Kate Previte
Mrs. Straub
Insight AP Economics
10 October 2015
Original vs. Specialty Oreos
When looking at cutting edge economic issues, commonly, the most crucial get overlooked. Some may be touchy, and offensive, but they need to be addressed regardless. Today, I will address one of the most sensitive topics imaginable: what has been contributing to Oreo sales over the years.
I know, this may be controversial to some, but according to statistics, Oreo sales have indeed increased since seasonal and limited time flavors have come out. For some this is inevitable, but for the economist in all of us it begs the question- are the rarer of the flavors higher contributors to the success of the Oreo brand than the original Oreos that we all know and love?
To find out the answer to this hard- hitting question, I had to look at Oreo sales by year, as well as specialty dates when new varieties were released. Many think that Oreos would have an inelastic demand curve, but others argue that it is an elastic demand curve, with the common cookie as a close substitute. I had to dig deep into the meaning of the research to find the answer to this controversy. The first step of the process was to find out the trends of sales of Oreos over the years, and then I have to compare them to their other cookie competitors.
During my research, I came across that in early February 2015, Mondelez International (the owner of the Oreo cookie brand) released a statement about their sales in the past year saying, “The Company announced this week that it sold more than $2.5 billion of the cream-filled cookies in 2014. That’s more than twice the global sales of Cheerios cereal (a General Mills brand), and five times the annual sales of Kraft Macaroni and Cheese” (Mondelez). Since the brand owners are selling the treat in more than just plain cookie form (i.e. ice cream, churros, cereal, etc.), they are making a considerable amount of revenue off of the simple, original design. The consumers are getting great utility from the cookies. Since the sales in 2014 were so high, I wanted to see if they compared to years past as well.
Oreo sales trends from 2005-2014 in billions. (Euromonitor).
I analyzed the graph above, and since the sales generated yearly were significantly higher than those of years past, I needed to analyze factors that could have contributed to this. Could it have been the price of other cookies had gone up? That was my first question that I needed to answer, and to do so, the elasticity of the Oreos demand curve needed to be analyzed. To find this, I looked at how Oreo brand sales compared to other cookie brand sales to see if the two were substitutes or not.
Oreo brand sales compared to other cookie brand sales in 2014 in billions. (Euromonitor).
Since there were no close substitutes to Oreos according to the graph above, the demand curve for Oreos proved to be fairly inelastic. This meant that there had to be a different reason for the sales to be so high. My only other thought was that it could have been something to do with the seasonal and additional flavors that Oreo had added within the last few years. When researching the effect of the changes made to Oreos, I found that “More than $1 billion of the brand’s global revenue is generated in developing markets. In China, there are Oreos in wafer form, and Oreos filled with cream in a green tea flavor offering “a cooling sensation that simulates ice cream,” according to Mondelez. In Argentina, one can purchase chocolate-covered Alfajor Oreos. In Mexico, each “Trio Chocolate” Oreo has one kind of chocolate in the filling and a different kind of chocolate in each side of the cookie” (Mondelez). This proves that the multi-billion dollar company does credit much of its success not only to the original Oreo itself, but to its counterparts as well.
The market for the new and innovative creations is specifically targeted at a younger, less health conscious crowd. The millennial age is the target market for new Oreo flavors because, according to Jared Koerten, Senior Food Analyst at Euromonitor International at FoxNews.com, “Younger consumers aren’t looking for the same things their parents ate and they are more willing to take a risk” (Koerten). This doesn’t mean that all millennials will stick to the new trends set by their peers. According to Koerten, “The original is always going to be the big one but the more products they can roll out, the more likely it is that people will try something new...even if they don’t buy it again”. Plus, Koerten says, “Consumers will likely buy one pack of something new and also buy one pack of the original-- just in case.”
This goes to show that while seasonal Oreos do have an important impact on the demand and the revenue of the Oreo Company, nothing can compare to the original Oreo that the world knows and loves.
Works Cited
McCarthy, Sky. “Oreos' Wacky Flavors Are The Key To The Brand's Longevity.” Fox News. FOX News Network, LLC, 22 Apr. 2015. Web. 10 Oct. 2015.
Narula, Svati. “The Incredible Staying Power of The Oreo Cookie.” Quartz. WordPress.com VIP, 13 Feb. 2015. Web. 10 Oct. 2015.
