CHAPTER III

INDUSTRY ANALYSIS
3.1 Definition of Industry
The bakery industry is made up of a variety of types of bakeries, Plant Bakeries, which
are large companies, using automated production lines to produce large quantities of products.
Craft Bakeries are small to medium sized firms producing a wide variety of products using a mix
of machinery and hand craft skills. In-store Bakeries are located within supermarkets and vary in
the amount they produce. The industry has gone through many changes due to the use of new
technology.
Bread is considered to be a staple food along with other traditional Filipino favorites such
as rice, crackers and other cereals. It has been considered as a food for breakfast, or for snacks. It
is also considered to be a food for convenience that is tasty and healthy for the consumers. Bread
manufacturers in the Philippines are very vulnerable when it comes to inflation which makes
setting prices more challenging for the businesses due to price sensitivity of the consumers that
enables them to look for alternatives. Apart from that, increase in price might lead to decrease in
sales.
3.2 Marketing Mix
3.2.1 Product
Most countries with developed economies, as well as a number of developing countries,
have strong bakery industries. Bakeries provide necessities to the population in terms of bread
and cake products. Almost every household relies on the consumption of staple products such as
bread, and so the baking industry is able to thrive with this large, reliable demand. Bakeries
require skilled bakers as well as other employees to serve customers, meaning the industry
provides significant employment opportunities. Many people in their later teen years take up
apprenticeships in bakeries to learn the trade.
And with the arrival of foreign bakeries like Bread Talk is soon followed by Tous de jour
slowly the foreign companies reach the Filipino masses. With these the competition increases as
the foreign companies brings new product to the Philippine market.\
Large-scale bakeries produce more variety of products to cater to their many customers,
so they can give a lot of options for their customers. From loaf bread, pastries, biscuits, etc. It
creates a competitive advantage for the seller, as customers view these products as unique or
superior.

3.2.2 Price
Price is the amount of money expected, required, or given in payment for something. The
bread industry is a very competitive market. Almost all of bread products are almost in the same
range. The prices of the bread are nearer to the purchasing capacity of an average Filipino. A
product which is of higher price range than its competition will lose market share because the
goods are undiversified.
3.2.3 Promotion
Sales promotion activities are the primary method of competition among wholesale
bakers. One of those is Discount goods and service, where bakery business promotes their
products and service. Another promotion bakeries use is personal selling, where they have
moving carts and goes to different location. While multi-plant firms uses media advertising,
events, and sponsorships to promote their products and services nationwide. Another promotion
bakery business uses is sponsoring an event to contribute a cause while connecting to members
of the community.
Since in the Philippines are dominated by small scale bakery, they usually dont use
promotion to increase their market share. Only Large scale bakeries can advertise their product
but still they use it less because they mostly rely on their distribution to reach their customers.
3.2.4 Distribution Channel
Distribution and delivery of bread from plant bakers is a complex operation, with
multisite operators often concentrating the production of different lines at individual bakeries,
needing inter-company trucking for full distribution of products. Most plant bakeries retain their
own delivery fleets and drivers, with some smaller companies using contract or franchise
delivery for areas over a certain distance from their manufacturing facilities. In recent years,
there has been an increased emphasis on just-in-time (JIT) delivery, ensuring that the product is
delivered to the customer at the right time and in fresh condition.
The multiple grocers dominate retail distribution, taking the major share of the wrapped-
and-sliced bread market and, more recently, the ISB market. Craft bakers have had their share
eroded by both the multiple retailers and the convenience sector, including forecourt retailers and
symbol groups. As well as selling wrapped and sliced bread, the latter have also adopted bake-
off techniques to sell crusty bread and bakery products, putting them in direct competition with
the craft sector.

3.2.5 Customer/Target Market
As a staple item for Filipinos, bread played an important part in the price wars between
major retailers, which used the product as a loss leader, selling it at below cost rice in order to
attract customers. Due to the nature of the industry, it offers goods and services regardless of
age, gender, nationality and social standing. Its products and services are also from different
price points to allow budget conscious customers to avail its goods and services.
Companies in the bread industry have segmented the market by their income or by their
economic status and family size, and its variety of products is designed to cater to different
segments of the market. The target markets primarily for bread industry are the housewives,
defined as the person responsible for household grocery shopping. In this industry, it is common
that under a bakery, there are different varieties of bread, cakes, and pastries are available.








