AN ANALYSIS OF PORTER’S FIVE FORCES FRAMEWORK IN THE

BISCUIT INDUSTRY

Arushie MarwahRoll No. 1056Semester III

Porter’s Five Forces Framework

Porter’s five forces framework models that competitive interaction in any industry is influenced by five forces.

The framework has helped businesses become more profitable and government to stabilise industries.

If effectively applied, the five force framework helps develop business strategy to maximise profits.

The Biscuit Industry

The Indian Biscuits Industry is the largest among all the food industries, with a turnover of around Rs.3000 Crores.

India is known to be the second largest manufacturer of biscuits in the world, the first being the United States of America.

Biscuits were assumed as sick-man's diet in earlier days. But today, as a result of them being easy to carry, tasty to eat, cholesterol free and reasonable at cost, they have become one of the most loved fast food products for every age group.

Trends of the Industry

According to The Federation of Biscuit Manufacturers of India (FBMI), a steady growth of 15 % per annum in the next 10 years will be achieved by the biscuit industry of India. Besides, the export of biscuits will also surpass the target and hit the global market successfully.

The Indian biscuit market is currently 1.1 million tonnes per annum at Rs 50 billion. About 90% of Indians buy and eat biscuits

The largest consumers of biscuits are the states of Maharashtra, West Bengal, Andhra Pradesh, Karnataka, and Uttar Pradesh.

Biscuit are predominantly consumed by people from the lower strata of society, particularly children in both rural and urban areas with an average monthly income of Rs. 750.00. 

The Biscuit industry employs almost 3.5 lakh people directly and 30 lakh people indirectly.

Biscuit Production in India

Breakdown of the Biscuit Industry

Growth in Sales of Biscuits

PORTER’S FIVE

FORCES

Bargaining Power of Suppliers

The biscuit industry’s principal raw material requirements are that of wheat flour, sugar, shortenings, salt, sal volatile, sweet jelly, glucose, and starch.

High supplier concentration across the country for the supply of wheat flour, sugar and salt.

On the other hand, for the supply of the other raw materials such and sweet jelly, starch etc. mainly imports are relied upon.

Also, the biscuit processing machines are usually purchased from certain select suppliers as such advanced technology is not easily accessible in the Indian markets.

Inputs are relatively standardised and the government by means of FBMI ensures certain ceilings on prices of supplies.

Thus, the threat of bargaining powers of suppliers is limited.

Bargaining Power of Buyers

Availability of numerous substitutes.

Low switching costs. Prices of most biscuit brands

are kept within the reach of the budget of the ordinary man in both urban and rural areas.

Strengthened distribution channels.

The power of the buyers in the biscuit industry is such that the general situation o the market for biscuits has grown towards full fledged competition through brand development, range of products offered, delivery, advertisements and packaging.

Industry Rivalry

Immense competition and a multitude of producers. Cyclic nature of demand ,ensures an environment of

cut-throat competition. Every manufacturer seeks to gain a competitive edge. Large scale manufacturers like Cadbury, Nestle and

Brooke Bond tried to enter the biscuit market but could not successfully hit the market.

Even today, though a battery of new players such as Kraft, Pepsico, Glaxo etc are waiting to enter the biscuit market, with the exception of Horlicks Biscuits most MNC’s have ceased production in the country.

Therefore, even though there exist numerous players in the biscuit industry, the Indian market is still largely un-penetrated offering scope for ample growth.

Criteria Organised Sector Unorganised Sector

Dominant Players Parle, Britannia, ITC Small bakeries, Cottage and household manufacturing

Share in production 60% 40%

Scale of manufacturing

Large scale with more investment

Smaller scale of manufacturing and lesser investment requirements.

Segments of the Industry

Threat of Substitutes

Numerous substitutes, in both the organised as well as unorganised sector can be found in the biscuit industry.

Extremely price sensitive industry. Low switching costs. Profits constrained by the presence of

more alternatives as if one brand decides to increases its profits through a price hike, the consumers would shift their income to another alternative manufacturer.

Threat of New Entrants

Governmental Regulation and Policies Multiplicity of food laws Hike in central excise duty on biscuits Taxes deterring growth of the industry Economies of Scale Fixed Investment subsidies given by the

government Dynamic consumer preferences

WAY FORWARD FOR THE

INDUSTRY

Changing Dynamics of the Industry

Thank You!