2012 Mintel International Nestle About Us (2012) Who We Are [Online] Available at: http://www.cerealpartners.co.uk/about-us/default.aspx Accessed: November 27th, 2012. Nestle Cheerios (2012) Cheerios Our Brand [Online] Available at: http://www.cerealpartners.co.uk/brands/cheerios.aspx Accessed: November 27th 2012. Nestle (2012) Nutrition commitment. October 15th 2012 accessed online 19th October 2012 :http://www.nestle.com/Media/NewsAndFeatures/Pages/CPW-nutrition-commitment.aspx Nestle annual report (2010) accessed online 19th October 2012 at:http://www.nestle.com/Common/NestleDocuments/Documents/Library/Documents/Annual_Reports/2010-Annual-Report-EN.pdf Nestle news and features (2011) accessed online 19th October 2012 at: http://www.nestle.com/Common/NestleDocuments/Documents/Media/news-and-features/2011-february/CPW-brochure.pdf Nestle brand financial statement (2011) http://www.nestle.com/Common/NestleDocuments/Documents/Library/Documents/Financial_Statements/2011-Financial-Statements-EN.pdf Last accessed 19th oct 2012 Nestle UK & Ireland (2012) Nestle UK & Ireland and Connected Companies [Online] Available at: http://www.nestle.co.uk/aboutus/Pages/Nestl%C3%A9UKSisterCompanies.aspx Accessed: November 27th November, 2012. Porter, M. E. (1985) Competitive Advantage New York: Free Press. Schultz, E. J. (2012), 'Cereal marketers race for global bowl domination', Advertising Age, 83, 30, pp. 12-13, Business Source Complete, EBSCOhost, viewed 19 October 2012. Tesco (2012) Breakfast cereals, Acessed online: 19th October 2012 http://www.tesco.com/groceries/buylist/default.aspx?Name=CM+Breakfast+Cereals+%26+Cereal+Bars Tracing paper (2012) Accessed online: 19th October 2012 http://www.tracingpaper.org.uk/foodtracer/manufacturing/nestle/ http://www.mysupermarket.co.uk/#/tesco-price-comparison/breakfast_cereals/nestle_cheerios_600g.html last accessed 19th oct 2012 Wagner, S (2012). Investment in Emerging Economies. Sage Publications WARC (2011). Cereal Products (Global Industry Overview) Appendix 1 External Audit Political Regulatory pressure from the EU and force from health organisations associate sugar content of cereals such as Nestles cheerios with childhood obesity concerns and problems (Culliney, K. (2012). Obesity in children has been associated with increasing risks of heart disease, diabetes and cancer with breakfast cereals being implicated in the trend towards excessive weight grain. Consumers look toward healthier options such as oats and organic granolas specifically targeted towards this growing segment. Ofcom has prohibited advertising for breakfast cereals on any children’s tv channel, new forms of promotional media should be explored (Mintel, 2012) Economic The international economy is suffering from a general slump; which is part of the greater worldwide recession that has hit the world since 2008. The breakfast cereals industry has faced the largest collapse that has never been witnessed since over a hundred years. The industry has been plagued by a regression in both value and volume as major brands have been forced to restructure their core business activities. Research has indicated that the decline has been attributed to the presence of numerous brands; which has saturated the market while there has been an increasing growth of “own-label” goods (Mintel, 2012). Moreover, the major organizations in the industry have failed to respond to consumers’ preferences and lifestyles in the cereals sector. The breakfast cereals market has increased in value by 20% between 2008 and 2012 (Mintel, 2012) this reduces the potential for any more significant growth. The UK economy is strongly affected by consumer food price inflation, in 2011 UBS analysts found that bread and breakfast cereals rose by 5.1% this outstripped domestic price inflation for the same period at 4.5% (Factiva, Alistair driver). During a recession or a period of economic downturn; threat from stores ‘own-label’ breakfast cereals present a cheaper option with “successful promoting and stocking” super markets such as Sainsbury’s and Tesco’s can pose a threat and take away market share and sales from Nestle (WARC global cereal overview). Cheerios has experienced double-digit growth in emerging markets such as Brazil and Turkey (Nestle annual report, 2012) this shows potential for growth. Economic conditions in Turkey have improved with rising GDP of 6% per year between 2002 and 2008 (Euro monitor, 2012). Increased investment in advertising and product promotion have influenced consumer buying trends “Retail