Analyze the Gardenia in Porter Five Competitive Forces

Franchesca B. Alon, Angelo Dueñas, JJ Salazar, Clarisse Perez (BSA13)

De La Salle University- Dasmariñas

ABSTRACT

This article is going to discuss the strengths and weaknesses of Gardenia Company on a global
basis using the five competitive forces of Michael Porter’s Model. It will discuss the main competitive
edge and factors of Gardenia over other baking industry. This also tackles Gardenia’s competitive market,
or what kind of market structure do they have?

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INTRODUCTION
Since the start of its operations, Gardenia’s distribution had grown rapidly. Gardenia is now
considered as the most widely distributed loaf brand in Metro Manila. Their headquarters is in Biñan,
Laguna. Gardenia Philippines has a revenue of $86M, and 93 employees. Since Gardenia's establishment
in 1998, the brand’s success has been starkly evident with its continuous and rapid sales growth. Industry
can be broadly defined as a group of companies producing products and services that satisfy a need,
function and use. Under baking industry, how is Gardenia being able to recognize as one the known
company whose delivering world class quality bakery products that every Filipino deserves? In fact,
Gardenia is not only known in the Philippines, but also in countries like Singapore and Malaysia. The
Five Competitive Forces of Industry will influence prices, costs and investment (Porter, 1980).
Furthermore, this strategy will help us to analyze competitive forces of Gardenia Company.

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STRENGTHS AND WEAKNESSES OF THE HOTEL INDUSTRY IN THE FIVE

COMPETITIVE FORCES

Threat of New Entrants – Barrier to Entry According to Michael Porter (1980), threat of new entrants
are determined by barriers to entry which include economies of scale which include size and scope of
operations required to achieve viable cost structure; product differentiation, switching costs and customer
loyalty created by quality, reliability and brand image; capital requirements which involve size of cash
and financial resources required to establish and run a business; cost disadvantages independent of scale
as opposed to advantages held by existing competitors such as location, patents and experience; access to
distribution channels which include means to reach customers; government policy such as licensing,
subsidies or tax incentives; and expected retaliation from existing competitors which are determined by

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current rivalry, history of vigorous retaliation and strengths of incumbents. Fewer rivals is a good
opportunity in business. However, the threat that a new competitor will show up and become an
additional rival is a threat

But there are some barriers that prevent new entrants from joining the competition.

1. Low Growth / Low Profitability

If an industry has a high profitability, the tendency for the new entrants is to enter the competition since
it has high profitability. On the other hand, if the industry has low profitability then new entrants is not
likely to enter the industry due to its low profitability.

2. Economies of scale

Newcomers will have higher unit costs than the bigger company, this is because bigger companies are
already well known and they can expect a much larger sales than that of new entrants, the bigger
companies can sell their product at a lower cost per unit but will still gain profit since they have a large
customer base but the new entrants can only expect a little customer base so they will have to put
higher cost on their units.

3. Switching costs

If a new entrant introduces a new product that is very different from its substitutes that it negates all
investment from the former products that are being used.

Lets say you bought a lot of DVDs for the dvd player and then the new product will not be able to play all
those dvd that you bought then chances are, they will now switch to the new product since they cant
use dvd on that.

So even if a new competing machine does show up in the market it will be very hard for them to attract
customer, because customers have already invested in other technologies.

4. Brand Loyalty

We all have our favorite brands and brand loyalty exist we will pass by an available brand in favor of the
brand that we are loyal to.

This is especially true for new entrants, a new product is introduced, the customers won’t even give it a
chance since they all have their own brand preferences already.

This will be huge disadvantage for the new entrants, it will be harder for them to enter the competition
because of this.

5. Government Regulations

Some industries have a lot of rules and regulations imposed by government and some industries are
few.

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 Depending on the industry, the regulations will determine how hard or easy it would be to enter that
industry. Fewer regulations will likely attract new entrants while many rules and restrictions could
potentially dissuade new competitors.

Threats of Substitute Products - Michael Porter (1980) indicated that substitute products can be
existing or potential products and services which are able to perform the same function. Substitute
products can reduce costs, and/or provide better quality performance and better value which very often
the result of technological innovation. The Hotel Industry in all major cities is not threatened by
substitute products except that in times of recession domestic travel might replace international or
overseas travel and certain destinations replace more expensive ones on cost grounds. In theory, substitute
products perform same function, reduce costs, and/or provide higher quality performance with better
service due to technological advancement (Porter, 1980). The threat of substitute for Gardenia product is
high within the industry. Consumer is looking for bread with attracting topping and decoration. For
example, those bakery shop usually providing filling bread and attractiveness bread which meet the
expectation of customer. Besides that, other industry such as fast food also providing breakfast value
which meal serve with bread. It becomes a threat to the Gardenia.

