Chocolate confectionary - 4

Question 1

What level of saturation is the chocolate and confectionery market expected to have?

Answer 1

• The Chocolate and Confectionery Production industry is estimated to have a low level of concentration as the four largest manufacturers are expected to account for 30.1% of industry revenue.

Question 2

Why can there be low barriers to entry for smaller, artisan chocolate producers?

Answer 2

• Despite the strong position of the major chocolate producers, smaller artisan chocolate producers have thrived thanks to demand for high-quality premium products made using ethically sourced ingredients.

Question 3

Why is there often high barriers to entry in the chocolate and confectionary mass market?

Answer 3

• The chocolate industry is synonymous with a number of large firms (Mars, Nestle and Cadbury) dominating the market, enjoying a well established history and therefore high brand loyalty.
• Based on this evidence the chocolate confectionary market for producers is most similar to an oligopoly market and consequently barriers to entry are high for new entrants.

Question 4

How is there a strong rivalry among existing players in the chocolate market (1)?

Answer 4

• Companies such as Cadbury, Nestle, Hershey’s, Ferrero have all been competing to become the market leader for several years, each of these companies sell from the same types of stores and their products are similar in some respects meaning rivalry will always be strong.

Question 5

What is needed in order for new entrants to provide a threat to major chocolate producers in the industry (2)?

Answer 5

• It is difficult for new entrants to establish a foothold in the chocolate confectionary market due to the size of the established companies within the market, high initial capital investments are needed in order to break through barriers to entry.

Question 6

What are some substitute goods that provide a threat to major chocolate producers (3)?

Answer 6

• Supermarkets tend to copy popular chocolate brands and provide their own brand versions at a cheaper price.
• Other confectionary bought in supermarkets such as crisps, beverages etc provide a threat to chocolate brands as substitute goods.

Question 7

Why may substitute goods often fail to threaten major chocolate producers (3)?

Answer 7

• Often substitute goods and new entrants have failed when many of the biggest companies have re-launched old favourites to leverage on their brand equity and consumer recognition.

Question 8

Why may major chocolate producers tend to ignore the threat of substitutes (3)?

Answer 8

• Smaller firms, which make up about 80% of the industry’s enterprises, tend to concentrate on specialty and niche products meaning they are not a direct threat for large businesses such as Cadbury’s.

Question 9

How is bargaining power of buyers/consumers changing in the chocolate industry (4)?

Answer 9

• Big companies such as Cadbury’s have billions of buyers worldwide and with an increasing number of competitors offering similar products at even cheaper prices, bargaining power of buyers is increasing.
• Furthermore the fact there is no switching cost for buyers may have contributed to loyalty alteration between brands.

Question 10

How is the bargaining power of suppliers in the chocolate industry changing (5)?

Answer 10

• The bargaining power of supplier is low due to the large number of suppliers who provide chocolate manufacturers with a wide range of options with varying costs.
• This means companies such as Cadburys who have a higher bargaining power than its suppliers can buy their raw materials for cheaper prices than a medium sized business could who have less bargaining power.