Bakery Industry Analysis 5 Porters

Topics: Marketing, Cake, Target market Pages: 6 (1482 words) Published: December 19, 2014
Bakery Industry Analysis

Porter’s Five Forces analysis is useful when trying to understand the competitive environment facing a backery industry. It involves looking at internal competition, barriers to entry, the profit-appropriating power of both buyers and sellers, as well as substitutes to the goods produced. Applied to the bakery industry it shows an average net profit that typically does not cover the cost of capital due to low barriers to entry, ease of production and ease of access to ingredients. The Threat of Substitutes and Porter's Five Forces

Internal Rivalry
There are many players in the bakery industry in Kuantan, Kemaman and Pekan. The industry is characterized by many small bakeries, but there has been a recent trend towards consolidation and economies of scale. Businesses compete on price, quality, differentiation and relationships with key suppliers. Barriers to Entry

Barriers to entry in this industry are low. Economies of scale are beneficial, but are not required for industry success. As a result, small businesses can enter the industry with a relatively small amount of capital. The two main determinants of a new company’s success is the leaders' ability to acquire sufficient distribution channels to cover operating costs and their ability to build up brand recognition and loyalty. 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. Buyers

Buyers of the bakery industry’s products, such as supermarkets, grocery stores, hotel chains and convenience stores, are able to appropriate much of the industry’s profit due to the large number of small bakeries that are all vying to find outlets for their products. As a result, buyers are able to command low prices and volume discounts. This will cause the profits are small because they want to keep putting the product together with competitors from the same industry.

Suppliers do not have much negotiating power in the bakery business due to the well developed markets for their products and the commoditized nature of what they are selling. Bakeries can be affected by price swings of the raw inputs, but the changes are a result of global supply and demand determinants rather than suppliers’ negotiating power. Most suppliers of bakery goods on the East Coast is more expensive compared to large cities such as Kuala Lumpur, Melaka and Ipoh. This causes the price of the cake to be expensive because of higher raw material costs.

Many substitutes exist for bakery products. Breakfast cereals, rice and potatoes are all viable alternatives and individuals can also make all of the baked goods they want at home. Bakeries rely upon price and convenience to keep individuals switching to a substitute or baking what they need at home.

4.1 Market Segmentation
Marketing Segmentation is the process of analyzing and classifying customers in a given market to create smaller, more precise target markets. FadRizals Cakes has identified its overall market to consist of people who have a higher level of discretionary income to indulge in and appreciate the exquisite creativity and flair to consume extraordinary cakes that not only taste good but look good at the same time. Geographically, their market will start within the Kuantan area and expand to surrounding states in the next 3 years. Psychographically, their focus involves identifying people who enjoy art of cake design and care about the luxury taste of the products. Their trendy company emphasizes its marketing efforts towards the Baby Boomers (those born 1946-64), Generation X (born 1964-74), Generation Y (born 1975-95) and Generation Z (born 2000-2021). Among potential customers identified to be a part of their target market we have identified special events that would...
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