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Executive Summary This case here describes about the Pasta Industry of USA during the 1998-1999 era the consumption of which seemed to be growing at that time. The attractiveness of the industry was seen under the lights of Porter’s Five Forces Model and was found to be moderately unattractive after summing up the findings in the case. Because it was found that in terms of rivalry, the number of players present were moderately high (141 precisely) and only 67 companies accounted major sells in the dry pasta segment, which was the majority portion of the industry (accounted to 4.5 billion pounds out of 5 billion pounds). The portion yielding this majority sell saw pasta industry to be attractive because some of them were vertically integrated and this allowed them to have an upper hand while for the rest it was unattractive due to the number of players present in the arena. Secondly, the threat from the new entrant was quite low after comparing all the relative aspect and was seen to be attractive from this perspective. In terms of threat of substitutes, we clearly see that there is an implied presence of substitute to this product which will be dealt in details within the case but it was seen that consumption of pasta was rising so that gave an indication that the consumers were taking up the product in their focus. So it was seen that in this arena it was quite attractive due to increased consumption. In the context of buyers bargaining power, it was seen that pasta industry mainly dealt with individual customers and large retailers like Wal Mart and Sysco through which individual customers had to cater to their own needs. So this large caliber of players coupled with small number posed unattractiveness to the industry. Lastly from the suppliers point of view it was seen that over all relatively the Pasta Market seemed to be moderately unattractive. Some recommendations were given accordingly and will be dealt in details later in the report. Attractiveness of the industry in light of the Porters Five Forces Model To analyze the case we will present each point separately. And at the end of each evidence we will provide the overall implication for that particular point. 1. Rivalry within the Industry: Reduction of competitor: At the beginning of the case we see that Dakota Growers of Pasta Company is analyzing the proposal to purchase another company called Borden to increase their pasta capacity from 240 million to 440 million. Thus, they are reducing a strong competitor of the industry, who has the Pasta capacity of 200 million. Therefore the rivalry within the industry is decreasing; as a result the attractiveness of the whole industry is increasing. In case of Hershey pasta Group we find that it had combined it pasta sales force with General Foods and reduced its promotional expenses. So they are reducing the competitor of them and the industry attractiveness is gaining. From the segment of critical issue we see that Borden Food wanted to close down their 6 pasta plants to focus on its core food business. Thus they are also reducing the competitors and increasing the industry attractiveness. Factors: If demand is growing slowly: In the first paragraph of the ‘Pasta consumption and markets’ we see that the Pasta consumption in USA was steady (six to seven ponds pasta) between 1997 and 1984.Then it was began to rise one pound per year and finally reaching at 14 pounds per capita in 1994.And after that decreasing slightly. Moreover the changing lifestyle, increased availability of Pasta sauces, bigger attention to healthy eating, the outside food eating habit of the consumers (34% to 46% spending on away from home meals of the food expenditure) and enlarged numbers of Italian restaurants are the main drivers of this rising demand. Thus we can see that as the demand was slowly increasing the rivalry within the industry was also increasing. The competitors were grabbing the same customer of the limited industry. Therefore the attractiveness of the whole industry was decreasing. Number of competitors: In “dry pasta segment” we see that 67 manufacturer of dry pasta out of 141 accounted for the majority of sales in 1998. Here we see that as the numbers of the competitors are high the competition is in much fearful manner. As a result Rivalry increases and the attractiveness of the industry decreases. The size of Competitors: In the case we see that 55% of the combined market share is own by the main and large players like Hershey foods, AIPC, Borden foods etc. Whereas 25% of the market share is owned by Kraft Foods, General foods, Pillsbury, Campbell Soup Company etc. Consequently this information shows the industry is attractive for the large players but not for the unattractive players. From Primo Piatto Income Statement: We find from exhibit 20 that a small sized competitor called Primo Piatto’s Net Income ($186) is very low against their Net Sales ($5915). Moreover their total expense ($135) is also high comparing to their net income.
Approximate Word count = 3327
Approximate Pages = 13.3
(250 words per page double spaced)
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