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0 Competition in premium chocolate industry

The competition in the premium chocolate industry can be explained by applying the Porters 5 forces model. This model, named after Michael Porter (1979), can be looked upon as a framework to analyze and structure an industry. It is a theoretical tool to elaborate the potential threats but also the chances of a particular industry. Porter mentions five forces that have an impact on an industry; suppliers, buyers, potential entrant, substitutes and the rivalry among existing firms. (Production of Analysis, viewed 11th June, 2010) Bargaining power of buyers (LOW) Bargaining power of suppliers (LOW)

Intensity of Rivalry (LOW)

Threat from Substitutes (HIGH)

Threats of New Entrants (LOW)

The Porters 5 forces model for Chocolates premium industry Bargaining power of suppliers In production of premium chocolate the primary raw material is cocoa bean, secondary sugar, and milk. Concerning sugar and milk, there are numerous suppliers of these materials available around the world; there is no concentration, neither a necessary differentiation. Manufacturers can use financial techniques such as hedging in order to reduce the impact of price rises on their own margins. In addition to the fact that according to CAOBISCO, there are 4.5 million of cocoa farms around the world, to whom the chocolate manufactures are an extremely important

customer, the bargaining power of the chocolate premium industry suppliers is generally low (CAOBISCO, 2009). ). However since the fine grade cocoa production represents a small part of the worlds supply, the bargaining power of superior cocoa beans suppliers increases. Bargaining power of buyers There are many buyers in the premium chocolate market. Large chains command a lot of power; however, there are also a lot of independent sellers. Since many premium chocolate manufacturers have their own unique selling point and the products are not standardized, buyers cannot easily switch to another manufacturer and get the same product. Many manufacturers have integrated forward in the market and handle the retailing of the products, such as Laura Secord. As far as the bargaining power of Rogers Chocolates is concerned the company has unique quality products and has distinctive and exclusive taste so the buyers have more attraction towards Rogerss chocolates. So the buyers cannot get this unique quality of products from others and have good awareness of Rogers Brand so they cannot easily switch to other manufacturers so it reduces their bargaining power. (Rogers Chocolates, 2010) Threat from Substitutes Some substitute products for premium chocolate could be traditional chocolate and other confectionary products customers could use to satisfy their sweet tooth. Other snack food items may also be considered substitute products. The chocolate industry must compete with numerous substitute products ranging from candies and cookies. Many non-chocolate snacks, such as peanut butter, fruits, yogurt and ice cream are also available. So there is a good variety of substitutes available for the customers that make the threat of substitute products high in the chocolate confectionary industry, especially in the premium segment. Intensity of Rivalry The intensity of rivalry among competitors in an industry can create price wars, advertising battles, new product lines, and higher quality of customer service .Competition in the premium chocolate market consists of strong regional brands with a few larger competitors, such as Godiva and Lindt. The market is growing at 20% annually which suggests less intense rivalry among competitors. Premium chocolates may be more perishable than traditional chocolate,

however, with a 6-month shelf life, there is less urgency to sell off products. With high levels of product differentiation, customers are often loyal to a brand which decreases rivalry. Threats of New Entrants Entry into the premium chocolate market would require a large capital investment for branding and production facilities. Traditional manufacturers have been moving into the premium chocolate category because of the high category growth and because they have the financial and capital resources. Customers value brand and quality so these can both be seen as barriers to entry for newcomers to the premium chocolate market. Furthermore, the USFDA redefinition of chocolate makes it easier for manufacturers to call their product chocolate. So the threats of new entrants in the chocolate industry are low. The market is difficult for new players to enter, as it is dominated by major international players with a long and established history and success and a huge amount of capital is required to start the business. CONCLUSION The market is fairly fragmented, with a few large players holding significant market shares and having wider distribution than regional brands. Switching costs are low; however, brand and quality play a significant role in customer purchase decisions and chocolate connoisseurs are unlikely to switch as freely to substitute products. So the strongest competitive force in the premium chocolate industry is the threat of substitutes and the weakest force is the threat of new entrants as this industry requires a huge amount of capital investment. As mentioned earlier there are few big players in the premium chocolate industry so for the new entrants there is a good profit potential and attraction in this industry as the intensity of rivalry is low in the industry.

