Case 2: External Environment / Industry Analysis

1. Bargaining power of buyers - In the packaged food industry, buyers have high
bargaining power. This is because customers tend to be price sensitive and are more
likely to purchase a substitute product if the price does not match the customer’s
expectations. In addition, there is a high demand for quality ingredients and products,
especially recently with a large change in demand for processed foods. Customers’
demand is shifting to reasonably priced healthy, easy-to-understand ingredients which is
making the industry more competitive than ever.

Bargaining power of suppliers- While the bargaining power of buyers is low in the food
packaging industry, the opposite is true for the suppliers. This is because the suppliers
are dependent of companies such as Kraft Foods, General Mills, and Kellogg’s to sell
their products and earn profit for the suppliers. Also, since the buyers have high
bargaining power, a shift in demand or a distaste over ingredients will lead the
companies to look into changing the ingredients, ultimately putting suppliers in a
competitive battlefield.

Competition among the competitors- The intensity of the rivals among existing
competitors is high in this industry. The companies are intensely focused on obtaining
and competitive advantage over the other firms. Because of this, innovation within the
industry is maximized while prices are pressured to stay low. Product differentiation is
low with some of the companies in the industry while some offer a more diverse line of
products.

Threat of new entrants- In the packaged food industry, the threat of new entrants in
the market is moderate. Companies with experience in the market that have a
competitive advantage may not be threatened by lower quality substitutes. However,
the entry barriers to start up in this industry are relatively low. This is because there are
little to no government policies that intervene with entry. In addition, the accessibility to
raw materials also makes it easy for new entrants to compete. Lastly, the barriers for
exiting the market are also low which makes the unsuccessful firms easier to leave.

Threat posed by substitute products- In the packaged food industry, the threat posed
by substitute products is extremely high. Anything that can be consumed as food poses
a threat to in the packaged food industry. Not only do packaged food companies
compete with each other, they compete with the fresh unprocessed foods, the
restaurant industry, and in recent years even meal subscription services.
 Buyers The buyers are the retail stores that sell the products to customers
which have a high bargaining power due to customers tendency of
being price sensitive.
Suppliers The suppliers are the companies that provide the raw material to the
packaged good companies. They have low bargaining power because
they are dependent on the companies to sell their products in order
for suppliers to profit.
Rivals The rivals internal to the industry are Frito-Lay, Kellogg’s, General
Mill’s, Campbell’s, and Pillsbury to name a few. They rivalry is high
and intense in this industry which is unfavorable in terms of new
entrant profitability.
New Entrants The threat of new entrants is moderate due to the fact that there a
low barriers of entry and exit in the industry. However, existing firms
have a long history and reputation with consumers which will not
easily be trumped by low quality substitutes.
Substitutes The threat posed by substitute products is high in the industry
because it must compete with other elements of grocery stores such
as unprocessed ingredients and produce in addition to restaurant
foods and meal subscription services.

The buyers are the retail stores that sell the products to customers which have a high
bargaining power due to customers tendency of being price sensitive. The suppliers are
the companies that provide the raw material to the packaged good companies. They
have low bargaining power because they are dependent on the companies to sell their
products in order for suppliers to profit. The rivalry is high and intense in this industry
which is unfavorable in terms of new entrant profitability. The threat of new entrants is
moderate due to the fact that there a low barriers of entry and exit in the industry. The
threat posed by substitute products is high in the industry because it must compete
with other elements of grocery stores such as unprocessed ingredients and produce in
addition to restaurant foods and meal subscription services. In conclusion, the
profitability for this industry is low.

2. Some of the forces driving change in the industry are:

 Changes in demand for the ingredients in packaged foods- Recently, the industry
is facing a change in the demand from the customers to deliver less
preservatives and more authenticity in the products. This is because the
customers have become more aware with the harmful ingredients found in a
majority of packaged foods.
 Product innovation due to the change in demand- Packaged food companies are
pressured to provide more nutritious and wholesome meals to the customers. It
is proven that this change in demand is not a fad and had caught the attention of
both the companies and their suppliers. Companies are now attempting to
change the ingredients provided in their products as well as searching for
 suppliers that can meet these demands as well as adapt in the case where a
supplier conforms to the needs of their buyers.

3. I think the future of the food packaging industry will depend on its ability to conform
with the shift in demand for packaged foods. Customers have grown awareness for the
harmful ingredients in preservatives and are now shifting away from packaged foods
and leaning towards healthier alternative such as fresh ingredients to prepare food at
home. Consequentially, the packaged food industry has been seeing declining sales,
especially for companies that are also in the beverage industry. Food packaging
companies will have to change the ingredients in their food to provide fresher and more
wholesome meals to meet the demands from the buyers, they may also require
reevaluating their suppliers if the suppliers are unable to meet the demands from the
buyers. Once this is done, packaged goods will likely regain market share from
restaurants and other alternatives found in the grocery store.

4. Some of the key success factors for competing in the food packaging industry are being
able to efficiently produce at a high volume and low cost. The packaged foods industry is
well known for this, however being able to decrease waste by improving productivity
will be vital in the upcoming years. By being efficient, packaged foods companies will be
able to continuously meet customer’s price expectations. Also, another key success
factor for the packaged foods industry is being ahead of the game in regards to adapting
to government regulation. This is a critical concern for manufacturers in this industry,
and companies will have to be flexible to implement. As mentioned earlier, innovations
to bring healthier will play a crucial part in determining economic success.