Porter’s Five Forces Analysis: Food & Beverage

The Porter’s Five Forces:

a) Bargaining Power of Buyers

b) Bargaining Power of Suppliers
c) Rivalry among existing competitors
d) Threat of substitute products
e) Threat of new entrants

Analysis:

 Food and beverages industry is the biggest of all the consumption

categories in India.
 This sector is supported by the vast agriculture sector.
 India is the biggest producer of pulses, along with the second biggest
producer of rice, wheat, sugarcane, and fruits and vegetables.
 It is also the biggest producer of milk and buffalo meat and ranks fifth in
poultry production.
 In addition to the above factors, it also has other helpful factors such as
large extents of arable lands, favourable climate, long coastline, and low
wages.
 According to a paper prepared by the Confederation of Indian Industry
(CII) and Grant Thornton, India is expected to become the fifth largest
consumer market in the world by 2025.
 The beverage industry, excluding alcoholic beverages, is worth about
$16 billion. Tea and coffee are the most popular beverages, followed by
soft drinks (carbonated drinks and juices), health drinks, milk-based
drinks, flavoured drinks, and energy drinks.
 According to the National Restaurant Association of India, food service
will be worth nearly $68 billion by 2018.
 The Indian dairy sector was estimated to be worth $70 billion in mid-
2015. The growth is mainly owing to the White Revolution. 
 India has a cold storage capacity of 30 million tonnes in 6,000 units, 90
percent of them owned by private companies.
 The demand is expected to increase to over 45 million tonnes.
 Lack of skilled manpower to handle food according to the norms is a
major challenge.
 The market size of food and beverages in India is as follows :

1. Bargaining power of buyers :

 With a large number of products in the market and daily innovations
there is no dearth of suppliers.
 The buyers have high bargaining power in a place where there are many
fast-food joints, as they can choose any one of them.
 Hence customers are at a luxury of choosing from a host of products.
 Government has also allowed 100% FDI in this industry. Hence overall
buyers have a high bargaining power.
 There is also high availability for the substitute products in the industry.

2. Bargaining power of suppliers :

 The main suppliers in the fast-food industry are dough, dairy produce,
and meat vendors.
 Their bargaining power is low since there would be a number of
suppliers of these items.
 The determinant of the low suppliers’ bargaining power here is the lack
of differentiation among the suppliers’ products (the existence of a
number of reliable suppliers). So, this is an advantage for a fast-food
outlet or chain.
 Moreover, the companies have fewer options as imported products
increase the price of the end product.
 But the suppliers are sometimes exploited on price by middlemen or
companies. Hence suppliers have a low to moderate bargaining power.

3. Rivalry among existing competitors :

 There is a high concentration amongst the industry.
 There are a lot of players in the industry for every product category.
Though in every category there is a power struggle between 2-3 large
players, there is very little scope for price appreciation.
 The proportion of fixed cost is also very high for the entry in this industry
which acts as barrier.
 Hence there is a high rivalry amongst existing competitors.

4. Threat of substitute products :

 No limitation is impose either on the prices of the products or the
availability of the products in food and beverages industry.
 Whenever the consumer is dissatisfied with the product or its price, he
can easily switch to the other product.
 As there is a lack of differentiation between the products, it can be
concluded that threat of substitute products is very high.

5. Threat of new entrants :

 New entrants in this industry requires to satisfy many complexions as it
involves various permissions to set up.
 Along with that good infrastructure, uniqueness, brand etc. are also
required to get sustainability in the competitive world.
  The scope for the price appreciation is also very low.
 One of the most important disadvantage is this sector highly dependent
on manufacturing, distribution and storage cost .
 Therefore, we can conclude that new entrants face high barriers and
have a low threat of new entrants.
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