Question

How would you characterize the nature of competition among small food companies? Are there submarkets with distinct competitive pressures? Are there important substitutes that constrain pricing? Given these competitive issues, how can an organic frozen foods producer be profitable?

Answer 1

Answer:-

• In the market for small food producers, there is immense competition with all producers selling substitutable goods. All the producers are selling almost similar goods at almost similar prices, which makes competition tough and the only way to increase profits is a bit of advertising here and there, that too at nominal costs because an increase in these costs would directly affect profits.
• Yes, there are submarkets with distinctive competitive pressures because the good market is a very broad market and thus there are submarkets in it like an organic food market, packaged food market etc.
• Yes, there are many close substitutes which increase competition and constrain pricing. For e.g. there are many similar competitors like Kellogg's and Jimmy dean selling the best-frozen food in the US at similar prices.
• An organic frozen foods producer can be profitable because the market for organic frozen food is new and untapped with a very small number of producers selling food. The producer in this market can be profitable by selling its products at high prices because the competition is less and demand is relatively inelastic.