snack food industry
TRANSCRIPT
Running head: SNACK FOOD ANALYSIS 1
Snack Food Industry: Five Forces Analysis and Market Research
Louie Musa
Coleman University
Snack Food Analysis 2
ABSTRACT
Snack food industry has a very diverse and open market. This paper researches the current US
market, discusses the five forces affecting this industry, shows the Porter Five-Forces diagram
and examine the strengths and weaknesses for these forces in general. Finally, it examines some
potential driving forces operating in the snack food industry.
Snack Food Analysis 3
An Industry is a group of competitors that produce similar products and services, Parnell
stated. Moreover, a strategically diverse industry includes products that share the same source of
competitive advantage. According to Lakshmi, there are two basic factors control this
competitive strategy, the industry structure and the position of the company within this industry,
which can be shaped by the firm and its performance (Lakshmi, n.d.). The other competitive
forces in the industry determine the profitability and the market share for the firms competing, as
they shape the prices and the costs incurred.
Snacks are a convenient nutritious light-portion food that is eaten between meals. According
to Chatman, the snack food industry is a recession-proof since people have to eat. Moreover,
Chatman emphasized on “branding, capital, and technology expenditures and resources”
(Chatman, 2009, p.1), as they know people have choice whether to consume their products or not.
In addition, Chatman believes that profit and sales will grow more if manufacturers use a
substantial amount of branding, capital, and technology expenditures and resources (Chatman,
2009).
Chatman believes that consumers are becoming more sensitive about snack food prices, and
they are more likely to try new private brands, limit their purchases on promotion, and/or
decrease their purchases during this economic recession. Moreover, he says that fluctuated prices
are a real threat to snack food manufacturers. Nevertheless, good marketing campaigns and
innovation of new snack food products that focuses on brand allegiance should help to decrease
the negative effects of the current global crisis (Chatman, 2009).
Rivalry in the snack food market in the US is quite a bit high, for the fact that this market is
mature and saturated, Chatman said. Thus, he listed key drivers manufacturers can utilize to help
Snack Food Analysis 4
them grow or at least maintain their market shares (Chatman, 2009). First key explains the
“[a]bility to lock-in key supply contracts to reduce procurement costs and help production
planning” (Chatman, 2009, p.1). According to Chatman, manufacturers need a reliable chain of
suppliers to guarantee supplies at secured prices. This will not only assure a good establishment
of a strong manufacturing infrastructure, but also will also improve and increase customer-to-
brand loyalty (Chatman, 2009).
The second key –according to Chatman- discusses the ability to transfer price increases. He
encourages manufacturers to “continuously pass on unexpected cost increases for supplies
without fixed prices to preserve profitability” (Chatman, 2009, p.1). Therefore, they can still
compete with supermarket private label brands, which usually are less in price and similar in
quality. Chatman believes that supermarkets and grocery stores are consolidated-branch business
minded with a great deal of buying powers; therefore they feature their brands more than other
brands to increase their own gains and profits.
Thirdly, Chatman believes that snack food manufacturers should pay attention to the display
shelves where their products will be merchandized. He states about the ability to secure the
coveted shelf space, “manufacturers must continue to compete to acquire the most attractive
shelf space for their products to maximize retail sales. They should also expand (or continue
expansion) into other distribution channels which include drug and discount stores, convenience
stores, and other locations with high foot traffic” (Chatman, 2009, p.2).
The fourth key focuses on the importance of being innovative and unique. Chatman believes
that in order to maintain or grow share, “manufacturers must differentiate, anticipate, and
respond to changes in both consumer preferences and dietary trends” (Chatman, 2009, p.2).
Snack Food Analysis 5
Moreover, he stated that some important factors, like Population ethnicity and demographic
changes have created new preferences and taste trends, which require manufacturers to alter their
products to cover these needs. Finally, Chatman suggests that manufacturers should use healthier
ingredients, better packaging and marketing, besides investing more on other innovations.
The fifth key emphasizes on the consumer price endurability, “consumer price sensitivity
varies between product segments. Brand loyal consumers are not as sensitive to price changes
due to the associated high image, reputation, and product quality perceptions”, Chatman stated
(Chatman, 2009, p.3). For example, Oreo and Doritos have higher prices than other similar
products, however these substitute products are cheaper and less in quality. Finally, Chatman
focuses on the ability to thrive internationally. The sixth key emphasizes about the “saturation in
the US market could eventually result in undesirable profit margins” (Chatman, 2009, p.4).
