Biscuit market - IBUS2101 Coursework PDF

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Introduction Arnotts Biscuits Holdings Pty Limited (Arnotts) is a manufacturer and distributor of bakery products, based in Australia. The company has divided its biscuit products under chocolate biscuits, sweet biscuits and crackers categories. Sweet and savory

Market assessment On a whole, the global biscuit market is very promising, expanding with compound annual growth rate of 5%, establishing itself as a $164b industry by 2024. (Market and Research). The Indian Market has seen even higher growth rates driving market beyond an 11% compound annual growth rate (TechsiResearch,2017). This growth is predominantly attributed to the increasing demand for convenience food and snacking, as well as a strong consumer preference shift towards healthier, savoury biscuits. Moreover, there has been significant growth in ‘premium biscuits’ (those costing more than 100 Indian Rupees per kilo), growing an additional 8% whilst those selling under 100 Rupees have fallen 9% in the past year (The Economic Times, 2019). Whilst there is proven growth and revenue potential in the Indian Market, we have highlighted other key areas of consideration before Arnott’s takes a bite of the biscuit.

I NDI ANMARKETANAL YSI SGRAPHA Dimension Definition India’s Weighting Measures Used Score Country’s Population Population statistics (#) Market Size 29 /30 Market Buying power of residents PPP per capita (Int$) 8 /15 Intensity Market Growth Rate Market Consumption Supply-chain sustainability Economic Freedom Country Risk

Pace of biscuit market growth

14

/15

Size/growth rate of middleclass

19

/20

Ease of marketing, production and distribution Degree of Economic Liberalisation Level of political risk (10: No risk, 1: High Risk)

7

/10

5

/10

6

/10

88

/100

TOTAL

Annual average growth rate (%) GDP growth rate (%) Disposable income levels (Int$) & Middle-income growth (%) Skilled worker levels (#) Commercial infrastructure growth (%) 2020 Economic Freedom Index (/100) AusGov Country Risk Profiles (LowHigh)

In this graph we have Market size displays the size of entire country’s market. India represents as huge market with 1.38b people, the second biggest globally. Market intensity signifies the spending power of the country’s residents. India scores an 8 due to relatively low PPP per capita ratio. As India is still developing, their spending power is expected to grow. Market Growth Rate refers to the growth rate of the biscuit market in-country. India scores a high 14 in biscuit market growth with over 11% annual compounding growth, higher than the global average of 5%

Market Consumption looks at the growth rate of the middle class, the main consumer segment of the biscuit market. India has increasing disposable incomes and a middle-income population of 580 million by 2025, demonstrating great potential. The Supply-chain sustainability component refers to ease of marketing, production and distribution. India scores a 7 due to its high skilled worker numbers and developing commercial infrastructure.

Economic Freedom is the degree of economic liberalisation in-country. According to the 2020 Index of Economic Freedom, India scores 56/100, citing low labour and investment freedom. Country risk demonstrates the overall political risk associated with a country. The Australian government department of exporting and finance assigns a moderate risk to Indian investments due to a weaker government integrity and low judicial effectiveness. - to recently introduced effective bankruptcy and insolvency laws. ?

Our research has concluded that India holds an 88-investment score, representing a major opportunity to grow Arnott’s revenues through expansion. However, some key factors stand out. Economic Liberalisation and Country Risk play a big role in the reduction of this investment score. India’s regulatory environment is still underdeveloped and can prove detrimental to firms without proper risk planning. It should be noted that whilst this country restraints exist; India’s trade freedom far eclipses it’s in-country economic liberalisation average (73.4/100)

Compet i t orAnal y s i s :GRAPHB

THE BITE OF THE BISCUIT Indian Biscuit Industry Market Share (%) 29.9 30.1 28.2

Parle Products

25 26.6

Britannia

29

9.3 8.9 10.9

ITC 5.7 5.9 6.5

Surya Food & Argo

4.2 4.5 4.6

Anmol Industries

25.9 24

Other 20.8 0

5

10 2016

15 2017

20

25

30

35

2018

(Source: The Economic Times, 2019) Breaking down the Indian Market, we see that Britannia and Parle Products are both market leaders, however the market is still very segmented with the top 15 companies representing 92% of biscuit sales (The Economic Times, 2019). However, as a general trend we have been seeing recently, their sales are beginning to dwindle as local biscuit manufacturers are becoming more predominant. In terms of how each brand positions itself, all brands follow a low-cost, medium quality strategy to appeal to the lower consumer spending power of their target market, mainly the middle-class of India. Britannia has a slightly higher reputational quality than the rest however in recent years biscuit companies have started to launch premium biscuits in small packets so as to increase their sales and product value in line with the growth of the Indian standard of living.

