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The '''breakfast cereal''' industry in the U.S. is a $10 billion industry created by a dozen entrepreneurs and health food enthusiasts in the late 19th century. They invented non-meat [[breakfast]] foods that were easily packaged, marketed and consumed. Thanks to systematic national distribution and heavy advertising, their cereals became big business by 1910, transforming American eating habits. They built an industry controlled by four oligopolistic firms—originally Kellogg, General Mills, Post, and Quaker Oats and now Kellogg, General Mills, Kraft Foods, and PepsiCo—that control 83% of the market.<ref> The top 4 firms controlled 82.9% of the market in 1997, the highest concentration in the food industry, and comparable to tobacco; see [http://www.census.gov/prod/ec97/m31s-cr.pdf]</ref> Worldwide they offer hundreds of branded cereals to millions of consumers of all ages, along with forty small regional or specialty firms.<ref> On the industry in 1997, see  Matthew Roy, "Analysis of the Cereal Industry" online at [http://www.lavasurfer.com/cereal-analysis.html]</ref>

The '''breakfast cereal''' industry in the U.S. is a $10 billion industry created by a dozen entrepreneurs and health food enthusiasts in the late 19th century. They invented non-meat [[breakfast]] foods that were easily packaged, marketed and consumed. Thanks to systematic national distribution and heavy advertising, their cereals became big business by 1910, transforming American eating habits. They built an industry controlled by four oligopolistic firms—originally Kellogg, General Mills, Post, and Quaker Oats and now Kellogg, General Mills, Kraft Foods, and PepsiCo—that control 83% of the market.<ref>The top 4 firms controlled 82.9% of the market in 1997, the highest concentration in the food industry, and comparable to tobacco; see [http://www.census.gov/prod/ec97/m31s-cr.pdf]</ref> Worldwide they offer hundreds of branded cereals to millions of consumers of all ages, along with forty small regional or specialty firms.<ref>On the industry in 1997, see  Matthew Roy, "Analysis of the Cereal Industry" online at [http://www.lavasurfer.com/cereal-analysis.html]</ref>

==Oatmeal==

==Oatmeal==

[[Image:OATS1.JPG|thumb|200px]]

[[Image:OATS1.JPG|thumb|200px]]

Ferdinand Schumacher, a German immigrant, began the cereals  revolution in 1854 with a hand oats grinder in the back room of a small store in Akron, Ohio. His German Mills American Oatmeal Company was the nation's first commercial oatmeal manufacturer. He marketed the product locally as a substitute for breakfast pork. Improved production technology (steel cutters, porcelain rollers, improved hullers), combined with  an influx of German and Irish immigrants, quickly boosted sales and profits. In 1877,  Schumacher adopted the Quaker symbol, the first registered trademark for a breakfast  cereal. The acceptance of "horse food" for human consumption encouraged other entrepreneurs to enter the industry. Henry Parsons Crowell started operations in 1882, and John Robert Stuart in 1885. Crowell cut costs by consolidating every step of the processing—grading, cleaning, hulling, cutting, rolling, packaging, and shipping—in one factory operating at Ravenna, Ohio. Stuart operated mills in Chicago and Cedar Rapids, Iowa. Stuart and Crowell combined in 1885 and initiated a price war. After a fire at his mill in Akron, Schumacher joined Stuart and Crowell to form the Consolidated Oatmeal Company. In 1888, a trust or holding company combined the nation's seven largest mills into the American Cereal Company using the Quaker Oats brand name. By 1900 technology, entrepreneurship, and the "Man in Quaker Garb"—a symbol of plain honesty and reliability--gave Quaker Oats a national market and annual sales of $10 million.

