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Anthony Ward MBA 5317 Economics, Marketing, and Competitive Strategy Lamar Campus 22 September, 2011 Dr.

Moliski

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1. Analysis of the Snack Food Industry

According to data compiled by the Snack Food Association for 2010, volume sales within the snack food industry were down by -0.6%. Even given this downturn, healthier snacks seem to be on the rise, outpacing indulgent options as a favorite with consumers with a 4.4% overall growth, as compared to a 1.2% overall growth (respectively). Nutritional snacks and trail mixes saw an increase of 9.8%, with yogurt gaining 8.1% and snack nuts rising in volume to 7.6%. As more consumers look at entertainment and social activities being held closer to home versus going out, salsa sales have increased by 6.7%. Within the indulgent categories, prepared puddings lead the group, with a 13.7 rise in sales volume, followed by chocolate covered salted snacks (+13.5%), dried meat snacks (+10%), refrigerated appetizers/snacks (+8.9%), and for those chocolate lovers, chocolate candy rounds out the top five with a 4.7% market increase. Economic conditions continue to drive consumer spending, noting that 42% of snack consumers are cutting back on money spent on snacks and 30% trying to make snacks last longer or go further. Additionally, 30% of consumers note they are snacking less frequently, and 25% are eliminating unplanned snack purchases altogether. Consumers are becoming more healthconscious relative to snack foods in conjunction with wanting to save money. In looking at healthier alternatives, 71% of consumers are trying to eat healthier, with snacks playing a greater role in hunger satiation. Snacks touting high protein and low sodium are demonstrating a much stronger growth capability at this time. This being stated, consumers are paying closer attention to product packaging and amenities that highlight value and money-saving opportunities in conjunction with promoting health benefits (Ex: coupons, bundled or build baskets incorporating several snack categories such as a drink, nuts, chips, and candy bar, along with product placement). Relative to brand awareness and loyalty, 76% of consumers note that they look for the best value when purchasing snacks, regardless of brand choice. Additionally, 47% of consumers surveyed noted that they tend to switch to in-store brands when budgets get tight. When questioned on brand decisions, 46% of the respondents noted that brand decisions are very strongly influenced by brand trust, which is up from last year, going from 64% to 68%. Also, 44% of consumers surveyed stated that brand decisions are influenced by both pricing and convenience of stores (or product placement). Looking into the future, and as previously mentioned, consumers are on a constant vigil for healthier alternatives along with eco-friendly packaging. Gluten-free products are on the rise also, projected to reach $5.5 Billion in sales by the year 2015. Natural and organics are also performing well, with 7% and 8% growths respectively. Convenience and on-the-go snacks, along with the respective packaging are noted to be on the rise also. With this being stated, manufacturers would benefit greatly by advertising substitutes or selections that promote a
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healthier lifestyle (Ex: Fat-Free, 100% Natural, Sugar Free, Whole Grain, and Calorie Counts) , adding value to a consumers budget relative to product pricing, and with a more eco-friendly packaging for their products. Innovation played a key role in protecting and growing shares across several snack categories such as yogurt, salty snacks, frozen novelties, crackers, and gum.

Five Forces Diagram and Discussion

Firms in Other Industries Offering Substitute Products

Suppliers

Rivalry Among Competiting Sellers

Buyers

Potential New Entrants

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Rivalry Among Competing Sellers 1. Rivalry is strong, due to changes in consumer attitudes and spending (Healthier products/lifestyles versus indulgent lifestyles). 2. Buyer costs to switch brands are low (When consumers look at purchasing in-store brands versus national brands). 3. Differentiated products and commodities fuel rivalries (Healthier products versus indulgent products, organics versus non-organics).

Potential New Entrants 1. Entry threats are stronger, due to low entry barriers and changes in consumer attitudes. 2. There is a large pool of potential entrants, due to companies diversifying their markets and products to accommodate changes in consumer attitudes and tastes. 3. Companies are using innovation to gain market shares or maintain/protect their products in several snack categories (Yogurt, salty snacks, frozen novelties, crackers, and gum). 4. New entrants are introducing snacks with higher protein and lower sodium. 5. Snack markets are bringing indulgences that appeal to a number of snack categories (Ex; Ritz Pretzel Thins, Popsicle partnering with Jolly Rancher, and Dove introducing Chocolate and Almond Bars). 6. Natural and organic products can be seen as threats from potential new entrants. 7. Gluten-free and Fat-free items are on the rise.

Suppliers 1. Supplier bargaining power is weaker, due to changes in consumer attitudes and availability of supplies. 2. Good substitutes for supplier products/services exist. 3. Industry members account for a big fraction of suppliers sales. 4. Industry members have the potential to integrate backward into the business of suppliers and to self-manufacture their own requirements (Ex: In-store brands such as HEB, WalMart, and Safeway).

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Firms in Other Industries Offering Substitute Products 1. Competitive pressures from substitutes are stronger, again due to consumer attitude changes, which translate into good substitutes being readily available or new ones emerging. 2. Substitutes are attractively priced. 3. Substitutes have comparable or better performance features (Healthier alternatives and eco-friendly packaging). 4. Buyers have low costs in switching to substitutes. 5. Advertising could be a key factor in substitutes, promoting the benefits of an alternative product selection along with value. 6. Substitute snacks for at-home entertainment and socialization versus going out to entertain. 7. Convenience and on-the-go snacks are on the rise. 8. Gluten-free and organic products available to consumers.

Buyers 1. Buyer bargaining power is stronger, even though consumer spending is down (due more in part to healthier attitudes or habits versus a stronger economy). 2. Buyer costs of switching to competing products are low. 3. Buyers are well-informed about the quality, prices, and costs which are reflecting on a change to healthier products. 4. Buyers are currently price-sensitive due to the economic downturn, and are seeking a different product quality (Healthier product coupled with eco-friendly packaging). 5. Snacks are playing an important part in hunger satiation, creating growth outside the sweet and savory tastes of consumers. 6. 76% of consumers look for best value in their purchases nowadays. 7. Snacks touting higher protein and lower sodium are demonstrating strong growth capabilities.

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2. Key Success Factors for the Snack Food Industry 1. New product innovation capabilities are opening new growth potential for this industry, particularly in health-conscious and eco-friendly consumers (bundling products together from various snack food categories, eco-friendly packaging, healthier labeling and advertising of products). 2. Relative cost position is paramount, due to economic trends in a falling economy. 3. Quality/product performance in both name brands and in-store brands are primary concerns for consumers, as well as substitute items that are available. 4. Along with quality performance, reputation and image are concerns for consumers, who are seeking reputable products/producers that align with consumer trends or attitudes. 5. Dealer network/distribution capabilities play a role also. Health-conscious networks and outlets such as Whole Foods, Sprouts, and Trader Joes are growing along with major stores or chains.

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