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Essay: Cadbury chocolate external business environment

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  • Subject area(s): Business essays
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  • Published: September 15, 2019*
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  • Cadbury chocolate external business environment
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Cadbury chocolate is a confectionary sweet producer, that mostly focuses on chocolate products. Cadbury was started by John Cadbury in 1824 that owned a tea and coffee shop, but the wealthy individuals tended to enjoy hot chocolate as an alternative to alcohol, John made hot chocolate more accessible to everyone by selling it for cheaper prices and not restricting to who bought it (John being part of the Quaker family, couldn’t drink alcohol). They started gaining popularity after which he started to focus mainly on chocolate production. The company has expanded greatly over the decades, with now chocolate being manufactured in over 15 countries, boasting a huge $3 billion in global net revenue in 2016. Mondelez International is the parent company of Cadbury. Cadbury to this day specialises in the Chocolate products, dipping its fingers in the chocolate biscuit market.

The objectives of this report are to discuss how Cadbury is affected by the external business environment and how that influences the business’s functions and decision making. Furthermore, I’ll discuss how changes in the business environment have impacted on Cadbury.

Cadbury has many external environment factors that it needs to take in mind when running the business, one of the most important is its competition. Mondelez International main competition is Nestle and Mars. The UK confectionery market is dominated by those 3 giants. But Mondelez is the market leader by having a 32% market share of which Cadbury has 29%. This is much greater than its competitors such as Nestle 14% and Mars 24%. This lets Mondelez innovate and set new trends in the confectionery market. Such as the sharing bags, which have become highly popular with families. Instead of buying expensive chocolate gift boxes, it has become more popular for families and friends to bring a sharing bag that everyone can enjoy during social gatherings.

One of the smaller and quiet competitors that have inspired Mondelez and other confectionary companies to develop new products is Lindt & Sprungli, that has started selling its premium chocolate is smaller bars. This has seen massive sales growth in 2017, with Lindt having a 17.6% increase in sales of its Lindt Lindor chocolate. This is massive growth in any industry. And so Mondelez and Cadbury must react to such trends, by investing more in their research and development to be the next to compete with Lindt in the premium & affordable chocolate market. This would result in an increase in costs for Cadbury, this would be a long-term investment aimed to only pay back in years to come. Cadbury could develop this new product by backward engineering, which is breaking up already existing product to see how it made and then improving it.

Competition in the confectionery market is good for the consumers as it increases the quality of products and decreases the price. On the other hand, competition can be a negative for Cadbury and Mondelez as the pursuit of cheaper products by consumers may lead to price wars which may make some businesses make a loss earnings in a product to take the leading edge of the market. Fortunately, this is very unlikely for the confectionery market as Consumers in the UK are more likely to pay the extra price for higher quality products. Although saying that when Mondelez increased its chocolate bar prices from £1 to £1.29 sales dropped instantly. (Jethwa, 2017) This Shows that consumers are more likely to buy items at rounded prices such a £1 as it is convenient. Cadbury does this by using Price Marked Packaging. This is where the retail price is displayed on the product’s packaging as an extra form of advertisement. This also eliminates the potential of smaller shops selling these items for a higher price. Which could decrease the brand image of Cadbury.

Furthermore, another external environment factor that Cadbury and Mondelez must take in is the current trends. One of the biggest trends is more health-conscious consumers, customers want less sugar and less fat. The world has an obesity problem and many people are starting to do something about this problem and it has become not only a trend factor but also an ethical factor. Which helps build and improve a sturdy and trusted brand image that not only helps with customer sales but also with potential investments into Mondelez shares on the stock market, providing a greater amount of capital to R&D new products line further improving businesses revenues and profit figures. Cadbury Chocolate is not advertised for children under the age of 13 years. (Anon., 2018) This is may have been a response to the past pressures of media about children TV channels being targeted by confectionary companies. The UK introducing the drink sugar tax has encouraged other high sugar product manufactures to try to lower its sugar contents to become more ethical and responsible. The soft drink sugar tax has had the biggest effect on fizzy pop drinks such as Coca-Cola. This can be easily seen in the huge fast-food chain McDonalds where now buying a normal non-diet Coca-Cola costs you extra +0.14p. Cadbury has responded to this by currently developing a lower sugar and fat chocolate bar with even better flavouring than before. (Anon., 2018) This new product will meet the markets demand for healthier snacking options, which will lead to a high volume of sales of this new product and increasing revenue, furthermore this will lead to the Research and Development cost to be paid for and so the product will start making profit and lastly increasing the market price by more individuals investing, this is because investors are looking for profit. On the other hand, this may result in the drop in sales in the other non- “diet” products causing a fall in revenue. This goes with Mondelez core values of “Snacking Made Right”.

