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The Marketing

Environment

The Market Environment

To get a better picture of the cereal market we need to focus on some key criteria for our external research. We will use Mintel as one of our primary sources of information in this section, The website contains a lot of external research specific to cereals. In this section we address the following issues:

Potential

A report soured MINTeL network show’s the structure of the market as it is now and the path the industry has taken in terms of consumers over the last 20 вЂ" 30 years. The report suggests that during the 1990’s breakfast cereal market experienced a downturn in volume as consumers continued to skip breakfast in increasing numbers. Since 2000, however, volumes have started to recover, coupled with stronger value growth, in part due to premium, luxury products building value back into the category, while core products have also been able to sell at prices exceeding effects of inflation.

Figure 1 shows the UK retail value and volume sales of all breakfast cereal for the period 1998-2003.

Figure 1: UK retail volume and value sales of breakfast cereal, 1998-2003

000 tonnes Index Ð'Јm Index Ð'Јm at 1998 prices Index €m Index

1998 380 100 997 100 997 100 1,485 100

1999 378 99 998 100 995 100 1,517 102

2000 378 99 1,005 101 1,005 101 1,648 111

2001 399 105 1,068 107 1,034 104 1,719 116

2002 404 106 1,090 109 1,040 104 1,711 115

2003 (est) 409 108 1,117 112 1,050 105 1,742 117

Looking at the table we can see that from 2001-03, value has been driven back into the category probably through the launch and success of premium-priced products, at an estimated value of Ð'Ј1.1 billion (€1.74 billion). This performance is strong, with sterling value growth in the latest year of nearly 2.5%. While this is the equivalent of nearly a 7.5% (380 * 1.075 =408.5) increase from 1998, in terms of 1998 value, it is slow growth of just 1-2% annually. Volume has continued to grow steadily year on year following a slight downturn in 1999-2000. Generally from this information we can see growth rate is slow but the market is over 1.1 billion pounds worth which gives us a good opportunity for profit.

Customers

Figure 2: UK retail value sales of RTE cereal, by type and value, 2001 and 2003.

Source: MENTeL

2001 2003 (est) % change

Ð'Јm €m % Ð'Јm €m % 2001-03*

Children's cereals 315 507 31 384 599 37 +21.9

Wheat biscuits 173 279 17 187 292 18 +8.1

Corn-based cereals 223 359 22 187 292 18 -16.1

Bran & health cereals 213 343 21 177 276 17 -16.9

Muesli 91 147 8 104 162 10 +14.3

Total 1,015 1,634 100 1,039 1,621 100 +2.4

Looking at this table in a glance we can see the following things:

• Children's cereals continue to perform well probably because of the link they have with television cartoon programmes and Disney films.

• Wheat is still strong small increase

• Corn is struggling вЂ" dramatic fall Ð'Ј36 million

• Bran and health cereals - differing success:- extra research shows that in this segment the demand for all bran cereal is falling but healthy eating cereals like special k are rising in demand. Extra articles on MINTeL also show rise in organic market but this is still relatively small.

• Muesli - small but strong

Now that we can know the size and segmentation of the market we need to understand our competition a bit so we know where we stand and how we can estimate a segment for our product.

Competition

The breakfast cereal market has a range of technologies, with differing barriers to entry. Smaller manufacturers can readily supply Muesli-type products, and to some degree hot eating oat products with minimal investment in machinery. Extruded and flaked cereals require specialist manufacturing technology, with large initial capital outlay, representing a significant barrier to entry.

.The leading manufacturers вЂ" Kellogg’s, Weetabix and Cereal Partners вЂ" continue to dominate the market, Kellogg’s alone holds its share estimated at 40% value. The following table, which has been taken from mental shows this, break down.

Source : MENTeL web site

Figure 3: Total breakfast cereal market, by manufacturer shares, 2001 and 2003

2001 % 2003 (est) % % change

Ð'Јm Ð'Јm 2001-03

Kellogg 427 40 447 40 +4.7

Weetabix 150 14 179 16 +19.3

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