volume sales of breakfast cereals in Turkey rose by 23% in 2011, following a 20% increase in 2010” (Euromonitor, 2012). These figures show promising growth in this economy. Nestle’s manufacturing costs fluctuate with commodity prices; this in turn has an impact on profit margins. “Global prices of cereal grains can be volatile and inflation in this area has had a significant impact on the market” (Mintel, 2012). In the first half of 2012 commodity prices remained relatively level, this lessened pressure on manufactures such as CPW (Mintel, 2012). Sociocultural The United States is the leading market for breakfast cereals with an estimated share of 59.7% (Data Monitor, 2011). This is followed by Europe, which controls 29% of the market (Data Monitor, 2011). General Mills has marketed the Cheerios brand in an effective manner in the above markets. A growing market for health conscious individuals is emerging in the developed world. Specific brands like Crispy Oats, Oat Cheerios, and Purely O’s are healthier options, which can be marketed in the United States and Europe. Healthy breakfast cereals such as Musili have experienced higher growth than the breakfast cereal category as a whole; Musili is anticipated to account to 9% of sales in the cereal market by 2011 (Euromonitor, 2011). The Middle East represents a potentially lucrative market because the six oil-producing countries have relatively affluent population segments who are switching to cereals for meeting their breakfast needs. In addition, the emerging markets of China and India represent potential growth for Cheerios because the middle class in these countries has been increasing at the rate of 100 million and 40 million respectively (Wagner, S. 2012). The middle class enjoys highly disposable incomes along with awareness about Western brands. Cheerios can tap into this potential market through the use of efficient and effective strategies. Consumer trends in China, India and Brazil have shifted from the traditional norm of bread and fish to a rising demand for “American-style breakfast cereals” (Shultz, ej. 2012). Ready-to-eat cereals are in demand since they have a market share of 87.2% in the global breakfast cereals sector (Data Monitor, 2011). In addition, hot cereals are also rapidly gaining prominence in the market with the highest forecast growth rate of 5% year on year (Euromonitor, 2011) Cheerios can market their products by suggesting adding hot milk in order to achieve its key goals. Cheerios faces significant threats as consumers in the world are opting for on-the-go convenient breakfast solutions like cereal bars, porridge, pastries, pancakes, and others that are perfectly in line with the hectic and busy schedules of the target market (Mintel, 2012). Manufacturers face competition from foodservice outlets that sell instant porridge. While hot cereals such as oats need to be microwaved before consumption, those products purchased from foodservice outlets can be consumed without any additional preparation (Euromonitor, 2011). Nestle is heavily dependant on the US market where yogurt is capturing the market as a popular breakfast option. This shift towards alternative breakfasts such as yogurts and cereal bars is also happening in the UK as Mintel reports imply (Mintel, 2012). A major threat to Nestle is the presence of excessive sugar content in Cheerios; which has raised concern among health-conscious consumers. This consumer segment is opting for healthier alternatives that can meet their requirements in an efficient manner without compromise to taste. Technological Innovations in technology has allowed for cereal manufacturers to reduce the sugar and salt from their products. Recent methods such as removing sugar from within the mix to just coating the cereal have proven to be effective (Kummer, C. 2012). Re-shaping sugar crystal size has also proven to maintain the sweetness while reducing overall sugar content, Nestle are pioneers in this field of “reformulated cereals” (Kummer, C. 2012). This process will open up marketing opportunities targeted towards the health conscious cereal market segment. Nestles’ research facility in Switzerland has been pushing the industry standard of breakfast cereal nutrition to ever increasing standards. Finance for this research is costly; Nestle/General Mills has invested heavily into its research and development department, which is now a leader within its industry and amongst competitors (Kummer, C. 2012). Nestle is now working to simplify the ingredients in some of its popular products, again this will extend Nestle’s marketing campaign to target the more health conscious and compete with companies like Dorset cereals (Kummer, C. 2012). By 2015 Cereal partners worldwide (cereal manufacturers of joint venture Nestle/General Mills) will aim to have reduced sugar content to 9g or less per serving, Cheerios will have a sugar reduction of 30% (Nestle breakfast cereals oct 15. 