PEST and competitive analysis facing by confectionery organisations
Summary
This report defines the PEST and competitive analysis facing by confectionery organisations. The international organisation's Cadbury and Nestle are the organisations where the leaders of confectionery food. This report will discuss the strategy using by these two companies and their mission, what are their objectives and how can they achieve their goal?
Introduction
The UK confectionery market forms part of the food industry and was valued at £5.54bn 2001. Sales have increased over a number of years. Although not an essential purchase, confectionery is bought by the majority of the population. Changing eating habits have led to increased levels of snacking and grazing and, as a highly accessible and desirable food, confectionery has been able to capitalise on this trend. There are two main sectors in the market - chocolate confectionery and sugar confectionery.
The UK market is relatively mature. As a consequence, there is little scope for market growth. The predominant trend among the leading companies is to expand through brand extensions rather than new product offers. Confectionery is an impulse market, which means that strong brand identities are of key importance. Creating new products by extending established brands carries lower risks than launching new ones, because the products have a head start in the market. Limited editions, where items are offered in new variants for short periods of time, are also favoured. Although this type of activity can maintain interest in the market, the actual growth potential is limited. Sectors that have expanded since the late 1990s include boxed chocolate. The market has grown since the introduction of the new twist-wrap selections, including Celebrations (Mars UK Ltd), Miniature Heroes (Cadbury Schweppes PLC) and All Stars (Nestle holdings UK PLC). Other new and growing sectors include organic chocolate and sugar-free confectionery. Dental gums have built on the success of sugar-free chewing gums. The UK confectionery market is dominated by three groups - Cadbury, Mars and Nestle All are internationally-trading companies with a large portfolio of strong brands, supported heavily by advertising and promotion. Medium-sized companies in the sector tend to have a more limited brand offer, but they also trade on at least a national level, in order to maximise the returns on brand investment. Children are a major consideration in the confectionery market. According to the consumer research commissioned for this report, 44% of adults aged 18+ buy most of the chocolate and sweets for the children in their family, and 29% agreed that most of the confectionery they buy is chosen by the children in their family. Seasonality and specific events are still important to the confectionery market. Trade research shows that almost 40% of chocolate sales takes place in the first quarter of the year, which itself can be divided into Easter and Spring occasions such as Valentine's and Mother's Days. Around 8% of UK chocolate confectionery is purchased in the two weeks prior to the Easter weekend - and most of that is in the last few days. The Christmas confectionery market - defined as sales of boxed chocolates (bulk and ordinary), novelties and selection packs between September and December - reached £640m in 1998; this was 2.2% up on 1997, following a 9% increase from 1996.
Macro Environment
The business strategy of macro environment consists of the larger society forces that affect the microenvironment- Political, Economical, Social, Technological, (PEST) analysis. A pest analysis focuses on external factors, breaking them down into a number of categories. By doing this it allows businesses to identify what changes the outside world may hold for the organisation in the foreseeable future Businesses usually produce a pestle analysis to inform strategy development and to minimize any potential damage and maximize the advantages By producing a pestle analysis you are not guaranteed success, but by not doing so will almost certainly result in business failure.
Political Environment
Business Strategy's decisions are strongly affected by developments in the political environment. The political environment consists of laws, government agencies, and pressure groups that influence and limit various organisations and individuals in a given society. Political decisions can affect the confectionery companies for the good and the bad, because if taxes increase, therefore consumers decrease and sales of stock decrease. However if taxes decrease the likelihood is that consumers will buy more. The confectionery has been criticised for unhealthy products with high levels of sugar in chocolate and an advertising campaign for health eating has been launched.
The confectionery market operates within the wider food industry and, as such, is subject to stringent regulation. There are a number of regulations affecting cocoa and cocoa products, including the following: The Cocoa and Chocolate Products Regulations 1976, The Cocoa and Chocolate Products (Amendment) Regulations 1982, The Food Safety Act 1990 and The Food Labelling Regulations 1996. There have been ongoing disagreements between the EC and the UK regarding the definition of milk chocolate. It is likely that the EU will introduce new regulations for UK produces like Nestle. Raw Materials for example coco supplied by countries like South Africa so if war breaks out supply could be short and cut back on production. There could also be imports restrictions bought in by the government.
