What to produce?
The product chose for this paper was: Cereal Marshmallow Mateys, owned by Malt-O-Meal Company. Malt-O-Meal Company is private held. The Brooks and Fort families own the company.
The company was created in Minneapolis, Minnesota in 1919 and the headquarters prevail in there until the present day. The company employees 55200 as of January, 2005.
John S. Campbell developed the first hot cereal in Minneapolis, Minnesota. They supply more than 22 different ready-to-eat cereals, including brands like Honey Graham Squares, Toasted Cinnamon Twists, Berry Colossal Crunch, Honey Buzzers, Frosted Flakes and Puffed Rice and Puffed Wheat cereals. With its acquisition of the bagged cereal business from Quaker Foods & Beverages, Malt-O-Meal is poised to become an even bigger player in the value segment of the ready-to-eat cereal market. The fourth largest.
How to produce?
The main ingredients are; whole grain, oat flour, marshmallows, sugar, corn syrup, wheat starch and salt. To acquire their goods, Malt-O-Meal hired companies to find in the market, the best places to buy these goods. Often times, the goods are acquired directly to the farmers.
To package, Malt-O-Meal decided to install a robotic case packing machines in the new facility in Utah. With these machines they are able to work 24/7. Package volumes range from 6-oz up to 46-oz, depending on product variety and package type. These robots are easy to adjust. For the distribution of cereal, one example mentioned that Malt-o-Meal contracted a firm (Minneapolis-based Air Plus LTD.) to deliver the cereal to more then 1000 Wal-Mart stores. Wal-mart is a great market for Malt-o-Meal. As are many other grocery stores that will sell their product.
One of the features of the new plant in Utah that innovates the way Malt-O-Meal produces is its state-of-the-art gun puffing system. Gun puffing is a process in which cereal grains or extruded cereal dough shapes are treated with high heat and steam pressure. The pressure is then released and the objects puff up or expand. They are also cooked at the same time by the heat. Water and grain or extruded shapes are added to the 'gun' and then heated and rotated to produce steam until the pressure reaches 200psi. The 'gun' is then aimed at a collection bin and the lid released by a firing mechanism: As soon as this happens, the drop in pressure will cause the steam within the grains or shapes to expand rapidly and thus the grain with it. The expanded shape is fired into the collection bin. New innovations to this process such as grain preheating in a fluidized bed reactor have meant over 90% efficiency to the process; older systems typically gave a 30% wastage or rejection rate. The new system also has a multiple rotating gun to increase throughput and capacity; output can be up to 1,000kg per hour. The cereal shapes are then graded for quality and passed onto the syrup coating process.
The plant in Utah produces 125.000 bags a day (They have two more plants and a total of 14 lines). In this factory, typical casing speeds are approximately 140 bags or bags-in-boxes per minute. Just for curiosity, each line can run six to eight package sizes and usually can be changed over in less than 15 minutes. Their revenue for 2001 was of $365 million.
Malt-O-Meal, like many others companies that are involved in food processing, is very regulated. To control the safety of all the foods the, government creates laws to assure that no harm will happen to the people that consume it. They have regulations to process the food, package and distribute food. One of the latest problems that Malt-O-Meal had was with salmonella. They have law suits against them because of some contaminations. For example, the Food and Drug Administration (FDA) and the Centers for Disease Control and Prevention (CDC) of the U.S. Department of Health and Human Services (HHS) and the Food Safety and Inspection Service of the U.S. Department of Agriculture (USDA), had just release the 2005 edition of the Food Code. This edition of the Food Code provides practical, science-based guidance and manageable, enforceable provisions for mitigating risk factors known to cause food borne illness. The Code is a reference document for regulatory agencies that ensure food safety in food service establishments, retail food stores, and other food establishments.
There are permits issued by the Minnesota Pollution Control Agency. These permits identify the units at each facility that generate air pollutants and, where applicable, the limits on those emissions. Each permit is listed as Federal or State. A facility with a federal permit has a higher allowable emission than a state permit and can be subject to different requirements. The amount of pollution being released into the air is causing alarm to the people of the surrounding areas. The smell is not pleasant, but the worst effect is the problem that the smoke can cause to the health of the people. With this in mind, the company is very strongly involved in reducing the air pollution.
For whom to produce?
The Children in the United States are the main consumers of Malt-O-Meal cereals. Twenty million families bought Malt-O-Meal cereal last year. The families acquire these good mainly through wholesalers (Wal-Mart, Cost Co, Albertson’s…)
The whole cereal market is valued at $8 Billion. This industry is very competitive. Some of the competitors are: Kellogg’s, General Mills and Post.
Seeing this Market as an Oligopoly, there are many barriers to entry. Some of them are: distribution control, mergers and acquisitions, advertising and warranties and patents. Distribution control happen when a company persuade a retail outlet's not to peddle anyone else; mergers and acquisition, just what the words means, two companies can merge and become so big that it is impossible to compete or the big company will simple buy the new company; advertising is a big one; and warranties and patents, is the right to keep the type of production of being copy.
Malt-O-meal can be considered a normal product. Because, even if the income increases, everyone will still consume the cereal and probably even more. If not, with an increase in the income, people could change for any other kind of breakfast, or name brand cereal, making Malt-O-Meal an inferior good. It depends on an individuals taste for cereal.
The one complimentary good for this product is milk. With the increase of price in the cereal and consequent reduction in the demand, will be a decrease in the demand of milk. As for the substitute goods, there are many different breakfast options. If all the consumers of cold cereal changed their habits, then the demand for pancakes, donuts, fruits and all the hot cereal will increase.
There won’t be a big change in the demand of this product with a change in the economy. This is due to malt-O-meal already being one of the cheapest products in the breakfast market. Consumers can live without this but, in a time of crises, it not likely to be the first thing we give up. This product is already part of the diet of many people.