SECTION II: BUSINESS DESCRIPTION

Porters’ five forces framework:

In order to analyze the company’s environment we will focus on Michael porter’s framework of
five forces. This theory is based on the concept that there are five forces that determines the
competitive intensity and attractiveness of industry. Porter’s five factors help to identify where
power lies and also to understand the strength of a company’s current competitive position,
and the strength of a position that a company can look to move into. The confectionary
industry is one of the sectors which constantly grow globally ahead of china and UK.
Confectionery industry of Pakistan also one of the oldest & most competitive industries.

Rivalry amongst the competitors:

The rivalry within this industry is affected by big amount of competitors who strive for the best
position. In the confectionery industry, there are numerous industry leaders that offer similar
product. This factor increases the competitiveness within the industry and it also has an impact
on the prices of products, and demands on suppliers and raw material. Another factor that
affects the rivalry in this industry is growth. Since this industry is mature, the growth is gradual
which makes companies to compete to enlarge sales and be profitable. Other component
intensifying the rivalry is the fact that the differentiation of the products is low, there are few
brands that offer distinct products but mostly the differentiation is on the low level which
causes the rise of rivalry, customers choose what to buy only according to the price or quality of
service. Next factor affecting rivalry in this particular industry is perishability of products. When
products are perishable at a certain time it loses its value completely. This creates %pressure on
a competing firm to sell its product at a price while it still has value. This situation within the
industry means that the rivalry among the competitors is high and contains price wars,
advertising fights, new product lines and demands higher quality of customer service. ABC
spread’s biggest rivals are A,B,C Companies.

Bargaining power of customers:

Bargaining power of suppliers:

This force sways a firm’s profitability by raising/lowering prices or reducing/amplifying the

quality of the supplier’s product. In this industry suppliers’ bargaining power is significant
because of the limited amount of them. Raw material (cocoa, sugar, oil, nuts etc.) are grown in
tropical area that make many players in the industry to import the products. The biggest
problem here is that, in such areas there is a noted danger of natural catastrophe or civic
disorders that affects the number of suppliers and also the prices of the raw material and
suppliers’ services. Another aspect of supplier’s power is the fact that companies have to pay
attention to the quality of suppliers to pass the quality inspections and regulations which make
the companies dependent on suppliers. In the production process of ABC chocolate spread the
important commodity is the cocoa bean which is demanded ingredient in this industry and
there is no possible substitution, for which suppliers must compete. So this lack of substitute
also raises the power of suppliers within this industry.

Threat of Substitutes:

The threat of substitute products can significantly impact the prices of the chocolate spread
products. If we consider substitution of the whole industry, the category possible to replace the
chocolate spread products is traditional peanut butter or jams. For ABC spread the threat of
substitution is perilously high. As there are many competitors fighting for customer’s favor and
that rivalry thanks to lack of differentiation is intense. Therefore, the ABC spread have serious
competition which includes Young’s Choco Bliss Hazelnut or Milk Chocolate Spread,
Candyland’s Choc-Oh Hazelnut Spread, Mitchell’s Chocolate Spread, etc. Moreover, any
company or brand can easily copy this product and place it at a cheaper price on the shelves.

Threat of new entrants:

The last of the five forces determines how easily a firm’s profits can be lowered because of the
new competitors in this industry. Regarding all aspects noted above the threat of the new entry
is not significant. There are many competitors in the confectionary industry in Pakistan like
A,B,C companies that have markedly prestigious brand names and they have already gained
loyalty of customers which creates a considerable entry barrier for new companies. Thus the
new entrants would have increased costs to overcome the reputation and great customer base
of the existing companies. Another element making the entry of the new company harder is
capital requirement. It is not so easy to start a new business in this industry; it requires the
company to have a weighty source of capital to get in. The great capital investment cause
spending in areas such as production equipment, human resources, raw material, research and
development or advertising and marketing. As in every industry containing food, there are
government standards and the companies wanting to start the business must satisfy the
guidelines and regulations. These regulations cause increase in the barrier to entry for new
companies.