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These five forces will examine the food and beverage industry's competitiveness and attractiveness (Recklies 2001). These five forces include the threat of new entrants, threat of substitutes, buyer and supplier power and rivalry among competitors.
Threats of New Entrants (Low- Moderate): As lucrative as the food and beverage industry might be there are several barriers that make the treat of new entrants low-moderate. These include the high start up capital required, supply-side economies of scale, unequal access to distribution channels and the demand-side benefits of scale. However it has to be noted that several firms still enter this industry and because of Nestlé's high market share, they have become a constant target.
Power of Buyers (High): The power of buyers in the food and beverage industry is high. This is because typical buyers are large retailers like Wal-Mart, Carrefour etc. these retailers are financially strong and prefer to have long term agreements with market players. Furthermore majority of buyers are integrated backwards, while several retailers offer their own branded food and …show more content…
It is important to point out that the raw materials in question here are fruits, meat, fish, grains and cereals just to name a few which can easily be purchased in open markets as well. Furthermore some firms have integrated backwards and produce their own raw material handicapping the suppliers further (Bradley et al. 2005).
Threat of Substitute (High): Given the lack of switching cost between alternative for the consumer and the availability of cheaper alternatives to packaged food this has caused the threat of substitutes to be high (Bradley et al. 2005; Hager n.d.).. The industry has experienced a surge in private label products and organic food which has caused consumers to experiment with new products.
Rivalry amongst Existing Competitors (High): The food and beverage industry is vast creating more opportunities for market players. According to Porter (2008), the intensity of rivalry is highest when competitors are many, industry growth is slow and exit barriers are high causing the overall competitiveness of this industry to be high as well. Furthermore coupled by the variation in consumer preference and ability of competitors like Kraft, Groupe Danone and Unilever offering equally good if not better alternatives has lead to high competition among market
Threats of New Entrants (Low- Moderate): As lucrative as the food and beverage industry might be there are several barriers that make the treat of new entrants low-moderate. These include the high start up capital required, supply-side economies of scale, unequal access to distribution channels and the demand-side benefits of scale. However it has to be noted that several firms still enter this industry and because of Nestlé's high market share, they have become a constant target.
Power of Buyers (High): The power of buyers in the food and beverage industry is high. This is because typical buyers are large retailers like Wal-Mart, Carrefour etc. these retailers are financially strong and prefer to have long term agreements with market players. Furthermore majority of buyers are integrated backwards, while several retailers offer their own branded food and …show more content…
It is important to point out that the raw materials in question here are fruits, meat, fish, grains and cereals just to name a few which can easily be purchased in open markets as well. Furthermore some firms have integrated backwards and produce their own raw material handicapping the suppliers further (Bradley et al. 2005).
Threat of Substitute (High): Given the lack of switching cost between alternative for the consumer and the availability of cheaper alternatives to packaged food this has caused the threat of substitutes to be high (Bradley et al. 2005; Hager n.d.).. The industry has experienced a surge in private label products and organic food which has caused consumers to experiment with new products.
Rivalry amongst Existing Competitors (High): The food and beverage industry is vast creating more opportunities for market players. According to Porter (2008), the intensity of rivalry is highest when competitors are many, industry growth is slow and exit barriers are high causing the overall competitiveness of this industry to be high as well. Furthermore coupled by the variation in consumer preference and ability of competitors like Kraft, Groupe Danone and Unilever offering equally good if not better alternatives has lead to high competition among market