3.2.6 Competition
The supermarket industry has been consolidating, and as that has happened, some have
formed their own bakeries. Larger chains have the resources to take some of their baking
operations in-house, including fresh-baked goods.
The major players in the industry are the following:




Marby Food Ventures Corp. Walter Bread

Porters Five Forces
3.2.6. a. Rivalry among Competitors-MODERATE
The industry is characterized by many small bakeries, but there has been a recent trend
towards consolidation and economies of scale. Businesses compete on price, quality,
differentiation, relationships with key suppliers and their distribution channel.Some of the
competitor are by low priced confectionery producers which are small family-run businesses
whereby producing bread that are sold in the neighborhood which called small-scale production
for the local market. There is only little business, which produces large scale productions like,
Marbys, Walter Bread, Lemon Square, Gardenia, Red Ribbon etc.
3.2.6. b. Potential for New Entrants-HIGH
In these high competitive industry, there are a lot possibility that new competitor enter to
the industry. Indirectly, new entrants to industry will lead threat that might decreasing level of
customer loyalty and will be highly competition in between. Capital requirement for investment
in bread industry in purchasing those raw material and machinery before the entrant could begin
selling the product. In additional, certain market share need to be capture for the new entrant
before it could reap the necessary economies of scales to allow it with rival firm.
3.2.6. c. Bargaining Power of Suppliers-LOW
Suppliers do not have much negotiating power in the bakery business due to the well
developed markets for their products and the commoditized nature of what they are selling.
Bakeries can be affected by price swings of the raw inputs, but the changes are a result of global
supply and demand determinants rather than suppliers negotiating power.
3.2.6. d. Bargaining Power of Buyers-HIGH
Buyers of the bakery industrys products, such as supermarkets, grocery stores, hotel
chains and convenience stores, are able to appropriate much of the industrys profit due to the
large number of small bakeries that are all vying to find outlets for their products. As a result,
buyers are able to command low prices and volume discounts. Only large players, such as
Gardenia, Marbys, Walter Bread etc. have the power to level the playing field and achieve a
more balanced share of the profits.
3.2.6. e. Potential Substitutes-MODERATE
Many substitutes exist for bakery products. Breakfast cereals, rice and potatoes are all
viable alternatives and individuals can also make all of the baked goods they want at home.
Bakeries rely upon price and convenience to keep individuals switching to a substitute or baking
what they need at home.
3.3 Operation/Production
3.3.1 Process






Bread has been baked for hundreds of years, and the same basic process is still used by
the baking industry today. The main ingredients are flour, yeast, salt, vinegar, vegetable oil, and
water. From the delivery of the bakeries ingredients, they mix, divide and round their
ingredients. Then checks their proper weight then moulds to put proof it. Then they bake it and
remove it from their pan and cool it. Once cooled, it passes down the conveyor belt to be sliced
(if needed) and bagged.
3.3.2 Capacity
In the bread industry, the products they produce depend on what kind of bakery they are.
For large-scale bakery, they produce more than 50,000 loaves of bread to cater their customers
needs. For small-scale bakery, they only produce to how many they have in their neighborhood.
3.3.4 Quality
Quality goods and services are strategically important to the bread industry. Producing
quality breads helps to maintain customer satisfaction and loyalty and reduce the risk and cost of
replacing faulty goods. Bakeries can build a reputation for quality by gaining accreditation with a
recognized quality standard, such as ISO 9001, published by the International Organization for
Standardization.
Customers are satisfied if they receive quality products from the bakery but if the bakery
cant provide their customers the quality they want, they will look for alternatives. Quality is
essential to satisfy their customers and to retain their loyalty so they continue to buy from the
bakery.
Quality helps to influence the bakerys reputation. A strong reputation for quality can be
an important differentiator in markets that are very competitive. Poor quality or a product failure
that results in a product recall campaign can create negative publicity and damage your
reputation.
A company having an accreditation for their quality standard can be essential for dealing
with certain customers or complying with legislation. Having accreditation gives prospects
confirmation of the bakerys ability to supply and produce quality products.
3.3.5 Technology
Since the bread industry is dominated mostly by small-scale bakery, they often use less
advance technology in their machinery and equipment they usually use manpower rather than
other machinery. Only large-scale uses big machinery and equipment because they are the ones
that have larger distribution and more customers.
3.4 Industry Analysis Ratio
3.4.1 Total Asset
Total
Asset 2010 2011
Growth
Rate 2012
Growth
Rate
Gardenia

