The confectionary Industry analysis for studying market dynamics for Nestle Table of Contents 1. History3 2. Industry Size and Trends3 2. 1. The Distribution Mix5 2. 2. Share of Grocery, Petroconvenience and Route6 2. 3. Export and Import Scenario6 3. Industry Characteristics6 4. Porters 5 forces7 4. 1. Threat of new entrants7 4. 2. Industry rivalry7 4. 3. Threat of substitutes8 4. 4. Bagaining power of Buyers8 4. 5. Bargaining Power of suppliers8 5. Confectionary industry Threats8 6. Confectionary industry Opportunities11 7. References11 1. History The confectionary originated thousands of years ago, when Hippocrates used sweets as medium to propagate his medicine pre 400 BC. * In 1600’s cocoa bean was discovered in South America by the Spanish . It then became a luxury product for the consumption of the elite in Europe. * The first chocolate house was opened in London in 1657. In Europe, Nestle was founded in 1867. John Cadbury started making chocolate in England in 1831. * James Stedman was the first in Australia to set up a small confectionary factory in 1874. Nestle began its food operation in Australia in 1908.
Allen’s brand goes back to 1891 and Life Savers to 1921. Mac Robertson introduced the Mars products in the late 1950’s. * A series of take overs and mergers took place as business sought economies of scale. In the 1980’s, the Australian market became a transnational market from a national one. After acquiring local firm Life Savers and Allens in 1985 and Rowntree Mackintosh globally- Nestle Confectionary Ltd in 1991. This move was to bring all brands under one banner. During 1990’s Multinationals-7. 5% of the Australian Confectionary industry. * In Oct 2008, Mars Inc.
Purchased Wm Wrigley Jr and thus became world’s biggest confectionary manufacturer. Although in Australia, they operate separately, Mars is Mars- responsible for chocolate and Wrigley Company for sugar confectionary and gum range. 2. Industry Size and Trends In 2008, Australian Confectionary industry was estimated to be 3. 7 billion; out of which 2. 7 bililon was accounted for by Grocery, Petro convenience and Route. The rest of the 1 billion sales was issued by seasonal confectionary and channels not captured through standard tracking (mass merchandisers, fund raising , etc).
The price of sugar rose by 31. 5% and of cocoa by 37. 9% in 2007-2008. This led to an increase in the price of products and also the trend of passing by some of the industry’s major players. The confectionary sales in 2009, was hardly affected by the global financial crisis. Although, certain sectors within the market have shown tremendous growth at the expense of others – overall per capita consumption did not change much. ($2. 7 Billion) Australian Confectionary Industry Segments Chocolate ConfectionarySugar ConfectionaryChewing Gum (62%)(28%) (10%)
RSV $ 1456 Million $ 936 Million $234 Million Source :AC Neilson Key Trends: * Premium Products * Health Products * Traditional Products Key innovation areas for the industry to expand: * No artificial colours/natural * Organic * Low/No, reduced sugar * High cocoa content * Allergen free The testing times are ahead, for the industry as, awareness of consumption of sugars, fats and obesity issues is increasing amongst the Australians. Although, the industry has already responded by introducing low/reduced sugar versions and small serving sizes.
Chocolate manufacturers are extensively promoting the health benefits of cocoa and dark chocolate and combining them with fruits, nuts etc. 2. 1 The Distribution Mix Confectionary Sales 75% Grocery 13% Traditional 12% Exported Super market merchandise (Convenience and petro convenience independent small store) (In 1980s- Grocery accounted for 35%) Supermarket chains compete on price and as grocery is the major distribution outlet, the Manufacturers have to let go of their profit margins most of the times.