An additional trend is the growth of diet trends such as Veganism, which has taken the world by storm resulting in more and more people joining this movement. According to a Comparethemarket.com survey, more than 3.5million British people now identify as a vegan since 2016. (Petter, 2018) The vegan diet is a diet that eliminates all animals’ products. And so like in the past where the vegetarian products have become more popular so are vegan. This means that businesses such as Cadbury need to adjust to the trends and develop new products. They have done this with one of their iconic products the Cadbury Bournville chocolate which is one of Cadburys oldest products and is no produced without milk, making it Vegan. Vegan chocolate is challenging as one of the main ingredients is cow milk. This is a challenge for Cadbury which know for using its “Glass & a half” of milk in every chocolate, which has become their company’s slogan for many years including the “glass & a half” of milk being poured logo on their most iconic and popular Dairy Milk Chocolates. As Cadbury built its company image on this slogan, therefore, they most likely won’t change their whole product line to Vegan-friendly. But this does not stop them from developing new products to suit those Vegan customer needs. Filling in the gaps in the market.

Lastly, the biggest external environment factor being Political and Economical, and that is Brexit. In 2016 the British public voted in a referendum to stay or leave the European Union. The result was that the British public voted to leave. Now this has a massive impact on the British economy and Businesses. First, during this time the government has tried to draw up a deal and plan to leave the EU, without success. This has led to massive uncertainty in the market. Not only for investors potentially looking to invest in the UK but also for business thinking long term. The can be easily seen by how the market reacts to government announcements by the price of the Sterling Pound Falling greatly in value. Which means that the price of Exports has dropped, and the price of imports has increased. Causing many businesses to evaluate the location of their business. The biggest problem is businesses making less profit for selling goods abroad and paying more for buying raw materials and resources from Europe and abroad.

So this also impacts Cadbury, although Cadbury does have manufacturing plants all around the world, its main factories still lay on British soil. One of the biggest issues is the is lack of fear in investment into Mondelez international. This can be seen when the Brexit referendum took place Mondelez international share price fell by nearly $6. And you can see a pattern whenever the government gives new news that offers uncertainty the share price drops. This means that Mondelez has less disposable capital for future projects.

A hard Brexit deal will cause huge import and export tariffs with the EU causing many companies to struggle. Cadbury will be affected by this as well as some of its ingredients from the EU will cost more, which will increase its costs, meaning their profits will decrease even possibly go into a loss. This is the reason Cadbury is investing large amounts of its capital in planning to what to do if we have a hard Brexit. One of the ways Cadbury has started to prepare is by starting to stockpile materials. (Anon., 2018)

Competition is one of the most important external environment factors that affect the business decisions within Cadbury. As Cadbury is important to stay on track of your goals and have a clear heading of trying to be the market leader.

The competition will greatly affect how Cadbury will make decisions throughout the company structure. One of the main reasons why Cadbury and Mondelez will be affected by the decisions and actions of its competitors is because they are the market leader. Mondelez international having 32% market share of the confectionery market which Cadbury has 29% of, means that they want to stay on top of the market to sustain market leadership. One of the sectors that will be responsible to make vital decisions to keep competing with the competition will be Operations, which make big decisions on how to execute goals. They do this by setting goals and directing what needs to be done by other functions of the business. For example, when they acknowledged that Lindt’s product has had a 17.6% increase in sales in 2017, the operations probably first communicated with Finances to discuss available capital for R&D. After knowing how much they can spend on developing a new product, they then ordered R&D to start developing a new product with the budget available to them. This a prime example of how different business functions work together to work to the company’s goals. On the other hand, Mondelez having such great market dominance lets them not worry too much about competition as their closest competitor Mars, has 24% of the confectionery market. This means that competition is still at the importance of decision making at Mondelez and Cadbury but it is not of such importance as other areas that are talked about in this report.

