I. Introduction 3
II. Why Porter’s five forces analysis. 4
III. Porter’s five forces analysis 4
1. Bargaining power of customers. 5
2. Bargaining power of suppliers. 5
3. Threat of new entrants. 6
4. Threat of substitute products. 6
5. Competitive rivalry. 7
IV. Critical aspect. 9
V. Conclusion. 10
VI. References 11
VII. Bibliography 12
Tobacco has been well known and used worldwide for centuries. It is an old product which was used by our ancestors; and it knew how to go through the ages to be present in our current society. It was first considered as a healthy product and a medicine, and now it is recognized as a cause for respiratory and circulatory diseases such as cancer.
However tobacco products are still wellimplanted in our time. That is why I decided to study the tobacco industry in Europe; which is composed of chewing tobacco, cigar and cigarillos, loose tobacco and cigarettes. This topic is interesting because it is a current topic in our society and, in spite of all the legal restrictions; this sector is still growing up year after year. Indeed the European market grew by 2.1% in 2008 to reach avalue of $172.1 billion. And this trend will continue for still few years, in 2013 the market is forecast to reach $191.9 billion, an increase of 11.5% since 2008.
Cigarettes sales represent the most lucrative for the European tobacco market, with 90.1% of the overall value, which represent $155.1 billion (Datamonitor p10).
Germany is the biggest consumer with 22% of the market’s value,followed by the United-Kingdom with 13.40%, Italy with 11.4%, and France with 11.4% as well. The rest is spread between others European countries (41.7%) (Datamonitor p 11).
Concerning the market share, three companies are sharing the market, Philip Morris International (29.7%), Imperial Tobacco Group PLC (22.7%), and British American Tobacco PLC (20%), the rest is shared by others companies (27.6%)(Datamonitor p 12).
I decided to apply the Porter’s five forces model for my external analysis, because the Porter’s model is an easy and useful tool to understand what is the current competitive position and how attractive is the industry we want to get in.
So first of all I will deal with this analysis, and then I will criticize it, and finally conclude this analysis.
II. Why Porter’s fiveforces analysis.
Several reasons led me to apply this model to the European tobacco industry rather than another.
First, the five forces able us to determine how attractive an industry is, it provides insights on profitability. Therefore, it helps to make decision about entry or exit an industry. Besides this model can be used to compare the impact of each force upon our own company and ourcompetitors.
Then, the tobacco industry is an old and powerful market, which is part of our everyday life. And a harsh competition occurs in this market between competitors in order to increase their market share. So it appears obvious to analyse which factors influence the market, and what are the key points of the competitiveness.
III. Porter’s five forces analysis
Porter’s five forcesis a framework for the industry analysis and business strategy development. The five forces; bargaining power of customers, bargaining power of suppliers, threat of new entrants, threat of substitute products, and competitive rivalry, help to determine the competitive intensity and therefore how attractive is a market, as we can see on the schema below.
1. Bargaining power of customers.
Inthe European tobacco market, bargaining power of customers is represented by supermarkets, hypermarkets, gas stations, small newsagents, corner shops, and off-licences. The concentration of convenience stores and gas stations are relatively weak as there are a certain number of outlets where products are available. Hyper and supermarkets are the biggest distribution channel with 21.9% share of...