Divine Chocolate Company
The aim of this report is analyzing external forces that affect the United Kingdom confectionary industry more specifically, Divine Chocolate UK. Therefore, the repot will explore PESTLE analysis of the confectionary industry with special focus laid on Divine Chocolate. On top of this, the report will detail Divine Chocolate’s Porter’s Five Forces for purposes of analyzing external factors that manipulate competition for Divine Chocolate. In conclusion, the report identifies some of the opportunities and threats faced by the company with suggestions on ways of minimizing the threats, while also maximizing on opportunities.
Founded in 1998, Divine Chocolate has its headquarters in London (Brammall, 2014). It is a Fairtrade company that has 45% of its shares owned by Ghanaian farmers through the Kuapa Kokoo cooperative (Allen 2011, p.2). At the founding of the company, it became the premier Fair-trade chocolate bar to be offered to the UK market (Brammall 2014). The company prepares wide range of chocolate bars that include milk, dark and white chocolates.
The confectionery industry in the UK is competitive with the major three competitors being Kraft/Cadbury, Mars and Nestle. These three hold an 83% stake in the confectionery industry (fig 1), with Kraft/Cadbury as the market leader with 35% stake, followed by Mars at 27% the Nestle at 21%, as such leaving only 17% to the rest of the competitors. (Allen 2011, p.2). Other competitors also found in the UK industry are Hershey, Hotel Chocolat, Thorntons, Ferrero and Lindt.
Fig 1. Chocolate Market (allen 2011,p.3)
2.0 PESTLE Analysis
2.1 Political drivers
The confectionery market in the UK apart from being competitive, has other factors keeping Divine Chocolate in business. The political environment, especially is quite encouraging taking into consideration both the Conservative and Labor Parties’ show support for small businesses of which Divine Chocolate is among. The government’s plans to reduce Corporate Tax rates from 28% to 25% for small business and as the anti-red tape initiative, seeks to repeal in excess of 3,000 regulations, which will help small businesses save around £ 850 million annually (Groom 2014). The UK government as well entitled small businesses £2,000 in employment allowance as reduction of annual insurance contribution by employers. It is these tax cuts that are welcome by small businesses like Divine Chocolate as they not only lead to increase in company profits, but they also provide a competitive edge in cheap pricing of products.
2.2 Economic Factors
The recent economic recession and Euro crisis have greatly affected consumer spending. Consumers are not only wary of how much they spend they are also wary of what they spend on. While it was predicted the economy in the UK would bounce back after the end of global recession in 2012, this is yet to be achieved (Hudson et al., 2012, p.1). The financial crisis as well as continued volatility in the Eurozone highly affects the purchasing power of consumers. As such, consumers are forced to shift focus on essential goods like food, with confectionery looked upon as luxurious items. Forecast of consumer spending predicts in the near future, there will be growth (Hudson et al., 2012, p.1). However, this will be slow (fig 2).
Fig 2. Consumer demand outlook (Hudson et al., 2012, p. 3)
2.3 socio-cultural factors
Socio-cultural environment refers to influence society and culture of a market have on a business. The existing social trend leans towards lifestyles where the consumers are keeping an eye on their weight as such, they are careful of what they eat. Chocolate has high sugar content and calories as such, might experience downturn in future sales taking into account it is a trend among the majority. Additionally, the UK population is currently aging, indicating there is also a change for such a consumer. With the variety of chocolates, it is likely that Divine Chocolate will prosper in such an environment. What is more, with stabilization of the economy and reduction in unemployment and increase in consumer wallets (fig 3), spending confidence is already on rebound (Hudson et al., 2012, p. 9). Consumers are therefore able to spend on luxuries like chocolate, which is ideal for Divine Chocolate.
Fig 3. Year on year changes to consumer wallets (Hudson et al., 2012, p. 9).
2.4 Technological Factors
Communication, advertising technology and manufacturing is advancing fast in the UK. This means manufacturers can produce more goods at a faster and cost effective rate. On top of this advent of the internet as well as other means of communication such as social media makes it easy for manufacturers to communicate with consumers. Through use of the Internet, consumers not only view the performance of the company but they also discover some new products. Use of technology as such can be a major growth driver for Divine Chocolate.