Trends are an additional area that is an important external environment factor that affects how the business does the decision making. As they Cadbury and Mondelez want to meet its customers’ needs to keep its high market share of the confectionery market.

Trends will affect Cadbury the most in the decision making of its business functions. A reason for this is customers will not buy products that they do not demand. Cadbury wants to meet the demand, so its vital for them to watch in changes to demand in different products to keep supplying the demand. Therefore, when the demand for vegan chocolate arose, Cadbury met it by changing one its most popular and oldest, Cadbury Bournville chocolate bars ingredients to suit those customers. They most likely did this through its someone in Operations department noticing during market research that there was an increase in a demand in vegan chocolate, which then resulted in order to the R&D department to make a new recipe for the iconic chocolate bar to make it vegan-friendly. After creating and testing this bar it was approved to go to the production department. Now to make sure that sales increased and not fall of the existing product, the marketing department has issued an order to increase the marketing of the Bournville chocolate bar to the vegan community. This was a very good move not only meeting demand but growing its positive brand image of being a Corporate Social Responsible company. On the other hand, meeting some trends may be negative for the brand image. And this is Cadbury would most likely not change all of its line of products to a being vegan-friendly as its known for using the “cup & half of milk” logo on its classic Dairy Milk product. This is where some trends may not be as important to its decision making simply to keep its company’s image intact.

Finally, Brexit is the less significant external environment factor that affects Cadburys decision making. This is because although Cadbury is mainly located in the UK it has many locations outside of the UK. (out of the three I have stated in this report)

Brexit is a less significant factor in Cadburys decision making as it has its production spread around the world. This means that the result of a hard Brexit won’t affect Cadbury as much as it would of other companies. Even so in April 2017 Mondelez international revealed a £75 million investment into the Bournville manufacturing plant. Which will result in an increase in production capacity and bringing back some of the manufacturing from Poland back to England. (Jones, 2017) This showcases that Brexit doesn’t fear Cadbury, because they still expand their production department in the UK. Brexit did affect all functions of the business, but finances were the most affected as they needed to look at have more back up capital in case of high export and import tariffs with the EU. This was probably done by a management meeting to discuss the plans in event of Brexit. And as stated before Cadbury has started stocking ingredients. (Anon., 2018) However, although Mondelez investing large amounts into the expansion of manufacturing in the UK, in case of a real hard Brexit Cadburys decision making will change completely as it will need to count in High tariffs on goods.

In conclusion, the external environment influence significantly, decisions making throughout all Cadburys business functions. This is because a successful business needs to look at all the external pressures as much as their internal influences. This is so that the business may stay on track to its goals, by being able to be competitive and meet customers demand. Therefore, influences such as Trends are important to Cadbury. Because sometimes you trying to use marketing to set influence on your product may not be enough. (Ray, 2018) Finally, it is of the great importance of any successful business to be influenced by external environmental factors to sustain or build profits.

References

Anon., 2018. Mondelez Internation Information and Heritage Manager [Interview] (20 November 2018).
Jethwa, P., 2017. Key Confectionery Trends. [Online]
Available at: http://www.betterwholesaling.com/confectionery-trends-2018/[Accessed 4 December 2018].
Jones, T., 2017. Bournville to be home of Dairy Milk following £75m investment. [Online]
Available at: https://www.birminghampost.co.uk/business/manufacturing/dairy-millk-cadbury-bournville-birmingham-12859983
[Accessed 14 January 2019].
Petter, O., 2018. NUMBER OF VEGANS IN UK SOARS TO 3.5 MILLION, SURVEY FINDS. [Online]
Available at: https://www.independent.co.uk/life-style/food-and-drink/vegans-uk-rise-popularity-plant-based-diets-veganism-figures-survey-compare-the-market-a8286471.html
[Accessed 13 January 2019].
Ray, L., 2018. Seven External Factors of Business. [Online]
Available at: https://smallbusiness.chron.com/seven-external-factors-business-21960.html
[Accessed 14 January 2019].

14.1.2019

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