Breadtalk Porter's Five Forces

1. Threat of new entrants

Given the nature of the bakery industry, threat of new entrants is high as there are relatively low barriers to entry. Firstly, initial capital outlay is relative low as compared to other industries as equipment cost is low and there is little research and development cost incurred prior to starting the business. Secondly, product differentiation is present though it is hardly a deterrent factor as many businesses sell the same products or imitate quickly. Lastly, the ability to access effective distribution channels presents a greater threat to new entrants. Strategic locations with high human traffic often translate to higher lease payments. As such, not all bakeries are able to situate themselves in prime locations to capitalize on high traffic areas.

With regards to the food atria and restaurant businesses, there is a lower threat of new entrants as the capital outlay is significantly higher. To tap on economies of scale and build its brand name, these eateries trend to open more than one outlet. Also relevant expertise in running a restaurant is required. Most of the abovementioned food atria and restaurants own a relatively large number of outlets each.

2. Intensity of rivalry

The food and beverage industry is characterized by intense competition. In the food court segment BreadTalk faces competition from well-established food courts such as Kopitiam, Food Junction and Koufu, which price their food and drinks relatively cheaper. In addition, they have a wider reach to consumers as they operate a greater number of outlets in Singapore. Unlike Food Republic, all three food court chains have also introduced discount cards to build on customer loyalty. Its largest competitor, Kopitiam, has even tapped on the Muslim community by opening Banquet, a full-fledged Halal food court.

In its restaurant business, its closest competitors are the Crystal Jade and Imperial Treasure chain of restaurants, both of which offer a similar dining concept (i.e. Shanghai and Cantonese cuisine) at comparable prices. Competition is highly intense due to high exit barriers and slow growth.

Breadtalk's direct competitors in its bakery business include large and diverse groups of bakery chains and individual operators. Competitors include Bengawan Solo, Delifrance, Four Leaves, Prima Deli Bakery, Crystal Jade Bakery as well as bakeries at various shopping malls, hotels and neighbourhoods. Competitors provide similar product offerings at highly competitive prices. It is observed that neighbourhood bakeries sell its pastries at a significantly cheaper price compared to other types of bakeries. Six bakeries, which are selected to be most similar to breadtalk in terms of product offerings, price ranges and locations were documented in detail.

Across all its business units,