A relevant sociocultural trend occurring in developed countries today is increased health consciousness; there is growing public concern over the ingredients in products, appropriate labelling, and other related health issues. Consequently, ethical marketing is becoming more prevalent, both in Europe and in the United States. Much of the focus has been on children's diets being loaded with sugar, salt and fat, as well as the related issue of childhood obesity.
In the UK, Martin Paterson, Deputy Director General of the Food and Drink Federation made a statement to the press in February 2003 in response to heightened media coverage of the ethics of targeting children with food and drinks, saying advertisements should not: Encourage children to eat or drink frequently throughout the day; condone excessive consumption; suggest confectionary or snacks should replace balanced meals; take advantage of children's natural sense of loyalty.
This trend has legal implications as well. The food industry is finding itself increasingly under pressure from legislators to accurately inform customers of the nutritional value of their products. Confectionery companies will have to adapt to the laws that are passed due to these changes in consumer lifestyles and perceptions, or face legal consequences.
Growing health consciousness has sparked the pursuit of healthier chocolate. For example, recent research has shown that natural cocoa contains the highest capacity of the antioxidant procyanidin has allowed for technological developments such as the process of retaining polyphenols in cocoa beans throughout chocolate processing. Another technological development resulting from growing concern for the environment is the use of biodegradable wrappers.
Australia’s confectionary manufacturer Cadbury Schweppes was the first manufacturer in the world to implement a new form of environmentally friendly packaging in 2003. They used the biodegradable polymeric material for packaging Cadbury Milk Tray Chocolates.
These new developments are vital opportunities for the industry in its current situation, and if exploited, may be the means by which companies can quell some of the threats brought about by the sociocultural trend of increasing health consciousness.
5 FORCES ANALYSIS
Threat of Entry
Entering the industry to compete with the leading players is extremely difficult. Scale economies in production, research, and marketing are very high. In the two years from December 2002, Mintel (2004) recorded nearly 300 new product launches into the chocolate confectionery market and an average of £8.67 million spent by the top three advertisers in the industry. Product differentiation is also a powerful entry barrier. Branding plays a key role, particularly in the impulse market. And according to Porter (1985, p. 135), overcoming customer loyalty towards more venerable players is likely to cost new entrants substantial amounts. Capital requirements are also very high. One of the market leaders, Cadbury Schweppes, had tangible fixed assets amounting to £1.63 billion and total assets amounting to £9.7 billion in 2004. Overall, the huge investment needed to create and maintain a market-leading brand means that it is difficult for smaller, or new, players to enter the market (Mintel, 2004).
Bargaining Power of Suppliers
The main inputs for the manufacture of confectionery include dairy products, sugars, cocoa and other ingredients. Since these products are commodities, which can hardly be differentiated and do not imply high switching costs for buyers, their suppliers have little bargaining power over chocolate manufacturers (Porter, 1985, p.137). However, there are also more specialist additions supplied to the industry, such as flavours, fragrances, chemicals, and machinery for cocoa processing and confectionery manufacturing. These suppliers would have more bargaining power than those previously mentioned since the products that they supply are more specialized, and imply higher switching costs (Porter, 1985, p.137). A chocolate manufacturer would, for example, be highly dependent on the company that supplies it with machinery. The supplier would be responsible for things like training employees to use the machinery as well as its service and maintenance.
Intensity of Rivalry
However, it is the larger players that dominate the market, particularly for chocolate confectionery. Branding plays a key role, particularly in the impulse market. The investment needed to create and maintain a market-leading brand has meant that it is difficult for smaller, or new, players to enter the market. As with other food sectors, there are considerable legislative needs to be met, which requires a larger scale of activity in order to operate profitably. Consumers of chocolate bars and confectionery are very price conscious, especially on basic items. The market is highly competitive and price-cutting is widespread. Retail prices and margins vary widely according to product and outlet. Prices in large food stores, especially for products sold under distributors' brands, are much lower than those of products retailed by other miscellaneous shops and this has been an important factor in the growth of own labels in this market.
Bargaining Power of Buyers
The retail distribution of take-home and eat-later confectionery is basically done through two groups of channels, i.e. multiple grocers and impulse retail channels. Like with most food products, the major multiples have substantial buying power, and often buy directly from chocolate manufacturers. This is primarily because they buy in very large volumes and because they are highly concentrated. It is also because the product is not of strategic importance to the retailer, since large groceries and supermarkets offer a wide range of products and even offer own-brand ranges. The impulse market experiences a higher level of distribution through smaller outlets such as kiosks, confectioners, tobacconists, and food courts. These outlets have much less bargaining power and According to a retail panel, 87 per cent of the value of sales of chocolate bars of all types went through large grocery outlets in 1995 while the market share of small grocers' shops was 13 per cent.
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