Carolines Real Bread Company SWOT Analysis

Caroline’s Real Bread Company are a small village bakery who produce and sell a variety of niche breads to cater for specific needs. Emphasis is placed on high-quality, fresh organic products. Their products are sold through their website, farmers markets, food festivals and other outlets. They also provide bread for specialist restaurants and cafe’s. This report provides an analysis and evaluation of the current state of the grocery market, and provides recommendations on the possible actions that should be undertaken for Caroline’s Real Bread Company to expend and take advantage of the current state of the industry. Methods of analysis used in this report include PEST analysis which analyses the external factors effecting companies operating within the grocery market, and SWOT analysis which is a method used to assess the strengths and weaknesses of a company, and the opportunities and threats that are currently presented to them. This research draws attention to the fact that grocery retailers have changed during the past few years in order to react to customer demand. As a result of technological advantages, the demand for convenience is increasing and all major supermarkets now sell their products online. Further research has shown that the market size for fresh organic bread is increasing, and is forecasted to increase even further in the future. The growth of the market size of their products can be attributed to two things. The increase in health awareness amongst consumers who are slowly becoming more conscious of the foods they eat due to a growth in political campaigns alongside new food labelling laws, and the increase in demand for gluten free bread as a result of a steady increase in the amount of gluten intolerant people in the UK. The store competes in an expanding, competitive niche market. It has steadily grown whilst staying true to the ideologies behind it, resulting in Caroline and her company winning many awards. We recommend that the next step that Caroline’s should take is to expand their production capacity in order to take advantage of their distribution channels already in place. They should also refrain from distributing to large supermarkets who do not share their beliefs in order to keep their unique selling point and maintain their current customer base. Instead, they should aim to increase online orders through increased marketing and promotions. We suggest they should get involved in social media in order to increase awareness of their wide variety of products, and to generate more traffic to their website. Due to their limited budget, Caroline’s Real Bread Company should directly target those with special dietary needs as the niche is expanding and these are the customers most likely to buy their products. This could bring opportunities for them to increase their number of deliveries across the UK. The report also investigates the fact that the research conducted has some limitations. Some of the limitations include the fact that secondary data has been used, and that our recommendations assume that the state of the UK economy will not severely worsen in the near future. 2. Introduction and Aims Caroline’s Real Bread Company is a small bakery in Mid/South Wales since 1992. It has two partners Nigel Devlin and Caroline Frampton. Caroline is the baker and Nigel does the accounts. Their products are sold through farmer’s markets, food festivals, local organic box schemes and other outlets. It also supplies restaurants specialist cafes, outside caterers and one off events. Caroline won the Gold Welsh True Taste Awards in 2005 after expanding her business. They offer over 30 varieties of bread which are wheat-free and yeast free. In recent years they have been trying to expand themselves through technology, through online orders which can be collected from in-store or delivered (Carolinesbreadcompany, 2013). The aims of this report are to outline the Political, Economic, Social and Technological issues that impact the Grocery Market Environment. The Product specific market will be explored through a SWOT analysis. The report will highlight the recommendations to Caroline concerning her company and its current position in the market. 3. The Grocery Market 3. 1 Political The government launched an advertising campaign in early 2013 to promote healthier eating habits in the UK (BBC 2013). The main aim of this campaign is to increase the awareness of â€Å"hidden nasties† such as fat and sugar in popular foods. This campaign is the latest in a long line of government aided movements in order to increase health awareness in the UK, some examples of others being change4life and 5 A Day. This latest movement shows that healthy eating is high on the agenda of the current government. The government are under pressure to introduce new legislation to reduce the salt content in foods. The coalition is currently working with the industry, through the ‘Responsibility Deal’, to improve food content and labelling (Department of Health, 2013); however they are being challenged by labour to scrap this voluntary approach and to introduce tougher regulation and legislation in fighting foods high in fat, salt and sugar. One proposition includes a 30% cap on sugar content in cereals aimed at children. The on-going debates and propositions are increasing public awareness of healthy eating habits which benefit specialist local producers such as Caroline’s Real Bread Company. According to new government rules, the UK’s food industry will be required to include clearer information regarding the ingredients on product packaging from summer 2013 (FSA 2013). The new arrangement is front of pack labelling that combines the food content with the guideline daily amounts, showing consumers the percentage of their daily allowance that they will be consuming with the product. As a result of this, suppliers of foods high in salt, sugar or fat may need to rethink their production process or risk losing customers. This change, combined with the growing healthy eating awareness of the UK will again benefit companies who are producing organic foods with natural ingredients. 