Porters Five Forces

In order to know the profitability in any industry it is important to analyze it in all aspects as there are
various forces which may control the end profits. These forces can be both internal as well as external.
Thus, for this purpose analysis of the Porters five forces has been done which shows a high in all the five
forces.

These forces can be further explained as below-

Rivalry amongst existing firms

In any industry, companies are mutually dependent on each other, i.e. neither can ignore the
changes or competitive moves made by the other players. A new strategy implemented by one
company to gain competitive advantage is always countered by some changes made by the other
company to neutralize that competitive advantage.
In the bakery industry, there are three main players; Britannia, Parle, and ITC ltd. Other regional
players like PriyaGold and Bakeman also exist, but they only give the bigger firms competition
in certain geographical areas. Britannia and Parle hold almost equal market share, whereas ITC
ltd holds a relatively lower market share, but is growing at a fast rate and implementing
strategies to pull away part of the market share from the big guys. As there are only three firms
competing at all levels, they can keep a close watch on the changing strategies of each other.
There is very close competition between all three, and the smallest of changes in policies by one
has to countered immediately by some changes in the other, in order to stay in the game. Apart
from this when it comes to biscuits which forms a major product in the bakery segment there is a
huge competition from the unorganized sector Therefore, rivalry among firms can be rated as a
high force

Threat of substitute
Though the bakery segment itself consists of range of products like biscuits, breads and cookies
which can be substituted among themselves, but taking the price and nutritional value of these
products many close substitutes can be found outside this segment. Breads and biscuits which
have a share of around eighty percent in terms of production and distribution in the bakery
segment face a stiff competition when it comes to substitute as these substitutes put a ceiling
when it comes on deciding the prices. Some of the substitutes can be listed as follows
 Chocolates
 Namkeens
 Wafers
 Chapathi
 Homemade snacks
Thus, breads and biscuits being a low cost commodity, a small increase in price may nudge the
existing consumers to these substitutes

Threat of new entrant

The bakery segment has a relatively high threat of new entrant with the entry barriers being quite
low. It is one of the major reasons for the unorganized sector being quite active in this segment.
Apart from this, the different entry barriers can be listed as-
Capital- Small businesses can enter with a relatively small amount of capital.
Raw material- Wheat and sugar form the major raw material with ample of suppliers present
both locally and nationally.
Technology- Economies of scale is beneficial but not required for industry success. Thus with
the use of easy technology entrants can enter into the market.
Distribution- Acquiring distribution channels is one of the deterent where the new entrants can
face problems in order to cover up the operating costs. Distribution channels typically involve
retail outlets, such as supermarkets and grocery stores and they can be more easily acquired if the
bakery has an established brand or the marketing resources to create one.

Bargaining Power of Suppliers

Wheat and sugar form the major raw materials for bakery industry which are agricultural
products. Agricultural productivity is in turn dependent on various external factors leading to
fluctuating input costs. Some years the productivity may be high leading to low prices of these
products reflecting into reduced input costs and higher profit margins while in others low
productivity can severely hamper the profits. Government also plays an important role in
regulating the prices of these commodities. Thus, with no substitute of wheat and sugar available
it gives high bargaining power to the suppliers.

Bargaining power of Buyers

The organized sector of bakery industry faces a stiff competition from the
unorganized sector which is locally present with cost advantage. With lot of players
competing in the market in terms of price, quality and taste it gives very less power to
the manufacturers to increase the prices. If there are alternate suppliers of the same
product buyers easily switch to other product. Also, with bakery stores mushrooming
everywhere and providing biscuits for bulk purchases in kilograms, consumers today
have the option of buying from them as well. They provide flavors that the packed
biscuits do not and they sell any quantity that the consumer requires, from 100 grams
to kilograms. This further increases the bargaining power of the buyers. Therefore,
this force is high in the biscuit industry.