Analyzing External Environmental Conditions of Natural Food Industry with Porter’s Five Factor Framework

This report analyzes the external environmental conditions of the natural food industry with the help of Porter’s Five Factor Framework. It provides an overview of the industry, growth, size, profitability, barriers and drivers, opportunities and challenges. It also includes recommendations for firms working in the natural food production industry.

Running head: FOOD MARKETING
food marketing

FOOD MARKETING 1
Executive Summary
This report aims at analyzing the external environmental conditions of the natural food industry
with the help of Porter’s Five Factor Framework. The analyses helps in finding out that this
industry is a fastest developing industry because of the availability of potential customers and
sellers. At the end of the report, a conclusion has been drawn to summarize the overall findings
of the report and on the basis of such findings, some recommendations have been provided to
enhance the understanding level of the study.

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Table of Contents
Introduction......................................................................................................................................3
Overview of the Natural Food Industry...........................................................................................3
Growth.........................................................................................................................................3
Size...............................................................................................................................................3
Profitability..................................................................................................................................3
Barriers and Drivers.....................................................................................................................4
Porter’s Five Factors Analysis.........................................................................................................4
The threat of New Entrants..........................................................................................................5
Threat of substitutes.....................................................................................................................5
Bargaining Power of Suppliers....................................................................................................6
Bargaining Power of Buyers........................................................................................................6
Competitive Rivalry.....................................................................................................................6
Opportunities and Challenges..........................................................................................................6
Conclusion.......................................................................................................................................7
Recommendations............................................................................................................................7
References........................................................................................................................................8

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Introduction
The food is a never changing need of humans. It is the basic need that is required to be fulfilled
to live. However, the type of food that is taken by humans in different in the today’s world of
advancements. In the present scenario, the customers are getting health conscious and this is
becoming the main reason for the fast development of the natural food products in the Australian
Economy. This report describes the overview of the natural food industry in the present scenario.
Along with this, the analyses of current the current market situations have been done in this
report by using Porter's five factors model. This analyses would help the reader to understand the
external business environment for the current market players in the industry (Bells, 2015).
Overview of the Natural Food Industry
Growth
In the present scenario, the Australian Economy is one of the largest economy involved in the
exporting of natural products to the other countries like the US, Canada, Japan etc. the total
export has increased by 17% in 2016.
Size
Out of the total agricultural land of 50.9 million hectare, 27 million hectare land was registered
under certified organic management till 2016. Out of the total organic farming lanf og the world,
the Australians are owing 53%, which is a considerable fact (Institue, 2017).
Profitability
The profitability of the industry can be estimated with the below mentioned diagram of change in
prices since 2010 up to 2015.

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(Anon., 2015)
Barriers and Drivers
The main barrier of this industry in the increase in prices and the most important driver is the
increasing health issues of the customers due to the consumption of functional and unhealthy
food.
Porter’s Five Factors Analysis
The analysis can be understood with the help of this graph:

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(Anon., 2017)
The threat of New Entrants
The threat of new entrants is relatively high for the existing market players. As customers are
getting more concerned about their health, they are preferring to consume the natural food
products in their daily life. This is giving the opportunities to the potential businesses to enter
into this industry and making the profit. Along with this, the easy availability of agricultural land
is also the main reason which works as a positive aspect for the new investors. Also, there are no
any strong entry barriers form the political parties that work enforces the new entrants to expand
their business activities and products (Inceefe, 2012).
Threat of substitutes
The degree of threat of substitutes is relatively high in this industry. The firms are able to sell
their products by mentioning some extra benefits on the label. The customers are also willing to
opt for the products which can provide them with a number of health benefits. As there are no
any strong barriers to enter into this industry or to introduce new or similar products, the small
and big, both types of retailers and firms are taking advantage of it. All the natural products are
quite similar in nature in quality, thus, the demand of the customers cannot be judged on the
basis of the popularity of any single product of a brand (McCarthy, 2016).

