Porter Five Force Model of ENGRO

1) Threat of New Entrants:

Normally for an average entrepreneur it is difficult to come along and start a large
food company. But still as we know that dairy and food industry is growing rapidly
in Pakistan so it can prove attractive for many new businesses so engro is not prone
to threat from the new entrants. Some companies have carved out niche areas in
which they underwrite dairy supply but these food companies are fearful of being
squeezed out by the big players. Engro is one of the big players but it has threat of
new entrants because if many new entrants enter in competition they can
collectively grab a large market share that is bit alarming. However, following two
factors may act as entry barriers for new entrants.

Capital Requirement:

Competing in a new industry requires resources to invest. Production of packed

products requires huge investment of financial, human, technical, and marketing
resources.

Economy of Scale:

Economy of scale determines entry because they force potential competitors either
to enter on a large scale bases (a costly and perhaps risky move) or to accept a cost
disadvantage.

But still dairy industry is an easy industry to enter because many small
entrepreneurs (farmers) are still in this industry providing fresh milk and owning
farms, so dairy industry is majorly dominated by small farmers mostly and this is
evidnce of ease of entry in dairy industry itself.

2) Bargaining Power of Suppliers:

As milk is major raw material of engro foods so we will have more emphasis on
milk supply. The suppliers of food might not pose a big threat, because of the
reasons that engro food has its own dairy farms so they are not that dependant on
the suppliers. Even if engro have to get some milk supplied then it is also not a big
threat because

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 Number of Suppliers:

Raw milk is standard commodity and is available in the open market from a large
number of milkmen. If anyone refuses to sell its product then company can buy it
from others who are readily willing to sell to company.

Importance of volume to Supplier:

Suppliers also have less leverage to bargain over price because the company is
purchasing the large volume of their milk and suppliers don’t have much option to
sell milk to others.

3) Bargaining Power of Buyers:

The individual customer doesn't pose much of a threat to the food industry. Large
clients have a lot more bargaining power with food
companies. Large corporate clients like airlines, restaurants and retailers pay
millions of dollars a year, but their bargaining power is low because of the fact that
there are large numbers of distributors in market, who are buying and distributing
the product, and company have advantage to dictate implement its terms and
conditions to distributors.

Backward Integration: Another reason of low bargaining power is that no

buyer/distributor has the resources to start backward integration for supply of food.

4) Availability of Substitutes:

This one is pretty straight forward, for there are plenty of substitutes in the food
industry .Most large food companies offer similar set of products. Nestle, unilever,
shakarganj foods are offering almost same products. Nihar milk and prema is
focusing on niche areas usually have a competitive advantage, but this advantage
depends entirely on the size of the niche. But still availability of substitutes pose a
major threat on engro foods as There are plenty of substitutes of various segments
of food industry such as animal fat (lard) for butter in dairy segments, coffee and
tea for beverage segment etc. This combined with the low switching costs the
threat of substitutes is supposed to be very high.

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 5) Competitive Rivalry:

The food industry is highly competitive industry because of rapid potencial

growth. A company having low cost and adding more value can easily beat the
market. But in case of dairy industry competition is even more intense because a
company not only have to compete with the other big players of industry but also
with those farmers who sell open milk and are capturing more than 90% of the
market. In case of Engro foods we can say that they are going well because still in
this situation they are having high growth rate. so far nestle and haleeb are the only
diverse rival and another players that has just joined the UHT Milk sector is
Goodmilk, no doubt the competition between Engro foods and nestle is quite
intense both are engaged in consistent homework just to break and attract the
customer towards each other but Goodmilk is adding to the competition between
the sector. haleeb has almost lost it in the competition but still engro should not
take it lightly.

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