External Environment Analysis of Functional Food Industry in Australia

This report analyzes the external environment of the functional food industry in Australia using Porter's Five Forces Framework. It covers growth, size, profitability, opportunities, and threats. Recommendations are provided to help companies increase performance and profitability.

Running head: FOOD MARKETING
food marketing

FOOD MARKETING 1
Executive Summary
The report aims at providing the external environment analyses of functional food industry of
Australia by applying the five-factor framework of Michael Porter. The report describes the
current market state of the industry as well as the potential for new products and competitors
also. At the end of the report, a summary has been provided to conclude the overall
understandings of the report. On the basis of such understanding, some recommendations are
provided that can help the existing firm in increasing the performance as well as the
profitability.

FOOD MARKETING 2
Table of Contents
Introduction................................................................................................................................3
Background................................................................................................................................3
The Industry............................................................................................................................3
Growth................................................................................................................................3
Size......................................................................................................................................3
Profitability.........................................................................................................................3
Porter’s Five Forces Framework................................................................................................3
Competitive Rivalry...............................................................................................................4
The threat of Substitutes.........................................................................................................4
Barriers to Entry.....................................................................................................................4
Bargaining Power of Suppliers...............................................................................................5
Bargaining Power of Buyers..................................................................................................5
Opportunities and Threats..........................................................................................................5
Opportunities..........................................................................................................................5
Threats....................................................................................................................................5
Conclusion..................................................................................................................................5
Recommendations......................................................................................................................6

FOOD MARKETING 3
Introduction
Functional Foods can be described as the food products that are capable to meet the general
health and wellbeing needs of the customers. The functional foods are consumed for the
managed and prevention of compromised health problems and conditions. In easy words,
every food which is promoted on a better health platform and supported by scientific
evidence to improve the health. This report describes the conditions of the functional food
market of Australia. It will help the Australian food companies in the commercialization and
development of their products and services.
Background
The Industry
The functional food industry is one of the fastest growing industry at national and
international level. The main factors that help the industry in competing with customer’s
choice are strong scientific substantiation for health purpose, product efficacy, general
product awareness and product safety.
Growth
The number of certified organic and natural food operators has increased by 5% in 2016 in
comparison to 2015. The export has increased by 16 % in the same year. This data shows the
growth in the functional food industry of the Australian Economy.
Size
Australia is the largest exporter of the functional food and organic food products around the
world. However, the sales in only one percent to the total sales of food products but this
would tend to increase in the near future due to increase in health issue in the society (Anon.,
2017).
Profitability
The total sales form the domestic market was 1.72 billion in FY 2015-2016 which was 0.32
higher than the projected one. The regular increase in the number of sellers and buyers also
indicates the increasing profitability of this industry (White, 2018).
Porter’s Five Forces Framework
The market analyses of the Functional food Industry can be understood with the help of the
below-mentioned table and its explanation.

FOOD MARKETING 4
(Berardi, 2013)
Competitive Rivalry
The industry contains the moderate level of competitiveness among the main market players,
which is expected to remain constant because of the customer loyalty and brand image of the
companies. The existing organizations are enjoying a high level of customer trust and thus
they do not have to worry about any new entering company in the industry. The GDP of the
economy is also increasing which shows that the customers are able to spend a sufficient
amount for healthy food and living (Hobbs, et al., 2014).
Threat of Substitutes
The threat of substitutes is high as the companies are limited and providing the specific
products having different qualities from each other. The customers can get their choice of
products to form a number of stores but they all are different from each other in terms of their
ingredients. The increasing demand of customers for having a healthy lifestyle is the main
reason because of which, most of the companies have been started to provide a range of
similar products to each other. This threat can be decreased from low to medium with the
help of a good plan for the promotion of functional food products and their benefits (Das, et
al., 2016).

FOOD MARKETING 5
Barriers to Entry
The barriers to entering into the organic food industry are generally high as the products are
produced with 100% pure and natural ingredients. It needs a huge investment in capital and
human resources. For entering into this market, one needs to have the knowledge about the
organic farming and needs to maintain good relationships with the farmers. The Australian
government is also very strict for the companies working in this industry that either they are
providing the real organic food or not. Along with this, customer’s loyalty towards the
existing brand can also act as a barrier for any new company to establish its business.
Bargaining Power of Suppliers
The bargaining power of suppliers is moderate as there is a number of suppliers are available
in the market. The Australian Economy is considered having a most appropriate land from
the point of view of farming the organic products. Thus, the raw material is available to the
suppliers very easily and at low cost in comparison to any other country. Thus, the switching
rate of organic food selling organization in terms of their suppliers is quite high (Vella, et al.,
2014).
Bargaining Power of Buyers
The bargaining power of buyers in the organic food industry in continuously decreasing as a
result of an increase in the number of substitutes. There are many alternatives products are
available in the market makes the buyers more sensitive and they tend to search for the best
deal. This is also the result of an increase in a number of the store around the country as this
enable buyer to compare all the available options without going anywhere (Doyon &
Labrecque, 2008).
Opportunities and Threats
opportunities
Customer awareness
Availability of land
Threats
Loss to natural
resources.

FOOD MARKETING 6
Opportunities
 The increase in awareness regarding healthy aging, kids nutrition, and appetite control
may help the companies to increase their sales by providing appropriate products.
 Availability of agricultural land and sufficient financial resources.
Threats
 The functional food is largely based on the plants and animals and it increases the
chances of exploitation of natural resources. For example, for the production of fish
oil and seeds, the fishes are killed in large number which is not right in an ethical
manner.
Conclusion
On the basis of the above study, it can be concluded that the Functional Food industry is an
emerging sub-industry of the food market of Australia. The industry has covered a large area
to food market because of the customers’ demand regarding the healthy food and healthy life.
However, to sustain in this industry for long-term, it is required to maintain the quality of
products, which is not an easy task and required to be handled with a lot of care.
Recommendations
It is to be recommended that for being successful in this industry, an organization needs to
provide the products at a reasonable rate by earning a low level of profit margin. Along with
this, an organization like Whole Foods is required to invest in an agricultural land so that it
can acquire quality products for the purpose of maintaining brand image and increasing the
faith of customers.

FOOD MARKETING 7
References
Anon., 2017. Growing hunger for organics: Can Australia keep up with demand?. [Online]
Available at: https://www.intheblack.com/articles/2017/09/01/organic-food-demand-australia
[Accessed 7 August 2018].
Berardi, S., 2013. Whole Foods Market goes global. [Online]
Available at: https://www.slideshare.net/bea2312/wfm-presentation-for-slideshare
[Accessed 7 August 2018].
Das, R., Biswas, S. & Banerjee, R., 2016. Nutraceutical-prophylactic and Therapeutic Role of
Functional Food in Health. Journal of Nutrition & Food Sciences, 6(4), pp. 1-17.
Doyon, M. & Labrecque, J., 2008. Functional Food: a conceptual definition. British Food
Journal, 110(11), pp. 1133-1149.
Hobbs, J. E., Malla, S. & Sogah, E. K., 2014. Regulatory Frameworks for Functional Food
and Supplements. Canadia Journal of Agricultural Economics, 62(4), pp. 569-494.
Vella, M. N., Stratton, L. M., Sheeshka, J. & Duncan, A. M., 2014. Functional food
awareness and perceptions in relation to information sources in older adults. Nutrition
Journal, 13(1), p. 44.
White, M., 2018. Australia's organics-sector boom: the stats. [Online]
Available at: http://www.aginnovators.org.au/news/australias-organic-industry-boom-stats
[Accessed 7 August 2018].