2012). Appendix 2 The Market Environment & Product Range The market value for breakfast cereals in the UK as of 2012 is ?1,582 million The market value for breakfast cereals in the UK is predicted to rise to ?1,883 million, an increase of 19% between 2012 - 2017 Volume of sales is forecast to decrease, despite the increase in value, this is down to the increasing popularity of alternative breakfast foods. See figure 1.0.2 for brands of cereals in the uk market Products and prices of top competitors of Cheerios (per 100g) Sourced from Tesco (18th October 2012) excluding price promotions. Nestle Cheerios (61.1p/100g) Nestle Shredded Wheat (53.8p/100g) Kellogg’s special K (79.8p/100g) Tesco honey nut cornflakes (29p8p/100g) Tesco multigrain boulders (42.1p8p/100g) Kellogg’s all-bran (41.8p8p/100g) Kellogg’s corn flakes (39.6p/100g) Kellogg’s crunchy nut (66.48p/100g) Kellogs Honey loops (79.58p/100g) Source: (Tesco, 2012) These prices are based on the average box of 500g although this may vary. From the 8 different cereals above Cheerios is a slightly above average price but not the most expensive, which is Kellogg’s special K. As seen in the prices Tesco’s own brand is the cheapest with the multigrain boulders the nearest competitor to Cheerios, their pricing could influence consumers buying decisions and take away sales and market share from Cheerios. The price list does not account for the Granola cereals from hi end brands such as Jordan’s or Dorset cereals as these are in different market segments. Appendix 3 Industry Analysis: Distribution Channels & Consumer Dynamics Nestle distribute their cereals across the UK and are available at most supermarkets. Tesco, Asda, Sainsburys, Morrisons, Waitrose, Somerfield and Co-op are the main buyers. Products are delivered to a central warehouse and it is the retailer’s decision as to which branches receive what products (Cereal partners uk, 2012). Cheerios are manufactured in Bromborough, Merseyside and its distribution centers are based in Yorkshire and Leicestershire (Tracing paper Nestle, 2012). Customers/consumers Nine in ten consumers eat cereals as a staple part of the typical British breakfast Consumption is highest among women, 35-44 year olds. Second highest consumption is seen parents with children aged 6-9 years old Third Highest consumer is those from large households Under-25s are most likely to skip breakfast and considered non-users, these are the least actively targeted market by Cereal brands Families eat the most cereal and are considered “habitual users” Consumers living in households of 5 or more generally eat cereal on a daily basis (73%) Heavy users have decreased by 3% since 2011 and sales have decreased by 2%. This accounts for the increase in alternative breakfast foods suggests Mintel’s breakfast cereals report 2012 (Mintel, 2012). The speed and convenience of the breakfast cereal is essential for parents of big households. With this target consumer in mind, cereal brands must consider the marketing strategy of its products with a broad demographic any campaign must appeal to the parents as well as the children. See appendices 1.0.3 Industry practices Regulatory bodies and pressure groups such as the ‘Cereals Industry Forum’ enforced by ‘Food Chain Centre’ and the ‘Home Grown Cereals Authority’ (HGCA) aim to improve efficiencies in the cereal industry in a way that is “consistent with a sustainable, internationally competitive UK cereal industry” (Food chain centre, 2012). Value chain analysis and supply chain mapping that use grain, wheat and all components of cereal products are scrutinized to ensure efficiency with environmentally conscious methods and practices. Effectively this is an example of good corporate social responsibility and is adopted by most major cereal brands. Typical cereal brands industry practices Marketing strategy towards children is now more socially responsible Work with health organisations and the government developing polices that enhance consumer health awareness Clear nutritional information on all packaging eg. National GDA’s Source: (Euromonitor, CSR and the FMCG