Bakery Systems

Porter's Five Forces analysis is useful when attempting to comprehend the competitive environment facing a given industry. It involves looking at internal competition, barriers to entry, the profit appropriating power of both sellers and buyers, as well as substitutes to the goods produced. Applied to the bakery sector it shows an average net profit that typically doesn't cover the cost of capital due to low barriers to entry, ease of production and ease of access to ingredients. There are various players in the bakery industry. The top four companies are estimated to only account for 11.7 percent of the market.



The industry is portrayed by many small bakery, but there was a latest trend towards consolidation and economies of scale. Businesses compete on price, quality, differentiation and relationships with key suppliers. Barriers to entry in this industry are low. Economies of scale are beneficial, but aren't required for industry success. Consequently, small businesses can enter the industry with a relatively small amount of capital. The two main determinants of a brand new company's success is the leaders capability to acquire the distribution channels to cover operating costs and their capability to build up brand recognition and loyalty. Distribution channels typically involve retail outlets, like supermarkets and grocery stores, plus 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, like supermarkets, grocery stores, hotel chains and grocery stores, are able to appropriate much of the industry's profit due to the large number of small bakery which are all vying to find outlets for their products. Consequently, buyers are able to command cheap prices and volume discounts. Only large players, like Kraft, Kellogg, Yamazaki Baking and Grupo Bimbo, have the capability to level the playing field and achieve a more balanced share of the profits. Suppliers don't have a lot negotiating power in the bakery business due to the well developed markets for their products and the commoditized nature of what they're selling. Bakeries can be impacted by price fluctuations of the raw inputs, but the changes are a result of global supply and demand determinants as opposed to suppliers negotiating power. Many substitutes exist for bakery products.