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Bargaining Power of Suppliers
The bargaining power of suppliers in the natural food industry is relatively high in comparison to
any other business or industry. There are a number of organizations in the market in comparison
to which, the number of suppliers is limited. Thus, it increases the power of the suppliers to sell
the raw products at desired rates. There are no any political or governmental regulations to limit
the prices. This aspect positively impacts the bargaining power of the suppliers of the country
(News, 2014).
Bargaining Power of Buyers
The bargaining power of the buyers is comparatively high and moderate as the natural food
products are generally salable at high rates. However, it is easy for the customers to move
another retailer for small margin in selling prices but this fact does not impact the sales and
profitability of big retailers. This makes the bargaining power of the buyers moderate. (Pearson,
et al., 2013).
Competitive Rivalry
The current natural food industry of the UK is highly competitive as the existing players are
constantly trying to increase their market share. For this purpose, they are introducing new
products related to the good health of the customers. Now, the natural food is not only available
at the special organic retailers like Sprouts Farmers Market and Whole Foods Market. The
customers can get these products at the chains and stores of supermarkets also. These
supermarkets are providing the natural products at lower rated to maintain their price trend
among the customers. Thus, it increases the competitions among the market players in the
industry (Anon., 2016).
Opportunities and Challenges
Opportunities
 Increased customer awareness about the nutritional benefits.
 Changing customer preferences and tastes for plants based and natural food products.
 Low barriers to entry.
 Combat global warming.
Threats

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 Existence of a number of small and big retailers.
 Easily availability of substitutes.
Conclusion
On the basis of the above study, it can be concluded that the natural food industry in
continuously rising towards a brighter future. It is the emerging sub-industry of the food market
because of the rising health issues of the society. This industry has the positive potential for the
new investors' because of low barriers of entry and availability of the product in easy manner
form the suppliers. Although, for successfully working in this industry, it is important to consider
the food and safety law of the country. The report also concludes that Australia has appropriate
environmental conditions and sufficient agricultural land to make this industry the most
profitable that can assist in the economic development of the country.
Recommendations
On the basis of above study, it can be recommended to the firms working in natural food
production industry that
 The prices should be kept low to increase the number of customers
 The companies are required to provide fresh products.
 The marketing strategy needs to be very strong because of existence of strong
competitive rivalry.

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References
Anon., 2015. [Online]
Available at: https://www.businessinsider.com.au/food-inflation-chart-2015-7
[Accessed 6 August 2018].
Anon., 2016. Analyzing the Global Food Retail Industry. [Online]
Available at: https://www.prnewswire.com/news-releases/analyzing-the-global-food-retail-
industry-300201177.html
[Accessed 5 August 2018].
Anon., 2017. What are the Porter''s Five Forces of industry model?. [Online]
Available at: https://www.quora.com/What-are-the-Porters-Five-Forces-of-industry-model
[Accessed 6 August 2018].
Bells, S., 2015. A Porter's Five Forces Analysis of Sprouts Farmers Market. [Online]
Available at: https://marketrealist.com/2015/12/porters-five-forces-analysis-sprouts-farmers-
market
[Accessed 5 August 2018].
Inceefe, O., 2012. Organic Foods in The Norwegian Market: Are Organic Food Products Bound
to be a Niche?. [Online]
Available at: https://brage.bibsys.no/xmlui/bitstream/handle/11250/169999/inceefe_2012.PDF?
sequence=1
[Accessed 5 August 2018].
Institue, P., 2017. Whole Foods Market Five Forces Analysis (Porter’s Model). [Online]
Available at: http://panmore.com/whole-foods-market-five-forces-analysis-porters-model
[Accessed 5 August 2018].
McCarthy, M., 2016. Australia's organic industry worth almost a billion dollars, as demand
from high income earners soars. [Online]
Available at: http://www.abc.net.au/news/rural/2016-10-28/organic-industry-approaches-billion-
dollars-as-demand-increases/7973834
[Accessed 5 August 2018].

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News, A. F., 2014. Australia’s appetite for organic foods at record levels. [Online]
Available at: http://www.ausfoodnews.com.au/2014/12/10/australias-appetite-for-organic-foods-
at-record-levels.html
[Accessed 5 August 2018].
Pearson, D., Henryks, J., Sultan, P. & Anisimova, T., 2013. Organic food: Exploring purchase
frequency to explain consumer behaviour. Journal of Organic Systems, 8(2), pp. 50-63.