ThE BITE OF TH E BISC UIT 10 9

15.5

Quality of Brand Image

8

18

7 3.5

6

6 4

5 4 3 2 1 0

0

1

2

3

4

5

6

7

8

9

10

Price

Britania – Expensive – good quality Parle – good quality cheaper

To increase its sales and product value, companies have started to launch premium biscuits in small packets so as to increase the demand of their products in both rural and urban places. PORTERS 5 FORCES Arnott’s biscuits should note that the opportunity presented via our investment score measures potential but fails to explain the industry factors may inhibit their success. The Five forces model was first represented by Michael Porter 1979, and what is does is describe the forces at play within a competitive industry. By analysing the competitive environmental factors, Arnott’s can gain a better idea of where the points of pressure lie. Bargaining power of Suppliers  In the biscuit market, the suppliers provide companies with the raw materials they need to produce, such as flour, sugar, salt and milk. These raw ingredients are abundant, as India ranks highest or second highest in the production of all ingredients listed. There are numerous distributors and no one distributer holds major competitive advantages over the others. Moreover, the Federation of Biscuit Manufacturers in India has set price ceilings on supplier prices. Therefore, supplier bargaining power is low. Bargaining power of Buyers  Biscuit consumers in India are spoiled for choice at prices accessible to all. Furthermore, with low switching costs and numerous competitors offering identical substitutes, competitors have tried to differentiate based on product range, brand development and packaging. As there are no real tangible benefits to consumers, these low switching costs and access to substitutes sees high Buyer bargain power. Competitive Rivalry  The Indian Biscuit market has many producers of similar goods, each fighting to engineer a competitive edge. Additionally, much of the domestic rivalry is made up of small, regional producers with very low market share. With 55% of biscuit consumption coming from rural areas, it is not Parle and Brittania who provide the biggest competitive threat, it is local producers. This emphasis on locally produced biscuits has seen many big-name players such as Cadbury and Nestle fail to establish a foothold in the Indian market in recent years. Despite this means that the market is still largely unpenetrated, providing an opportunity for a foreign company to gain considerable growth. Considering all this, the competitive rivalry in India is still strong. Threat of substitutes  All operating competitors are well-diversified in the baked goods industry. Substitutes exist but are still retained within the competition. As previously mentioned, switching costs are low in this extremely price sensitive market, thus constraining the ability for any company to increase prices. Brand loyalty maybe be used to restrain switching, however, the threat of substitutes remains low. Threat of new entrants  New entrants are disadvantaged by high setup costs, government subsidisation of domestic producers, and surprisingly thorough food laws. These threats, as well as significant government and Biscuit Federation involvement in production

regulation sees operations greatly restrained. Ultimately, having been proven historically accurate, the threat of new entrants is low.

When considering Arnott’s position amongst these types of competitors it is difficult to estimate their ability to deliver the same quality as they do domestically. The source of this quality is Australian produced ingredients of which they can guarantee the quality.

INDUSTRY BASED VIEW

Porter’s 1980 Industry-based view is responsible for examining the environment in the industry to explain how companies form their strategies and how they perform.