Small independents outlets are on a decline. Although there is an increase in the non-traditional outlets such as green grocers, florists, video stores etc. Food service and fund raising are also very small distribution outlets. 2. 2 Share of Grocery, Petro convenience and Route market: * Cadbury – (35. 4%) * Nestle – (17. 1%) * Wrigley company (12. 4%) * Mars (11. 2%) * Ferrero (4. 2%) * Lindt (3. 3%) * Private Labels (6. 2%) 2. 3 Export and Import Scenario: The Australian confectionary exports which represent 12% of the revenue are on a decline since 2004.
On the other hand, Australia’s dependence on import is on a rise and current import estimates are $700 million a year (source: ABC2 and SBS). This has led to a loss of approximately $200 million in confectionery sales over the past 4 years. 3. Industry Characteristics The confectionary industry in western countries is in a mature phase of its life cycle. Population growth is only faster largely promoting long term growth. Key Characteristics – * Strong Brand Names * Impulse Buying * Product Innovation * Strong Merchandising
In a mature market like confectionery, developing consumer interest in new products needs to be supported through strong merchandising and promotion. Attractive eye-catching displays are critical for converting latent demand to actual consumption There is a dominance of large multi-national brands in the market with five leading firms accounting for about 80% of industry sales volume. Since confectionary is never a planned purchase, but is highly an impulse driven industry; it has the widest distribution bases and a monopoly of the supermarkets. 4. Porter’s 5 forces: 4. 1 Threat of New Entrants:
The Australian confectionary market has high entry and exit barriers, due to the difficulty of developing brand names and underlying constraint of long term growth. Although this market is favourable, geographically to the Asian markets and has a favourable world Bank and IMF ‘ease of doing business’ rating. But again considerable expenditure in Advertising and Promoting, and many years of persistence will be required to establish a confectionary brand in Australia. 4. 2 Industry Rivalry The competition in this industry is extremely high, as discussed in the earlier sections.
As this industry, relies heavily on impulse purchase, industry participant tries to score points at every level starting from distribution, shelf space, merchandising, attractive POS, towers, display promotion, T. V advertising, Guirella, outdoor advertisements, etc. 4. 3 Threat of Substitutes:- Confectionary, as a whole, cannot be substituted but for Nestle, in particular there are high threats of product substitution. However, there is as possibility of substitution in cases where biscuits and dessert products etc compete for the consumer’s attention. 4. 4 Bargaining Power of Suppliers:-
The Australian confectionary Industry has a huge and competitive supplier base. There is no uniqueness of inputs. There is low threat of forward integration. 4. 5 Bargaining Power of Buyers: Due to dominance of the supermarket chains like Coles and Woolworths in the distribution mix, there is high downward pricing pressure on confectionary prices. The major supermarket chains prefer products that possess high brand loyalty and turnover, and are offered generous shelf space in impulse and high traffic areas. The small brands to occupy same areas have to meet the low price criteria.
This, in turn favours the major multinationals, again posing a disadvantage for small local manufacturers. 5. Confectionary Industry Threats: * Seasonal variation in demand:- The colder months of the year and special occasion such as Easter, Christmas, Mothers Day, and Valentine’s Day are days, are times, when the confectionary sales seem to reach their peak. Easter is the biggest selling season and Christmas is the next best. * Sensitivity to raw material prices:- The Cocoa beans, milk and sugar are the primary raw materials for chocolate and for sugar confectionary they are sugar and glucose.
These commodities have highly volatile prices, which are dependent on the weather patterns, crop yields and stock piles. Cocoa is imported; therefore foreign exchange vagaries also apply. There has been a global cocoa shortage due to crop diseases and aging trees. * Retailer dominance Australia has a highly concentrated grocery market, which therefore has a significant market power. As discussed earlier, this creates a significant erosion of profit margins for the manufacturers. This in turn leads to obstacles to achieve innovation for any research and development. * Social Agendas
The scope of marketing and distributing “treat” foods is at risk of change, because of the growing focus on healthy lifestyles and increased levels of obesity globally. Ethical consumerism (environmentally and socially responsibly produced goods), is starting to become the new global culture, and this is exerting an increased pressure on the confectionary industry to address issues in the coffee and chocolate supply chain. * Government Relations: It has been estimated that at the federal level, Laws are going to be in place to ban the confectionary industry from making any health related claims.