I found the process you went through to analyze the economics of Oreos very interesting. I wasn't surprised by the elasticity of Oreos, especially since the off-brands really can't compete. The information about specialized Oreos brought to mind the topic of Starbucks and their seasonal drinks. This topic is becoming more prominent in the media because of the famous Pumpkin Spice Latte. As we know, the seasonal drink has significantly increased Starbucks' profit, in fact, the demand is so high that they can sell the seasonal drink for more than the regular white chocolate mocha and caramel macchiato. Relating this back to Oreos, in general, a company benefits from specialized products and flavors, especially if they are only available for a limited time, because demand increases for the product when the specialized version is in season because consumers they need to get it while it is available. On a side note, specialized versions of a product can also increase the product's marginal utility because if a consumer starts to get sick of the original flavor then there are alternate choices that will keep the company in demand.
ReplyDeleteBased on all of this information, I'm not surprised the Oreo is the number one cookie brand; there really is nothing like it. Not only does it come in the original cookie form, but there are ice creams, cakes, wafers, and even more. The variety of options that Oreo offers makes it the most favorable compared to any other generic cookie. I, myself, have never really liked one of Oreos specialty cookies - but that doesn't mean I haven't bought them. Just like Koerten said, even if I don't necessarily end up liking the cookie, I still bought a package - along with a package of the regular Oreos. But there are still so many different, crazy flavors to try that you can never really get bored trying all these different cookies. Whether we like the cookies or not, we are still contributing to Oreos company just be experimenting and purchasing their products.
ReplyDeleteIt is interesting to see how the Oreo company makes many different kinds of Oreo and sells them based on what the consumers in the area want. From personal experience, this year I took the foreign exchange student from japan to buy Oreo, and was surprised to find out she had not seen all of the different kinds we have here in the United states, while In Japan they have a green tea kind and regular. Because Oreos have such a original taste it is not surprising to see how elastic they are. While there are some substitutes the quality of them can not be compared. I think you are 100% correct when you say the seasonal flavors increase the overall revenue of the Oreo cookie. Most of the time you see the sale go up when a product is offered for a limited time, the consumer demands more of the product. Not only do we see this with Oreo, but drinks such as shamrock shakes, pumpkin spice lattes, eggnog, and my favorite wintertime drink: peppermint Mocha.
ReplyDeleteI seem to disagree and think that Oreos are an elastic product. When families are low on money not being able to pay for simple necessities, Oreos won't be a necessary product for life. While Oreos are an elastic product, they are important to the economy because they create high revenues. While the original oreos are always great, it seems there seems to be an increase in demand during the holidays. This is because Oreos are being made in limited edition holiday flavors. This creates a change in taste and consumers want to buy them while they can. Along with holiday flavors contributing to increase in demand, it also causes an increase in supply. New flavors cause a bigger supply of Oreos. Because there are no other cookie quite like Oreos, the company has no competition and could raise it's prices while still keeping it's million consumers.
ReplyDeleteI have never really thought about the economics of Oreos so this specific topic was very intriguing to me. I previously thought that Oreo sales would rise during the holiday seasons where they specialize their Oreo flavors. This marketing/advertising strategy attracts consumers to buy Oreos because it looks more appealing. They may taste exactly the same or just a little bit different but it makes people want to buy them more. Having different flavors of Oreos makes the company more money because you are offering more variety. The demand for these type of Oreos go up once they see the advertising for them. Not everyone has similar taste buds so when Oreos (producer) comes out with new flavors, everyone wants to buy them. I like how you talked about the limited substitutes for Oreos. Let's face it- it's true, there is really no substitute for Oreos. They are one of a kind and buying the off brand ones don't benefit you as much as the real ones would.
ReplyDeleteWhen talking about the seasonal factor of Oreo production it made me think of Starbucks and other coffee stores that offer flavors that are going with the seasons. I haven't really seen any of the flavored Oreo's but knowing that other countries have green tea and other flavors makes people more interested in wondering what they are going to come up with next. These new flavors will defiantly increase the revenue of Oreo's. If these Oreo's are limited to a certain time of the year consumers are going to go out and buy them while they are available. Overall, I agree that the new flavors will increase sales.
ReplyDeleteWhat I found the most interesting about this article was how dominating Oreos are compared to other cookies. It's strange how such an elastic item like a cookie can end up being inelastic. I would like to see how much the company could raise the price of Oreos and still retain the number of sales considering how dominating they are. Also another idea I thought was interesting was the fact that they sell different Oreo specialties in different areas of the world.
