You are on page 1of 8

Graphical Representation of Porters 5 Force Model

Michael Porters 5 force model is a model of pure competition
which implies that risk-adjusted rates of return should be constant
across firms and industries. However, numerous economic studies
have affirmed that different industries can sustain different levels
of profitability; part of this difference is explained by industry
structure. Michael Porter provided a framework that models an
industry as being influenced by five forces. The strategic business
manager seeking to develop an edge over rival firms can use this
model to better understand the industry context in which the firm
operates.

Introduction to Indian Bakery Industry
The Indian bakery industry is dominated by the small-scale sector
with an estimated 50,000 small and medium-size producers,
along with 15 units in the organized sector. Apart from the nature
of the industry, which gravitates to the markets and caters to the
local tastes, the industry is widely dispersed also due to the
reservation policies (relating to the small scale industries) of the
government.
Industry Structure
The bakery industry in India is mainly popular in the states of
Andhra Pradesh, Maharashtra, West Bengal, Karnataka, Tamil
Nadu and Kerala. Around 60% of production takes place in the
unorganized sector. There are around 2 million unorganized
bakeries in the country, comprising small bakery units, cottage
and household type manufacturing.
The organized sector
consists of large, medium and small-scale manufacturers
producing bread and biscuits. The market size for the industry in
India is expected to reach 47 billion by 2015 with a growth of 50
to 60 % per annum.
Industry Segments
Bread: About 50% of this segment is organized and is growing at
a rapid rate of 14-15% per year. The estimated size of the
organized bread industry is about
50 billion.
Cakes & Pastry: Cakes and pastries are growing at around 18-20%
per year. The revenue realization in terms of unit volume is higher
in this product category due to higher value addition.
Biscuit: The biscuit market in India is estimated to be 100 billion
and the industry is also gearing up to aggressively tap the
medium and premium segment within the country. Biscuit

industry in India in the organized sector produces around 60% of
the total production, the balance 40% being contributed by the
unorganized bakeries.

Introduction to JUST BAKE
Just Bake Is A Chain Of Restaurants And Has About 61 Outlets In
Bangalore. It Is Primarily Known For Dishes Like Flower Power
Cake Etc.
Just Bake started its operations in the year 2005 with its 1st store
in Indira Nagar (Bangalore) and is now one of the most popular
Cake House with 115 stores in Bangalore, Mangalore and
Hyderabad
With awards like Guinness Book world records, Best Bakery in
south India at Indian Restaurant awards for 2 years 2013 & 2014,
Just Bake is the most awarded Cake house in India. Just Bake is
the largest Cake House in South India.
With the help of their passionate franchisee operating the stores,
Just Bake is creating multiple relationships in a short time, with
millions of happy customers.
Just Bake is focused on quality, consistency and customer service
and having maintained these three aspects in the past 10 years
it’s transforming into a premium Brand loved by its customers at
really affordable prices.

Michael Porters 5 Force Model and Just Bake

Threat of New entry

Large capital requirements required to build chain of stores

Favorable locations are already occupied

Economies of scale in distribution

Product and brand differentiation

High Fixed Costs

The bakery industry of today, regardless of its production
capacity, needs modern technical and technological solutions and
continuous investments in very expensive equipment to ensure
high productivity which remains to be an important obstacle to all
potential entrants. Besides, the capital is also needed for
financing long payment terms as well as for organizing
distribution of relatively small quantities of products to the large
number of consumers.
A large number of competitors in the industry are all competing
for the same customers. Bakery Chains are all competing to be
number one in the market and have similar corporate goals.

While product differentiation is limited, there is fierce
differentiation by product range, brand and store ambience (e.g.
seating). There are almost zero switching costs for customers,
which promotes price wars.
Market growth is static, which promotes fierce fighting for market
share, and there is saturation of competition due to the limited
number of prime locations available for outlets. Smaller chains
have to pay a premium for prime sites or settle for less desirable
locations
Capital requirements for individual stores are low, however new
entrants wishing to compete on a like basis with national store
networks, distribution channels, brand equity development and
advertising, face large capital requirements to gain market share.
This is reflected in the large number of individual outlets
compared with the small number of large, proven top specialty
eateries.
Threat of Substitutes
 Large choice of alternatives with similar products e.g. Fruit
flavored packed cakes, biscuits, ice-cream, chocolate.
 Socializing places like coffee day and Starbucks also act as
threats when considered with the point of view such as
socializing or hangout places.
Although a consumer can choose from multiple substitutes (e.g.
desserts, Ice-cream cake or readymade packed fruit cakes),
specialty eateries compete based on convenience and
opportunity. Most people buy from specialty eateries when
travelling, shopping or meeting people. This is evidenced by the
location of the eateries, which is concentrated around high footfall
locations such as train stations, business districts and shopping
centers. For a consumer this becomes a competitive choice rather
than a substitute choice.

Bargaining power of suppliers
Basic raw materials in the Cake making industry are flour, baking
mixtures, yeast, salt, oil, sugar and improvers, all actually defined
as consumer goods. Thus, they significantly contribute to an
increase in price transparency and customer awareness. Milling
and Cake baking industries are strongly connected due to flour
being the most important input in the latter, and the latter being
the most important customer of the former. Packaging and
packing material are increasingly growing in importance in the
baking industry as much due to the Unique Cake packaging
requirements made by chains of stores
Bargaining power of buyers
In the structure of income earned by retail outlets the largest
quantity of products are distributed through hypermarkets and
supermarkets which is not a desirable situation from the bakery
industry’s perspective because of a very high bargaining power of
that segment of buyers. It is important to point out that the
bakery industry is fragmented with regional companies while the
market has specific local features that every participant has to
take into consideration. Furthermore, producers pay to shopping
chains various additional taxes which results in high selling costs.
This confirms the high bargaining power of traders who retain
entire added value while the whole risk related to production and
sales is still taken by the producer. Packaging and packing
material are increasingly growing in importance in the baking
industry.
Apart from the basic raw materials adequate and skilled
personnel also comprises an essential input in the baking industry
.Competences of workers in bakeries are constantly changing in
the course of an intensive technology development and the
transition from a labor intensive industry into a capital intensive
one. Labor intensive plants call for the employment of master

bakers, while the most recent technical-technological advances
enable the automation of most production processes.
Identification of key success factors
After a thorough analysis of all the forces affecting the industry in
which the bakery craft does business, it may be concluded that
there is a high degree of rivalry within the sector, but that there
also exists a noticeable threat of new companies entering the
market. The bargaining power of customers, owing to the minimal
costs of change, is more strongly manifested than the bargaining
power of suppliers, who, although assessed as being moderately
strong, can by all means affect the quality of the final industry
product.
We can also conclude that key locations of the franchise and cost
efficiency are key success factors of the cake.
Conclusion
Finally, the interpretation of the findings of the study allowed to
determine the attractiveness of the baking industry, measure the
perception of the intensity of competitive forces as well as
determine the difference between the perceived strength of
individual forces, identify existing competitive advantages and
key success factors in the further development, understand the
real strengths and weaknesses and design appropriate marketing
strategies, build a framework for positioning within the respective
industries, discover areas where strategic changes have the
greatest effectiveness and predict future movements in the
corresponding industry and accordingly shape strategic initiatives
to ward off negative forces.

Bibliography
Websites referred:
http://www.iei.liu.se/fek/svp/mafo/artikelarkiv/1.309571/C2.pdf
Justbake.in