- April 12, 2014
- Posted by: essay
- Category: Term paper writing
Mondelez International Inc. operates mainly in the confectionery sector of food manufacturing industry. The forecasts for yearly increase of confectionery sales worldwide are 3% each year up to 2014 (EuroMonitor International, 2012). Key companies operating in the confectionery sector offer quite similar products ”“ increased indulgence foods, sugar-free products, functional foods, organic foods, Fair Trade certified foods, etc. (Agri-Food Trade Service, 2011). On the other hand, there are no direct substitutes for confectionery foods in other sectors of food manufacturing industry. Therefore, the threat of substitutes is high for particular companies, but is low for the industry as a whole.
1.3. Bargaining Power of Suppliers
The number of suppliers for food manufacturing is very diverse and has been increasing at least since 2000 (Bureau of Labor Statistics, 2012). World production index in agriculture has increased from 88.79 in 2000 up to 111.64 in 2010 (FAOstat, 2012). Producer Price Index in food manufacturing has changed from 132.0 in 2002 up to 191.3 in 2011, with stable increase by 5-6 points per year (Bureau of Labor Statistics, 2012). By September 2012, PPI is estimated as 201.7 (Bureau of Labor Statistics, 2012). PPI measures the price changes for companies in food manufacturing industry. The increase in sellers’ prices is greater than the increase in the production of agriculture, which implies that the power of suppliers is at least medium. On the other hand, the number of food suppliers is increasing annually (FAOstat, 2012), and, therefore, the competition between them intensifies. Bargaining power of suppliers in food manufacturing industry can be evaluated as medium.
1.4. Bargaining Power of Customers
In 2011, the sales of confectionery foods accounted for $19.5 billion only in the USA (U.S. Department of Agriculture, 2012) and worldwide sales of confectionery equaled to $115.8 billion (FAOstat, 2012). Moreover, the estimates of world confectionery consumption for year 2012 indicate at projected growth by 1.3% (FAOstat, 2012). With such a significant demand for confectionery foods, the power largely belongs to the manufacturers, and the power of individual customers is low. However, large grocery stores are major customers of food manufacturing companies, and the power of these customers is rather high. Overall, the level of bargaining power of customers in the industry is medium.
As it was noted in section 1.1, the Herfindahl-Hirschman index for food manufacturing industry is 102.1, which indicates that this industry is highly competitive. There are numerous small, medium and large companies on the market, and competition is intensive both at local and international markets (U.S. Census Bureau, 2012). Total number of companies in the industry is 20,673, and there are 536 large employers with 500+ employees (U.S. Census Bureau, 2012). Total payroll of food manufacturing companies in 2010 was $53.8 billion, while the total payroll of large food manufacturers was $37.6 billion, which is approximately 70% of total payroll (U.S. Census Bureau, 2012). These facts illustrate that competition in food manufacturing is intensive, and there are many large-scale players who actively compete with each other. Major direct competitors of Mondelez International are Frito-Lay, Nestle and Kellogg (Yahoo Finance, 2012). Mondelez International is ranked second according to the food sales, and Nestle is the leader in this sector (Yahoo Finance, 2012).