Chatman believes that manufacturers should continue to expand their markets to include more
countries such as Canada, Mexico, Korea, Japan, and other countries. Chatman concludes that
the global recession will not affect the snack food industry. On the other hand, manufacturers’
rule of thumbs should be focusing on more innovations, differentiation, and build a strong
relationship with suppliers. Further more, they should grow their international markets’ shares
and secure attractive distribution placement so they can obtain a larger market share on the long
run (Chatman, 2009).
Five Forces
Rivalry among competing sellers shows a big deal of competitive pressure created by the
jockeying or rival sellers for a better market position and competitive advantage. Moreover, there
is a pressure coming from the threat of entry of new rivals. According to a market research
Snack Food Analysis 6
conducted by the IBIS -World, there are 359 businesses competing in the snack food business
reporting revenue of $28 billion in 2011, showing a 4.2% annual growth between 2006-2011.
IBIS-World identifies this as a healthy growth and expects the industry to keep growing, since
they believe that innovation is growing. Another study shows that consumers are becoming more
concerned about healthy products and seeking healthier snacks, as a result, there is a very big
competition about innovating new products low in fat and calories. Obviously, the market for
snack is relatively large and is expanding, thus, rivalry is strong.
The variety of consumers and buyers can create another pressure on this industry’s businesses.
For example, the different preferences of the buyers create a sub competition in the chain or
industry. PepsiCo and Coca Cola are competing in the carbonized drinks sector; they both
produce the same drinks but adopt a different ideology in marketing and approaching their
customers. Yet, both of them left the healthy-snack competition to other companies such as
General Mills and Kraft foods. Although there are several options for consumers, strength is
considered moderate here.
Suppliers to the industry businesses can create pressure upon the snack food manufacturers,
especially if there was bargaining and supplier-seller collaboration. For instance, if providers of
raw materials including key ingredients such as oil, sugar and wheat increase prices along.
Therefore, the prices of the products will be affected. Accordingly, the affect of this force is
strong on the industry.
Other businesses in different industries might be a risk for snack food producers such as delis,
sandwiches, and fruits; these products are not considered snacks production lines. Additionally
local businesses and supermarkets might have special offers for their deli items, which might
Snack Food Analysis 7
compete the on-shelf snacks. The impact of such threat is quite a bit strong, for instance, Vons
has a $5 sub and drink combo, while a sneakers protein bar on their shelves is sold for almost $4.
Rivalry Suppliers of
Raw Materials
Strong
Buyers
Moderate
Potential New Entrants
Moderate
Substitutes offered by
competitors
Strong
Snack Food Analysis 8
Snack Food Industry Changing Factors
There are several driving forces operating in the snack food industry. Rice encourages people
to find healthier alternatives to snack foods, she states, “Many popular snack foods such as chips,
candy and snack mixes are high in calories, fat and excess sugar. Healthy alternatives are those
foods that are convenient to grab on the go, but are also nutrient dense, providing vitamins,
minerals and energy that fuels the body” (Rice, 2011). Rice believes there is always a healthier
substitute for sack, for example, popcorn, fruits and vegetables, and protein packed snacks.
Therefore, such studies and articles are affecting the marketing of snack foods in the market.
The second factor that would concern the snack food manufacturers is the increasing sales of
private label snacks. According to Riell, there is nearly 76% of consumers are actively looking
for the best value when buying snacks. On the other hand, he stated, “[d]espite a prolonged down
economy, consumers do, in fact, show an affinity for their favorite brands” (Riell, 2011, p.1).
Riell interviewed a 7-eleven owner in Gibsonia, PA, who assured that private label snacks are
competing other brand snacks, Monroe stated to Riell, “The snack market is maturing, but
quality is always paramount. There is a place for private label, which we are doing very
successfully with 7-Eleven’s 7-Select line, but it isn’t necessarily about price. It’s quality. Some
of these things are selling pretty well, and we’re not doing any promotions on them because they
are top quality” (Riell, 2011, p.1).
The third factor emphasizes on the rising prices of raw materials, such as oil, sugar, corn and
oats. For example, in 2004 General Mills responded to the national raw material price rises by
increasing their wholesale prices on several items. The Increase was between 2% and 9% and
Snack Food Analysis 9
affected goods included Progresso soups, some frozen breakfast items, yoghurt, and Totino’s
snack foods (Reed, 2012).