market response 2012). Appendix 4: Cheerios & Nestle Internal Audit COMPANY Cheerios has been a popular breakfast and cereal brand for the past sixty years. In the UK, Cheerios is produced by Nestle UK and Ireland which has nine different companies in the group (Nestle UK, 2012). Cheerios is treated as a strategic business unit in the Nestle UK and Ireland organisation (Nestle Cheerios, 2012). Nestle UK and Ireland is the second largest manufacturer of breakfast cereals and controls 25% of the UK's market share (Nestle About Us, 2012). Its reported revenue in 2011 was ?1.3billion which makes it one of the largest and most powerful companies in the breakfast cereal sector of the UK. Nestle UK is well capitalised and has different partner organisations that can be of use in the marketing and strategic drive of Cheerios. Cheerios also has a global distribution system that is connected to Nestle UK via the Cereal Partners Worldwide which links up to General Mills, UK. The Nestle and General Mills partnership is always ready to invest heavily into advertising campaigns and also improve the asset base of the Cheerios unit of the company. Due to this, there is always a ready flow of money for marketing drives. Due to this, the Cheerios brand is very strong and has a global brand equity. Nestle is also know for its heavy investments into research and development which has led to so many new brands and packages for the Cheerios range. Internal Audit Nestle brand Sales ?83.6 million (2011) profit for year ?9.8 million Source: (Nestle brand financial statement, 2011) General Mills Sales $16.7 billion (2012) Source (General Mills Investors section, 2012) Cheerios sales UK 2010 – ?54 Million 2011 – ?52 Million -3.7% change see fig 1.0.1 Cheerios has a 3% market share of the breakfast cereals market as of August 2012 in Mintels breakfast cereals report (Mintel, 2012). Product Cheerios: “say yes to these cruncy o’s” Irristable cruncy O’s a mix of corn, wheat and rice that appeal to all ages “something that everyone agrees on for breakfast. Variants include ‘Honey nut cheerios’ and ‘chocolate cheerios’ Source: (Cereal partners, 2012) Price Average price for a 600g box on the 18th October 2012 is ?3.09 from ASDA, Tesco, Sainsburys, Waitrose and Co-op. The average price for 2012 was ?2.97 and the highest this year to date was ?3.28 Source: (http://www.mysupermarket.co.uk/#/tesco-price-comparison/breakfast_cereals/nestle_cheerios_600g.html) Place Tesco, Asda, Sainsburys, Morrisons, Waitrose, Somerfield and Co-op are the main buyers. Promotion CPW (Nestles cheerios brand manufacturer) spent ?8.8 million on advertising in 2011 with most of this budget going on new products such as ‘Super fruity shredded Wheat’ Marketing campaigns featuring Tom Daley (Olympic medalist) offers vouchers to 5,000 plus venues across the UK for consumers to try a range of activities. Voucher ‘points’ are collected from packs of cheerios and shredded wheat. Source: (Mintel, 2012) Fig 1.0.1 Cereal sales and market share 2009-2011 in the UK Source: (Mintel, 2012) Fig 1.0.2 Cereal Brands in the UK market 2011 Source: (Mintel, 2012) Fig 1.0.3 Trends in cereal consumption and consumers 2009-2011 in the UK Appendix 5 Competitor Analysis COMPETITORS Over the past three years, there have been some trends that define the competitor matrix and the kind of competitors in the UK's breakfast cereal industry. Porter's Five Forces defines five main elements that define competitive rivalry within an industry. They are: 1. Threat of new entrants 2. Threat of substitutes 3. Bargaining power of buyers 4. Bargaining power of suppliers 5. Competitive rivalry in industry (Porter, 1985) Basically, the threat of new entrants is quite low for the breakfast cereal industry. This is because the industry has a high capital requirement and entrance requires a lot of investments. From Appendix 5, it is identified that the breakfast cereal market represents 64% of the market share. This is closely followed by other substitutes which include bread, and rolls (37%), fats and spreads (30% and 19% respectively) as well as fruits which consists of 15% of the market. These substitutes, particularly bread and rolls have a strong tendency to expand and capture the market share of Cheerios. The bargaining powers suppliers are quite low and due to that, there is no clear threat that the company would face any major challenges from such companies. However, there is a major risk with the threat from buyers like the main buyers like the supermarkets. Example