If the government continue to not lower petrol taxes, it could result in another petrol crisis, which has a knock on effect the distribution chain, and stops factory workers from getting to their work place, putting a halt on production.
There could be bans, quotas or a high tariff on imports into other countries i.e. there where strict standards that English chocolate had to meet before it could be imported into Holland a few years ago.
Economic Environment
Analysis of the economic environment will centre on changes in the macroeconomic and their effects on business and consumers. It is important to remember that, because governments intervene in the operation of all countries' economies. The regulation of a national economy is brought about by two key policy instruments, alongside influences- fiscal policy and monetary policy. These policy ...
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There could be bans, quotas or a high tariff on imports into other countries i.e. there where strict standards that English chocolate had to meet before it could be imported into Holland a few years ago.
Economic Environment
Analysis of the economic environment will centre on changes in the macroeconomic and their effects on business and consumers. It is important to remember that, because governments intervene in the operation of all countries' economies. The regulation of a national economy is brought about by two key policy instruments, alongside influences- fiscal policy and monetary policy. These policy instruments, alongside influences from international markets, determine the economic climate in the country in which a business competes. From these, a number of other, vital economic indicators 'flow' and it is this that organisations experience-either for good or ill. The interest rates can affect confectionery organisations because if the interest rates were high then the organisations would not want to borrow as much money for expansion. In addition, if consumers had loans they would again have less disposable income to buy luxury items. If the minimum wage were brought down, this would mean more money for the organisations but would also result in low sales from the consumers and vicar versa. The government can also raise taxes, which would bring a decrease in the sales of chocolate. There could also be a tax put on sweets to encourage consumers to eat healthier food. Advertisement costs could rise on television due to increase costs from taxes, interest rates on unrelated business like the media. A high unemployment rate would mean employees could be obtained more easily and could be paid cheaper wages. On the other hand unemployment rate could low therefore employees are hard to obtain and to attract the right people higher wages must be paid.
Social Environment
Analysis of the social environment is concerned with understanding the potential impacts of society and social changes on a business, its industry and markets. For most analyses, analysis of the social environment will require consideration of:
* Social culture(values, attitudes and beliefs)-its impact on demand for products and services, attitudes to work, savings and investment, ecology, ethics, etc.;
* Demography- the impact of the size and structure of the population on the workforce and patterns of demand;
* Social structure- its impact on attitudes to work and products and services.
If the population size decreased then they would be less people to buy chocolate, therefore sale and profit will go down. If peoples lifestyles changed e.g. more people wanting to get fit and lose weight, then they will stop eating chocolate and spend there money on gym memberships etc. it will affect the business of the confectionery organisations.
Technological Environment
The technology environment is perhaps the most dramatic force now shaping our destiny. Technology has released such wonders as antibiotics, organ transplants, notebook computers and the internet. This new avenue which can not be ignored in 21st century is the internet. Internet marketing has become the way of the future, with successful businesses using it to advertise, promote, sell, place commercials and undertake public relation. Cadbury and Nestle advertise their advertisement through internet. They build up a web side for people whose want to get the latest news from Cadbury. Cadbury also use high technology equipments to produce more chocolate and cheaper cost chocolate and will increase the profit of Cadbury and Nestle. Cost of machinery, it would be expensive running machinery to package and make confectionery products. This part of the production must be fast. New machinery would help speed up the process, the world is constantly updating, bigger and faster machines are also available, and this could increase the amount of packaging. Maintenance is needed in the event of a breakdown; it must be sorted quickly and efficiently. Training for advancing IT, this is useful as it will help with processing big orders, and will allow you to know what stock is available. Also transport used enormously in getting the products delivered.
After discussing the PEST analysis, the confectionery companies understand what changes the outside world for the organisation in the foreseeable future. On the next part, Porter's five forces model which determine the degree of competition within an industry. The model will help companies understanding the different situation on the business.