3. 2 Economic An increase in interest rates has led to less disposable income which may change their shopping pattern from buying luxury goods to necessities, thus restricting the growth of a company like Caroline’s (Times, 2013) (Keynote, 2012, p. 13). Additionally, a rise in inflation would increase the price of any grocery product, resulting in lack of growth in the overall market (Gurdian, 2012). Adverse weather conditions in Europe had a negative effect on wheat supplies, thus increasing the cost of wheat (Keynote, 2012, p. 11) (Julia Glotz, 2011). Retailers can either let their profits decrease, or raise their prices and risk losing customers, to combat this rise (Keynote, 2012, p. 33). The price of flour has also risen, by ? 75/tonne (Gyton, 2012). In recession, most companies face decreased revenue. As this particular business is more focused on providing good quality products, they charge more than supermarkets would, again resulting in a change in consumer spending habits. It has been noted (Keynote, 2012, p. 16) that people are spending over 30% more on bread but this is solely due to the rising price of bread – consumption is in decline. Corporate taxation has fallen; this provides businesses with a better financial environment in which to expand (PwC, 2011). 3. 3 Social Due to the worsening economy, consumers have increasingly attempted to recreate the restaurant experience in their own homes; thus the sales of speciality breads have increased (Keynote, 2012, p. 10). The market share for specialist breads is currently roughly 30% and it is thought that these breads are acting as replacements for the more expensive premium breads (Keynote, 2012, p. 25). Foreign breads have also increased in popularity, creating a niche (Keynote, 2012, p. 32) which could save craft bakeries that are now at risk due to the growth of the supermarket in-store alternatives (Keynote, 2012, p. 33). White bread sales are beginning to decline as consumers become increasingly health-conscious (Keynote, 2012, p. 32) and switch to brown, wholemeal, and ‘best-of-both’ type breads. These, and foreign breads, are more expensive than conventional loaves leaving retailers with the potential for greater profits. It is expected that part-baked white breads will keep white bread sales from dropping too severely (Keynote, 2012, p. 41). There are three major bakers, Warbutons covers a range of qualities while Associated British Foods and British Bakeries both have a high and a low end bread product (Mother’s Pride, Hovis and Sunblest, Kingsmill respectively). The low end products are targeting people who shop for everyday value. The premium loaves are often purchased by those looking for quality rather than value. Warburtons is the most direct competitor for small village bakeries due to the broadness of budgets it caters for and the range of qualities it produces. Small village bakers tend to hold monopolies as the villages for which they cater are often remote and without other stores. Caroline’s Real Bread Company is located in Merthyr Cynog, a village six miles from the nearest town (Brecon) and stores (Google, 2013). It is over four miles from the village to the nearest bus stop from which there is a mere thrice-daily service (Sirgarfyrddin. gov. uk, 2013), so the village is isolated and the baker has a monopoly. 3. 4 Technological Businesses use ecommerce and social media such as Facebook and Twitter to reach a wider audience. This can be used for advertising and to collect feedback from the customer, for example: Tesco has made a Facebook page where they get connected with bigger audience where they post offers of their products and gain feedback from consumers. They are targeting a wider audience, separating themselves from the norms of company (Tesco, 2013). Development in technology also means the reduction in first hand skills. Skilled workers have been replaced by technology, improving efficiency and productivity. In 2011, British Food Plc was investing millions in upgrading its baking business by installing new equipments. Thus modernising its production pattern, improving efficiency and reducing production costs (Keynote, 2012). Premier Foods has increased automation and thus laid off workers to cut costs (Edwards, 2013) after their profits fell by 48% in 2012 (Edwards, 2013). Hovis used to have the concept of using only British wheat as their unique selling point, due to a plummet in profits they have had to abandon this and redesign their packaging, to survive (Edwards, 2013) showing how challenging the bakery sector is today. 4. Description of Product Specific Market The main competitors for Caroline’s Bread Company are supermarkets, bakeries and in-store bakeries. Bread retailers have faced increasing competition over the past few years due to new entrants in the market who believe they can make a profit. The main competitors are supermarkets and convenience stores who now have in-store bakeries making them a one-stop-shop. They can further their influence by having freshly baked products in their petrol stations, increasing convenience. Supermarkets will invest in their bakeries to provide a quick, easy and fitting shopping experience (SmartCompany, 2012) as a result revenue should rise. The increasing price of wheat and fluctuations in household income due to the economic crisis has caused demand and preferences to change, leading to consumers becoming more aware of the products they buy. The main consumers targeted are a small but expanding segment of the niche market. To combat the growth of competition, more innovative loaves and marketing campaigns are needed to increase brand awareness. Caroline offers courses that cement her brand ethic of fresh organic