2.0 The effect of external Factors on premium Chocolates industry

Premium chocolate represents a fast-growing and dynamic market in many parts of the world, with global sales having risen by over 18% within the last year. Sales and consumer awareness are both growing for a variety of reasons these include wider availability of premium chocolate at the retail level and high levels of new product activity. Additionally, more consumers are becoming attracted to dark chocolate on account of its health benefits, while ethical concerns have increased demand for organic and Fair-trade chocolate, all of which tend to be positioned at the premium end of the market. The pest analysis of premium chocolate industry shows that how the industry is changing and what are the different drivers that collectively or individually are changing the competition in the premium chocolates industry. (Premium chocolate set to grow despite tough times, viewed 15th June,2010) Political Factors The actions of governments can have major effects on business and markets, including creating or reducing demand for particular products and services. Rogers` chocolates are not facing any political influences on its business or the political issues in the premium chocolates industry in Canada are less. But at the same time, under the US-FDA guidelines the large chocolate manufacturers are seeking the redefinition of the term chocolate. The USFDA redefinition of chocolate makes it easier for manufacturers to call their product chocolate. So this will definitely increase the competition for the Rogers. Economical Factors Consumer spending may be controlled by a range of economic factors such as income levels, inflation, taxes, unemployment, exchange rates and mortgage rates. The world is passing through the worst economic crisis and this crisis also affected the Canadian economy. The income of the people decreased and so their purchasing power also affected. Economic growth has been declining worldwide, with many consumers losing their jobs and taking major pay cuts. Given these factors, consumers are watching what they are spending and are cutting back on luxury items and going for cheaper versions of certain products. So consumers are switching over the cheaper chocolate products instead of buying premium expensive products.

Social Factors Social trends are important because they have a direct influence on the demand for particular types of product. Consumers are finding new ways to go green and to have a healthier lifestyle with no trans fats and an increase in demand for dark chocolate. Consumers are demanding more organic products and expect manufacturers to be as environmentally friendly as possible. Like many chocolate companies, Rogers gets its raw cocoa product from West Africa. Due to increased awareness among customers regarding human rights concerns, this could be damaging to a companys reputation. Consumers and employees were also demanding that chocolate companies follow good corporate social responsibility practices, environmental concerns because as forced labor and child labor still used in some of the production of cocoa beans. Fair trade and sustainable products are also gaining in popularity Technological Factors Development in technology gives rise to new products and market opportunities. As each year passes, new technology advances develop, making production more efficient which presents cost savings for businesses and consumers. Rogers Chocolates have been using the same equipment for many years even though there are technologies available to prolong shelf life of the products and cut down on production time. So this changing technology has also a great impact on the competition in the industry the companies that are using more advanced technologies has the competitive edge over the other companies as they reduce the production time of their products. As one quarter of chocolates sales in Canada occur 8 weeks prior to Christmas so the use of advance technology can reduce the production time and give the competitive advantage to the companies.

3.0 The success factors for premium chocolates industry

The major factors of success come together at once a great product that everyone wants and loves, solid science to provide validity, pent-up market demand for the product, an experienced company with the right infrastructure to meet that demand, and an excited and motivated group of people ready to bring that product to the marketplace. The following are the success factors in the premium chocolates industry: High graded and quality Products The customers of premium chocolate industry are very quality conscious and they are not quantity conscious. The high graded and quality chocolate products are one of the most important success factors in this industry. All the premium chocolate manufacturers should give importance to the high quality of products and use high quality ingredients in the manufacturing of chocolates products to attract and retain the customers. Because the customers of premium chocolate industry pay high prices for the products so they dont compromise on the quality of the product. With this high quality of products recognition, it can be expected that if the company delivers one quality product, it is capable of delivering others. Having such a strong sense of quality associated with products, the companies have seen a great success all across their product lines. Brand Recognition Another most important success factor in the premium chocolate industry is the strong brand name of the company and its brand recognition. When a consumer goes to a store to purchase products they are most likely going to pick up products those have strong brand names. Because positioning of the image of the product in the mind of people as a good brand very important for the success of the company. Ability to invent new products The third key success factor for premium chocolate industry is the ability to invent new products and keep existing customers. When the company decides to release a new product, the company should spend numerous hours (and dollars) to ensure that the product will not only taste fantastically, but it will also be readily accepted into the market. So that these products were all released within a similar time frame, and all met a great success. With such a broad range of