ReplyDeleteI absolutely love this topic and so happy you did it! Of course Oreo's demand curve increasing in quality because they have new types of Oreo combinations. Like you said there are no close substitutes. As the Oreo demand increases supply should increase. It's increases in the United States and then other countries are going to want to get more varieties of Oreo's which would increase the demand curve even more. Oreo's will dominate the cookie race.
ReplyDeleteI was actually very surprised to see how much more of a success Oreos are than every other brand...I had always assumed that Chips Ahoy! and Peperidge Farms were very close competitors. But clearly, since there aren't any chocolate-sandwich-cream-filled cookies like Oreos (aside from their terrible generic counterpart, the Great Value Twist and Shout, which can't really compare), there are no substitutes, making Oreos fairly inelastic.
ReplyDeleteI really enjoyed this article because it was so light-hearted and fun to read. With the information presented, I was slightly surprised at how successful the Oreo brand has been despite all of the competition in the cookie market. One fact that really surprised me was that Girl Scout cookies only generated 0.6 billion dollars in 2014, I thought it would've been a lot more considering how many girls sell them. It would be interesting to find more data on how much revenue is generated per year from each type of cookie they're selling. This would be beneficial for the company because if a certain flavor wasn't selling, they could easily discontinue it. On the positive side, Oreo is trying to become a more competitive company by adding in additional flavor cremes to their selection.
ReplyDeleteBefore reading this article, I didn't realize how much revenue was created from the Oreo cookie. Along with that, I found it very interesting how you took it upon yourself to find even more research. It is astonishing to think that no other cookie brand is near Oreo based on global sales. Also, I didn't realize how much money the specialty flavors generated. Maybe when you writing about the different flavors, you could show some of the main flavors in the United States, not just in other countries. Overall, I found this post very interesting and learned even more about the Oreo company.
ReplyDeleteGreat job! Your usage of econ vocabulary is very specific, however I thought maybe you could've elaborated a little more on what each means. Your analysis of the date overall seems a little limited, though. There may be some other factors to the spike in sales or revenue made. I thought maybe you would have mentioned Oreo's move to Mexico. This was recent news as they did this because of tax breaks. Since some people in America are are against foreign products, this could help serve your argument that oreos are inelastic. Overall it was very intriguing. Good job, Kate!
ReplyDeleteGood Job Kate! I was automatically drawn to your article because Oreos are definitely one of my weaknesses. Although I do love Oreos I was surprised how much the Oreo surpassed other cookies. I think the seasonal cookies do help their sales but may favorite is still the original. The mix of unique seasonal cookies and the unsurpassed original cookie make this company so successful, without that I don't believe they would be as far ahead of the other brands as they are.
ReplyDeleteAt first I wouldn't guess that Oreos would be the top selling cookie out on the market. But after reading this, I totally understand why. They are able to supply a hire demand for the consumers with broad taste buds and higher risks for trying new flavors. Granted, this could have been a huge opportunity cost. But it obviously hasn't been. As a consumer of Oreos, I myself have noticed my higher demand for these new flavors. Such as the cookie dough. And since they are "limited time" I did find myself buying a few at a time so I could have some for when they were no longer available. Overall, this was one of my favorites to read because of the fascination between the risks Oreo took with the additional flavors.
ReplyDeleteI completely agree with Koerten’s statement because whenever my family buys oreos, we get one specialty flavor and one original, like he said, just in case we don’t like the specialty flavor. It’s a brilliant marketing plan. Original Oreos can maintain loyal consumers and Mondelez International can rely on this stable profit while they experiment with new flavors. After releasing these special oreos into the market, Mondelez International would receive extra monetary profit that rises and falls, depending on how new the flavor is and how much consumers like it.
ReplyDeleteIt was very brave of you to write about such a sensitive topic. Oreo's are definitely a very recognizable brand, and the new flavors provided provides more options, which is appealing to customers. Clearly, the variety of options has worked well for them, especially if people are buying both a regular pack of oreo's in addition to a specialty pack, then they are buying double the original amount they would have bought. The endless varieties also does extend utility for customers. However, if they continued to make different varieties of oreos, would they eventually reach a point where marginal utility decreases?
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