Ice-Fili

Ice-Fili’s completive position relative to its regional? Porter’s five forces model will be used to assess the ice cream industry competiveness in the market. An illustration of the model specific to Ice Fili is displayed in Exhibit 1. In order to have sustained profit for Ice-Fili, we will analyze the drivers of the industry identified by strategic variable (R, C, Q). Profit can be defined: Profit=(R-C)*Q, Where R is revenue, C is cost and Q is quantity. Industry Rivalry (H) 1. Large number of firms from Regional and Foreign – Many firms results in Price Drop 2.Commodity Product – commodity end of the spectrum, profits are decreasing 3. Low rate of Growth (R)- ice cream industry production down by 3. 5% in 2000 from the previous year – As firms try to grow, they cut prices Impact to (R) 4. High Fixed cost – Impact to (c) Ice cream industry in Russia has about 300 ice cream manufactures including regional and foreign. The ice cream market can segmented based on geographical spread, National, Regional and City. Increasing number of ice cream companies is leading to price reduction and reduced market share.Overall resulting in high industry rivalry. Ice cream is commodity product with no for few attributes of distinctiveness. Ice cream industry production down by 3. 5% in 2000 from the previous year – As firms try to grow, they cut prices impacting the revenue of the company. Supplier Power (L) 1. No. and concentration of suppliers are low for raw materials and high concentration of suppliers in equipment. – Powerful suppliers increases C 2. Low switching cost in terms of raw materials but high cost from equipment. 3. Threat of vertical integration. – High Suppler Power: – Impacts (C, Q)Suppliers In the ice cream industry can be segmented in raw materials ingredients and equipment. There exist numerous potential suppliers of ingredients. The ingredients provided by each supplier are not unique or greatly differentiated. Furthermore, ice cream manufacturers are able to switch between suppliers quickly and cheaply. Therefore, the bargaining power of suppliers of ingredients is rather low. In terms of equipment there were 10 private ice cream equipment companies in Russia, Ukraine, and the Baltic countries, relative to 300 ice-cream manufactures.This makes difficult for ice cream manufactures to exercise their power to negotiate for lower price. Russian ice cream producers such as those converted from military facilities may present opportunities for forward integration; the bargaining power of the suppliers of equipment is relatively high compared to that of the material suppliers. Buyer Power (H) 1. Larger number and concentration 2. Availability of product alternatives – Dairy foods, Confectionaries 3. Low cost to switch – Ice-Fili can switch to other dairy products 4.Threat to vertical integration – (H) 5. Low Product differentiation Buyer Power (H) – Impacts strategic variables (R, Q) Buyers are presented with many choices when selecting a product in the ice cream industry while distributors have the power to decide which products will be available to customers. Ice-Fili has about 170 products in the market, compared to Nestle with 25 products. Absence of preservatives and a high proportion of milk fat differentiate the domestic Russian ice cream from the foreign producers’.Customers are able to substitute one brand of ice cream to another or from ice cream to other foods altogether at any point in time. Overall we can say that buyer power of distribution channel group and consumers is high relative to ice-cream producers. Threat to Substitutes (L) 1. Existence of substitutes such as confectionaries, Beer, Soda and frozen foods 2. Low switching cost Consumer change in purchasing trends, Low brand loyalty or low switching cost leads attribute to Threat to Substitutes. Low customer switching costs in the Russian ice cream industry.Furthermore, some other substitutes like beer, soda, yogurts, chocolates and other confectionary candies are competing with ice cream products, threatening the already declining ice cream market. As a result, the ice cream industry production shrank to 3. 5% in 2000 from the previous year, while beer was up 23% and soft drinks 25%. Threat to Entry (L) 1. Economies of scale – Modest cost to entry, with easy access to Manufacturing equipment. ( L) 2. Low brand loyalty – Buyers Economies of scale – (L) 3.Easy access to distribution channel. 4. Low government and legal regulations 5. Low skilled resources. 6. Less complex manufacturing process. 7. Easy access to product extension from diary to chocolate. The ice cream industry has considerably low barriers to entry since most equipment can be rented, purchased, or utilized for multiple purposes, while employees need not be highly experienced and trained. In terms of the product, there is low differentiation and demand elasticity, contributing to a lower barrier to entry.Regional producers accounted for 30% of the domestic ice cream market and regional producers set up manufacturing factories. The open market economy attracted more foreign companies into the Russian market to capitalize on new opportunities. Foreign companies such as Nestle had already set up two factories in Moscow since the beginning of the open economy. SUMARRY (Profit potential of the industry) * Industry rivalry: HIGH * Supplier Power: Low * Buyer Power: HIGH * Threat of Substitutes: HIGH * Barrier of Entry: LOW Ice-fili’s market share had reduced from approximately 50% to 10. % in 1997 to 5. 2% in 2001. Rate of Growth Rate of Growth Ice-Fili Ice-Fili Time Time Emerging Mature Transforming Decline Nestle Increased investment in Local Production – developed own Independent storage facilities and distribution and marketing networks, – Kiosk and branded refrigerator displays. Maintain Low production cost and invested in training and development of local staff. Acquisition strategy of other ice cream factories – In 2000 second largest ice cream producer 16000-17000 tons.Increased investment in Marketing and Advertising Porter’s Five Force analysis for Ice-Fili Threat to Entry (L) 1. Modest cost to entry, with easy access to Manufacturing equipment. 2. Low brand loyalty 3. Easy access to distribution channel. 4. Low government and legal regulations 5. Low skilled resources. 6. Less complex manufacturing process. 7. Easy access to product extension from diary to chocolate. Threat to Entry (L) 8. Modest cost to entry, with easy access to Manufacturing equipment. 9. Low brand loyalty 10. Easy access to distribution channel. 1. Low government and legal regulations 12. Low skilled resources. 13. Less complex manufacturing process. 14. Easy access to product extension from diary to chocolate. Industry Rivalry (H) 1. Large number of firms from Regional and Foreign 2. Commodity 3. Low rate of Growth (R) 4. High Fixed cost (C) Industry Rivalry (H) 5. Large number of firms from Regional and Foreign 6. Commodity 7. Low rate of Growth (R) 8. High Fixed cost (C) Threat to Substitutes (H) 1. Existence of substitutes such as confectionaries and frozen foods 2.Low switching cost 3. Threat to Substitutes (H) 4. Existence of substitutes such as confectionaries and frozen foods 5. Low switching cost 6. Buyer Power (H) 1. Larger number and concentration 2. Availability of product alternatives. 3. Low cost to switch 4. Vertical Integration? 5. Buyer Power (H) 6. Larger number and concentration 7. Availability of product alternatives. 8. Low cost to switch 9. Vertical Integration? 10. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

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