Bargaining Power of Suppliers - Porter (1980) emphasized that suppliers to an industry may be
powerful if they are more concentrated than their customers and their customers do not command a
significant share of their business because their customers do not represent a potential long-term or major
relationship, for example, one-off or small customers versus regular or bulk buyers. Or their customers
face differentiated products and services or high switching costs. A customer may be reluctant to change a
supplier if such change would face extra one-time switching expenditure. Also if such change entails a
perceived deterioration in the quality, image or quality of the supplier’s product which will adversely
affect the customer’s service. Suppliers have more bargaining power if their product is an important input
in the industry success. The supplier’s input is crucial to the success of the customer’s product and service
such as local tourist operators, thereby lowering the customer’s price sensitivity. The Bargaining Power
of Suppliers, one of the forces in Porter’s Five Forces Industry Analysis Framework, is the mirror image
of the bargaining power of buyers and refers to the pressure suppliers can put on companies by raising
their prices, lowering their quality, or reducing the availability of their products. This framework is a
standard part of business strategy.

The bargaining power of the supplier in an industry affects the competitive environment and profit
potential of the buyers. The buyers are the companies and the suppliers are those who supply the
companies.

Suppliers have the power of bear or apply in an industry by raising price or reducing the quality of
products. (Anthony H,2008) The increase of supplier power is the mirror image of increase buyer power.
In example would be BreadTalk, the company uses a strategy of building greater loyalty and long-term
relationships marketing with suppliers and retailers and then to result in improve performance in work
and provide good service to customers.

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Bargaining Power of Buyers - Porter (1980) mentioned that the buyers of goods and services from an
industry may be powerful if they are more concentrated than the players in the industry and are able to
force down prices as well as reduce the industry’s margin. They can purchase from the industry in large
volumes, thus forcing down prices, or increase costs through demand for higher quality products and
services. If the products and services purchased by buyers lack differentiation or switching costs, they can
easily find acceptable alternative sources of supply. Bargaining power of buyers refers to pressure
consumers can exert on businesses to get them to provide higher quality products, better customer service,
and lower prices. Buyer power is one of the forces that shape the competitive structure of an industry . The
individual does not influence much to bakery industry. Gardenia main buyers are like hypermarket and
retailers which pay lots for every year. Therefore, bargaining power is low due to a lot of distributor
getting resources (bread product) from Gardenia and selling it to end-user. The product for Gardenia is
differentiated based on the quality. Buyers are not easy to always find alternative suppliers. In relation to
buyer power in Gardenia industry seeks to enhance customer loyalty in focusing existing relationships
and trying maintaining in long-term relationships with buyers.

Jockeying for position among current competitors- Porter (1980) reiterated that intensity of rivalry is
dependent on number and size of direct competitors as numerous and/or equally balanced competitors
may lead to intense competition. This is because business growth sought is greater than rate of growth of
the industry. The rivalry for market share becomes intense when product differentiation and switching
costs are low. Rivalry becomes more intense in fixed costs particularly in high preservation/carrying cost
industries such as the Hotel Industry in most metropolitan cities. There are strong pressures to sell
capacity by price-cutting except weekends and holiday seasons. Capacity augmentation exists as large
additions to capacity can disrupt the demand and supply balance and leads to intense rivalry. Exit barriers
happen due to economic, strategic and economic factors which retain competitors in an industry. Despite
low or negative profitability and diversity, companies and industries may have different origins, goals and
strategies and an overlap in target customers.

WHAT ARE THE KEYS TO PROFITABILITY IN THE INDUSTRY?

What are the main competitive forces and factors within those forces which determine potential
profitability in the industry? The Hotel Industry in most metropolitan cities in the world is characterized
by high capital costs and a high proportion of fixed costs to total costs. The high capital costs require that
from the outset the project must be managed to achieve the most cost-effective use of resources applied to
construction, furnishing and equipment, pre-operational expenses and finance. Hotels also been built to an
optimum size, approximately 500 rooms, in order to benefit from the economies of scale. Hotels must
also aim to fill their rooms as profitably as possible, both through room occupancy levels and the relative
tariffs applied.

WHAT IS A GARDENIA’S COMPETITIVE ADVANTAGE AND COMPETITIVE POSITION?

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 Gardenia is the top-bread maker which a very strong brand name which accept by consumer. Popularity
and high customer awareness of the Gardenia brand in the regional markets are attested to by the award of
“Category Leader” by Super brands. The company recognized as the most outstanding bread
manufacturing in the product category by the consumer Urion of the Philippines (CUP) held yearly during
its Annual National Consumer Award (ANCA). This award is a special award which significantly to the
general public and attracting key demographic customer groups, built upon a unique philosophy.
Product innovation and development is a key area that helps Gardenia keep up with changing consumer
demands. Without media advertising, Gardenia still able target the consumer based on the way Gardenia
packaging and the way to be present. Philippines strengthened its distribution network by expanding its
retail. Gardenia is the first company which using G-lock to ensure the freshness, aroma and taste of the
product. G-lock contains all of the important information that the consumers might need such as product
expired date, production line the bread was produced and the batch number. In additional, Gardenia
quality and freshness come first. They are strictly for the freshness and quality of bread. (PA
REPHRASE)
Gardenias become the bread leader not just because of the high quality product. It become top-bread
maker because gardenia have develop the new plant manufacturing machine and keep come out with
better formulation of produce bread. Gardenia core products will be very beneficial especially in terms of
quality, nutrition, health, hygiene and most important consumer believe and satisfaction. Besides that,
Gardenia’s pillars of success continue to be guided by its four ingredients of success namely:
Product
The best quality products made with premium ingredients and good formulas
Plant
Using the high tech state-of-art-bread manufacturing machine.
Process
Running on an internationally develop process. High supervision process to monitoring the process.
People
A dynamic organization made up of people with an untiring passion for consumer orientation.Besides
that, Gardenia established a suitable strong brand, which gained attention of the target market.
(REPHRASE)
WHAT ARE OTHER MAJOR INCOME STREAMS FOR GARDENIA?

