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Historically, the ready-to-eat (RTE) cereal breakfast industry was characterized by relative stability and substantial profitability. The RTE market was dominated by the Big Three, such as Kellogg, General Mills, and Philip Morris, which created significant barriers for the entry of new brands. The main reasons leading to the current industry crisis include the increased prices on brand products, their heavy use of coupons, the emergence of Wal-Mart and other discount retailers, and improved quality of products offered by private firms.

Private labels were able to enter the RTE industry successfully because the Big Three started losing their advantage of the best shelf place in supermarkets. In contrast, more food was sold through discount retailers such as Wal-Mart. The branded cereal manufacturers initiated regular price increases justified with the need to spend more on advertising and promotion, and the private labels offered about 40% lower prices to consumers and better margins to retailers.

The key core competencies and success factors needed in this industry include the engineering expertise, knowledge of technical processes, production capacity, quality and variety of products, distribution process. In 1994 General Mills (GM) had several strong brands, particularly of puffed and extruded cereals. The private label manufacturers managed to adopt the necessary expertise to offer high quality and diverse products and used discount retailers as an effective distribution strategy.