BU491 Lecture Notes - Lecture 2: Breakfast Cereal, Harvard Business Publishing, Cereal Partners Worldwide
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United Cereal:
Lora Brill’s Eurobrand Challenge
Lora Brill, United Cereal’s European vice president, was alone in her office early on a cold March
morning in 2010. "I've given approval to a dozen big product launches in my career," she thought. "But
the implications that this one has for our European strategy and organization make it by far the most
difficult I've had to make."
The decision related to Healthy Berry Crunch, a new breakfast cereal that the French subsidiary
wanted to launch. But Europe's changing market and competitive conditions had led Brill to consider
making this the company's first coordinated multimarket Eurobrand launch. It was a possibility that
had surfaced some equally challenging organizational questions. "Well it's only 7 AM," Brill thought to
herself, smiling. "I have until my lunch appointment to decide!"
United Cereal: Breakfast Cereal Pioneer
In 2010, United Cereal celebrated its 100th birthday. Established in 1910 by Jed Thomas, an
immigrant grocer from England, the company's first product was a packaged mix of cracked wheat,
rolled oats, and malt flakes that Thomas sold in his Kalamazoo, Michigan, grocery store. UC, as it was
known in the industry, eventually diversified into snack foods, dairy products, drinks and beverages,
frozen foods, and baked goods. By 2010 UC was a $9 billion business, but breakfast cereals still
accounted for one-third of its revenues and even more of its profits.
UC’s Corporate Values, Policies, and Practices
Thomas grew the company with strong set of values that endured through its history, and
"commitment, diligence, and loyalty" were watchwords in UC. As a result, it attracted people who
wanted to make a career with the company, and it promoted managers from within.
Among its managers United Cereal instilled a strong commitment to “The UC Way,” a set of
timetested policies, processes, and practices embedded in iconic company phrases. For example, "Listen
to
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4269 | United Cereal: Lora Brill’s Eurobrand Challenge
2 BRIEFCASES | HARVARD BUSINESS SCHOOL
HBS Professor Christopher A. Bartlett and writer Carole Carlson prepared this case solely as a basis for class discussion and not as an endorsement,
a source of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and any
resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration.
Copyright © 2011 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
the customer" was a deeply rooted belief that led UC to become a pioneer in the use of consumer
research and focus groups. "Spot the trend, make the market" was another iconic phrase reflecting the
high value placed on extensive market testing prior to launching new products. Finally, the value of
"Honoring the past while embracing the future" led UC to reject the conventional wisdom that
processed food brands had fixed life cycles. Through continuous innovation in marketing and product
development, many of its products remained market leaders despite being more than half a century
old.
United Cereal had a well-earned reputation as an innovator. During its 100-year history, its R&D
labs had secured more product and process patents than any other competitor. The company had also
pioneered the “brand management” system in the food industry, giving brand managers leadership of
cross-functional teams that included manufacturing, marketing, and other functions. Each brand was
managed as a profit center and was constantly measured against other brands. Brand managers also
competed for R&D and product development resources.
Although this system reduced lateral communication, vertical communication was strong, and top
managers were very involved in seemingly mundane brand decisions. For example, advertising copy
and label changes could require up to a dozen sign-offs before obtaining final approval at the corporate
VP level. "It's due to the high value we attach to our brands and our image," explained a senior
executive. "But it’s also because we give our brand managers responsibility at a very young age." While
the company took few risks (a failed launch could cost millions even in small markets), it balanced
deliberate cautiousness with a willingness to invest in products it decided to support. "The competitors
can see us coming months ahead and miles away," the senior executives said. "But they know that when
we get there, we'll bet the farm."
The Breakfast Cereal Market
Breakfast cereal was in its infancy when UC was founded, but it soon grew to be one of the great
food commercialization successes of the 20th century. From the 1890s when Keith Kellogg created corn
flakes in his attempt to improve the diet of hospital patients, the industry had grown to achieve
worldwide revenues exceeding $21 billion in 2009. The U.S. industry included more than 30 companies
with combined annual revenues of $12 billion. But just five players accounted for 80% of sales.