This move on the behalf of government can shatter the market differentiation that the confectionary companies are trying to achieve by claiming that their products are comparatively healthier. * Demographic changes Age profile in Australia is shifting, and is going to have a larger proportion of older people (lean towards more savoury flavours and consumption occasions) who have taste preferences that are entirely different from those of the younger people. These changes in the demographics need to be addressed. * Substitution risk from other product segments: ood categories, such as biscuits, processed fruit, dairy and cereal are seeking market growth through infringing other segments. * Competition from Private Label Brands: The big retailers such as Coles and Woolworths have launched their own private labelled products. These products enjoy strong support from these retailers. * Concentrated Retailer market: There is a need to think alternate ways of distribution, in case the standard market giants become unsecure. Their market dominance will result in them making the rules in the market, which can be unhealthy for the confectionary industry growth. . Confectionary Industry Opportunities: * Key innovation areas for products include: * – No artificial colours/natural. * – Organic. * – Low, no or reduced sugar. * Low or reduced calories. * – High cocoa content * – Single source origin cocoa * – Allergen free * Look for opportunities of exporting to Asia, where the market is 5 times the size of Australia. The emerging markets, such as those in Asia, South America and Eastern Europe offer the industry the greatest growth prospects. * Product and Packaging innovations: Cadbury is a go getter when it comes to product innovation and brand extensions.
It has set an industry example of brand management and product development. Confectionary is a dynamic industry and people want variety in the sweets that they consume. Nestle recently has followed suit, and has launched the new chokito line, with a slightly different flavour and new exciting packaging. 7. References: * Confectionary manufacturers of Australasia industry profile 2009 , The Confectionary manufacturers of Australasia, Victoria, viewed 12 May 2010 , <www. candy. net. au> * Nestle. com. au 2010, Nestle’s history ? , viewed 10 May 2010, <http://www. nestle. com. au/AboutUs/History/Default. tm>. * Hubbard, Rice and Beamish (2008) “Strategic management”, Prentice Hall, chapter 3, Analysing the environment. * Kilmas M, 2008, International Market Trends Analysis for the Functional Foods and Natural Health Products Industry in the United States, Australia, the United Kingdom and Japan, George Morris centre, viewed 11 May 2010,<http://admin. nutrinetcanadannc. ca/useredits/File/FFNHP%20International%20Final%20Report%20FINAL%20031708%20MK%20%20CCB. pdf> MARK 5033 | Assignment feedback. 1. 0| Marketing Strategy and Planning (MSAP)Assignment 1 – Individual analysis of the business environment.
Student name: Garima Pandey | Key assessment criteria| Performance on this criteria| Comment| | Very Poor| Poor| Fair| Good | Excellent | | The sources of the data used in the analysis| | | | | | | Primary research conducted| | | | | | | The structure and depth of analysis| | | | | | | Key SWOTS identified with supporting rationale| | | | | | | Logical and rational argument, focussing on cause and effect| | | | | | | Logical recommendations supported by rational argument based on data| | | | | | | Demonstration of understanding and application of course content| | | | | | | Concepts are clearly expressed| | | | | | |
Oral presentation of above points. | | | | | | | General presentation, grammar, spelling, punctuation, format and layout of analysis. | | | | | | | Summary comment:Assignment grade:Marker:| The Graduate qualities being assessed by this assignment are indicated by an X:| | GQ1: operate effectively with and upon a body of knowledge| | GQ5: are committed to ethical action and social responsibility| X| GQ 2: are prepared for lifelong learning| | GQ6: communicate effectively| X| GQ3: are effective problem solvers| | GQ7: demonstrate an international perspective| X| GQ4:can work both autonomously and collaboratively| | | *