Michael Porters 5 force model is a model of pure competition
which implies that risk-adjusted rates of return should be constant across firms and industries. However, numerous economic studies have affirmed that different industries can sustain different levels of profitability; part of this difference is explained by industry structure. Michael Porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates.
Introduction to Indian Bakery Industry
The Indian bakery industry is dominated by the small-scale sector with an estimated 50,000 small and medium-size producers, along with 15 units in the organized sector. Apart from the nature of the industry, which gravitates to the markets and caters to the local tastes, the industry is widely dispersed also due to the reservation policies (relating to the small scale industries) of the government. Industry Structure The bakery industry in India is mainly popular in the states of Andhra Pradesh, Maharashtra, West Bengal, Karnataka, Tamil Nadu and Kerala. Around 60% of production takes place in the unorganized sector. There are around 2 million unorganized bakeries in the country, comprising small bakery units, cottage and household type manufacturing. The organized sector consists of large, medium and small-scale manufacturers producing bread and biscuits. The market size for the industry in India is expected to reach 47 billion by 2015 with a growth of 50 to 60 % per annum. Industry Segments Bread: About 50% of this segment is organized and is growing at a rapid rate of 14-15% per year. The estimated size of the organized bread industry is about 50 billion. Cakes & Pastry: Cakes and pastries are growing at around 18-20% per year. The revenue realization in terms of unit volume is higher in this product category due to higher value addition. Biscuit: The biscuit market in India is estimated to be 100 billion and the industry is also gearing up to aggressively tap the medium and premium segment within the country. Biscuit
industry in India in the organized sector produces around 60% of
the total production, the balance 40% being contributed by the unorganized bakeries.
Introduction to JUST BAKE
Just Bake Is A Chain Of Restaurants And Has About 61 Outlets In Bangalore. It Is Primarily Known For Dishes Like Flower Power Cake Etc. Just Bake started its operations in the year 2005 with its 1st store in Indira Nagar (Bangalore) and is now one of the most popular Cake House with 115 stores in Bangalore, Mangalore and Hyderabad With awards like Guinness Book world records, Best Bakery in south India at Indian Restaurant awards for 2 years 2013 & 2014, Just Bake is the most awarded Cake house in India. Just Bake is the largest Cake House in South India. With the help of their passionate franchisee operating the stores, Just Bake is creating multiple relationships in a short time, with millions of happy customers. Just Bake is focused on quality, consistency and customer service and having maintained these three aspects in the past 10 years its transforming into a premium Brand loved by its customers at really affordable prices.
Michael Porters 5 Force Model and Just Bake
Threat of New entry
Large capital requirements required to build chain of stores
Favorable locations are already occupied
Economies of scale in distribution
Product and brand differentiation
High Fixed Costs
The bakery industry of today, regardless of its production
capacity, needs modern technical and technological solutions and continuous investments in very expensive equipment to ensure high productivity which remains to be an important obstacle to all potential entrants. Besides, the capital is also needed for financing long payment terms as well as for organizing distribution of relatively small quantities of products to the large number of consumers. A large number of competitors in the industry are all competing for the same customers. Bakery Chains are all competing to be number one in the market and have similar corporate goals.
While product differentiation is limited, there is fierce
differentiation by product range, brand and store ambience (e.g. seating). There are almost zero switching costs for customers, which promotes price wars. Market growth is static, which promotes fierce fighting for market share, and there is saturation of competition due to the limited number of prime locations available for outlets. Smaller chains have to pay a premium for prime sites or settle for less desirable locations Capital requirements for individual stores are low, however new entrants wishing to compete on a like basis with national store networks, distribution channels, brand equity development and advertising, face large capital requirements to gain market share. This is reflected in the large number of individual outlets compared with the small number of large, proven top specialty eateries. Threat of Substitutes Large choice of alternatives with similar products e.g. Fruit flavored packed cakes, biscuits, ice-cream, chocolate. Socializing places like coffee day and Starbucks also act as threats when considered with the point of view such as socializing or hangout places. Although a consumer can choose from multiple substitutes (e.g. desserts, Ice-cream cake or readymade packed fruit cakes), specialty eateries compete based on convenience and opportunity. Most people buy from specialty eateries when travelling, shopping or meeting people. This is evidenced by the location of the eateries, which is concentrated around high footfall locations such as train stations, business districts and shopping centers. For a consumer this becomes a competitive choice rather than a substitute choice.
Bargaining power of suppliers
Basic raw materials in the Cake making industry are flour, baking mixtures, yeast, salt, oil, sugar and improvers, all actually defined as consumer goods. Thus, they significantly contribute to an increase in price transparency and customer awareness. Milling and Cake baking industries are strongly connected due to flour being the most important input in the latter, and the latter being the most important customer of the former. Packaging and packing material are increasingly growing in importance in the baking industry as much due to the Unique Cake packaging requirements made by chains of stores Bargaining power of buyers In the structure of income earned by retail outlets the largest quantity of products are distributed through hypermarkets and supermarkets which is not a desirable situation from the bakery industrys perspective because of a very high bargaining power of that segment of buyers. It is important to point out that the bakery industry is fragmented with regional companies while the market has specific local features that every participant has to take into consideration. Furthermore, producers pay to shopping chains various additional taxes which results in high selling costs. This confirms the high bargaining power of traders who retain entire added value while the whole risk related to production and sales is still taken by the producer. Packaging and packing material are increasingly growing in importance in the baking industry. Apart from the basic raw materials adequate and skilled personnel also comprises an essential input in the baking industry .Competences of workers in bakeries are constantly changing in the course of an intensive technology development and the transition from a labor intensive industry into a capital intensive one. Labor intensive plants call for the employment of master
bakers, while the most recent technical-technological advances
enable the automation of most production processes. Identification of key success factors After a thorough analysis of all the forces affecting the industry in which the bakery craft does business, it may be concluded that there is a high degree of rivalry within the sector, but that there also exists a noticeable threat of new companies entering the market. The bargaining power of customers, owing to the minimal costs of change, is more strongly manifested than the bargaining power of suppliers, who, although assessed as being moderately strong, can by all means affect the quality of the final industry product. We can also conclude that key locations of the franchise and cost efficiency are key success factors of the cake. Conclusion Finally, the interpretation of the findings of the study allowed to determine the attractiveness of the baking industry, measure the perception of the intensity of competitive forces as well as determine the difference between the perceived strength of individual forces, identify existing competitive advantages and key success factors in the further development, understand the real strengths and weaknesses and design appropriate marketing strategies, build a framework for positioning within the respective industries, discover areas where strategic changes have the greatest effectiveness and predict future movements in the corresponding industry and accordingly shape strategic initiatives to ward off negative forces.