produce making consumers aware of the health benefits associated with eating wholegrain, rye and gluten free breads. Consumers who prefer quality produce, and are concerned with chemical additives, will benefit from Caroline’s speciality breads. By carefully geographically selecting her location and creating her brand to suit this, Caroline is maximising her brand exposure to the local market encouraging a loyal customer base. The main trend in the market that Caroline specialises in is the emphasis of healthy living. This enhances her opportunity to break into the catering market and supply her products to people for special occasions offered on her website. By displaying her products without packaging she adheres to the attractive product presentation that many customers desire with their organic purchases (SmartCompany, 2012). Consumers would find this appealing as there would be enough different varieties to appeal to various customers, which expands her segmentation and increases her client base. 4. 1 Strengths As a dietary staple and a cemented establishment, bread is a necessity. Caroline’s business is versatile and consumer-centric. Her company suffered losses due to under developed management skills (Guardian, 2006) but the company soon recovered and studied business management elements to become a recognised bread company. Caroline’s company has taken product innovation and expanded this to their benefit. To avoid high salt levels she ensures only organic ingredients are used, keeping salt to a minimum (Caroline’s real bread company, 2013) as 80% of UK bread is processed (LoveFood. com, 2013). Alongside organic, the company specialises in making rye and soda breads as well as gluten free and yeast free products in order to cater to precise dietary needs. These can be delivered freshly door to door via the delivery service. The company also supplies local restaurants and caterers with various breads (Caroline’s real bread company,2013). This efficiency, versatility and product care linked with their customers specific detailing alongside their expanding availability of products enlarges their segment of the bread market from local people to people that may live further away as well as those that may not have considered the purchase of organic foods before but would now as they can buy into the ideals behind organic foods. 4. 2 Weaknesses With the bread market being dominated by branded products such as ‘Hovis’ and ‘Kingsmill’, it is difficult for a business so small to penetrate this market. Many consumers are unwilling to pay extra for organic bread. Competition between craft bakeries, such as Caroline’s, and supermarkets is fierce and harsh to penetrate due to the brand association and prices (Keynote, 2012). Due to the entrenched ideological beliefs that are indoctrinated into Caroline’s real bread company, the company is restricted to a small segment of the bread market. Caroline’s is restricted to those who believe in the organic wellbeing and are willing to pay extra for it. The company produces their bread so that it can be frozen for individuals who purchase in bulk (Caroline’s real bread company, 2013) to avoid waste, however this was not their intention for the businesses they were supplying. Nigel reports â€Å"we started supplying a local specialist food shop; selling the bread at just over cost price it later turned out that the shop was freezing the bread, undermining the whole premise of the bread company† (Guardian, 2006) in turn losing a customer and revenue as an effect. Due to their target market being so limited, their market segmentation is smaller than other brands that produce and promote to all customer types. A downside to bread is the shelf life is short for mass produced bread, and even shorter for freshly baked bread, resulting in 1 million loaves of bread being thrown away (Keynote, 2012). This becomes a further disadvantage for a small business such as Caroline’s real bread company. 4. 3 Opportunities There has been an increasing demand for healthier bread and bakery products in the UK economy due to healthy living becoming a more significant factor in people’s everyday lives. Larger bread companies will already be aware of this and will have targeted products towards this; however Caroline’s company is unique in that all products are completely healthy and have already targeted their products. This company has exclusive principles unlike larger suppliers (eg Hovis) who use bulking agents to increase the shelf life of their products, and are completely against using anything that isn’t natural or fresh. On their website it says ‘our business ­ is about producing products that meet the needs of those small but growing numbers of customers who demand only the finest quality food’ (carolinesrealbreadcompany. co. uk) which shows that the quality of their products is more important than quantity. This is a perfect opportunity for Caroline’s bread company to expand and grow due to the higher demand in the products that they already offer. As there is already an increasing demand for healthier bread products, there are also an increasing number of consumers who are adopting a gluten-free diet which is pushing up the demand for these products. Caroline’s offers over 30 different varieties of bread and already offer wheat-free bread so this is another opportunity for them to break into a new market and expand their customer base. They already offer gluten free and yeast free products so it wouldn’t cost them anything more to produce these products, it would just benefit their company due to a higher demand. 4. 