The fourth factor concentrates on the new innovations in the industry. Consumers are always
attracted to try new flavors and trends, which makes a big impact on sales and market shares.
“Wyatt said innovation played a key role in increasing share across several snack categories – at
the expense of private label products in those categories” (Gatty, 2011). For example, there were
11 new yoghurt pacesetter brands that offered 1.2% cut from the store brands’ share, and 10 salty
snack brands helped to reduce private label’s share by 0.2%, Gatty Said. Kraft foods, a leader in
the snack food industry market, rolled out a new snack bar in the market as of February 2012.
According to The Sacramento Bee website article on Tuesday February 13th, 2012, Kraft-foods
is raising the bar in snacking with its new KRAFT MILKBITE Milk
& Granola Bars. Found in the refrigerated dairy aisle, each KRAFT
MILKBITE Bar combines real milk with whole grain granola and
other tasty and nutritious ingredients like fruit or roasted nuts, while
providing the same calcium as an 8 oz. glass of milk. A wholesome
alternative to existing bars, KRAFT MILKBITE Bars are a
deliciously different snacking experience the entire family can
enjoy (“Kraft Foods Launches New Innovation”, 2012).
Finally, marketing innovations plays a steering role in this industry. Based on a study
conducted in 2011, GIA announced a forecast in the US snack food market to reach $334 billion
by the year 2015 (“Global Snack Food Market”, 2011). Obviously, snack food manufacturers are
required to research the market and their customer tiers so they can innovate proactive marketing
Snack Food Analysis 10
campaigns. There is a big potential for snack food providers to expand their market shares and
increase their customers structure by using innovative and unique marketing techniques.
Moreover, according to the GIA, Inc. the “Health-driven snackers are increasing demand for
healthy, low-fat, low-calorie, organic, fiber-rich, and vitamin- and mineral-fortified snacks, while
carefree snackers are increasing demand for diverse taste and flavor profiles” (“Global Snack
Food Market”, 2011, p.1). Based on this research, it is crucial that snack food manufacturers
should consider these inputs to innovate snacks that satisfy the consumers, and approach them
the right way. Marketing methods should be informative about the ingredients and direct to the
point.
Current economic situations have changed many people’s life patterns. For instance, eating
habits. Recently, people tend to consume more fast and snack food nowadays, but there are a
number of those who care about the ingredients of their daily snacks. Therefore, snack food
manufacturer should cover the needs for all types of markets.
Snack Food Analysis 11
References
Chatman, K. (2009, June 16). Snack Food Industry's Success Factors. profitsignups.com.
Retrieved February 10, 2012, from http://www.profitsignups.com/mlm-leads-blog/internet-
marketing/snack-food-industrys-success-factors
Gatty, B. (2011, May 1). Despite economic woes, brands are back. Snacks: Feeling the Buzz.
Retrieved February 14, 2012, from http://www.awmanet.org/distribution-channels/snacks-
feeling-buzz
Global Snack Food Market. (2011, February 16). Global Snack Foods Market to Reach US$334
Billion by 2015, According to a New Report by Global Industry Analysts, Inc.. Retrieved
February 14, 2012, from
http://www.prweb.com/releases/snack_foods_salted_snacks/potato_chips_baked_snack/prw
eb8134624.htm
Kraft Foods Launches New Innovation. (2012, February 13). Food Manufacturer Introduces
Unique Snack Bar Made with Real Milk and Calcium to Provide the Same Calcium as an 8
oz. Glass of Milk. Retrieved February 14, 2012, from
http://www.sacbee.com/2012/02/13/4259747/kraft-foods-launches-new-innovation.html
Reed, W. (2004, June 23). General Mills Responds to Raw Material Price
Rises.foodproductiondaily.com. Retrieved February 13, 2012, from
http://www.foodproductiondaily.com/Supply-Chain/General-Mills-responds-to-raw-
material-price-rises
Rice, L. (2011, August 11). Healthy Alternatives to Snack Foods. livestrong.com. Retrieved
February 12, 2012, from http://www.livestrong.com/article/18948-alternatives-snack-
foods/#ixzz1mKM7ZBzu RICE
Snack Food Analysis 12
Riell, H. (2011, June 27). Driving Snacks Sales. While private label products are improving,
quality and value remain critical components for all snacking options.. Retrieved February
12, 2012, from http://www.csdecisions.com/2011/06/27/driving-snacks-sales/