Creating a Five Forces Industry Model Michael Porter\'s analysis explores the th

Question

Creating a Five Forces Industry Model

Michael Porter's analysis explores the three horizontal forces (threat of new entrants, threat of substitutes, and threat from rivals) and two vertical forces (bargaining power of buyers and bargaining power of suppliers).

This exercise asks to evaluate the U.S. Frozen Food industry. Bear in mind you are evaluating an industry and not a particular firm.

You also need to explain why you have rated each force with a particular number. For example, why did you give a force a number 2, or why did you give a force a number 8?

Once identified and supported its rating for each force, summarize the results and indicate that the industry is either attractive or unattractive with respect to its profitability potential.

Explanation / Answer

1.Bargaining power of suppliers - LOW - In the food business, there are a lot of providers who offer raw material, for example, vegetables, meats, and different ingredients that is utilized as a part of making the frozen food. Since there are numerous raw material suppliers vying for the same target market, they compete with each other and as a result of this the prices are low and the frozen food producing company has the option of procuring from a large number of suppliers making their bargaining power very low.

2. Bargaining power of buyers - MEDIUM - Since the buyers have a choice of a wide variety of products they will offer a premium only if they feel that the product is differentiated either in terms of offering or any other auxiliary benefit. As yoghurt is yoghurt and there is not much difference if the same thing is produced by the different companies, consumers would choose the product which offers the best price.

3.The threat of Substitute products - LOW - There are a limited number of frozen food products in the market so the threat that a certain type of frozen food will be replaced by another is limited as each food has its unique characteristics, taste and purpose of consumption.

4. Threat of new entrants- HIGH - The industry has a large number of suppliers and the only high capex required in the industry the cost of setting up the cold chain which other companies can easily compensate for in the initial stages by piggybacking on an already established player.

5. Existing Rivalry in the Industry is Medium - While specifying about the solidified nourishment that pitches to the clients in the USA, it can be assumed to be limited in number. There are very few companies that furnish various choices to the purchasers with differentiated items to the clients.

So, overall the industry is good for a player to enter if it offers a differentiated product at a reasonable price point and has a cold chain already set up.

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