Substitutes and Complements

Characteristics	Current situation	Future trend
Availability of close substitutes	Savory snacks, fresh fruits etc.	Higher because of product diversification
Price-value characteristics of substitutes	Varies from budget to exotic therefore exclusive and more expensive	Higher
Price elasticity of industry demand	Low because consumption would increase despite increasing prices.	Same
Availability of close complements	Tea, coffee etc.	Same
Price-value characteristics of close complements	Low	Same

Competitors and competition

Characteristics

Current situation

Future trend

Market concentration (number of firms, concentration ratios, HHI)

High in center, relatively lower in remote parts. A wide retailer net, especially in the last years.

Same or higher.

Market growth

Less than 5% a year: high chocolate confectionery rate is compensated by industry growth stagnation in sugar confectionary, which occupies nearly half of a market.

Lower, especially due to sugar confectionary’s volume stagnation or decrease.

Cost differences (among firms)

The costs of production are varying among firms. They depend on type of the geographical location, type of technology used and cost of raw materials used.

Same

Product differentiation

Medium in chocolate confectionery, higher in sugar confectionery. Brand loyalty exists but was damaged during the downturn by rivals, offering similar (even in terms of wrapping) at a much lower price.

Same

Price differences

Yes, a giant variety in quality and price. Brand loyalty existence. Economy of scale (excluding exclusive confectionery - small fabrics, low quantity)

Same

Excess capacity

Relatively low, demand-sensitive market, low switching costs, capacity increases are relatively easy to implement. Almost saturated market.

Can become even lower.

Are prices and terms of trade transaction observable?

Yes, especially speaking about international giants.

Same.

Can firm adjust prices quickly?

Yes, due to large variety of buyers, sensitivity

Same.

Type of competition (price, quantity, simultaneous, sequential)

Oligopoly - very similar products, few sellers, small firms follow lead of big firms, fairly inelastic demand
- many barriers to establishing a business so only the oldest and biggest businesses are operating examples - all the businesses are big and of equal size

Same

Leadership pricing?

No price leadership due to market specific.

Same

Tacit collusion (actual and potential)

Low or none due to variety of products/quality, structured roles of players. Several times suppliers cooperated offering better prices for products in attractive package.

Lower but still may occur.

Antitrust litigations

The Confectionery Industry Antitrust Litigation is complex and extensive, literally extending from coast to coast. It rests basically on allegations that major sugar refiners conspire to fix the prices of refined sugar.

Same

Threat of Entry

Characteristics	Current situation	Future trend
Importance of reputation and brand loyalty in purchase decision	Moderate. Premium confectionery producers cannot sell product on production price because of big investments in fixed assets. Therefore they are barely competing with price. More with brand, quality and diversity of product. Yet higher volumes of production help to reduce average fixed costs and initial investments.	No change
Entrants' access to distribution channels	Great. Importance of brand in premium chocolate sector for example is witnessed by the fact that 55% of buyers surveyed in Moscow said they buy 1 favorite brand or choose from few favorites.	Trend will probably remain the same or even strengthen due to the growing perception of different products as gift and emergence of new brands.
Entrants' access to raw materials	The most common challenges to this industry are soaring prices of raw material, high excise and import duties on raw material, high entry barrier because of strong monopolistic competition and influx of cheap imported brand through gray-Channels.	Same
Entrants' access to technology and know-how	Moderate to Low difficulty. Russian market for confectionery machinery is not developed enough to supply potential companies-entrants with required equipment for production in industrial volumes. If new companies want to enter premium chocolate segment they will need to make deals with foreign companies and specialists of the industry. This necessity to investigate and contract abroad imposes certain entry barriers for new firms.	Will be easier with time
Entrants' access to favorable locations	Moderate to high. Most consumers are located in urban areas with relatively high buying power necessary to buy premium confections. New entrants are likely to develop in areas with less competition such as regions, where only few companies have noticeable presence in premium sector of boxed chocolate.	Decrease to moderate
Experience-based advantage of incumbents	High. To develop various formulas to achieve desired flavor takes time for trials and investments. Existing players benefit from existing connections with distributors, suppliers of materials and technology, and from already established procedures of quality control which is crucial in such a sophisticated market.	Will remain or even improve
Network externalities	Small. Negotiable. Trend of using premium confections as a gift leads to further consideration of it as universal present.	No change
Government protection of incumbents	No obvious protection of existing players so far. Or they are not protected on the basis of being in premium chocolate industry.	No change
Perception of entrants about expected retaliation of incumbents	No significant reaction is expected from incumbents. Differentiation is much more important than price competition and toughness of reaction of incumbents

Дата добавления: 2015-11-16