Ferdinand Schumacher, a German immigrant, began the cereals  revolution in 1854 with a hand oats grinder in the back room of a small store in Akron, Ohio. His German Mills American Oatmeal Company was the nation's first commercial oatmeal manufacturer. He marketed the product locally as a substitute for breakfast pork. Improved production technology (steel cutters, porcelain rollers, improved hullers), combined with  an influx of German and Irish immigrants, quickly boosted sales and profits. In 1877,  Schumacher adopted the Quaker symbol, the first registered trademark for a breakfast  cereal. The acceptance of "horse food" for human consumption encouraged other entrepreneurs to enter the industry. Henry Parsons Crowell started operations in 1882, and John Robert Stuart in 1885. Crowell cut costs by consolidating every step of the processing—grading, cleaning, hulling, cutting, rolling, packaging, and shipping—in one factory operating at Ravenna, Ohio. Stuart operated mills in Chicago and Cedar Rapids, Iowa. Stuart and Crowell combined in 1885 and initiated a price war. After a fire at his mill in Akron, Schumacher joined Stuart and Crowell to form the Consolidated Oatmeal Company. In 1888, a trust or holding company combined the nation's seven largest mills into the American Cereal Company using the Quaker Oats brand name. By 1900 technology, entrepreneurship, and the "Man in Quaker Garb"—a symbol of plain honesty and reliability—gave Quaker Oats a national market and annual sales of $10 million.

==Precooked cereal==

==Precooked cereal==

Charles W. Post, a former Kellogg patient, discovered a new angle, with Postum, a cereal coffee substitute that eliminated most of the caffeine found in regular coffee. "It Makes Red Blood," the Postum ads proclaimed.  In 1898 he introduced Grape-nuts, the concentrated cereal with a nutty flavor and in the late 1890s Post joined the cornflake wars with Post Toasties. Good business sense, determination, and powerful advertising produced a multi-million dollar fortune for Post in a few years.  After his death in 1914 his company acquired the Jell-O company in 1925, Baker's chocolate in 1927, Maxwell House coffee in 1928, Birdseye frozen foods in 1929, and changed its name to General Foods in 1929.  Philip Morris tobacco bought General Foods for $5.6 billion in 1985, merged it with its Kraft division, then spun off Kraft as independent.

Charles W. Post, a former Kellogg patient, discovered a new angle, with Postum, a cereal coffee substitute that eliminated most of the caffeine found in regular coffee. "It Makes Red Blood," the Postum ads proclaimed.  In 1898 he introduced Grape-nuts, the concentrated cereal with a nutty flavor and in the late 1890s Post joined the cornflake wars with Post Toasties. Good business sense, determination, and powerful advertising produced a multi-million dollar fortune for Post in a few years.  After his death in 1914 his company acquired the Jell-O company in 1925, Baker's chocolate in 1927, Maxwell House coffee in 1928, Birdseye frozen foods in 1929, and changed its name to General Foods in 1929.  Philip Morris tobacco bought General Foods for $5.6 billion in 1985, merged it with its Kraft division, then spun off Kraft as independent.

William K. Kellogg (1860-1951) was a a private and humorless man who had dropped out of high school and stood in the shadow of his flamboyant brother John. William, after working many years for his brother, in 1906, broke away, bought the rights from his brother and set up the Kellogg Toasted Corn Flake Company.<ref> John dropped out of the cereal industry but continued to operate his sanitarium.</ref>  William Kellogg discarded the health food concept, opting for heavy advertising and commercial taste appeal. His signature on every package became the company trademark and insurance of quality.  

William K. Kellogg (1860-1951) was a a private and humorless man who had dropped out of high school and stood in the shadow of his flamboyant brother John. William, after working many years for his brother, in 1906, broke away, bought the rights from his brother and set up the Kellogg Toasted Corn Flake Company.<ref>John dropped out of the cereal industry but continued to operate his sanitarium.</ref>  William Kellogg discarded the health food concept, opting for heavy advertising and commercial taste appeal. His signature on every package became the company trademark and insurance of quality.  