include Tesco, ASDA and others who in-house breakfast cereal brands. These suppliers continue to produce more options at lower prices that are fast gaining market share. Over the past year, Tesco has launched very new ranges of products and this continues to expand (Appendix 2) Competitive rivalry is however a major threat to Cheerios unit of Nestle UK and Ireland. Cheerios shares the market with Kellogs, Malt-O-Meal and Quaker Oats Company (Appendix 2). These are highly capitalised brands that provide various threats to Cheerios. According to a survey of Tesco, although two Cheerios brand have maintained a constant lead over the past 2 years, Kellogs has as many as four brands that are in the top ten breakfast cereals. This means that they provide a wider variety of products to consumers. Substitutes' Profile Appendix 6 Further Internal Analysis This section of the report would identify the core competency and capability of the Cheerios unit of Nestle UK. It would align the resource capabilities with environmental matters and conditions. Strengths 1. Large financial resource base: Nestle and General Mills are well capitalised entities at the global level. They have a strong asset base and a resource base and they have a lot of money to spend in order to attain their objectives. Nestle has already invested heavily in a strong brand presence and they seem to be committed to expanding to acquire economies of scale and economy of scope. This investment is done carefully and this increased sales by 23% in 2011 (Appendix 3) 2. Strong research and development department: Nestle has a strong research and development unit that is under the supervision of the Switzerland headquarters of the company. This enables them to do constant review and examination of trends and take decisions that lead to high returns and optimal results. 3. Strong brand image: Cheerios has an established brand that can be traced back to 1941 when General Mills started producing it in the United States. This brand helps to create brand loyalty and influences consumer buying decisions (Brassington, F. Pettitt, S (2006). Weaknesses The fundamental weakness that is inherent in the cheerios brand is that it has been cited by many sources for having an excessively high sugar content. Although most children love the sweet taste of Cheerios, there have been concerns voiced out by experts and other health conscious consumers who have not really come up with has prompted a lot of research and development in the company. However, most of these studies have not been implemented and it is appropriate to implement before this marketing plan is carried out. Opportunities 1. Increasing demand for hot cereals: More and more people are becoming increasingly interested in hot cereals that can be prepared quickly. Due to this, Cheerios brand has a propensity to be expanded to different parts of the UK and beyond with ease. 2. Growing public health consciousness: The rising number of people seeking health breakfasts means that if Cheerios is careful about its calorical measures and limits, it is likely to capture a larger share of the market and get more customers hooked to their brand. 3. Growth of the UK economy: The increase of the UK economy which is attributed to the Olympics and the strength of the British Pound means that the economy is going to grow. This means that demand will rise so more can be produced and prices could be increased without being felt by the consumers. 4. New buyers in the developing world: The growth in demand for UK breakfast cereals and new trade agreements opening up new markets like India and China means that there are new buyers that will be interested in Cheerios. Thus, Nestle UK can export directly to these countries and make a significant profit before new outlets are built in these zones in the next 5 years or so. 5. Development of Complementary Technology: Cheerios can develop complementary technology similar to the expresso coffee machines that can cook and create cereals quickly. This can create a new income stream and also enhance the experiences of consumers in the industry. 6. Promotion and Marketing through the Internet: Since more people spend time on the Internet, there is the chance for Cheerios to promote its services online. These promotional drives can be done at a lower cost and can be very effective in creating brand equity. Threats 1. Rising commodity prices: “Global prices of cereal grains can be volatile and inflation in this area has had a significant impact on the market” (Mintel, 2012). The prices of the raw materials for the production of Cheerios keeps rising. Over the past year, there were various wars in some parts of Africa that have prevented suppliers from exporting to the UK manufacturers of Cheerios. 