Porter’s Five Forces analysis is useful when trying to understand the competitive environment facing a backery industry. It involves looking at internal competition, barriers to entry, the profit-appropriating power of both buyers and sellers, as well as substitutes to the goods produced. Applied to the bakery industry it shows an average net profit that typically does not cover the cost of capital due to low barriers to entry, ease of production and ease of access to ingredients. The Threat of Substitutes and Porter’s Five Forces
There are many players in the bakery industry in Kuantan, Kemaman and Pekan.
The industry is characterized by many small bakeries, but there has been a recent trend towards consolidation and economies of scale. Businesses compete on price, quality, differentiation and relationships with key suppliers.
Barriers to Entry
Barriers to entry in this industry are low. Economies of scale are beneficial, but are not required for industry success. As a result, small businesses can enter the industry with a relatively small amount of capital.
The two main determinants of a new company’s success is the leaders’ ability to acquire sufficient distribution channels to cover operating costs and their ability to build up brand recognition and loyalty. Distribution channels typically involve retail outlets, such as supermarkets and grocery stores, and they can be more easily acquired if the bakery has an established brand or the marketing resources to create one.
Buyers of the bakery industry’s products, such as supermarkets, grocery stores, hotel chains and convenience stores, are able to appropriate much of the industry’s profit due to the large number of small bakeries that are all vying to find outlets for their products. As a result, buyers are able to command low prices and volume discounts. This will cause the profits are small because they want to keep putting the product together with competitors from the same industry.
Suppliers do not have much negotiating power in the bakery business due to the well developed markets for their products and the commoditized nature of what they are selling. Bakeries can be affected by price swings of the raw inputs, but the changes are a result of global supply and demand determinants rather than suppliers’ negotiating power. Most suppliers of bakery goods on the East Coast is more expensive compared to large cities such as Kuala Lumpur, Melaka and Ipoh. This causes the price of the cake to be expensive because of higher raw material costs.
Many substitutes exist for bakery products. Breakfast cereals, rice and potatoes are all viable alternatives and individuals can also make all of the baked goods they want at home. Bakeries rely upon price and convenience to keep individuals switching to a substitute or baking what they need at home.
4.0 MARKETING STRATEGY
4.1 Market Segmentation
Marketing Segmentation is the process of analyzing and classifying customers in a given market to create smaller, more precise target markets. FadRizals Cakes has identified its overall market to consist of people who have a higher level of discretionary income to indulge in and appreciate the exquisite creativity and flair to consume extraordinary cakes that not only taste good but look good at the same time. Geographically, their market will start within the Kuantan area and expand to surrounding states in the next 3 years.
Psychographically, their focus involves identifying people who enjoy art of cake design and care about the luxury taste of the products. Their trendy company emphasizes its marketing efforts towards the Baby Boomers (those born 1946-64), Generation X (born 1964-74), Generation Y (born 1975-95) and Generation Z (born 2000-2021). Among potential customers identified to be a part of their target market we have identified special events that would involve those customers such as:
• Anniversary parties
• Baby showers
• Birthday parties
• Bon Voyage
• Bridal showers
• Congratulatory celebrations
• Holidays i.e.,Hari Raya, Chinese New Year, Fathers’ Day, Mothers’ Day, Valentine’s Day, etc.
4.2 Target Market Segment Strategy
Target Market Segment Strategy is the identification of target markets and determination of marketing mix choices that focus on those markets. FadRizal Cakes has identified the above listed markets so that they can be adaptable to different people, and the occasions they enjoy celebrating.
4.3 Marketing Mix
1. Product : Their product is a high-quality, unique that is extremely adaptable to both special events. In addition, our company will donate a percentage of its net profits to The Conservation Fund to help support our world-wide environmental goals.
2. Price : The price of our cupcakes is $4.00 each which includes the product, the seeds and delivery of product to consumers within Connecticut. 3. (Place): Peace of Cake will market its products’ adaptability and its utility adaptability in a venue of different online and offline approaches which include:
[Online]….electronic press releases, website, e-mail marketing campaign, web video ad, message boards, online catalogs, etc.
