Rivalry among existing competitors In foods and beverages industry, the average level of profitability is primarily influenced by the rivalry among existing competitors already in the industry. Companies falling into this sector include Catbird Pal. , Coco-Cola, Heinz, Hershey, Kellogg, Pepsi Co. , Cutbacks, and etc. It is characterized by strong competition and the existing firms constant seek to increase their competitiveness and market share (Hathaway et al. 006). To increase sales, Firms always need to offer new and innovative products to meet the changing nonuser needs which have recently become more health conscious (KEMP, 201 b). Besides that, restructuring processes by eliminating unprofiTABLE products and focusing on value added products have been seen across the company (KEMP, 201 b). However, the highly competitive market has put a lot Of pressure to Kraft and limits its profit potential.
Kraft realized that they cannot fully compete with price and the way that they can do to increase and maintain their market share is through brand loyalty, diversification and increase product volume (Hathaway et al. 2006). 4. 3. 1. 2 Threat of new entrants The foods and beverages industry has already experienced in a large scale consolidation and move into the mature stage. It is difficult to enter the market with existing firms have already developed within the industry. They have established brand name awareness and earned high levels of customer loyalties.
However, some consumers who are willing to pay more will choose Kraft because of the good quality taste. In 2005, US supermarkets overall sales were driven by 16. 1% increase in private label products (Food Industry Review, 2006). This is only expected to increase as the quality of private label products has been approved by consumers. Besides that, another reason is because the consumers purchasing power have reduced during economic slowdown which caused them to go for cheaper products. Since these goods are elastic, a small increase in price will cause a bigger fall in demand.
Therefore, this limits Kraft profit because these substitutes prevent Kraft to charge a higher price. 4. 3. 1. 4 Bargaining power of suppliers In general, companies that package their products to market normally create more value-added products then the agricultural industry. Therefore, the margins of firms in the foods and beverages industry should be stay relatively consistent. Raw materials for the industry have many substitutes availTABLE ND the prices are market determined, so it is difficult for suppliers to compete and gain power (Hathaway et al. 2006).