3-1. Industry Analysis 3 McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

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Industry Analysis

33

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

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Aggregate Category FactorsAggregate Category Factors

Category size Category growth Stage in product life cycle Sales cyclicity Seasonality Profits

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Attractiveness of Market VariablesAttractiveness of Market Variables

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Category Attractiveness over Category Attractiveness over the Product Life Cyclethe Product Life Cycle

Stage of product life cycle

Category size

Category growth

Category attractiveness

Introduction

Small

Low

Low

Growth

Moderate

High

High

Maturity

Large

Low

Low/high

Decline

Moderate

Negative

Low

Sales

Time

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Category FactorsCategory Factors

Threat of new entrants Bargaining power of buyers Bargaining power of suppliers Current category rivalry Pressure from substitutes Category capacity

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Environmental FactorsEnvironmental Factors

Technological Political Economic Regulatory Social

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Factors in Assessing the Structure Factors in Assessing the Structure of Industriesof Industries

Threat of new entrants Bargaining power of buyers Bargaining power of suppliers Amount of intracategory rivalry Threat of substitute products or

services

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Buyer Bargaining Power is High When: Buyer Bargaining Power is High When:

Product bought is a large percentage of the buyer’s cost.

Product bought is undifferentiated. Buyers earn low profits. Buyer threatens to backward integrate. Buyer has full information. Substitutes exist for the seller’s product or

service.

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Supplier Bargaining Power is High When: Supplier Bargaining Power is High When:

Suppliers are highly concentrated, that is, dominated by a few firms.

There is no substitute for the product supplied.

Supplier has differentiated its product or built in switching costs.

Supply is limited.

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Major Characteristics of Categories Major Characteristics of Categories Exhibiting Intensive RivalriesExhibiting Intensive Rivalries

Many or balanced competitors Slow growth High fixed costs Lack of product differentiation Personal rivalries

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Impact of Category Factors on AttractivenessImpact of Category Factors on Attractiveness

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Typology of Technical DevelopmentsTypology of Technical Developments

Welfare

Diffusio

n

Innovation

Invention

Information

Materials

Transportation

Energy

Genetic*

Commercial

Defense

Tec

hnol

ogy

Process

Impetus

* Includes agronomic and biomedical developments.

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Conceptualizing Political RisksConceptualizing Political Risks

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Projected Change in U.S. Population 1995-2005Projected Change in U.S. Population 1995-2005

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U.S. Income InequalityU.S. Income Inequality

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Share of Food PurchasesShare of Food Purchases

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Energy Bars: Category Attractiveness SummaryEnergy Bars: Category Attractiveness Summary

Aggregate Market Analysis

Category Size •$504 mm energy bar category in 2001

Attractiveness++

Energy bar category contains four primary brands, plus their sub-brands and over 100 smaller players

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Energy Bars: Attractiveness Summary Energy Bars: Attractiveness Summary (cont)(cont)


Category Growth

•Average annual growth rate of 57% between 1997 and 2001

Attractiveness++

U.S. energy bar category sales forecasted at $750 mm in 2003 for a continued expected growth of 22%•IIndustry reports suggest current annual growth for the energy bar market 25%-30%

•CCategory expanding: new competitors are entering, existing brands are expanding with new products and flavors, market penetration and usage occasion is increasing

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Product Life Cycle

•Both the category and Odwalla Bars specifically are both securely in early stages of growth phase

Attractiveness++

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Sales Cyclicity •While energy bars are premium-priced for their convenience and nutrient level, the base dollar point of $1-$3 per bar is low such that they are not directly impacted by GDP variations

Attractiveness+

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Seasonality •Year-round sales

Attractiveness++

•CCategory overall may experience a slight sales increase in the spring and summer month during “race season” and as users are engaged in more outdoor activities and desire quick, portable energy.

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Profits •As most major competitors are within the product portfolios of larger consumer goods companies, it is difficult to benchmark profitability within the energy bar category specifically. Nevertheless, the recent acquisition of the leading competitors reflects an expectation for strong profit potential.

Attractiveness+

Increased category competitiveness may lead to lower pricing and profits

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Category Analysis

Threat of New Entrants/Exits

•Strong potential for new competitors given that the category is profitable, fairly easy to enter, and increasingly relevant to consumers.

