Dawn Bread

MACRO ENVIRONMENTAL ANALYSIS

The bread industry in Pakistan has seen many changes in the last twenty-five years. It has emerged as a small-scale bakery processing industry to numerous industrial bread making units all over Pakistan. The bread industry in Pakistan is flourishing very quickly and bread products are gaining much popularity. Bread has been accepted as a popular substitute of rice, naan, chappati, paratha. Currently, 5% of the total population of Pakistan consumes packaged bread. The major factors for such a low percentage of people consuming bread are mostly economical and cultural. Pakistani diet consists of many substitutes for bread, which are cheaper and preferred over bread by a majority of the population.

The political scenario as well as the legal scenario is not posing any threat to the bread industryÐŽ¦s growth apart from the price restrictions, which actually fixed by negotiations between the government of Sindh and the committee of bread-making companies. The government is very enthusiastic about industrialization in the country and wants the foreign sector and private sector to take part in it. So any move towards industrialization and standardization is being encouraged, which should ideally suit the existing as well as new comers in the packaged goods industry.

However the ground realities are a bit different since all the wealth is being concentrated in the hands of few and middle class is not emerging as fast as it is emerging in other Asian economies, which is one of the reasons that only 5% of PakistanÐŽ¦s population consumes bread.

Inflationary pressures are affecting the prices of raw-materials. The increase in rates of wheat from Rs1065 to Rs1120-1130 in the last three weeks has pushed up the price of atta No.2.5 to Rs980-1,020 from Rs950-1,000 per 80kg bag depending on the quality.

The wholesale price of atta No.2.5 is now tagged at Rs12.50-12.80 per kg as compared to Rs12.00 per kg last week. The price of fine atta has risen to Rs13.50 from Rs12.50 per kg.

New middle class is being created which will is improving the purchasing power of the economy. Awareness amongst the literate segment of the society is increasing. Health consciousness and awareness is increasing. Lifestyles of people are changing. The people are becoming status conscious.

The leaders in the bread industry have fully automated technology but most of the industry members are not willing to spend more on research and development, even though there is a high need for R and D expenditure to meet the changing hygienic requirements of the customers.

INDUSTRY ATTRACTIVENESS

Michael Porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates.

BARGAINING POWER OF THE BUYERS

The power of buyers describes the impact customers have on an industry.

Yes No

Are there a large number of buyers relative to the number of firms in the industry? x

Do you have a large number of customers, each with relatively small purchases? x

Does the customer face any significant cost in switching suppliers? x

Does the buyer need a lot of information? x

Is the buyer aware of the need for additional information? x

Is there anything that prevents your customers from taking your function in house? x

Your customers are not highly sensitive to price. x

Your product is unique to some degree or has accepted branding. x

Your customer's business is profitable. x

You provide incentives to the decision makers. x

BARGAINING POWER OF BUYERS IS HIGH

Buyers have a high bargaining leverage because the cost of switching to other brands is low or none. Buyers are also less sensitive to quality as the companies have similar products.

BARGAINING POWER OF SUPPLIERS

An industry that produces goods requires raw materials. This leads to buyer-supplier relationships between the industry and the firms that provide the raw materials. Depending on where the power lies, suppliers may be able to exert an influence on the producing industry. They may be able to dictate price and influence availability.

Yes No

1) My inputs (materials, labor, supplies, services, etc) are standard rather unique or differentiated. x

2) I can switch between suppliers quickly and cheaply. x

3) My suppliers would find it difficult to enter my business x

4) I can substitute inputs readily. x

5) I have many potential suppliers. x

6) My business is important to my suppliers x

7) My cost of purchases has no significant influence on my overall costs. x

BARGAINING POWER OF SUPPLIERS IS LOW.

Supplier related competitive pressure is minimal because the items supplied are standard commodities available in the open market from a large number of suppliers. The ingredients are locally purchased and easily available. The companies can switch between suppliers with no effort and at cheap rates. Suppliers also have less power because most of the raw materials are produced by the bread makers themselves. The bread makers have to purchase flour in advance for the whole year, as it is only available in a particular season.

DETERMINANTS OF RIVALRY AMONG EXISTING COMPETITORS

Firms strive to secure a competitive advantage over their rivals. The intensity of rivalry varies within each industry and these differences can be important in the development of strategy.

Yes M No

1) Industry is growing rapidly. x

2) Industry is not cyclical with intermittent overcapacity (M) x

3) The fixed cost of a business is relatively low portion of total costs