Macro Environment
NutriPower is a potential breakfast cereal product set for the Australian market. These products are focused on healthy eating, while enjoying the food flavour and range from regular flavour to fruit, nuts, coconut and vanilla. Given their healthy orientation, the products are lower in sugar content than the competitors on the market and higher on fibre and vitamins. Most of the cereal raw material is integral, using wheat and oats as the base for the final product. The product will be advertised as the healthy alternative to highly caloric breakfast options today on the market, emphasizing the role of nutritional content on the overall healthiness.
Analysing the macro-environment
Economic
According to Heritage.org (2009), Australia’s index of economic freedom was ranked third in the world in 2009, this fact making a strong statement about the country’s laissez-faire in the economic area. Additionally, its human development index (HDI) was ranked third in the world as well by UNPD for 2008
The country’s GDP in power purchase prices (PPP) was $795 billion, with a GDP/capita of $37,298 and a GDP/capita growth of roughly 3% in 2008 (IMF, retrieved June 2009).
Many Australian cities have been rated by The Economist magazine (2008) among the most liveable in the world. Thus, Melbourne was ranked the 2nd, Perth the 4th, the Adelaide 7th and Sidney the 9th.The same magazine ranked the whole country 6th in the world in terms of quality of life for 2005 (The Economist, 2005).
Australia managed to keep a steady 3.6% inflation over the last 15 years and improving terms of trade since a few good decades ago. The terms of trade reflect the ratio of export prices to import prices and thanks to the developing neighbouring Asian countries, the kangaroo economy receives a lot more for its exports than it pays for its imports. On the other hand these fortunate circumstances didn’t help with the country’s deficient balance of payments, which on top of having a narrow export base (commodities) has a strong incentive to resort to the cheap imports manufactured by the neighbouring Asian countries. The country’s economy as a whole is comprised of 71% services, 26% industrial and only 2.5% agriculture and its main international trade partners are Japan, China, South Korea, U.S. And New Zealand.
The current economic situation of general crisis has left its mark on Australia as it did on most developed economies. However, the impact was not as strong as it was in average. IMF (2009) estimated that the global crisis would contract the country’s economic growth by 1.4% in 2009, whereas the world economy is expected to contract by 2.8%. The same source estimates unemployment to rise from 4.4% in 2007 and 4.3% in 2008 to 6.8% in 2009 and 7.8% in 2010. However, by this latter year, the economy is expected to increase by 0.6%, hence enter its recovery period.
The country’s currency, Australian dollar, has maintained rather stable over time, being the 6th most traded currency in the world. The exchange rate is estimated at 3%, but might increase in the near future to avoid a real estate bubble.
The economic indicators for Australia characterize a mature, strong and stable economy that fosters a healthy business environment. However, given its maturity and development, it is expected for potential start-up investors in any industry (e.g. breakfast cereal) to face strong competition from already established brands. Furthermore, given the reduced size of agriculture contribution to the country’s economy, the permanent concerns about environment and the low price import product from neighbouring countries implies that a potential breakfast cereal marketer would have to rely more on imports for its raw material and less on local production, which implies the use of a more complex supply system involving international trade.
Demographic
According to the Australian Government Intergenerational Report (IGR, 2004), the estimated proportion of population above 65 years of age from the total population will almost double in the next 40 years to 25%. In the same time the proportion of working population from the total population is going to decrease, implying a smaller taxation base for the government income tax. Two aspects are likely to be noticed in the future. On one hand, the aged and health care spending will increase as more senior people will need care, which in turn will force the government to be more creative regarding preventive health measures, such as nutrition. On the other hand, the economic growth is likely to slow down as it did in Japan, which is top-of-class in terms of longevity. For a potential investor in food products this could suggest that the focus should be on healthy products, rather than non-nutritional but tasty ones.
The trend of female involvement in the labour market and implicitly in terms of contribution to household income also meant that the traditional distribution of chores in the family was split between the man and the woman as opposed to mostly woman in the past. Also, it meant that women started to allocate less and less time to indoor house activities (e.g. cooking) as most of their time was dedicated to their professional life. For an food industry investor this means that its products should not require too much preparing time until the ready-to-be-consumed phase.
Women do two thirds of the household chores today (ABS, 2009), which in less than they used to a few generation back. According to the same statistics, women are more turned to indoor house work and men to outdoor ones, but the trend is slowly reverting towards a balance of the two types of chorus. Bearing this in mind a potential investor should assume that most breakfast cereals are likely to be bought or put on the shopping list by a woman, rather than a man so a potential market research aiming breakfast cereals’ content and flavour should be focused more on women’s opinion.
Cultural (social)
The Australian food shopping and eating trends have a strong impact on competition in the food market. Recent trends show that the proportion of eating away from home compared to that of eating of home is continually increasing and is well in excess of grocery food sales (DAFF, 2006). On one hand this is justified by the increasing involvement of women in the labour market, which reduces the time spent home cooking and on the other hand it is a normal evolution given by technological advancement, which changes lifestyle choices. Breakfast however, is likely to continue to be a meal taken home, but the emphasis is on the time needed on preparing the meals, which has to be as short as possible. Also, for busier people there should be an option to have breakfast cereals away from home, so a potential new breakfast cereal product could try to attract professional clients as well as domestic (e.g. breakfast or brunch restaurants).
Australia is facing a major obesity problem, which is more prevalent among children due to sugary, low-nutritional food content. Between 1985 and 1995 the child obesity grey almost 50% in both genders (Parliament of Australia, 2006). An extra care is expected to be shown regarding the quality of food products given to children, suggesting that tasty, yet healthy products are likely to be on fashion again (e.g. tasty, yet healthy breakfast cereals).
