According to Porter (1998), any industry is affected by five forces. These forces include supplier power, barriers to entry, rivalry, the threat of substitutes, and buyer power. America’s chocolate industry is no exception as these forces also impact on it. In this industry, supplier power is low. This is because suppliers are many and their offerings are tightly regimented. Additionally, inputs are not very well differentiated, switching costs are relatively low and the buyers are concentrated. Besides, there is always the possibility of forward integration by the chocolate companies.
Finally, the products are commodity products. The degree of rivalry in the chocolate industry is very high. This is because the market is highly fragmented, products are little differentiated and switching costs are extremely low. Additionally, the industry is highly concentrated as the two dominant players – Hershey’s and M&M/Mars- control about 67 percent of the American market (Global Exchange, 2005). Other factors which enhance the degree of rivalry include the high fixed costs especially as appertains to storage and the perishable nature of chocolates.
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Besides barriers related to distribution, entrants need to satisfy a raft of legal requirements. The proprietary learning curve is very high, going by the sheer number of processes and procedures which go into the manufacture. These have substantially increased entry barriers The threat of substitutes is high as buyers have a tendency to use other products. The extremely low switching costs also contribute to the high threat of substitutes. Finally, the buyer power is low. This is due to the high possibility of forward integration by the chocolate manufacturers.
This is manifested by the many chocolate manufacturers with their own distribution systems. Additionally, the buyers are highly fragmented and do not have any big impact on pricing and product. The industry is currently in the growth phase of the product life cycle but is nearly reaching maturity. SWOT analysis Strengths The Real Chocolate Company has various strengths which have enabled it to sustain its market share. First, the company has a high brand visibility with well-known trademarks and compelling packages. Secondly, the company has a good reputation for quality.
Thirdly, The Real Chocolate Company has numerous proprietary recipes which ensure that high quality and distinct products are manufactured. Fourthly, the company is renowned for its good customer service. Besides, the company has a diversified product mix which includes a range of more than 100 chocolate types, 15 varieties of fudge and more than 30 different types of caramel-covered applets. Other strengths include well branded stores, skills in chocolate production and an extensive distribution network consisting of strategically located stores. The company ranks among the top firms in the country in terms of growth.
Finally, the company has a strong innovation culture manifested in unique products such as sugar free and no-sugar added sweets. Weaknesses Weaknesses of the company include its concentration in a small market segment and an over-reliance on franchisees. The company mainly targets the gourmet segment which forms only 10 percent of the entire chocolate market. This has limited the firm’s revenue base. Regarding the over-dependence on franchisees, the company gets more than 70 percent of its income from sales to franchisees and 20 percent from franchise and royalty fees.
Only 8 percent of the income is attained from company-owned store sales. Finally, the Real Chocolate Company uses manual processes to manufacture its products, a factor that hampers process efficiency. Opportunities Opportunities in the U. S chocolate industry are many and include an increasingly health conscious populace in America which forms a big market for innovative products. Research indicates that chocolate does not cause acne as previously believed, has almost non-existent amounts of caffeine, does not cause dental caries, does not lead to higher cholesterol levels and has no effect whatsoever on weight gain.
Benefits offered by chocolate include the high level of essential nutrients such as proteins, iron, riboflavin, calcium, niacin, potassium and zinc. Additionally, chocolate has flavonoids which can help the heart. These benefits are causing Americans to consume more chocolate and products with companies that can leverage the benefits have an opportunity to substantially increase their market share (NCA, 2004c). The organic segment equally provides a big opportunity for chocolate companies to cash in. According to Articlesbase (2008), many customers have a preference for organic chocolate.
Besides, a rising appetite for black chocolate and ethical and exotic flavours also portends opportunities for chocolate manufacturers. Another opportunity is caused by American’s tendency to eat out. According to Frost & Sullivan (2008), more and more Americans are eating out. Estimates show that out-of-home events will rise by 8. 8 billion while snacking events will rise by 7 billion this year as compared to 2003 figures. It is also forecast that an additional 3 billion food service dealings will be carried out this year compared to 2004. This presents a huge opportunity for the company to cash in on the demand