The industry recognized two categories of cereals—hot and ready-to-eat. The latter accounted for
90% of sales in both the United States and Europe. In this highly competitive industry, more than 10%
of revenues was spent on advertising and marketing. Profitability also depended on operating
efficiently, managing materials costs, and maximizing retail shelf space. Larger companies had
significant advantages in purchasing, distribution, and marketing.
In the fight for share, several new-product introductions typically occurred each year. Developing
a new brand was time-intensive and expensive, typically taking two to four years. Brand extensions—
for example, General Mills’s creation of Honey Nut Cheerios—were generally less expensive and less
risky due to scale economies that could be leveraged in both production and marketing. But for most
U.S. cereal companies, growth was increasingly coming from expansion into new offshore markets, and
UC was no exception.
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UC’s European Operations
United Cereal entered European markets in 1952 by acquiring an English baked goods company.
(Its European offices were still in London.) Over the next 30 years, UC expanded its European presence,
typically by acquiring an established company with local market distribution, and then growing it by
introducing products from the U.S. line. By 2009, Europe accounted for 20% of United Cereal’s
worldwide sales.
European Industry and Competitive Structure
Europe’s $7 billion breakfast cereal market in 2010 had been overlaid on a variety of national tastes
and breakfast traditions—cold meats and cheese in the Netherlands, pastries in Greece, bacon and eggs
in Britain, and croissants in France. As a result, per capita consumption of cereals varied significantly
across markets from 8 kg. a year in the United Kingdom to 0.5 kg. a year in Italy. Channels also varied
widely by country, with supermarkets and hypermarkets accounting for more than 80% of grocery
sales in Germany, 37% in France, and only 17% in Italy.
U.S.-based companies Kellogg and United Cereal were the largest two competitors in the European
market with 26% and 20% share respectively. Cereal Partners, a joint venture between General Mills
and Nestlé, ranked third with 17%, and U.K-based Weetabix trailed these leaders with 7%. Numerous
smaller manufacturers divided the remaining 30% of the market.
United Cereal regarded Kellogg as its toughest competitor. Operating through strong national
subsidiaries, Kellogg used its volume to lower operating costs and to establish and maintain shelf space.
Cereal Partners sold brands that included Cheerios and Shredded Wheat, and leveraged Nestlé’s
technical expertise and its European retailer relationships to compete. Although Weetabix was a
smaller private company, like the bigger competitors, it also relied on strong branding and promotions
to gain market share. Smaller competitors tended to hold niche market positions, but often challenged
larger players with targeted price promotions.
UC’s Europe Strategy and Organization
Major differences across European markets had led United Cereal to establish national subsidiaries,
each led by a country manager (CM) who operated with wide latitude to make product and marketing
decisions that would maximize the subsidiary’s local profit. Based on their market understanding, these
CMs usually selected from United Cereal’s stable of more than 100 branded products, adapting them
to the local situation.
Expecting its CMs to conform to its embedded values, policies, and procedures, United Cereal built
its subsidiaries as "mini UC's"—exact replicas of the parent organization staffed by managers
wellversed in UC’s corporate values and practices. So while CMs were able to customize products,
adjust manufacturing processes, and adapt advertising and promotions, they had to do so while
respecting the “UC Way.”
This approach unleashed CMs’ entrepreneurial instincts and led to strong penetration in most
national markets. While many products flourished through such local customization, over time, wide
differences in product profiles and market strategies became problematic. For example, in the U.K., the
Wake Up! instant coffee brand was formulated as a mild to medium roast beverage promoted as “the
perfect milk coffee.” But in France and Italy it was sold as a dark roast product and advertised as “the
instant espresso.” And differences in the positioning of Mother Hubbard’s Pies resulted in it being
offered as a high-end dessert in Germany, while in the U.K. it was priced aggressively and positioned
as “a convenient everyday treat.”
