Opportunity Identification and Selection - Research Paper Example

Opportunity identification and Selection Background: In the year 2001-2, the annual turnover of the baking industry was estimated at $5 billion dollars, of which retail sales of bakery products were a further $1.4 billion.(www.daff.gov.au). There was a partial fall in the turnover for the biscuit and cakes and pastries sectors, which produced static overall growth in the overall baking sector. The bread and biscuit manufacturing industry was however, largely confined within the country due to the perishable nature of the products and the domestic market in Australia is a well consolidated one. In recent years, with rising incomes in Asian and African countries, export opportunities have opened up and despite the low unit values of bread, innovations in processing and preservation of these products have made it worthwhile for companies involved in biscuit production to look into export markets. This report examines various external factors that are playing a significant role in the biscuit industry, especially in the context of recent developments. Introduction: The baking sector in Australia is comprised of three primary sectors: (a) bread (b) biscuits and (c) cakes and pastries (www.daff.gov.au). Domestic consumption of biscuits is higher than exports and the sales of biscuit products contribute about a third of manufacturing turnover in the baking industry. According to the report on the baking industry which was published in 2001, 75% of the retail trade in biscuits occurs through supermarkets, with the market being concentrated and dominated by the major corporate entities, Arnotts and George Weston Foods; while exports had jumped to 63 million dollars with over 50% of these exports being directed towards New Zealand (www.daff.gov.au). These trends appear to be continuing because according to an industry upgrade report in 2006-7, the trends in the biscuit industry still show a preponderance of sales through giant supermarket chains. The biscuit industry has changed somewhat in the past decade. In Australia, the biscuit industry has traditionally been restricted to the domestic markets, but exports have been increasing. The major changes in the external environment which are necessitating changes in the operation of biscuit companies are (a) increasing automation of biscuit manufacture (b) the need to comply with Government regulation (c) changes in patterns of consumer nutrition (d) rationalisation and consolidation and (e) use of toll or contract manufacturing. All of these aspects are discussed further below, because they are the major external mandates which have significantly impacted upon the growth and development of the biscuit industry. Important external factors impacting upon the savoury biscuits industry: The slight decline which was evident in the biscuit industry in 2000-2001 as per the baking industry report published in 2001 was still evident recently, because in the year 2006-7, the industry experienced a 0.5% decline in revenues (www.fodmag.comau). Earlier, there were several smaller manufacturers, but these have been consolidated through the acquisitions made by the two foreign firms, Arnotts and George Weston Foods, with Arnotts being the primary manufacturer at present. For example, in the year 2002, Arnotts had purchased the Players Biscuits company, while the multinational conglomerate Kraft purchased Lanes, which allowed it to acquire control over all of Nabisco’s brands that had been licensed out to Krafts (www.daff.gov.au). This produced a decline in the number of retail buyers and a growth in the supermarket chains, which contributed to the decline in the biscuit industry since it was increasingly being aggregated into the general baking industry including breads, cakes and biscuits. Moreover, the large companies are focusing on the production of mainstream products where it is possible to achieve economies of scale; as a result, this has reduced the scope for specialization in the biscuits industry (www.daff.gov.au). As opposed to the decline in the recent past, the biscuit industry was expected to grow at an average rate of over 6% in the five year period from 2007 to 2011, brought about primarily through expansions in the markets by development of export opportunities in Asian and African countries. Since innovative packaging formats have been developed which increase the shelf life of the products and reduce the damages occurring during transit, it has facilitated exports of the biscuits (www.foodmag.com.au). Yet another significant development is niche markets such as low fat biscuit products and specialty gourmet biscuits, which have also opened up opportunities for smaller companies. The baking industry has been going through some changes in that it is no longer an industry where traditional baking skills are used; rather the manufacturing industry is one where there are high levels of automation. For example, Arnotts has made a $350 million investment into state of the art manufacturing facilities, including new ovens and other baking equipment.(www.arnotts.com) The causes of this transformation are the deregulation of the industry, improvements in the technology used for production and the availability of premix formulations. As a result, there is a greater reliance on the efficient and optimum use of machines for the production of biscuits rather than a reliance on the skills of individual bakers (www.daff.gov.au). Several Australian industries have also undergone deregulation, which when coupled with the weakening economy has produced drastic changes in most industries such as the milk production industry (www.dairyreporter.com). The deep economic recession which occurred in 2007 and created havoc with stock markets has also impacted upon the biscuit industry and may have contributed to the decline which was evident earlier. However, the development of the niche markets and increasing automation may be contributing to an increase in the volume of the manufacturing sector. This leads to the impact on the industry sector through the changes in consumer purchase patterns. Loyal customers are an asset to retail Companies because they provide higher profitability in the long term and reduce operational and advertising costs, while also provide the Company with a competitive advantage. Customer satisfaction is the leading criterion to determine brand quality, in terms of price, performance and quality of the product, including satisfaction with the ongoing business relationship and because it has met customer expectations (Vavra, 1997). In line with other high fat foods such as burgers from Macdonalds for example, biscuits have also been perceived by customers as being high fat foods, which contribute to weight gain. As a result healthier food alternatives are becoming increasingly popular. In line with such changing customer preferences, there is an increased tendency for consumers to prefer low fat biscuits and specialty biscuits such as breakfast biscuits for instance, which contribute fewer calories and are more conducive to a healthy lifestyle. Conclusions: In conclusion therefore, it may be noted that the most significant external factor that appears to have impacted upon the industry is the deregulation by the Government and the recession which has changed consumer purchase patterns. Moreover, the consolidation of the industry through the purchase of several smaller companies by the larger manufacturers like Arnotts and Kraft have also contributed to increased automation in biscuit production. The recession has affected the Western economies badly, but economies such as China and India are still posting growth, therefore export markets are developing in Asian and African countries. The development of better means of preservation and packaging coupled with increased automation have opened up one area of the biscuit industry which remained closed before, i.e, the export markets. While the biscuit industry in Australia was restricted to domestic producers earlier, because the means to effectively preserve baked products for the long duration of time required for shipping was limited, this is no longer the case and improved packaging and preservation, as well as hygienic food processing through the use of machines means that baked products are likely to last longer. As a result, it may be concluded that the biscuit industry was negatively affected by the deregulation and the recession; however the changes in market segmentation have been beneficial because they have contributed to an improvement in the sales volumes. While there are only a few major players in the market due to the consolidation of the biscuit industry, the development of niche markets arising out of changing consumer patterns have been a plus factor for smaller companies to develop the means to enter the market or stay in the market by catering to a select niche of customers with specific tastes in biscuits. On the whole, the biscuit industry appears to be doing quite well and the trends which have occurred most recently are a projected increase in biscuit sales due to the development of such markets. The future of the industry therefore appears to be good, because negative external factors such as deregulation and the recession appear to have been overcome, while the positive elements which have developed in the external environment, such as the emergence of export markets, automation and smaller companies catering to the target markets have provided a significant boost to the industry in general. References: “Arnotts: About us:”, Retrieved August 23, 2010 from: http://www.arnotts.com/about-us/corporate-profile.aspx “Australian milk industry fights back after deregulation”, retrieved August 23, 2010 from: http://www.arnotts.com/about-us/corporate-profile.aspx BRI Australia, 2003. “The Australian baking industry: A profile”, Retrieved August 21, 2010 from: http://www.daff.gov.au/__data/assets/pdf_file/0007/183175/baking_industry_profile_2003.pdf Industry upgrade: growth predicted for bread and biscuits”, retrieved August 23, 200 from: http://www.foodmag.com.au/news/Industry-update-growth-predicted-for-bread-and-bis Read More