Beyond Compare Deliverable 1 Essay

Submitted By nikhil5bhatia
Words: 2028
Pages: 9

Industry in the U.S. and Review of
Shared Services
Beyond Compare
Nikhil Bhatia, Avin Dhoble, Matt Haines,
Jeff Lowell, Jonathan Modest, Tina Wells

The U.S. chocolate confectionary industry grew to $16.2 billion in 2014. The industry grew at an average annual rate of 1.5% from 2009 – 2014, but growth is expected to decline to 0.8% from 2015 – 2019.
The demand for all chocolate products is growing quickly in developing markets such as China and India, which is putting pricing pressures on inputs even in the US market.
As costs of these inputs rise, companies are learning that operational efficiencies alone will not be sufficient to maintain acceptable profit margins.

Table of Contents

Competitive Environment

Industry Trends

Shared Services Concept

Shared Services Trends

Competitive Forces
Key forces:
1. Substitutes
2. Degree of rivalry
3. Buyer power

Lesser Threats:
4. Supplier power
5. Threat of new entrants

Lesser Threats
New Entrants

Majority of sales are owned by top players
Significant capital required to match the advertising expenditures Existing companies benefit from economies of scale & scope
Highly variable cost of inputs


Supplier Power

Generic inputs: cocoa, sugar, dairy products
• No ability to demand higher prices for commoditized products • Government regulations on production and quality

LOW threat of entry, LOW supplier power

Buyer power
 Two types of customers: individuals and wholesalers/retailers

Low buying power as a result of strong brand recognition and differentiation
Factors that influence individual’s decisions include:


Higher power as a result of larger volumes purchased
• Retailers receive trade discounts of up to 20%; much higher than consumer discounts Analysis:

MEDIUM buyer power Source: Hershey’s company research

 Two primary reasons for purchasing: personal consumption and gifts Personal Consumption

Consumers substituting chocolate for healthier alternatives Other substitutes include: nonchocolate candies, ice cream, other discretionary consumables/snacks Analysis:


Other gift substitutes include: wine, fruit, flowers, jewelry, etc. HIGH threat from substitutes

Industry Rivalry
 Mature market environment

Aggressive advertising used to gain share
Slow demand growth relative to economy

 Medium industry concentration

Top four players own two-thirds of the market
Consolidation through mergers & acquisitions
Large players diversifying product offerings
Economies of scale/scope drive costs down

Chocolate Confectionary

Top 4 Companies
All other
3rd Qtr
4th Qtr

 Wide array of local operations producing specialty products

Limited distribution
Strong hold and focus on current customers


HIGH competitive pressure

Strategic Positioning of Market Leaders



2013 Sales ($ millions) 1







Lindt & Sprunüli*





*Lindt acquired Russell Stover in July 2014 making it the 3rd largest Chocolate manufacturer in the U.S.

Table of contents

Competitive Environment

Industry Trends

Shared Services Concept

Shared Services Trends

US Chocolate Production Growth
v. GDP Growth
 Mature

industry - growth projected to lag broader economy for the foreseeable future  Industry

is moderately-tohighly concentrated, with top four players accounting for 67.7% of 2014 revenues

 Competitive

pressures are increasing as large players acquire boutique producers to differentiate offerings

US Chocolate Production Industry
 Higher-than-average

margins in consumer discretionary products due to the high value added to chocolate products during production

 Lower

wages due to higher level of automation  Marketing

costs approximately 300% greater than sector average attributed to importance of branding in driving