widely known products, the company should be able to retain its existing customers, and gain new ones via new product released. Human Resources Management The management of the employees working in any industry is the key success factor for the success of the industry. The premium chocolate industry is very labor intensive industry so it requires quality skills and practices not only at lower level but also at upper level of management. Because the management and its attitude with the workers is very important and good attitude always boost up the morale of the workers and their effectiveness and efficiency at work place is increased. So the good HR practices in chocolate premium industry are a factor to success as the employee satisfaction increases and the level of their devotion and commitment rises. Marketing and distribution It is very important for the manufacturers to make marketing, segmentation, targeting and distribution strategies for their products because the expensive nature of the products. The manufacturers should identify their segments before targeting them, whether and how they should approach to the premium chocolate customers (Chocolate Hedonists (self-indulgers), Young Chic Gift Givers (personal gifts and business gifts) or organic chocolate consumers.). Creative strategies The development of the creative strategies is also very important success factor in the premium chocolate industry. The manufacturers should carefully make and then implement the creative strategies for their products. They should make the advertising strategies both for new user and existing customers, and a media plan should also be made. This will help the manufacturers to make the people aware of their products and strengthen their brand image and ultimately it will have positive effect on their business.

4.0 SWOT Analysis of Rogers` Chocolates

Product Established Brand Wide Variety High Quality Award-Winning Human Resources: Board of Directors Employee Devotion Experienced Leadership Skilled Management Consumer Loyalty Social Involvement Revenues and Margins Production: Inefficient machines, work by hands so time consuming. Low Capacity Record Keeping and Forecasting Human Resources: Resistance to Change Management Conflict




Sales Force hard to find out side Victoria Product: Brand is unknown outside Victoria less emphasis on Styling and Packaging Poor Inventory Management

Technology: Mobile Marketing Production Capabilities Internet Growing Markets: Asia and Oceania Australia Consumer Trends: Affordable Luxury Products Chocolate Connoisseurs Healthy Lifestyle Movement Industry Trends: Private Label Chocolates Novelty Candies Licensing, Franchising and Partnerships 2010 Olympics


Easy entry of new firms Economic Downturn Fluctuating Demand Consumer Traffic Intense Competition: Godiva


Bernard Callebaut Lindt Purdys Cadbury and Hershey Environmental and Human Concerns USFDA Redefinition of Chocolate

Key Resources Strengths and competitive capabilities From the swot analysis of the Rogers` chocolates it is obvious that company has good foundations. Brand established around Rogers long history. Rogers is a classic Canadian premium brand of high-perceived value. Rogers provides healthy alternatives for consumers by refusing to use hydrogenated fats and oil in their products. The company heavily relies on using natural ingredients whenever possible. The company has a wide variety of products .In addition to pure milk chocolate, dark chocolate and white chocolate bars, and baking/fondue chocolate blocks, Rogers also produces specialty items that include tasty treats like chocolate-covered ginger, caramels, brittles and orange peel. No-sugar-added chocolates are also sold as well as a premium ice cream. Moreover the company has loyal customers and in 2000, Rogers won the Retail Council of Canadas Innovative Retailer of the Year Award in the small business category. So all these key strengths of the Rogers` help it to strengthen its brand name and status in the global market as a part of its competitive capabilities. Resource weaknesses and competitive liabilities The main resource weakness of the company is the retail outlets are focused in Victoria; the brand is not well-known outside this area. The logo and packaging give the impression of dowdiness and have been described as not glitzy or fashionable enough. Rogers is not the main focus for the sales agents. Remote sales representatives outside Victoria may not be able to adequately sell the brand if they are not well trained. These are the major competitive liabilities for the company because these weaknesses do not allow the company to expand its operations in a global market. Moreover the production capacity and planning of the company is not appropriate. External opportunities and Threats Asia and Oceania make up the largest market with $21.7 billion or 33.21% of the total chocolate market (Parker, 2005). Demands for chocolate products in China are expected to increase from 11.39% of global demand to 11.89% in 2011 (Parker, 2005). So the company has great opportunity in these areas. There are many licensing opportunities in the chocolate market for luxury brands including cakes, liqueurs, ice cream cookies, etc. (Molaro, 2007).Partnerships also create opportunities for new distribution channels such as in malls. Franchising could mean more market coverage across Canada and additional resources. New production technologies available

to decrease costs and production time. So there lot of external opportunities is available for the company to expand globally as there is small number of international players in global premium chocolate industry.

As far as external threats for Rogers` are concerned the main threat is the economic crisis in the world. The economies of the most countries are suffered badly the inflation rose up and a result of which the customers switched to cheaper products. So this threat of the company becomes a big opportunity for the other companies those have cheap products. Godiva achieves price points 15% higher than Rogers with lower quality products. Moreover Premium chocolate purchases are inconsistent and very seasonal. Many chocolate companies get their raw cocoa product from West Africa where forced labor and child labor is still prominent. So these concerns of labor and other environmental concerns are threat for the company. The US-FDA redefinition of the chocolate opens the doors for the cheaper manufacturers to compete with bigger companies.