4 Threats The increasing niche for freshly baked produce has created further competition by supermarkets against craft bakeries matching quality for less. Consumer perceptions are stimulated through the sensory system of smell. This could result in a change of brand loyalty once people realise that freshly made products could be purchased in similar quantities for less money. Although the ‘Real Bread Campaign’ has disclosed that only Marks and Spencer out of all big supermarkets actually make their bread from scratch and even then not all of it is freshly made from scratch. These companies use the sensory perception to lure in customers from independent bakeries (LoveFood. com, 2013). According to ‘Keynote’, craft businesses are dying out in favour of in-store bakeries (Keynote, 2012) due to their parallel innovation of fresh products. Part-baked and specialised breads, e. g. half and half, dietary, brown, are now being produced by Tesco (Tesco, 2013) and other supermarkets. ‘Food prices are expected to rise after the second wettest summer on record’ (Guardian) which has resulted in a poor harvest leading to an increasing price of grain hence an increase in food prices. The National Farmers Union (NFU) reported that wheat yields in England are down by almost 15% which has added to already been rising prices caused by a heat wave in Russia that destroyed a large majority of their crops. Richard Dodd of the British Retail Consortium said: â€Å"The most recent figures are that wheat prices are up 29% compared with a year ago† (Guardian 2012). This is a major threat towards Caroline as this rise could result in a fall in profits as it would cost more for them to purchase their supplies. As a small company there will be more of an impact than larger bread companies. However, even ‘Hovis’ (premier foods) are struggling to sell their breads and they are known as the best-selling bread brand (the mirror 2012). They ‘struggled with soaring costs and cut-throat competition’ resulting in them losing its co-op contract to their rival company allied bakeries. 5. Recommendations and Conclusion Our recommendations for ‘Caroline’s Real Bread Company’ are that they should continue to distribute to the grocery market but not to large supermarkets as they do not share her ideological beliefs. As they have enough vans to distribute the products, we recommend that they should expand their production space so they are able to produce more products and try to distribute to places further across the country to establish their brand and attract more customers. In terms of their products there is an increasing demand for speciality breads which supermarkets do not sell many varieties of, so Caroline should see this as a product innovation and her bakery should focus on expanding into this market more. People are now more conscious of healthy lifestyles so we recommend that they should continue to focus on organic, dietary, gluten-free and wheat-free breads to continue to appeal to this expanding niche market. The target consumers for Caroline’s Real Bread Company should continue to be those who favour organic products over products that are not. Her beliefs on organic foods are the foundation of her business ideology and therefore this is unlikely to change. By targeting more directly those with dietary needs, such as gluten and wheat free products as these consumers already pay higher prices in supermarkets than other customers, therefore they may wish to look into Caroline’s company if she promotes these product more vigorously. Promotion can also be carried out by encouraging brand switching, existing consumers to purchase more, raising awareness of the brand and attracting new customers to her brand by trialling new products. This can be carried out by implementing multi-buys and incentives for example free vouchers and gifts. These can be promoted via online social media networks, for example Facebook, Twitter and other forms they will be able to make consumers aware of their brand and ideologies so that they can expand their customer base further. By doing this it can bring opportunities for the company to expand their delivery services to larger regions of the UK. 6. Limitations The majority of the data used was online secondary data. We cannot guarantee the accuracy of information obtained. The report evaluates long term performance; looking so far ahead, economic conditions could change affecting the PEST analysis. For instance, our economic condition could for now be described as recovering from a double-dip recession, so in the near future the economy might be at a better or worst stage of recovery and this would affect the company’s target market. The bread market is constantly evolving and is susceptible to massive changes as a result of crop failures, adverse weather conditions, or the general economic climate. While it was argued that people who no longer go to restaurants due to the cost may now be buying more specialist and foreign breads to compromise, it must be noted that the breads in the restaurant were purchased from somewhere, perhaps even from the same wholesale baker, so this may not affect overall bread sales. What is also worth noting is that Caroline’s Real Bread Company operates within a small isolated community and has a monopoly in the grocery market for that village. This means it most likely has a steady flow of repeat customers, though the company also provides a delivery service and supplies commercial clients. Therefore expansion in their wholesale/commercial supply operations might be more beneficial than the suggested expansion in consumer retail operations due to the limited customer base. Another issue is the approach of the company – Caroline’s Real Bread Company pride themselves on being independent and local, if the desired method of expansion was in any way to threaten these attributes then the expansion would be to the detriment of the company. What must also be noted along these lines is that the bread is currently handmade; the company should consider the ultimate savings of automation against the attraction of handmade bread. The former might lose former clients who chose the brand for their traditional bread, yet it might gain customers looking for more inexpensive bread by a local company.