Competitor Analysis
Porter (1980) developed a Framework for analysing the nature and extent of com petition within an industry. Porter argued that there are five competitive forces which determine the degree of competition within an industry. Understanding the nature and strength of each of the five forces within an industry assists managers in developing the competitive strategy of their organization. The five forces are:
The Threat of New Entrants to the Industry
The threat of entry to an industry by new competitors depends upon the 'height' of a number of entry barriers. The size of the investment required by a business wishing to enter the industry will be an important determinant of the extent of the threat from new entrants. If the players in an industry produce differentiated products and customers are brand loyal, the potential new entrants will encounter resistance in trying to enter the industry. Brand loyalty will also be an important factor in increasing the costs for customers of switching to the products of new competitors. If existing competitors are already obtaining substantial economies of scale it will give them an advantage over new competitors who will not be able to match their lower unit costs of production. New competitors may find it difficult to gain access to channels of distribution which will make it difficult to provide their products to customers or obtain the inputs required. The confectionery organisation normally are international and having a long history company like Cadbury and Nestle. The other organisations are not easy to enter the market.
The Threat of Substitute Product
A substitute can be regarded as something which meets the same needs as the product of the industry. For example, an individual wishing to buy something for his tea time, he can choose having a biscuits, snacks, cakes, sandwiches or chocolates. For the confectionery organisation, cakes, sandwiches, snacks and biscuits are the substitute products for their organisations. Buyers will be more willing to change their flavour if switching costs are low or if competitor's products offer lower price or improved performance. For Cadbury's Dairy Milk if a similar product is available at the same, or lower, price then the threat is high. People willing to buy another brand chocolates like Kit Kat to replace the Cadbury's Dairy Milk because of the price or stock problem. So the companies should make sure the price of the chocolates is acceptable and enough stock in their branches and stores. Apathetic or satisfied buyers are not likely to change, it Cadbury and Nestle satisfied the customers needs and wants like enough stocks, more choices, and price the customers are not going to change their favourite.
The Bargaining Power of Buyers
The extent to which the buyers of a product exert power over a supplying organisation depends upon a number of factors. Broadly speaking, the more power that buyers exert, the lower will be the transaction price. This has obvious implications for the profitability of the supplier. The fewer the buyers and the greater the volume of their purchases the greater will be their bargaining power. A large number of buyers each acting largely independently of each other and buying only small quantities of a product will be comparatively weak. For the confectionery products the purchasing powers for the consumers are very high, buyers can get the products everywhere like supermarkets, schools, petrol stations, grocery shops, cinemas others. The consumers are not really care about the price of confectionery products at different places because it not expensive things. For example, the Cadbury Egg costs 50pence at supermarkets but it sell 60 pence at cinemas. The buyers are not going to calculate the 10 pence differentiation. In the other hand, the buyers will choose other substitute goods like they will buy KitKat costs 40pence.
The Bargaining Power of Suppliers
Businesses must obtain the resources that they need to carry out their activities from resources suppliers. These resources fall into the four categories we have previously encountered: human, financial, physical and intellectual. Resources are obtained in resource markets where prices are determined by the interaction between the businesses supplying a resource and the organisation from each of the industries using the particular resource in question. It is important to note that many resources are used by more than one industry. As a result, the bargaining power of suppliers will not be determined solely by their relationship with one industry but by their relationships with all of the industries that they serve. The suppliers are very important for confectionery organisation; good relationship between suppliers will help the organisations increase their sale. For example, suppliers will introduce Cadbury Egg to customers rather than Kit Kat if Cadbury make a good relationship with suppliers by giving a special dealer price to them.
The Intensity of Rivalry among Competitors in the Industry
Business within an industry will compete with each other in a number of ways. Broadly speaking, competition can take place on either a price or a non-price basis. Price competition involves businesses trying to undercut each other's prices which will, in turn, be dependent upon their ability to reduce costs of production. Non-price competition will take the form of branding, advertising, promotion, additional services to customers and profits innovation. In some industries competitive rivalry is fierce, while in others it is less intense or even genteel. The confectionery organisation always use cut price and non-price tactics to attract more customers to buy their products. For example, Cadbury promote a buy one get one free chocolate by advertise the product on TV, magazines and others to compete with other confectionery organisation.
Confectionery products are on important place in UK market, the most suitable example for the confectionery organisations are Cadbury and Nestle which are the leaders in the confectionery market. The following are the culture, strategies, company's objectives, mission statement and SWOT analysis which will effect and affect these two companies.
