Bakery Industry Analysis

Topics: Baking, Baker, Bakery Pages: 9 (2355 words) Published: November 25, 2010
An Analysis of Yuxi Bakery Industry

Professor, Ed Bukszar, Ph.D.

Yee Chen

September 27, 2010


The Chinese bakery industry, being in the growth period of its life cycle, has been developing at a high speed these years. There are more and more foreign chain brands such as Breadtalk and 21cake, coming into the Chinese bakery market; and at the same time, many Chinese local brands such as Holiland, Daoxiangcun, and Jiahua, are accelerating to enlarge their scale. Furthermore, innumerous small-scale cake shops have flourish, which is a strong force that cannot be ignored, occupying a large proportion of market.

The economy of different parts of China is developing at a different pace, as well as the bakery industry. Even the dominant bakery brands vary from one part to another. There are very few bakery brands that could get a country-wide scale. Except several metropolises such as the Beijing, Shanghai, bakery industry in most cities are in their early stage of the development.

I focus on the bakery industry in small and medium-sized cities, because they are a considerable part of the Chinese bakery industry, but still own huge potential undeveloped market. I will take a specific city, Yuxi, as an example, for its condition, can represent most Chinese small and medium-sized cities; what’s more, is that it is a market more familiar to me.

Yuxi is a small city lying in the middle of Yunnan Province, which is southwest of China. It has a land span of 15,285 km2 and a population of 2.1 million. Economy there is rapidly developing. Government (2009)[i] reported that Yuxi GDP was 23.9 billion USD, with per-capita GDP 3958 USD in 2008. The tertiary sector accounted for 27.8% of the GDP, increasing by 0.7% compared with the year before. Yuxi has been honored as one of the “Ten Livable, Ecological and Leisure Cities” in China, and “National Garden City” last year.

Overview of the Yuxi bakery industry

In 2009, there were nearly 200 bakeries in Yuxi city. There are three main styles for the cake shops in Yuxi: one is western-style cake shops, most of which are regional or local chains and franchises; the second one includes small bakeries which belong to big corporations such as Wal-Mart and the Hongta Group. The third one is kind of a family-based bakery store mainly producing Chinese pastry.

Western bakeries have taken a larger proportion than the other two styles do. Two main local companies, Yuxi Xinying Food Limited Liability Company and Jiahua Bakery, have taken almost a half market share. One bakery chain, Huangguan, began to enlarge its scale by opening other branch stores in the shopping centre. Two new rivalries have quickly promoted their market share during a very short period. Banami, a chain brand from other province, and Kedake, a new local bakery brand, entering Yuxi bakery market two years ago, performed well during those two years.

Farm products such as flour, eggs, sugar and oil, are the main materials of the baked products; therefore, numbers of suppliers are in competition. Some of them are in a small size, and some of them have a high reputation. Different bakeries may have different suppliers.

In terms of customers, they could be divided into two main groups. One includes individual consumers, and the other one; organizations. Such as schools, hotels and enterprise units, etc.

Five forces analysis

Chart 1 Yuxi Bakery Industry analysis

1. Exiting Competitors

Rivalry among existing competitors is intensive, as (1) competition is becoming fragmented; (2) they provide homogeneous products and services; (3) the switching cost is low; (4) they lack unique core competence. Though bakery industries exit barriers are low, it does not weaken the competition between existing rivals.

On one hand, due to the low exit...
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