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  • Subject area(s): Marketing
  • Price: Free download
  • Published on: 14th September 2019
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  • Number of pages: 2

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Industry analysis

Porter's Five Forces will be used to analyse the industry, specifically in the UK. Its primary purpose being to get a better understanding of the competitive landscape that Fynbo Foods is looking to enter. This is done by looking at the different forces that  determine the industry's overall attractiveness and long-run profitability. Analysing the industry will provide a starting point for Fynbo Foods to develop a competitive strategy to better defend against the competitive forces. (Jobber and Ellis-Chadwick, 2016)

Threat of new entrants

The moderate growth of the UK fruits preserves and spreads market will encourage newcomers. Large multinational players dominate the market, and benefit from economies of scale, strong brands, and a diverse range of products. Private labels also have a big influence in this environment.

Gaining access to distribution channels may be difficult, as retail space is limited and new entrants must persuade stores to replace established brands with unproven, new products. If a new entrant is threatening an established player's market share, there is a likelihood that the established players will retaliate through price reductions.

Players can distinguish their products to an extent through the promotion of health claims or organically sourced ingredients. Although it would be difficult for a new entrant to compete with the brand strength and reach of existing players, it is possible to achieve small-scale success by focusing a product's marketing on unique production methods or nutritional benefits.

Government regulation affects several aspects of manufacturing. Hygiene and health consciousness are changing the landscape of food processing and regulations surrounding ingredients. The industry is well regulated by the Food Safety Act 1990. A high degree of regulation in food safety standards acts as a barrier to entry. (MarketLine, 2017)

The power of suppliers

The primary input for fruit preserves and spreads manufactures comprise of sugar, fruits, gelling agent and ingredients specific to flavour, such as vanilla or cinnamon. Although available from several sources, some of the commodities are subject to price fluctuations. When players buy in the open market, they have little control over prices, which is why supply contracts with growers and farmers may be negotiated. Typically set up with fixed-terms and then periodically negotiated prices. The negotiating position of the player may be vary depending on where the grower operates.

Leading players must maintain product quality if they are to sustain their brand in the long term. The need to source raw materials of appropriate quality, strengthens the suppliers able to provide the necessary products. However, lack of differentiation in commodity inputs weakens supplier power.

Packaging is another important input in the industry, and players may enter long-term contracts, which increases supplier power. (MarketLine, 2017)

The power of buyers

The primary sales channels in UK for fruit preserves and spreads are hypermarkets and supermarkets, accounting for 63.3% of the total distribution network, followed by convenience stores accounting for 26.2%. The buyer power is strong due to the concentrated nature of the retail sector, where a few large chains dominate the market. The large chains each have a strong financial backbone and retain a high degree of bargaining power over the players competing over shelf space in the leading stores.

Marmalade and other fruit preserves takes up only a tiny proportion of the total amount of items sold by food retailers, which significantly reduces its importance and therefore increases buyer power. However the end consumers are subject to branding in the markets, and the food retailers are compelled to stock the varieties and demanded by the customers. Players can weaken buyer power to an extent by strongly brand their products. Buyer power can further be weakened in cases of producing private label, increasing switching costs and product dependability. (MarketLine, 2017)

Threat of substitutes

From a consumer's point of view, there are a number of commercially-available substitutes for fruit preserves and spreads. These include honey, syrups, chocolate spreads, mayonnaise, vegetable puree, yogurt and sauces. From a retailer's point of view, these substitutes may offer higher margins. Leading players tend to have broader product ranges, even producing the very substitutes themselves, which reduces the threat posed by substitutes. (MarketLine, 2017)

Intensity of rivalry

The UK fruits and preserves market is fragmented,  indicating of a high number of competitors, which increases rivalry. Players in this market are similar; operating primarily in the food and drink industry. This increases rivalry, and means that market fluctuations are likely to affect companies in the same way. Switching costs are low; buyers can switch from one player to another without incurring costs. This boosts rivalry.

The ease of exit depends to some extent on the company's business model. Fixed costs are high due to the expense of establishing suitably sized facilities and production lines with specialized equipment. As a result, exit barriers are also high. This increases rivalry. Furthermore, storage costs are high, not only because of the size of the facilities necessary to store the finished product, but also due to the need for storage facilities for raw materials. The moderate growth of the market helps to decrease the intensity of rivalry.

Summary

The weaker the five forces of an industry are, the more attractive the industry becomes. For the fruit preserves and spreads in UK the forces are considered as follows:

New entrants: Moderate

Supplier: Moderate

Buyers: Strong

Substitutes: Moderate

Competitiveness: Strong

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