Finally, the concern for synthetic food products is increased as well, leading to an increased demand for bio products in all types of products, cereals included. The need for natural crops as raw material is likely to increase, given than the demand for bio breakfast cereal products will increase.
Natural
Most of Australia is dessert or semi-arid. Nevertheless, wheat, the major crop in the country had 12.2 million hectares planted in 2007. Draught has a major impact on crops’ outcome. Thus, in 2005-2006 the wheat production reached 25 million tonnes, whereas in 2006/2007 the wheat production was estimated at 12.7 million tonnes. For a potential breakfast cereal investors, this translates into a non-constant source of raw material or with a highly volatile price, which again suggests the need for finding an import supplier (DAFF, retrieved Jun 09).
Raw sugar is one of the most exported products, Australia being the 2nd largest exporter of this product in the world, shipping abroad over 80% of the internal production. Under these circumstances, wheat would not be a scarce raw material for any marketer of food products. Additionally, other field crops, such as cotton, fodder, grain, hemp, oilseeds, pulses, rice, seed, sugar, peanuts and tobacco are exported in similar percentages of domestic production and a significant amount of the fruit produce is tropical, especially in the Queensland area. Most of these products are the secondary ingredients for breakfast cereals, and the production numbers make a positive statement about local supplying capability.
Technological
Being one of the most developed economies in the world, Australia possess a level of advanced technological endowment, which translate into fast/automatized food producing processes, logistics and marketing. A potential investor in breakfast cereal industry should be prepared to commit a substantial quantity of resources to get to a technological level similar to competitors.
Moreover, considering that the country has a tradition in consuming cereal products due to its agricultural background and preoccupation for healthy lifestyle, the technology adopted by a market entrant should also allow for flexibility in terms of receipts or changing health requirements from both the customer and the authorities.
Political (legal)
General food safety requirements refer to the health and hygiene of the food handlers, their food handling skills and knowledge, the control parameters for receipt, storage, processing, display, packaging, transportation, disposal and recall of food. Food safety is considered essential and the standards are even higher for vulnerable persons or persons with special nutrition needs (e.g. diabetes). Therefore, the required investment in food safety measures and maintenance in proper conditions of a production facility is substantial, such a business being not only costly, but also bureaucratic. Because the consumer’s safety being considered essential, the authorities tend to over-control all activities in the food industry.
The Parents Jury, an online network of parents, grandparents and guardians in the country has started to attract more and more attention upon them and therefore gain increased lobby power. This network’s goal is to improve the food and physical activity environment of Australian children. Nowadays, some of their main discussion issues concern the extent to which the food products are health for their children and not only for children, but also adults and people with special nutrition needs. This movement would be an indicator for a health food opportunity investment.
Conclusion
The macro-environmental analysis points difficult market entry and growth conditions due to strong competition of already established companies. Moreover, the volatility of raw material supply due to natural factors and the low raw material prices in neighbouring countries implies that the logistic would include imports and therefore it would be a complex system.
On the other hand, the Australian consumers are changing their habits towards a more healthy eating behaviour due to increased awareness on issues such as obesity and poor nutrition from childhood. Also, the bio products mania is increasing concern about healthy eating as well, which creates favourable conditions for a food provider addressing these concerns. A healthy-eating breakfast cereal provider would also have the support of authorities and parents lobby group, which are significantly worried about the poor eating habits of the future Australian generations. Such a product could be a successful idea.
Reference list:
Australian Bureau of Statistics (ABS). 2009. More de Facto Relationships, Women Still do Most Housework, More Energy use at Home. ABS (Media Release) – Australian Social Trends: www.abs.gov.au
Australian Government Intergenerational Report (IGR). 2004. Australia’s Demographic Challenges: http://demographics.treasury.gov.au/content/_download/australias_demographic_challenges/html/adc-intro.asp
Department of Agriculture, Fisheries and Forestry (DAFF). 2006. Australian Food Statistics 2006: www.daff.gov.au
Heritage.org, retrieved Jun 2009: http://www.heritage.org/Index/
IMF — International Monetary Fund, retrieved Jun 2009: http://www.imf.org/external/
IMF — International Monetary Fund. 2009. World Economic Outlook — Crisis and Recovery. World Economic and Financial Surveys: http://www.imf.org/external/pubs/ft/weo/2009/01/pdf/text.pdf
Parliament of Australia. 2006. Overweight and Obesity in Australia.
http://www.aph.gov.au/library/INTGUIDE/sp/obesity.htm
The Economist. 2008. Liveability Ranking:
http://www.economist.com/markets/rankings/displaystory.cfm?story_id=11116839
The Economist. 2005. The Economist Intelligence Unit’s Quality-of-Life Index. http://www.economist.com/media/pdf/QUALITY_OF_LIFE.PDF
UNPD — United Nations Development Programme. 2008. Human Development Report: http://hdrstats.undp.org/countries/data_sheets/cty_ds_AUS.html
The HDI is a composite index that includes both economic and social variables. It combines information from three dimensions: standard of living — through GDP per capita in purchasing power parity (PPP) in $U.S.; a country’s level of knowledge — given by adult literacy and the combined gross enrolment ratio for primary, secondary and tertiary schools; and life longevity/healthiness — indicated by life expectancy at birth.
The Economist Intelligence Unit’s liveability rating quantifies the challenges that might be presented to an individual’s lifestyle in 140 cities worldwide. Each city is assigned a score for over 30 qualitative and quantitative factors across five broad categories: stability, health care, culture and environment, education, and infrastructure.
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