5.0 The competitive Strategy of Rogers` Chocolates

In different circumstance and industry environment, in addition to different vision and objectives, each company would craft and execute tailored strategy to fit itself. On the basis of two aspects: whether a companys market target is broad or narrow and whether the company is pursuing low-cost or product differentiation advantage, there are five generic competitive strategies coming out as following graph shows:

(Thompson, 2007 p.134)

According to the analysis of the Rogers` chocolates the company would be adopted the Focused Differentiation Strategy that is based on differentiation-compete in niche market with differentiated products. A wide variety of high-quality, hand-wrapped products are the highlight of the Rogers company. The premiere line, Victoria Creams is sold alongside truffles, nuts and chews, almond bark, nut corn and various assortments. In addition to pure milk chocolate, dark chocolate and white chocolate bars, and baking/fondue chocolate blocks, Rogers also produces specialty items that include tasty treats like chocolate-covered ginger, caramels, brittles and orange peel. No-sugar-added chocolates are also sold as well as a premium ice cream. So the buyers segments for the company are narrow and company has small segment of loyal customers Moreover the company has the reputation of very quality products. The company heavily relies on using natural ingredients whenever possible. Their chocolates have been described as classy, refined, and elegant, top-of-the-range and unique. So company positioned itself as a provider of the premium and high quality products in the chocolate industry.

To satisfy the needs of its niche market the company implement the strategy of focused differentiation and the products are handmade and widely accepted in its niche market. But the current problem of the company is that the brand of the company is known only in Victoria and the company should take steps to expand itself and to look for more customers in other areas too. As far as the company`s functional strategies and tactics appear to be consistent with its competitive strategy the financial analysis, the annual cash flow statement and balance sheets show that the company is not getting the targeted revenue. As cost of sales has increased, most notably overhead costs which more than doubled from 2005 to 2006. So its functional strategies and competitive strategies are not entirely consistent with each other. The company is not paying attention toward the new innovation and production of new products that will definitely help the company to expand and increase its brand awareness to other areas. Rogers success largely depends on consumer experiences in the retail locations. Given the decreased consumer traffic in the Vancouver area, Rogers sales will be impacted dramatically because its retail distribution network is focused primarily in this area. Rogers will need to evolve its distribution network to gain market coverage so that decreased consumer traffic in the Vancouver area will not mean the downfall of the company. Through licensing, franchising or

partnership opportunities, Rogers could expand its market coverage without a large capital output. Currently the performance of the company is not accordance with its potential so management should take steps to expand the company and change its competitive strategy of serving a narrow market to a broad market.

6.0 Conclusion
After the analysis of the company it is obvious that the company has good quality products and strong foundation but the company is only known to the Victoria and outside the Victoria the people are not aware of its name. So management should take the steps to expand the company to other areas through broad differentiating strategy. Moreover the company should also use the changing technology to reduce the cost of production and increase the efficiency in production.

7.0 References
Baker, S. (2009). Following the Luxury Chocolate Lover. Business Week Online. Retrieved from Business Source Complete database. Premium Chocolate The Sweet Sales of Success ,viewed 13th June, 2010 http://www.gourmetretailer.com/gourmetretailer/content_display/trends/e3ic1abd1883d2156371 dc907ea114507eb

Parker, P. (2005). The 2006-2011 World Outlook for Chocolate Candy. ICON Group International, Inc. Retrieved from Business Source Complete database.

Molaro, R. (2007). Taste of Success. License Mag. Retrieved from Business Source Complete database.

Thompson, A.A & Strickland A.J. Crafting & Executing Strategy: The Quest for Competitive Advantage, Concepts and Cases, 15th Edition, 2007 The McGraw-Hill Companies, Inc. New York, USA Production of Analysis, viewed 11th June, 2010 http://www.123helpme.com/view.asp?id=149697

Premium chocolate set to grow despite tough times, viewed 15th June,2010. http://www.just-food.com/analysis/premium-chocolate-set-to-grow-despite-toughtimes_id104298.aspx

CAOBISCO (2009), Cocoa Farming an Overview,viewed 14th June 2010 www.caobisco.com Rogers Chocolates, viewed 17th June,2010. http://www.attractionsvictoria.com/index.php/site/members/rogers_chocolates/