1) Bargaining Power of Buyers
99.9% of biscuits in Russia are distributed via store-based retailing (Euromonitor, 2014), meaning that retail chains or big distributors are likely to be the main buyers for biscuits manufacturers. Such large-scale retail chains as X5 or Ashan are sure to have rather high bargaining power. Although in 2013 39.3% of biscuits were sold via independent small grocers (Euromonitor, 2014), the latter are likely to procure not from producers, but from bigger distributors, thus increasing the concentration of buyers and improving the bargaining position of the latter.
Conclusion on the force: rather high (7 out of 10).
2) Bargaining Power of Suppliers
We were unable to find information concerning suppliers, that Russian biscuits manufacturers work with, in the open sources. Here we will be looking for inside data to further assess this force.
3) Threat of Substitute Products
A product or a service can be considered a substitute if it “performs the same or a similar function as an industry’s product by a different means (Porter, 2008: 84). In Russia biscuits usually perform the function of a dessert with tea or coffee (Euromonitor, 2014), so all confectionary (chocolates, candies, fruit jelly, sweet bakery and jams (both home-made and industrially produced)) can substitute biscuits. Russian consumers are known to be “spoilt” and constantly looking for novelties (Euromonitor, 2014), so they easily switch from biscuits to the enormous range of substitute products, making the threat of substitutes very high for biscuits producers.
Conclusion on the force: high (8 out of 10).
4) Threat of New Entrants
Capital requirement for opening a small bakery are rather low and consequently favour new entrants, especially in regions. However, the supply – and demand side benefits of scale are high, access to distribution channels is unequal (a new product will have to fight shelf space from established and solid ones, which is risky and distributors might not want to take such a risk), so significant barriers for a large-scale new entry are formed, decreasing the threat of completely new entrants (new companies that have not been present in the industry at all).
Conclusion on the force: not high (5 out of 10).
5) Rivalry among Existing Competitors
The competition in the Russian market for biscuits is said to be constantly escalating (Euromonitor, 2014). Mondelez Rus OOO, being a Russia-based subsidiary of Mondelēz International – the owner of the Oreo brand worldwide, is set to be the biscuits market leader in 2013 (Euromonitor, 2014). Modelez Rus OOO has exploited its confectionary brands, e.g. Milka or Alyonka, to promote new biscuits, so with the introduction of Oreo (another brand from the parent company’s global portfolio) into Russia there might be quite a significant risk of cannibalization.
In 2013 many competitors are set to demonstrate impressing growth in retail: Tander - plus 17% in retail sales, Harry’s CIS – plus 17% in retail value terms (Euromonitor, 2014).
Trying to capture the evolving demand for premium biscuits and novelty and to differentiate themselves, existing companies launch new products and premium variations of existing ones. In 2013 Khlebprom introduced its new brand of Reids of Caithness and Obiedinenye Konditery started Sladkie Istorii, with both novelties being positioned as premium ones (Euromonitor, 2014).
In Russian regions the competitive position of local bakeries is also solid, adding up to the total strength of rivalry among existing biscuits producers.
Conclusion on the force: high, with significant risk of cannibalization among the parent company’s brands (9 out of 10).
The meso-level analysis of the Russian biscuits industry has demonstrated that it is unattractive for a new entrant because of severe competition among incumbents, high threat of substitutes, significant bargaining power of buyers and, probably, of suppliers (the detailed information about suppliers is currently being investigated). However, for the case of bringing Oreo to the Russian market, the bargaining power of buyers and the potential bargaining power of suppliers will be substantially reduced, as Mondelez Rus OOO, the subsidiary of Oreo’s global manufacturer and logically a to-be producer of Oreo in Russia, is already strongly established in the Russian market, leads it (Euromonitor, 2014) and consequently has favourable bargaining position against both buyers and suppliers – the fact that makes the Russian biscuits industry more attractive for Oreo to enter. Nevertheless, tough competition among existing brands, many of which belong to Mondelez Rus OOO, poses a significant threat of cannibalization in case of Oreo’s entry and should be carefully taken into consideration when elaborating a marketing strategy for Oreo in Russia.