1,867,323,012.00

1,946,210,883.00 4% 1,971,194,059.00 1%
Marby

55,155,230.01

58,118,684.63 5% 64,866,451.61 12%
Walter

24,997,172.07

26,759,810.69 7% 39,390,279.06 47%
Total
Industry

1,947,475,414.08

2,031,089,378.32 4% 2,075,450,789.67 2%
Total assets of competitors are shown above with their corresponding percentage of the total
assets of the industry.


3.4.2 Net Sales
Net Sales 2010 2011 Growth Rate 2012 Growth Rate
Gardenia

503,071,693.00

604,652,087.00 20%

772,025,572.00 28%
Marby

38,113,050.30

47,620,785.13 25%

65,583,244.40 38%
Walter

33,920,583.88

41,485,827.04 22%

35,100,533.49 -0.15
Total
Industry

575,105,327.18

693,758,699.17 21%

872,709,349.89 26%
Net sales which tell us the market share of the competitors in the industry are shown above. The
percentage total is also shown together with the industry growth percentage.
3.4.2 Net Income
Net
Income
2010 2011 Growth Rate 2012
Growth Rate
Gardenia

26,729,646.00

27,390,383.00 2%

36,765,707.00 34%
Marby

4,192,353.33

4,944,982.58 18%

5,799,142.01 17%
Walter

2,289,194.89

2,857,998.60 25%

(3,548,136.23) -2.24
Total
Industry

33,211,194.22

35,193,364.18 6%

39,016,712.78 11%
The net income of the competitors is shown in the table above.


3.5 Industry Trends
Baking has grown over the last century in the Philippines, from a relatively small
industry to a large, popular industry. Initially, the island featured mainly independent bakeries
that serviced cities and towns and provided employment to the local people. Nowadays, chain
bakeries have increased the number of bakeries in the Philippines and have also lowered the
prices of bakery products. Due to the increased demand for bakery products from the population
in the Philippines, the baking industry has grown, leading to it providing greater employment
opportunities both in the bakeries and in central management.
It is debatable as to whether or not bakeries will continue to thrive in today's modernized
world. This is for the most part down to the rise in the power of supermarket chains. Many
supermarkets now provide bread and other bakery products themselves - some even have their
own bakeries in-store. This is bad news for independent bakeries who struggle to compete with
the supermarkets; they are unable to provide the same level of convenience. That said, in most
cases the quality of their goods is significantly higher than those sold in supermarkets. It remains
to be seen whether the bakery industry will be able to survive when the major supermarkets have
such great monopoly power.





3.6 Problems in the Industry
The rising flour and other ingredients to bake breads and transport prices have had effects
across the entire food sector in the Philippines. The rising cost of flour, butter and sugar
has forced the bakery to raise prices of each piece of bread. When gas prices increase, the
cost of food is affected that cause shipment prices increase because distributors need to
make a profit as well.

The impact of the recent recession has greatly affected every industry. Industries are
linked to each other when one industry buys from another to produce its own products.
Each industry in turn makes purchases from a different mix of other industries, and so on.
Employees in all industries extend the economic impact when they spend their earnings.
Thus, economic activity started by the baking industry generates output (and jobs) in
hundreds of other industries, often in sectors and states far removed from the original
economic activity

Philippine is an archipelagic country, where most places are scattered and with the
business cant reach all the places. The business are having a hard time to reach different
places in the Philippines since the product they are selling are perishable goods, if the
experience any delay it can cost a lot to the business.