The Competitive Position of Kellogg - Admission/Application Essay Example

Question1. (a) As mentioned in the case study above, Kellogg is going through a challenging time. Perform an external audit on Kellogg. Discuss the opportunities and threats facing the company. Opportunities: Kellogg is an old company firmly placed in the business of food products – ready to eat cereals, cookies and snacks known as convenience foods worldwide, and is rooted well in North America. The opportunities for Kellogg are in abundance, as it has been making strenuous efforts in improving the nutrition value of its food products that reduce the trans-fatty acids and saturated fats. It has a stronghold in cereals and convenience foods market. Kellogg’s manufacturing units are expanded worldwide to serve the whole world market. Global business operations of Kellogg are historical, and the good thing about Kellogg products is that it is keen to provide healthy and nutritious foods to the customers. Threats: Threats to Kellogg are equally strong. It faces competition from such companies that are international brands like General Mills’ Cheerios in read- to-eat cereals and PepsiCo’s Frito-Lay, and Kraft Foods Nabisco Foods in convenience foods. Both the competitor companies are equally strong to promote their brand products worldwide, introduce new products, and acquire the rival companies. Another competition to Kellogg is from well established stores’ own brand products which are being sold at lesser rates, as their spending on advertisement and promotion is nominal. (b) Apply Porter’s Five Forces Model to assess the competitive position of Kellogg. Justify assumption made, if any. As per Porter’s Five Forces Model, the collective strength of the five forces decide the final profit making capacity in an industry. In that context, the competitive position of Kellogg should not be taken lightly. The market for ready-to-eat foods has reached a ripened state where a selective group of manufacturers like Kellogg have developed a stronghold; they have created brand identity, achieved economies of scale, and are financially sound with added proprietary product differences. So fear of new entrants is not an issue in the near future as well. Regarding substitute products in the ready-to-eat breakfast and fast food, Kellogg faces price competition from well established stores’ brand products. Customers also show the tendency to purchase less costly and equal in quality store products. Regarding Kellogg’s suppliers bargaining power, it is not as strong because of volume supplies, differentiation of inputs and their impact. Suppliers cannot afford to change their customers due to related costs. Kellogg’s initiatives like its partnership with Bung/Dupont Biotech Alliance to increase the production of Nutrium, low-linolenic soybean oil made from genetically improved soybeans will help it in controlling supplier concentration. Regarding the bargaining power of Kellogg’s buyers, they are not just grocery stores with whom Kellogg could command its own price but giant retailers conscious of cost like Wal-Mart and Target, quite bigger than Kellogg in size. They can manipulate prices as holding bargaining power with wholesome purchases, as Wal-Mart’s contribution in the sales of Kellogg was 14 percent in 2004, increasing from the previous 12 percent sales to Wal-Mart in 2002. Rivalry determinants for Kellogg are its equally strong competitors like General Mills, Kraft Foods Inc., but Kellogg need not worry on this count as its share price has been on the up side and the Kellogg Co is capturing the market share of rival companies also. It seems that in near future Kellogg’s competitive position vis-à-vis the rival is going to remain strong. 2. (a) Should Kellogg attempt to acquire Quaker Oats from PepsiCo? Would Quaker Oats be a good strategic fit for Kellogg? Although Kellogg seems to be not in dire need of acquiring Quaker Oats, as it is giving competition to General Mills and Kraft Foods Inc., parent of Post Cereal , and recording upward rise of its shares by more than $50. In near future, chances are bright to remain the market leader but considering a long term perspective of future market loaded with new products, it will be in the interest of Kellogg to acquire Quaker Oats, as it is a good strategic fit for Kellogg. Kellogg faces major competition in ready-to-eat cereals from General Mills and Kraft Foods. The world’s best selling cereal Cheerios is a product of General Mills. If Kellogg acquires Quaker Oats, market competition will reduce in its favor, as in ready-to-eat segment, its rivalry will remain with one competitor only, which is General Mills’ Cheerios. Further, most of the famous products of Kellogg are almost 50 years old, Pop-Tarts was the latest product developed in 1960s. To remain front runner in the market, acquiring Quaker Oats would be a wise decision as it will neutralize the risk from one of its major competitor PepsiCo. (b) In order to strengthen the strategic fit with Quaker Oats, discuss the key issues that Kellogg should focus on to make the acquisition a success. To make its acquisition of Quaker Oats a success and strengthen the strategic fit, Kellogg should work on creating a synergy effect by introducing new products in the ready-to-eat cereal category. Although cereal products are not complimentary but when customers get a complete range and variety to choose their nutritious cereal, it will create the synergy effect and sales of all cereal products will rise including the acquired brand Quaker Oats. It can introduce more varieties of cereal foods to strengthen its customer base. Creating other parallel brand products won’t let customer base shrink. Generally, customers prefer to try the same extensions of the selected manufacturer. In Kellogg case, if an extended product is introduced by Quaker Oats, customers would prefer to indulge in the new product by the same company in stead of another company’s branded product. Kellogg can create the synergy effect with the acquisition of Quaker Oats by reducing the overhead expenses and using the new resources optimally to create revenue and cost synergies. Kellogg should not delay the implementation of what it has planned so that synergy effect remains positive. Sometimes, potential synergies and cost savings are exaggerated. So that synergies created remain positive, actual costs need to be measured carefully to control overhead expenses and capture the market with recurrently introduced new similar offerings. Read More