[[Image:KELLOGG2.JPG|thumb|250px|1910 magazine ad]]

[[Image:KELLOGG2.JPG|thumb|250px|1910 magazine ad]]

An experimental full-page ad in the ''The Ladies Home Journal'' in 1906 sent corn flake sales skyrocketing to nearly three thousand cases a day. By 1915 the company was investing one million dollars a year in product promotion. There were premiums, games, and inserts for children and teenagers, and lucrative contests for retailers. "Wink at your grocer and see what you get," invited one ad.<ref> The winker got a free box of corn flakes.</ref> Kellogg devised a trade character—the "Sweetheart of the Corn," exemplar of the wholesome American girl—who smiled from every box of corn flakes.  

An experimental full-page ad in the ''The Ladies Home Journal'' in 1906 sent corn flake sales skyrocketing to nearly three thousand cases a day. By 1915 the company was investing one million dollars a year in product promotion. There were premiums, games, and inserts for children and teenagers, and lucrative contests for retailers. "Wink at your grocer and see what you get," invited one ad.<ref>The winker got a free box of corn flakes.</ref> Kellogg devised a trade character—the "Sweetheart of the Corn," exemplar of the wholesome American girl—who smiled from every box of corn flakes.  

During the 1920s the company expanded by embracing technological advances and new products; in 1925 Rice Krispies exploded on the market, using better packaging and sealed wax paper liners to insured freshness and better shipping. By 1930 Kellogg's nine plants nation wide controlled 40% percent of the American ready-to-eat cereal industry, with an expanding international trade as well.

During the 1920s the company expanded by embracing technological advances and new products; in 1925 Rice Krispies exploded on the market, using better packaging and sealed wax paper liners to insured freshness and better shipping. By 1930 Kellogg's nine plants nation wide controlled 40% percent of the American ready-to-eat cereal industry, with an expanding international trade as well.

[[Image:KELLOGG3.JPG|thumb|left|250px]]

[[Image:KELLOGG3.JPG|thumb|left|250px]]

After 1980 the same companies dramatically increased the variety of the basic cereals. A typical supermarket might carry 100 varieties, flavors and sizes of oatmeal. Heavily sugared cereals appealed to young eaters.  Lest customers stray to the produce department, dried fruits were added to the cereals. Health advice was added, and after 1990 granola-type blends became popular. After 2000 the search was on for "natural" foods, a turn full circle to the health food origins in Battle Creek.

After 1980 the same companies dramatically increased the variety of the basic cereals. A typical supermarket might carry 100 varieties, flavors and sizes of oatmeal. Heavily sugared cereals appealed to young eaters.  Lest customers stray to the produce department, dried fruits were added to the cereals. Health advice was added, and after 1990 granola-type blends became popular. After 2000 the search was on for "natural" foods, a turn full circle to the health food origins in Battle Creek.

In 2002 the 46 American firms had 14,000 employees and shipped $8.9 billion in product<ref> U.S. Census Bureau, ''Breakfast Cereal Manufacturing: 2002'' (2004) table 1</ref>

In 2002 the 46 American firms had 14,000 employees and shipped $8.9 billion in product<ref>U.S. Census Bureau, ''Breakfast Cereal Manufacturing: 2002'' (2004) table 1</ref>

The cereal industry followed the pattern of many American manufacturing organizations.  Responding to perceived needs and consumer demands, innovators launched new  products. From these beginnings emerged national corporations with larger capital bases to handle the business of mass production, nationwide distribution, and heavy advertising expenditures. Imaginative entrepreneurs used the new mass media both to acquaint consumers with their products and to create demand. What was unusual about the industry is the oligopolistic control by 4 companies—much like the automobile industry before it was open to foreign competition in the 1970s.  Cereal firms lacking a national advertising base went out of business or were bought out. There remain niche markets such as local firms and specialty foods that allow small companies to operate.  By the indicators used by industrial-organization economists to measure market structure, company conduct, and social performance, the industry ranks at the extreme oligopolistic end of the range of food industries. In this type of environment, the result is normally higher prices to consumers.  For the cereal industry, 20% of the shelf price goes to the grocery store, 36% to the factory, and 44% to profits, advertising and distribution. <ref>Reimer (2004); Connor (1999)</ref>  In recent years the most popular brand has been Cheerios from General Mills, with sales over $500 million a year, bolstered by over $20 million a year in national advertising. Kellogg's Frosted Flakes is No. 2, with sales of $250 million.<ref> Stephanie Thompson,  "Kellogg pounces on toddlers; Tiger Power to wrest the monopoly away from General Mills' $500M Cheerios brand." ''Advertising Age'' v.75#49 (Dec 6, 2004): online at Expanded Academic ASAP. </ref>  