Cadbury
Cadbury is the clear leader in the UK chocolate confectionery market with over 50 brands and 350 packs to meet every need and occasion. Always in the forefront of production developments, Cadbury has introduced the most advanced processing technology and management information control techniques to its business. Cadbury's brand has a wide consumer base with all ages and types of people buying it. This means that Cadbury's Dairy Milk was never really targeted at a specific market. This was because Cadburys Dairy Milk is an old product but its reputation from the past allows it continuing in being one of Cadbury's leading products. Fuse was launched in 1996 it is packed with lots of snacking ingredients and is aimed at those people whose fast moving lifestyles find them snacking. The target market is the 16 to 30 years the ones who are usually snacking. More than 250 different ingredients were tested in the making of this product. It took 5 years of planning to launch the fuse and cost 10 million pounds. It was mainly made to fill there gap in the developed market. When the fuse bar was launched it was a massive success and raised confectionary goods bought up within the year. (www.cadbury.com)
This is Cadbury's mission statement:
"We are passionate about working together to create brands that people love, and brands that bring the world of delight and a splash of colour on a grey day."
This lets the customers know if they are getting value for money. Also, that the business has reliability, quality and speed of services
This lets the shareholders know that Cadburys are going to create a good quality chocolate, which mean that Cadburys should be able to sell a large amount and make a profit. It also shows that they are trying to reach their objectives.
Cadbury's objectives are as follow:
* Maximise profit; this is done by cutting down on faulty goods and products also by producing products efficiently in three years time.
* To maximise sales, make sure that your product is widely known to the customer and is better than their rivals;
* To grow, expand their product range merge with or take over other companies in five years time.
* To operate in a wide range of market in five years time
* Have a good reputation.
* To give satisfaction to customer, good service and get a good feedback for short- term plan.
* Achieve best possible financial return on capital within five years time.
* To be the number one product in a given market, this is done by the promotion of the product;
Nestle
Nestlé, over its long historical development from a small village operation to the world's leading food Company, has demonstrated an enviable capability to adjust to an ever-changing external environment, without losing its fundamental beliefs and core values, so important for long-term success. Over the years to come, this capability will continue to be challenged even more as Nestlé is growing in size and complexity up to a dimension which demands a continuous evolution of its organisation and of the way in which it is run. From its inception, Nestlé developed its business internationally and became aware of the fact that food products have to be closely linked to local eating and social habits. That is why Nestlé from the very start has always shown respect for diverse cultures and traditions. Nestlé endeavours to integrate itself as much as possible into the cultures and traditions where it is present, adding also to the local environment its own set of values laid out in this document. Therefore, Nestlé embraces cultural and social diversity and does not discriminate on the basis of origin, nationality, religion, race, gender or age. Furthermore, Nestlé believes that its activities can only be of long-term benefit to the Company if they are at the same time beneficial to the local community. In short, global thinking and strategies can best be expressed through local action and commitment. (www.nestle.com)
The Nestlé culture
Apart from its commitment to safety and quality and its respect for diversity, Nestlé is committed to a number of cultural values. These values come partly from its Swiss roots and have been developed during its history. They are also evolving so as to support the permanent reshaping of the Company.
They can be described as follows:
* Commitment to a strong work ethic, integrity, honesty and quality.
* Personal relations based on trust and mutual respect. This implies a sociable attitude towards others, combined with an ability to communicate openly and frankly.
* A personalised and direct way of dealing with each other. This implies a high level of tolerance for other ideas and opinions, as well as a relentless commitment to co-operate proactively with others.
* A more pragmatic than dogmatic approach to business. This implies being realistic and basing decisions on facts.
* Openness and curiosity for dynamic and future trends in technology, changes in consumer habits, new business ideas and opportunities, while maintaining respect for basic human values, attitudes and behaviour.
* Pride in contributing to the reputation and the performance of the Company. This calls especially for nurturing a sense of quality and long-term achievement in the daily work beyond fashion and short-sighted gain.
* Loyalty to and identification with the Company.