Income from any hotel project can be safeguarded by six major income streams apart from room sales:
(1)Food and Beverage is one of the important income sources. A large restaurant serving Western or local
food or a coffee shop serving buffet must be planned for any hotel project. These will attract considerate
non-hotel resident business including banquet facilities. By world standards F&B income is a very large
component of the total hotel income in the Hotel Industry as a whole. (2) Exhibitions and Conventions
can provide steady rental and service income for any hotel. (3) Entertainment such as Cinemas, Concerts
and Business Function Room Facilities are likely to receive heavy patronage. (4) Commercial and
Shopping Complex must be planned. The shopping space with retail shops selling luxury merchandises,

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watches and jewelry can provide recurrent rental income. (5) Neon-Signage can be planned which will
further diversity income. (6) Car-parking Service can be another major income source. (BAGUHIN
PERO SAME FORMAT)

WHAT IS THE GARDENIA’S BUSINESS STRATEGY?

Porter (1980) indicated that intensity of rivalry is dependent on number and size of direct competitors,
rate of growth of the industry, product differentiation and switching costs, fixed and running costs,
capacity augmentation, exit barriers and diversity. Gardenia will keep position their product as a high
quality and freshness product as well as become consumer focused and customer only choice. Gardenia is
focusing the guideline such as “Our Quality Guarantee” and “Customer Deserve the Best”. All Gardenia
products are made from the finest quality ingredients to deliver highest value for every day. Gardenia gain
the competitive advantages that using high-tech manufacturing machine and carries the quality and
freshness guarantee of Gardenia product. (PA REPHRASE )
MARKET STRUCTURE
In the Philippines, there are a lot of business selling breads like what is gardenia is producing. In the
perspective of consumers, gardenia may be classified as a perfect competition since what they see in some
bakeries in the village are almost similar as what Gardenia is producing. But in reality, what Gardenia is
producing is different from those. Gardenia Company PH is classified under market structure of
Oligopoly. There are few big companies but there are other small business selling almost similar product.
Some of the big companies that are main competitors of Gardenia are Universal Robina Dot Com, Monde
Nissin and Rebisco Group of Companies.
As what is mentioned above, Gardenia Company doesn’t only exist in Philippines. According to Uncrony
(2012), from a consumer’s point of view: Gardenia is 30% owned by Bernas – a GLC with a monopoly
on wheat distribution in Malaysia – which in turn is over 70% owned by Tan Sri SMA, an entrepreneur
popularly regarded as a crony.
Thus, by giving Gardenia business, a consumer is indirectly supporting & benefiting a monopoly business
and a crony.
CONCLUSION
EXAMPLE LANG
The two crucial factors that enable hotels to differentiate themselves are good location for relative target
market and quality of service. This latter issue is dependent upon good management and well trained
staff. The Hotel Industry can provide considerable opportunity to cross-sell profitable products such as
Food and Beverage, Entertainment or Exhibitions and Conventions services. Tariffs are then determined
according to the level of differentiation achieved through location, management, staff and guest ratios and
any other miscellaneous factors such as quality of architecture, decoration, furniture and fittings, layout or
interior design. In the event of a downturn in the world’s economic cycle the hotel’s target market should

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be more durable than the tourist market because of the different forces and motives driving tourism. That
is not, however, to say that a hotel itself is immune to such a downturn. If jockeying for position in a
higher strategic group became more intense in a position of oversupply, a hotel’s price advantage might
be eroded and business might be diverted to another segment, forcing the hotel to reduce its profit
margins further unless it has established sufficient differentiation to maintain its status quo within its
respective market segment.

REFERENCES
EXAMPLE LANG TO
Kotler, P., Armstrong, G., Brown, L. and Adam, S. (1998). Marketing fourth edition, Prentice Hall,
Sydney. Kotler, P. and Armstrong, G. (2010). Principles of Marketing 13th Edition, Pearson Education
Inc. Kotler, P. and Keller, K. L. (2006). Marketing Management 12th edition, Pearson, Prentice Hall.
Porter, M. E. (1979). How Competitive Forces Shape Strategy, Harvard Business Review, Volume 57,
Number 2. Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and
Competitors, New York: The Free Press. Porter, M. E. (1998). Competitive Advantage: Creating and
Sustaining Superior Performance, New York: The Free Press, NY 10020. Porter, M. E. (2003). Strategy
and the Internet, Harvard Business Review on Advances in Strategy, Harvard Business School Publishing
Corporation.

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