The cereal industry followed the pattern of many American manufacturing organizations.  Responding to perceived needs and consumer demands, innovators launched new  products. From these beginnings emerged national corporations with larger capital bases to handle the business of mass production, nationwide distribution, and heavy advertising expenditures. Imaginative entrepreneurs used the new mass media both to acquaint consumers with their products and to create demand. What was unusual about the industry is the oligopolistic control by 4 companies—much like the automobile industry before it was open to foreign competition in the 1970s.  Cereal firms lacking a national advertising base went out of business or were bought out. There remain niche markets such as local firms and specialty foods that allow small companies to operate.  By the indicators used by industrial-organization economists to measure market structure, company conduct, and social performance, the industry ranks at the extreme oligopolistic end of the range of food industries. In this type of environment, the result is normally higher prices to consumers.  For the cereal industry, 20% of the shelf price goes to the grocery store, 36% to the factory, and 44% to profits, advertising and distribution.<ref>Reimer (2004); Connor (1999)</ref>  In recent years the most popular brand has been Cheerios from General Mills, with sales over $500 million a year, bolstered by over $20 million a year in national advertising. Kellogg's Frosted Flakes is No. 2, with sales of $250 million.<ref>Stephanie Thompson,  "Kellogg pounces on toddlers; Tiger Power to wrest the monopoly away from General Mills' $500M Cheerios brand." ''Advertising Age'' v.75#49 (Dec 6, 2004): online at Expanded Academic ASAP.</ref>  

==See also==

==See also==

* [[Breakfast]]

* [[Breakfast]]

* Caldwell, Elwood F. ''Breakfast Cereals and How They Are Made'' (2nd ed. 2000), the factory perspective

* Caldwell, Elwood F. ''Breakfast Cereals and How They Are Made'' (2nd ed. 2000), the factory perspective

* Connor, John M. "Breakfast Cereals: The Extreme Food Industry," ''Agribusiness'' 1999, v, 15#2 pp 247-260 abstract at [http://www3.interscience.wiley.com/cgi-bin/abstract/61001888/ABSTRACT?CRETRY=1&SRETRY=0]

* Connor, John M. "Breakfast Cereals: The Extreme Food Industry," ''Agribusiness'' 1999, v, 15#2 pp 247–260 abstract at [http://www3.interscience.wiley.com/cgi-bin/abstract/61001888/ABSTRACT?CRETRY=1&SRETRY=0]

*  Douglass, Judith S. et al. ''Composition of Foods: Breakfast Cereals: Raw, Processed, Prepared'' (1995), from U.S. Department of Agriculture, 160pp [http://books.google.com/books?id=1GQnCSjLTa4C&pg=PA7977&dq=Douglass,+Judith+S.+%27%27Composition&num=30&as_brr=0&sig=W9u8XH3xU1X3ONS_gRshHQH_ggk full text online]

*  Douglass, Judith S. et al. ''Composition of Foods: Breakfast Cereals: Raw, Processed, Prepared'' (1995), from U.S. Department of Agriculture, 160pp [http://books.google.com/books?id=1GQnCSjLTa4C&pg=PA7977&dq=Douglass,+Judith+S.+%27%27Composition&num=30&as_brr=0&sig=W9u8XH3xU1X3ONS_gRshHQH_ggk full text online]

* Forsythe, Tom, et al. ''General Mills: 75 Years of Innovation, Invention, Food & Fun.'' (2003)

* Forsythe, Tom, et al. ''General Mills: 75 Years of Innovation, Invention, Food & Fun.'' (2003)