Nestle Objective's are as follow:
- Nestlé's business objective, and that of management and employees at all levels, is to manufacture and market the Company's products in such a way as to create value that can be sustained over the long term for shareholders, employees, consumers, business partners and the large number of national economies in which Nestlé operates;
- Nestlé does not favour short-term profit at the expense of successful long-term business development, but recognises the need to generate a healthy profit each year in order to maintain the support of our shareholders and the financial markets, and to finance investments;
- Nestlé recognises that its consumers have a sincere and legitimate interest in the behaviour, beliefs and actions of the Company behind brands in which they place their trust, and that without its consumers the Company would not exist; is beneficial in order to ensure that the highest standards are met throughout the organisation;
- Nestlé is conscious of the fact that the success of a corporation is a reflection of the professionalism, conduct and the responsible attitude of its management and employees. Therefore recruitment of the right people and ongoing training and development are crucial;
- Nestlé operates in many countries and in many cultures throughout the world. This rich diversity is an invaluable source for our leadership. No single document can capture every legal obligation that may be required in each of these countries. Indeed, there may be conflicting legal requirements. Nestlé continues to maintain its commitment to follow and respect all applicable local laws in each of its markets. If an interpretation of anything contained in this document is construed as contrary to local laws.
SWOT Analysis
Strength
* Confectionary is often seen as a low price treat for people. Therefore, this is a good area for Master foods to put a product into, such as the Milky Way Crispy Roll.
* There is a high level Market Penetration. This means that confectionary has managed to keep a large share of the market. Therefore, it is a good area to invest and put a new product into.
* The UK is one of the highest consumers of confectionary within Europe, which means that it is a good place to place a new confectionary product.
* Many people eat chocolate and sweets whilst "on the go". Therefore, it is good to market a new product that can be eaten "on the go".
* Master foods employ a lot of skilled workers, with a lot of experience and knowledge.
Weaknesses
* The machinery for the confectionery companies are often hard to keep up to.
* Confectionary is not seen as a healthy product, and so it may suffer in the long- term.
* There are definite 'seasons' to when people buy confectionery products, and so the company may suffer in times such as the summer, when people would rather buy ice cream than chocolate.
* Because of how the market works, communication is often difficult between the manufacturer and the retailer.
Opportunities
* These are often popular as they increase the demand people have because they seem exclusive.
* People often like "Healthy Eating" products and so this could be a good market to look at for the future.
* Products can often be 'brought back to life' with new advertising campaigns and packaging. An example of this may be The Triple biscuit made by Fox's Biscuits, as it has recently undergone a new packaging campaign.
Threats
* Massive amounts of money are needed to launch a new product, and this often puts companies off from bringing new products out in case it fails and loses them a lot of money.
* There is now a big campaign about health. This is not likely to decrease and so people will be encouraged even more to stay away from things such as confectionary.
* Many retailers (especially supermarkets) are now doing there own brands. This affects other brands because the retailers may choose to place their own brands in better places on the shelves. They are also often cheaper, and so this will attract a lot of people.
* The demographic pattern of Britain at the moment is that it is ageing. There is a bigger ratio now of old to young then there has been for a long time. Older people generally eat fewer things than young people, and so this could have an impact on the business, as sales may fall.
Conclusion
In conclusion, the UK confectionery market forms parts of the food industry are increasing year to year. The two confectionery leaders on the world are Cadbury and Nestle. Cadbury are provides a mass market product, they produce more than hundred various confectionery. The two companies have their different business strategy, structure, policy, culture, mission, objectives and other but the one thing will be the same is the Company's strategy will continue to be guided by several fundamental principles. Nestlé's and Cadbury's existing products will grow through innovation and renovation while maintaining a balance in geographic activities and product lines. Long-term potential will never be sacrificed for short-term performance. The Company's priority will be to bring the best and most relevant products to people, wherever they are, whatever their needs, throughout their lives.
References
Books
Hawkins, Del I, at. A1, (1998) London:
Consumer Behaviour, building Business Strategy, Ed 7th McGraw-Hill
Schiffman, et.al, (2000): London: Consumer Behaviour, Ed 7th Prentice-Hall
G A Cole (1996): Management Theory and Practice, Ed 5th
Edexcel HND Business Course Book (2000): Business Strategy
Journal
Arnould, Eric J, and Scott Linda M,
"Consumer Resistance to, and Acceptance of, Innovative", Advances in Consumer Research, 1999, Volume 26.p.218-223
Internet
Http://www.nestle.com
Http://www.yahoo.com
Http://www.cadbury.com
Http://zerlina.emeraldinsight.com
Http://www.google.com