[Offline]…press release, brochures, menus, direct mail, television spot, radio ads, business cards.
4. (Promotion): Our current promotional plans include but are not limited to:
• Guerilla posting to blogs incorporating company message with signature file
• Create online and offline press releases to introduce new business
• Radio commercials
• TV featured story on Good Morning ConnecticutPeace of Cake, LLC 1
4. Marketing Mix (Promotion….continued)
• Displaying merchandise at CT bridal shows
• Facebook, Twitter, Blogger, Delicious, Digg, GoogleBuzz, Linked In, Reddit, StumbleUpon
• Ads on Google, and sites like WedAlert.com
• Coupon offers, both online and offline
• Premiums, giveaways, incentives, contests
• Samples (offline)
• Magazine and newspaper ads
• Mall kiosks
• Direct mail
4.4 Market Trends/Growth
Throughout the last few years, the market for cupcakes has greatly expanded. No longer are they only a fun birthday party treat that can be purchased at any grocery store or bakery. They have expanded to become a multi-million dollar industry with specialty designs to adapt to any occasion. Peace of Cake joins this specialty market with something new and different to offer its customers. Not only is our product adaptable to a wide variety of occasions and specialty events, but we expect to grow tremendously over the next few years due to our adaptability to our clients’ dietary needs.
4.5 Competition Research
In a competitive market, there are already some businesses that have a firm hold in the market place. One of our top competitors is Nora Cupcake Company, located nearby in Middletown, CT. They have an established Facebook page with several positive review postings. Fortunately, their customer base is local to only Middletown. They do create a vegan and gluten free cupcake, but only make one of each. There is no delivery and you cannot order online. Another competitor is Manta Cupcakes. They too are based out of Connecticut, but are less well known than Nora Cupcake Company. This makes them less of a threat when compared to our Company and its strong marketing strategies. Peace of Cake, LLC 1
Neither company delivers nor has any special deals for quantity purchases. The third competitor is The Cupcake Truck located and delivering in the Greater New Haven area. They deliver ONLY in New Haven and are available on a limited basis depending on the truck stop schedule. Their cupcake offerings are limited to daily specials. Our fifth biggest competitor is Sweet Maria’s Bakery in Waterbury. Their cupcakes go for $5.50 each and there is a 2 day advanced notice for individual cakes and multiple cupcake orders up to 2 dozen. They have limited hours and do not deliver. Online ordering is not available. Frosted Couture located in Southington is an upscale bakery that caters to high-end customers. They call themselves a premier cupcake boutique and carry a wide variety of specialty cupcakes similar to Peace of Cake.
Their prices are a bit higher than ours, but the product is comparable. Orders can be placed on line and they deliver, but only to the Greater Hartford area. However, they do not accommodate those with special dietary needs like vegan, gluten-free, or sugar free. Frosted Couture seems to be our biggest competitor, however they are limited in their delivery area as well as their adaptability to accommodate those with special dietary needs. It is important to also note that they are NOT a nut-free bakery, whereas Peace of Cake differentiates itself by having a nut-free prep kitchen area. This important factor also helps us to adapt to those customers who have nut allergies.
4.6 Sustainable Competitive Advantages
Based on our main competition mentioned above, Peace of Cake actually has quite a few competitive advantages which include ADAPTABILITY:
1. Our price structure remains competitive
2. Our selection of cupcake designs is much more diverse
3. We are adaptable to our customers’ dietary needs offering
a) Vegan cupcakes
b) Gluten-free cupcakes
c) Sugar-free cupcakes
d) Nut free cupcakes
4. We can adapt any cupcake design to any specific occasion
5. We deliver
6. Our cupcakes come with seeds to nourish the earth
7. In an effort to help save the environment a percentage of our net profits go to The Conservation Fund.
Cite this essay
Bakery Industry Analysis. (2016, Aug 16). Retrieved from https://studymoose.com/bakery-industry-analysis-essay