2.5 Legal Factors
Legal factors refer to government laws and policies companies have to comply with so as to carry out business in a country. With the UK government weighing waiver of taxes and dropping 3,000 rules (Groom 2014), the environment will be favorable for carrying out business. As a small business, Divine Chocolate will also benefit from tax cuts proposed by government.
2.6 Environmental Factors
Current market trends have seen a large number of companies go green and expand their social responsibility to appeal to consumers. Majority of companies also promote the notion of Fairtrade (Brammal, 2014), which is quite expensive, especially for small businesses like Divine Chocolate. As such, though it was the first Fairtrade chocolate company in the country, Divine Chocolate faces stiff competition from other companies that have caught up with the trend, taking into consideration UK consumers prefer companies that are ethical and environment friendly.
3.0 Five Forces Model
Porter’s Five forces model offers insight into the industry, especially the insight into sources of business threats like new entrants into the market, competitors, supplier an buyer purchasing power coupled by substitute products.
3.1 Threat of New Entrants
In terms of communication and connection consumption, the confectionery business is time consuming. Also, given the scarcity of cocoa which is used in manufacture of chocolate (Brammall 2014), threat of new entrants is not a serious threat. What is more, taking into account the intricacy of getting the right quality and taste, new entrants into the market might find it extremely difficult to penetrate into the market.
3.2 Threat of Substitutes
Kraft, Mars and Nestle, top chocolate bar manufacturers (Allen 2011, p.2), among others offers a wide range of substitutes for Divine Chocolate. Threat of substitutes as such is high on Divine Chocolate and requires the company to innovate so as to come up with products that are irreplaceable.
3.3 Bargaining power of suppliers
45% of stake in Divine Chocolate belongs to cocoa farmers (Allen 2011, p.2). Due to this fact, any price increases are likely to lead to profits for the shareholders who are also the farmers. Consequently, the power is non-existent for Divine Chocolate.
3.4 Bargaining power of buyers
As earlier indicated, there are numerous chocolate brands in the market. Brands like Cadbury, Mars and Nestle, with their multibillion economic sales (Allen 2011, p.3) can afford price reduction, taking on Divine buyers. The bargaining power of buyers as such is stronger and capable of pressurizing Divine Chocolate into reduction of prices and offering better quality, or even risk losing buyers.
3.5 Industry Rivalry
Divine Chocolate operates in an industry that is very competitive. Taking into account economic base of its competitors like Kraft and Mars, Divine faces stiff competition from the rest of the industry players. The rivals easily diversify their product ranges so they can appeal to different sets of consumers. As such, Divine will have to come up with some unique tastes as well as quality so as to compete with rivals.
The current trend towards weight watching and healthy eating is a great threat to Divine Chocolates. With such level of consciousness, more and more people restrain themselves from purchasing chocolate; this has effect on overall chocolates sale. The large amount of competitors in the industry is a threat as well t business since they can cause price reduction and sway consumers towards brands that are more affordable the companies that have huge economies of scale like Mars and Kraft are more likely to do this. The population of those aging as well offers the opportunity for sales by manufacturing chocolates for the group. Also, given the trend towards health eating and watching weight, Divine can opt to develop chocolates that have low calories for the group in order to drive sales up. The improving economy and adoption of technology as well offers opportunity for growth of promotion and sales through these cheap techniques. Social media as well has potential to boost the presence of a brand and improve its image among the consumers.
Allen, Tom. 2011. The Chocolate Scorecard. Trading Vision
Brammall, Sally. 2014. “Why Jamie Hartzell’s taste for social business adds up to Divine Chocolate.” The Guardian. Available from http://www.theguardian.com/social-enterprise-network/2014/feb/26/divine-chocolate-new-chairman-jamie-hartzell
Groom, Brian, 2014. “Parties’ pitch to UK small businesses needs more work.” The Financial Times. Available from http://www.ft.com/intl/cms/s/0/386c87ec-877a-11e3-ba87-00144feab7de.html#axzz2udKJFwMK
Husdon, Ed, et al., 2012. “Outlook for UK Consumer Spending.” ITEM Club, pp. 1-10