Forces Shaping Packaged Food Industry

(The author of this article is Ravish Arora, Business Intern at Wipro Technologies Ltd. Ravish is an MBA from IIM Bangalore and currently serves the Food & Beverage Function of CPG Vertical at Wipro.) Packaged food industry has been lately drawing criticism from Industry pundits and experts, for it has shelved its status of being a recession proof Industry. It was only a few months back when the same pundits were going gung-ho about the opportunities lying galore ahead of players in this Industry. It almost seemed packaged food had evolved over the years from its status from a bare psychological need in Maslows hierarchy to aesthetic needs of health and well being. The only chant heard around was about the forces of consumerism, globalization and rising income levels in third world countries, which would be upholding the future of this Industry high. However, it didnt take long for this recent recession to shed those claims and reject those profound theories. For those of us who do not know, Packaged Food consumption is estimated to be $1.8 trillion worldwide in 2008, with industry growing at a rapid pace of 7-8% over the last 3-4 years. It involves product categories of Bakery, Dairy Products, Frozen and Processed Foods, Confectionery, Snacks, Fats, Sauces, Ice Creams, Baby Foods, Pasta, Soup and many more. The matter of fact is that packaged food Industry, particularly its consumption is as susceptible to cyclical trends of economy as any other Industry today. It doesnt take much for any consumer to trim his food budget in wake of credit crunch and move to alternate cheaper avenues like fresh foods. Hence, it becomes imperative for both, Incumbent players and New Entrants to estimate the very forces that will be deciding the fate of this industry over a period of next 2-3 years. And what better way to understand them than using the Porters Five Forces Model for understanding this industrys attractiveness. The outcome of this exercise gives us an array of inputs which will find its way into action plan of any CXO serving this Industry.

Industry Attractiveness Using Porters Five Forces

In this model, each of the five forces is analyzed based on certain parameters and market behaviors to determine if the force is acting to make the industry lucrative and profitable or working destructively by eroding away the profits. Any characteristic deemed as favorable can be exploited to industry or company benefit and any characteristic deemed unfavorable needs to be addressed as a sustainability challenge.

Competition & Rivalry

Buyer Power
Buyers for packaged food industry players can be categorized into retailers and consumers, hence different set of forces are applicable to each of them.

Supplier Power

Threat of Substitutes
Substitutes are specific to product categories in this industry and they may or may not pose the relevant threat. They can be a significant threat if the price performance value offered by substitute is better than products being offered, hence to be considered on a case by case basis.

Barriers to Entry

Now that we have analyzed the forces characterizing the packaged food industry, we need to further determine how they affect our business.

Keep checking this blog for our next post where we will provide insights into impact of these forces and how to address the challenges posed by these impacts Posted by CPG Expert at 11:08 PM 1 comments Labels: Consumer Packaged Goods, Packaged Food, Porter Five Forces, Ravish Arora

Monday, June 1, 2009

Demand Management Solution for the Fresh Foods Industry

(The author of this article is Aviral Gupta, a Business Analyst in CPG Vertical at Wipro Technologies Ltd. Aviral has been responsible for bringing thought leadership and innovative solutions for Global CPG Companies and been actively involved in several CPG projects at Wipro. Aviral holds a Masters degree in Business Administration from IIT Madras and has been an integral part in the solution ideation and development phase of Sub Daily Planning and Scheduling Composite.) The Fresh Foods Industry has witnessed a stream of changing consumer trends. Today the trend is towards branded Products as consumers seek out branded reassurance and trade up to higher quality products. The end consumer expects that all fresh food goods such as Bakery products, Fruits & Vegetables, Dairy and Meat Products must be available for purchase in pure condition, whilst retailers endeavour to maximize shelf life and avoid

wastage costs. The outcome is that Food Manufacturers are increasing delivery frequencies, place smaller orders and maintain faster order cycle times to meet consumer demands. From a manufacturing perspective, their main concern areas are the ability to change production plan/schedule and visibility about the capacity and material to meet changed customer requirements. Below is the first of the three part series of the blog where we take you through the Fresh Foods Industry, its typical challenges. Then in the next edition we will explain using a segment of Fresh Foods Industry called the Bakery Industry and the challenges faced in a day of a bakery planner. Finally, in the third part we will describe how a technological tool such as the innovative Demand Planning solution helps to alleviate the bakery planners challenges with its simple to use functionalities.