Five Forces Analysis Of The Dairy Industry

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r Five Forces analysis of the Dairy Industry in Ireland.
Graphic 1: Facts about the Dairy Industry(2014) Source: Bord Bia
The Dairy Market in Ireland is made up of four main players Kerry Group plc, Glanbia plc, General Mills and Groupe Danone making up the most significant share of the market along with several other splintered groups. For the purposes of this discussion the products involved are limited to retail sales of milk butter, soy products cheese, spreadable fats, yogurt cream, chilled desserts and fromage frais.
Buyer Power
There are a small number of large buyers in the market which gives them significant leverage over the market players in the dairy industry. The problem with dairy products is that they are difficult to differentiate
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As buyers are large supermarket chains for the most part, they have their own distribution networks which lessens the chance of dairy manufacturers integrating forward, once again strengthening the buyer’s position.
As demand for dairy products is high due to it being a dietary staple, buyers are incentivised to stock them reducing their power
Supplier Power
Dairy farmers are key suppliers are the key suppliers with little real differentiable, alternatives with the exception of organically produced milk which attracts a premium.
These farmers usually supply cooperative movements in the processing and packaging companies. The impact of rising milk prices are even a threat to these big processing companies that have to use futures markets to limit exposure to milk price fluctuations. This makes switching costs high among suppliers increasing their power.
Forward integration among suppliers is possible but on a small scale. E.g. a farmer with a small herd making specialty cheese for local markets, but not on a sufficient scale to threaten competiveness.
New
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This means that exiting the market requires the selling off of specialised assets which proves a high barrier to exit unless selling off the business as a whole or merging with another player.
The tendency of weak historic growth has meant that there will be increased rivalry in the industry as there is little room for each firm to grow without taking another’s market share.

In summary the impact of Buyer Power, Supplier Power, New Entrants and Threat of Substitutes are assessed as moderate while that of Internal Rivalry as strong.

References:
1. Food and Drink Industry Ireland (2016), “Trade and Economics”,[online][cited 02/03/2016] Available from Internet: http://www.fdii.ie/Sectors/FDII/FDII.nsf/vPages/Dairy~trade-and-economics?OpenDocument
2. Marketline Industry Profile (November 2014)”Dairy in Ireland”[online][cited 02/03/2016] available from Ebsco database http://0-web.b.ebscohost.com.library.ucc.ie/ehost/resultsadvanced?sid=20eaa3ed-6d7e-44dc-8866-58a45964277b%40sessionmgr111&vid=11&hid=102&bquery=dairy+industry+%22in%22+ireland&bdata=JmRiPWJ0aCZ0eXBlPTEmc2l0ZT1laG9zdC1saXZl
3. Porter, Michael

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