Institution-based view The institution-based view is a fundamental addition to strategy as it acknowledges formal and informal institutional factors underpinning the context of industry competition. It is necessary to look at the ‘background’ of each industry to explain how firms interact and behave. No one industry has the same origins or influencing factors, thus we have employed this Institution-base view to take a look at the Indian Market, and the biscuit market more specifically. The formal institutions are definitely easier to identify here. The formal institutions are the relevant rules, regulations and governing bodies in India which would affect Arnott’s operations in the foreign market. Formal FBMI The laws and regulations governing the biscuit industry are disseminated by the Federation of Biscuit Manufacturers, who works closely with the government to oversee industry issues of taxation, environmental pollution, ingredient levels, wages and packaging. The FBMI is the major formal institutional player in the Indian market relevant to Arnotts. Once inside the industry, Arnott’s operation will have to comply with all industry standards which has seen competitors greatly restrained in terms of recipes and packaging. FSSAI Moreover, the Food Safety Standards Authority of India (FSSAI) is possibly the biggest formal threat, looking to mandate a sugar ceiling in Indian produced biscuits. Here they have sought to regulate the amount of fat and cream in biscuits which may require Arnott’s to alter their ingredient ratios away from their iconic tastes. Actually very strong standards Government The Indian government lacks regulatory authority to govern all industries. Thus it has delegated much of the authority to the Federation of Biscuit manufacturers. Whilst they have no legal authority except in the formulation of the laws, their grip isn’t iron clad. Many local biscuit producers fail to comply with their standards and continue to fly under the radar of the federation and disinterested government. We at Nexus Consulting have found that if the move was to go ahead, the most effective way to operate in the formal environment with least resistance is to form a partnership or joint-venture with a firm who knows the multitude of governing laws and how to coexist with them.

Informal As consultants, this is often the hardest area to quantify and recommend on. However, it is necessitated by the fact that often when formal institutions are moderate or weak, such as the Indian biscuit market, informal institutions begin to play a larger role. Within the Indian business landscape, the role of business groups in economic and business development has been profound. These business groups

“rules of the game”

In India’s case, the role of business groups in economic and business development has been particularly highlighted historically arising when licensing and state restrictions were the norm (Shiba & Masahiro, 1997). The role of diversified (conglomerate) business groups, usually family owned and closely held, is a persistent characteristic of Indian growth (Chacar & Vissa, 2005). Given the traditional importance to food in the Indian culture and the effort that a typical home maker puts into preparing it, packaged food will benefit disproportionately from this trend.

The rural sector in India presently accounts for almost 55 percent of the biscuit consumption in India.

https://business.mapsofindia.com/top-brands-india/top-biscuit-brands-in-india.html

Recommendations  Target middle class families.

Bibliography  

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India Total Disposable Personal Income | 1950-2019 Data | 2020-2022 Forecast. (2019). Retrieved 10 April 2020, from https://tradingeconomics.com/india/disposable-personal-income India Biscuit Market Size, Share & Forecast 2022 By Product Type | TechSci Research. (2019). Retrieved 10 April 2020, from https://www.techsciresearch.com/report/india-biscuit-market-by-product-type-plain-biscuitcookie-sandwich-biscuit-center-filled-biscuit-others-by-sales-channel-supermarket-hypermarket-conveniencestore-others-competition-forecast-opportunities/1099.html India Population (2020) - Worldometer. (2020). Retrieved 10 April 2020, from https://www.worldometers.info/world-population/india-population/ India's rapid rise and growing middle class creates hunger for commodities. (2018). Retrieved 10 April 2020, from https://www.afr.com/policy/indias-rapid-rise-and-growing-middle-class-creates-hunger-for-commodities20181121-h185wl

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GNI per capita, PPP (current international $) | Data. (2020). Retrieved 10 April 2020, from https://data.worldbank.org/indicator/NY.GNP.PCAP.PP.CD?year_high_desc=true India to have talent surplus of 245 million workers by 2030. (2018). Retrieved 10 April 2020, from https://www.thehindubusinessline.com/economy/macro-economy/india-to-have-talent-surplus-of-245-millionworkers-by-2030-study/article23802698.ece Indian Economy: Population, Facts, GDP, Corruption, Business, Trade, FDI. (2020). Retrieved 10 April 2020, from https://www.heritage.org/index/country/india Country risk. (2020). Retrieved 10 April 2020, from https://www.exportfinance.gov.au/resources-news/countryprofiles/asia/india/country-risk/ Malviya, S. (2020). For biscuit companies, this is how the cookie crumbles post GST. Retrieved 12 April 2020, from https://economictimes.indiatimes.com/industry/cons-products/fmcg/for-biscuit-companies-this-is-how-thecookie-crumbles-post-gst/articleshow/68506369.cms?from=mdr Michael E. Porter, "How Competitive Forces Shape Strategy", Harvard Business Review, May 1979 (Vol. 57, No. 2), pp. 137-145....