Attractiveness-

•FFurther, with the “big three” brands strongly in place [PowerBar, Clif (including Luna), and Balance], it is most likely that small competitors will enter through the natural foods channel, creating more direct competition with Odwalla bars.

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Category Analysis

Economies of Scale

•Competitors within the broader category of snack bars would likely experience economies of scale with a relatively easy entry into the energy bar market

Attractiveness-

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Category Analysis

Capital Requirements

•Within the mainstream energy bars, differentiation is largely through brand, taste, and flavor variety. With the exception of targeted nutrition products like protein- or carbohydrate-specific products, nutritional levels are largely at parity.Attractivenes

s-

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Category Analysis

Switching Costs

•Switching costs are very low, opening the door to potential competitors

Attractiveness-

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Energy Bars: Attractiveness SummaryEnergy Bars: Attractiveness Summary (cont)(cont)

Aggregate Market

Analysis

Distribution •As there are not specialty requirements for distribution (refrigeration, etc.), it would be very easy for any of the “center of the store” consumer food companies to enter the category and add on to their existing distribution structure. This is particularly true for companies that have an established relationship with the category buyer.

Attractiveness- Shelf life

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Aggregate Market

Analysis

Bargaining Power of Buyers

•Lots of competitors with relatively similar options distinguished by brand and taste keeps retailer power strong

Attractiveness-

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Aggregate Market

Analysis

Bargaining Power of Suppliers

•As the suppliers of raw inputs for energy bars are largely agricultural, the commodity nature of agriculture keeps prices and supplier power low. While still relatively low, supplier power will be higher for nutrient supplement suppliers

Attractiveness+

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Aggregate Market

Analysis

Pressure from Substitutes

•Considerable

Attractiveness-

•FFresh fruit, cereal bars, smoothies, candy bars, etc. are all suitable portable substitutes for the mainstream energy bar consumer. True athletes are most likely to substitute with higher nutrient level energy bars

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Aggregate Market

Analysis

Category Capacity

•Appears to be high given current scenario of more than 100 manufacturers and many more products. But, still, it is too early to determine true capacity

Attractiveness+

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Aggregate Market

Analysis

Current Category Rivalry

•Very high. Differentiation largely by taste and flavor variety, and by targeting unique market segments

Attractiveness-

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Environmental

Analysis

Technological •Technology could play a significant role with respect to manufacturing efficiencies and taste profiles

Attractiveness+

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Environmental

Analysis

Economic •While premium priced, energy bars have so far seemed to fair the recession well. Still, however, if economic conditions persist, consumers may opt for less expensive alternatives like fresh fruit or non-energy snack bars

Attractiveness+

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Environmental

Analysis

Political/ Regulatory

•The energy bar category is regulated by the FDA as are other food products. There are not to our knowledge, however, additional regulations directed toward the energy bar category.

Attractiveness0

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Environmental

Analysis

Social •As lives get busier and mealtimes shrink, energy bars will continue to be an acceptable meal replacement.

Attractiveness++

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PDA: Category Attractiveness AnalysisPDA: Category Attractiveness Analysis

Aggregate Market Factors Attractivenes

s

Market Size •$2.3 billion

Market Growth

Product Life Cycle

0%-40% +

+

+Growth

Profits

Sales CyclicityGood

one

Sales Seasonality

one

+/0

+

+

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PDA: Category Attractiveness AnalysisPDA: Category Attractiveness AnalysisCategory Factors Attractivenes

sThreat of New Entrants

•Moderate; R&D required, distribution

Bargaining Power of BuyersBargaining Power of Suppliers

Low, high switching costs +

0

0Moderate; PCs use similar components

Category Rivalry

Pressure from Substitutes

Intense

High

Category Capacity

Not a problem for now

-

-

+

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PDA: Category Attractiveness AnalysisPDA: Category Attractiveness Analysis

Environmental Factors: Attractivenes

s

Technological •Very sensitive

Political/ Regulatory

Economic

Telecommunications deregulation

+

-

+Relatively inexpensive

Social More work done on the road

+

3-1. Industry Analysis 3 McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

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