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1. Is this an attractive and profitable industry? What structural factors make it attractive or unattractive? Please elaborate your answer in detail using the tools taught in class.

Strategy (N1021) and Strategy for Finance (N1542)

Project brief:

Read the below case study ‘Warburtons Bread’ and review the appendices. Analyse Warburtons industry and resources and capabilities by addressing the following questions and justifying your answers with conceptual tools learned in class:

1. Is this an attractive and profitable industry? What structural factors make it attractive or unattractive? Please elaborate your answer in detail using the tools taught in class.

2. Discuss the various strategies Warburtons implemented and explain how they relate to the industry structure. Propose two additional strategies that could help Warburtons achieve greater profitability in this industry and explain your reasoning.

3. Analyse Warburtons resources and capabilities and assess the extent to which the key resources and capabilities contribute to the creation of sustainable competitive advantage.

Warburtons Bread1 Case

Sliced bread went on sale in the US in 1928 and soon became a British staple. But in the UK, sales of sliced bread are flat. The Bread and Bakery Goods Production industry has been under considerable pressure over the past five years because consumers` interest in industrially produced goods has been fading. Bread produced by large plant bakeries has traditionally accounted for the majority of bread eaten in the UK but this is now less attractive to consumers and consumption of plant bread has been declining. In contrast, small artisan bakeries have proliferated and proven increasingly popular, while alternative baked products have also taken off. Apart from these changing consumer trends, industry operators have also had to deal with fluctuations in wheat prices, which spiked in 2011 due to pressure on global wheat supplies.

This industry is estimated to have a low level of market share concentration, since the top four players2 are expected to account for 25.7% of industry revenue in 2015-16. The UK bread market is dominated by industrial products, but no individual company has significant control over the industry. Furthermore, major companies tend to concentrate on certain product segments. The market for fresh cakes, pastries, flour confectionery and other sweet bakery products is much less concentrated and there are no major players that specialise in these areas. Nearly two-thirds of industry operators are small firms with fewer than 10 employees.

Due to overcapacity of bread production in UK, plant closures are welcomed by most of the participants in the trade and in some cases may provide scope for margin expansion in due course. The closures by Hovis – the company behind the "Boy on the Bike" television advert in the 1970s – have put the focus on other brands in the industry such as Kingsmill, owned by Associated British Foods.

However, with pressure and competition mounting from supermarket own-brands, analysts say bakeries must invest in new products while also cutting costs. The multi-billion-pound sliced bread market is a staple that the big five supermarkets are pricing aggressively to the point of having near loss-leaders. Bread producers are struggling with global input rises. It is essential for bread makers to innovate and broaden the brand appeal with new and exciting products to help with more leverage over pricing. Whatever they try, however, it is simply tough out there as bread is mostly used as a commoditized product.

Strategy (N1021) and Strategy for Finance (N1542)

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