2. Alternative breakfast options: There are different breakfast options on the market like cereal bars, pastries and pancakes that are still consumed by customers in the UK market. There are other instant porridge products and bread and other traditional foods that can be a little competitive 3. Health conscious factors: The high sugar levels of Cheerios makes it difficult for the company to convince consumers that they are a health conscious entity. Due to this, they are likely to lose market share if the sugar and salt levels remain exactly where they are. 4. The growth of competitors: Kellogs and other key industry players pose a strong threat and danger to Cheerios. Also, the threat of house brands like Tesco breakfast cereals pose a continuous threat to the expansion of Cheerios' market share. Appendix 7 Further Analysis of the External Environment ENVIRONMENT The Political, Economic, Sociocultural and Technological conditions have changed significantly and this determines the markets and other conditions that are relevant to the sale of Cheerios products. Political The UK's membership of the European Union has caused pressures for the production and sale of healthy products to customers (Cullinary, 2009). In the past five years, the need for the reduction in salt and sugar to prevent health diseases has been emphasized by the European Union. And this means that Cheerios would have to cut down on its content. In 2011, the UK authorities issued a ruling that banned the advertising of breakfast cereals on children’s TV stations (Mintell, 2011). This means that Cheerios cannot advertise and promote its brand to children who have been the traditional powerhouse of Cheerios adverts. Economic The global financial crises caused the British economy to shrink. Earlier, price inflation increased by 5.1% according to Factiva. This means that people are likely to buy less. However, the efforts and austerity measures of the UK government and allied nations has shown promise of a recovery since mid-2011. The UK case is much more optimistic than other European and North American economies because the London Olympics injected a lot of money into the economy and this is evidenced by the strong British Pound between August and November, 2012. Many sources have identified that the UK's economy has increased by 1% and it is predicted that this will increase over the next three years (Mintel, 2012). On the other hand, there are emerging markets around the world and with new nations set to join the World Trade Organisation, there is a chance that a new market could be opened up for Cheerios. Sociocultural There is a general growth in health consciousness around the world. More people want healthier products and most are likely to avoid Cheerios if the sugar content continues to remain high. More people are set to develop a further taste for breakfast cereals because of the convenience that it brings. Most people are not likely to have the time in Britain today to cook breakfasts since most families are made up of busy parents and children who have limited time. So there is evidence that demand for breakfast cereals will rise. On the other hand, there is a growing middle class in nations in the developing world that have developed a taste for breakfast cereals. And with a good brand equity, a British product can really do well in these economies. Britain's connection to the Commonwealth means that it can easily sell breakfast cereals to middle income families in India, Australia and Africa without even having to rebrand the packaging or use a different language. The English packages would do well without any translations. Also, other markets are emerging in South America and the Middle East that can be conveniently targeted with ease. Technological There is a continuous quest for better production lines in the cereal industry. Competitors and players in the industry are discovering better production methods and systems on a regular basis. There are also important complementary products like machines and other manufacturers than can easily be used to enhance the breakfast cereal experience. There is also an increase in the use of the Internet, Websites and other social media and networks to market and promote breakfast cereals with a global reach. Read More