Table of Contents
a. Porter’s Five Forces Model
Porter’s five forces model is an analytical tool that evaluates external environment of any firm. The model discusses five factors determining competition in the snack food industry. The snack food industry consists of cookies, snacks, bars, gums, and crackers. Thanks to the model, a firm can determine its ability to compete. The forces used in the model are explained and outlined in this study.
Threat of Substitute Products
This is a strong competitive factor in the snack industry. There exist many alternative brands for a specific type of snack foods with different brand names, less expensive pricing, and healthy options. The change in pricing of substitute food products affects the demand of a particular product. In this context, the impact consists in competitive prices. For firms to avoid this, snack food firms must maintain customer preferences and satisfaction to avoid losing customers and maintain a competitive advantage.
Supplier Bargaining Power
Suppliers turn out to be an intimidation to profitability levels of the firm and its future survival. It happens when they raise prices of food products or affect quality and quantity of goods supplied. Suppliers have power in the snack food industry since they supply raw materials, expertise services, and sometimes labor. However, the force is strong or weak, depending on the number of suppliers for a specific product.
Bargaining Power of Customers
Considered as moderate, this factor explains increasing bargaining power of consumers with an increase in health-consciousness. Companies in the industry are now competing for increased market share and sales, better marketing positions, and a competitive advantage against their competitors. Buyers can set prices when their power is strong.
Rivalry among Competing Firms
Saturation and maturity of the snack food industry is the leading cause of intense competition. Profitability, therefore, originates from establishment of a competitive advantage strategy. To gain this, firms in the snack food industry change their prices, improve product differentiation, and establish relationships with suppliers, using appropriate distribution channels. The stiff competition is caused by the firms’ rivalry for the same customers and the same market share within the food industry.
Potential New Entrants
The factor exists as consumers develop a new conscious to health, budgets, and environmental factors. In this context, it is a moderate factor considering high start-up costs of purchasing equipment, creating distribution channels, creating a large customer base, and manufacturing snack foods like other companies in the industry. The problem comes in for an already existing firm, which finds it easy to transit to production of its choice.
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In terms of attaining high profitability, the five forces model is useful when it comes to implementing strategies. For any firm within the snack food industry, understanding these forces is necessary for a future success. Collectively, many firms usually operate profitably in environments with low competition, high entry barriers, weak buyers and suppliers, and little or no substitute products. Additionally, firms should identify a specific segment in the snack food industry that has less severe influence of the five forces. For these to be effective, firms come up with strategies in all areas of operation to maintain low costs while making profits.
b. Driving Forces Operating in the Snack Food Industry
One of the driving forces is a healthy alternative. Many consumers have become conscious when it comes to eating healthy, hence turning towards foods with fewer calories and adequate minerals, vitamins, and energy elements. Growing numbers of consumers have become aware of negative effects that come with eating unhealthy foods, hence proving a need for firms in this industry to change their production to more healthy options. For instance, consumers would move from chips to popcorn and other protein packed snacks. Increased sale of private label snacks is another key driving force. This force deals with quality products. Private label snack products attract customers based on quality and not price. For these reasons, such firms do not require promotions and advertisements to get the same large market share. The other important driving force consists in ever-rising prices of raw materials. A rise in the cost of production materials results in a consequent increase in prices of snack foods. Innovations in the industry are the other important driving force. With innovations, firms attract consumers to try new trends and product flavors, thus creating a positive or negative impact on the market share and consequent sales of the product. Marketing innovations also steer the food industry towards different profit levels. With effective marketing innovations, firms conduct research studies on the customers’ levels and general market environments. Due to the use of unique and innovative techniques of marketing, snack food firms can expand their individual market shares while increasing structure of their customers.
Favorable or unfavorable impact of the driving forces depends on how quickly firms adopt them. While some driving forces are favorable, others turn out to be unfavorable. In case of healthy alternatives, firms that fail to adapt end up losing their customers to competitors who opt for healthy snack foods. Rise in the cost of production goods is unfavorable because it results in increased food products. Firms that take up new technology and innovation get an upper hand in getting to their customers and increasing the market share. With innovation, customers are attracted to try new products in the market, hence boosting the market share of the firm.
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