99.9% of biscuits in Russia are distributed via store-based retailing (Euromonitor, 2014), meaning that retail chains or big distributors are likely to be the main buyers for biscuits manufacturers. Such large-scale retail chains as X5 or Ashan are sure to have rather high bargaining power. Although in 2013 39.3% of biscuits were sold via independent small grocers (Euromonitor, 2014), the latter are likely to procure not from producers, but from bigger distributors, thus increasing the concentration of buyers and improving the bargaining position of the latter.
Conclusion on the force: rather high (7 out of 10).
2) Bargaining Power of Suppliers
We were unable to find information concerning suppliers, that Russian biscuits manufacturers work with, in the open sources. Here we will be looking for inside data to further assess this force.
3) Threat of Substitute Products
A product or a service can be considered a substitute if it “performs the same or a similar function as an industry’s product by a different means (Porter, 2008: 84). In Russia biscuits usually perform the function of a dessert with tea or coffee (Euromonitor, 2014), so all confectionary (chocolates, candies, fruit jelly, sweet bakery and jams (both home-made and industrially produced)) can substitute biscuits. Russian consumers are known to be “spoilt” and constantly looking for novelties (Euromonitor, 2014), so they easily switch from biscuits to the enormous range of substitute products, making the threat of substitutes very high for biscuits producers.
Conclusion on the force: high (8 out of 10).
4) Threat of New Entrants
Capital requirement for opening a small bakery are rather low and consequently favour new entrants, especially in regions. However, the supply – and demand side benefits of scale are high, access to distribution channels is unequal (a new product will have to fight shelf space from established and solid ones, which is risky and distributors might not want to take such a risk), so significant barriers for a large-scale new entry are formed, decreasing the threat of completely new entrants (new companies that have not been present in the industry at all).
Conclusion on the force: not high (5 out of 10).
5) Rivalry among Existing Competitors
The competition in the Russian market for biscuits is said to be constantly escalating (Euromonitor, 2014). Mondelez Rus OOO, being a Russia-based subsidiary of Mondelēz International – the owner of the Oreo brand worldwide, is set to be the biscuits market leader in 2013 (Euromonitor, 2014). Modelez Rus OOO has exploited its confectionary brands, e.g. Milka or Alyonka, to promote new biscuits, so with the introduction of Oreo (another brand from the parent company’s global portfolio) into Russia there might be quite a significant risk of cannibalization.
In 2013 many competitors are set to demonstrate impressing growth in retail: Tander - plus 17% in retail sales, Harry’s CIS – plus 17% in retail value terms (Euromonitor, 2014).
Trying to capture the evolving demand for premium biscuits and novelty and to differentiate themselves, existing companies launch new products and premium variations of existing ones. In 2013 Khlebprom introduced its new brand of Reids of Caithness and Obiedinenye Konditery started Sladkie Istorii, with both novelties being positioned as premium ones (Euromonitor, 2014).
In Russian regions the competitive position of local bakeries is also solid, adding up to the total strength of rivalry among existing biscuits producers.
Conclusion on the force: high, with significant risk of cannibalization among the parent company’s brands (9 out of 10).
The meso-level analysis of the Russian biscuits industry has demonstrated that it is unattractive for a new entrant because of severe competition among incumbents, high threat of substitutes, significant bargaining power of buyers and, probably, of suppliers (the detailed information about suppliers is currently being investigated). However, for the case of bringing Oreo to the Russian market, the bargaining power of buyers and the potential bargaining power of suppliers will be substantially reduced, as Mondelez Rus OOO, the subsidiary of Oreo’s global manufacturer and logically a to-be producer of Oreo in Russia, is already strongly established in the Russian market, leads it (Euromonitor, 2014) and consequently has favourable bargaining position against both buyers and suppliers – the fact that makes the Russian biscuits industry more attractive for Oreo to enter. Nevertheless, tough competition among existing brands, many of which belong to Mondelez Rus OOO, poses a significant threat of cannibalization in case of Oreo’s entry and should be carefully taken into consideration when elaborating a marketing strategy for Oreo in Russia.
References:
1)
Euromonitor
International, March 2014, Biscuits in
Russia. Available from: <...> [20 April 2014]
2)
Porter
M.E., The five competitive forces that
shape strategy. Harvard Business Review, January 2008.
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