Breadtalk Economic Analysis free essay sample

There is a great opportunity to be an entrepreneur in this industry because of its low entry barriers. Having this opportunity, enterprising individuals are attracted to give up professional careers and go into business. Today, many FB entrepreneurs have expanded overseas by setting up franchises, joint ventures or corporate-owned outlets (Springs Singapore, 2008). 1. 2Background information on the company BreadTalk Group was founded in 2000, operates its chain of retail outlets selling breads, buns, cakes and pastries through its principal subsidiary, BreadTalk Pte Ltd. BreadTalk has become a unique Singapore brand that has gained international appeal. The Group owns and operates 34 bakery outlets in Singapore as of 31 Dec 2007, as well as several outlets in various countries regionally, including Shanghai and Beijing. It is most famous for its cream-filled buns topped with pork floss, named Flosss (BreadTalk, 2008). In 2003, the Group opened the world-renowned Din Tai Fing restaurants, famous for its its â€Å"xiao long bao† meat dumplings, in Singapore (BreadTalk, 2008). In 2005, BreadTalk enters further into the China market by acquiring Topwin Investment Holding Pte Ltd, which owns and operates 13 food courts under the award-winning brand-name Megabite in the PRC (BreadTalk, 2008). In October 2005, the Group opened Toast Box coffee shop which inherits the style and atmosphere of coffee shops in 60s and 70s (BreadTalk, 2008). 1. 3How the firm creates value As part of Breadtalk’s unique concept, the layout of retail outlets are designed in a way that customers have a clear view of bakery items on display. The outlets’ â€Å"see thru kitchens† allow the chefs to share the preparation of the freshly browned breads with customers and shoppers. The design of retail outlets also gives customers a warm and friendly atmosphere. To provide customers with high quality and freshly baked breads, breads are kept only one day on the shelves, and disposed at the end of business hours. Breads are created to reflect the local taste so that customers can enjoy the combination of western concept with eastern design. To accommodate the customers’ changing taste and individual differences, it constantly introduces new varieties of products. With so many varieties of selection, the promise is that â€Å"Each person will find something in the shop† and this makes the trip to the BreadTalk worthwhile (BreadTalk, 2008). 2. 0 Factors 2. 1 Factors influencing demand The four factors that determine demand for the bread supplied by BreadTalk are population, price of substitute goods, income and taste and preferences. 2. 1. 1 Population Figure 1: Singapore population Source: Data adapted from Statistics Singapore, www. singstat. gov. sg Figure 1. 1: Total revenue from owned and operated bakery outlets around the world Figure 2. 2: Singapore bakery sales Source: Data adapted from ListedCompany, www. ListedCompany. com Population is one of the factors that determine the demand for bread supplied by BreadTalk. As shown in Figure 1, Singapore population has been increasing year on year. With the growing population, there are more people to consume the products and hence, the sales of BreadTalk also increased from 31. 4 millions in 2006 to 39. 1 millions in 2007, as shown in Figure 2. 2. Thus, population growth tends to increase the number of buyers which increase the demand for BreadTalk. The market demand curve shifts to the right from D1 to D2 as shown in Figure 3. As a result, there is a direct relationship between Singapore’s population and demand for BreadTalk. Figure 3: Increase in demand 2. 1. 2 Price of Substitute goods The price of substitute goods is the second factor that affects the demand for BreadTalk. â€Å"Substitute good is a good that competes with another good for consumer purchases. As a result, there is a direct relationship between a price change for one good and the demand for its ‘competitor’ good† (Layton, Robinson Tucker, 2005). There are so many substitutes of bread from puffs to breads from other brands available in the market. If the price of bread from other brands increases, consumers switch to other cheaper brands. As a result, the demand of BreadTalk increases and demand curve shifts to rightward. 2. 1. 3 Income The third factor that affects the demand for bread is consumer’s income. The products from BreadTalk can be categorized as normal good because it is (BreadTalk total brandind solution, n. d), on average, 20 percent more expensive than other bakeries. â€Å"A normal good is any good for which there is a direct relationship between changes in income and its demand† (Layton et al. , 2005). As shown in Table 3, consumer’s income, as represented by GDP, rose from 49,301 in 2006 to 52,994 in 2007. The sales of BreadTalk increased from 31. 4 millions in 2006 to 39. 1 millions in 2007, as shown in Figure 2. 2. This shows that when consumer’s income increases, they spend more money on normal goods. So, the demand for BreadTalk also increases and the demand curve shifts rightward. Table 1: GDP of Singapore YearPer Capita GDP S$US $ 200546,73828,078 200649,30131,028 200752,99435,163 Source: Data extracted from Statistics Singapore, www. singstat. gov. sg 2. 1. 4 Taste and preferences Another factor that affects the demand for BreadTalk is Taste and preferences of consumers. With today’s changing lifestyle of Singapore, people are becoming health consciousness and demand for convenience (Adwan, 2003). With long working hours, people have no time to prepare rice and dishes which is time-consuming. Bread, which provides equivalent balanced diet, comes quite handy when a quick meal is preferred. Hence, bread has become popular for breakfast in families. According to Statistics Singapore Newsletter, in Singapore only 4 percent of populations do not consume the bread. Among the working groups, it is also popular to enjoy bread during lunch. This trend increases the demand for bread and thus, the demand curve shifts rightward. On the other hand, when people tired of eating bread, the demand curve shifts back to the left. Moreover, people nowadays demand both better quality and wider selection of products. The quality of products from BreadTalk is good and they have more than 150 varieties of products to cater consumer’s changing taste. So, the demand for BreadTalk increases. 2. 2 How a change in consumers’ income influences the price Figure 4: Demand and Supply curve Source: Data extracted from Google, www. images. google. com As mentioned in section 2. 1. 3, consumer’s income has been increasing year by year that they have more purchasing power. Thus, the demand for BreadTalk increases and the sales rose 24. 5% from 2006 to 2007 as shown in Figure 2. 2. As a result, the demand curve shifts rightward from D1 to D2, as illustrated in Figure 4. Accordingly, the equilibrium price of P1 and the equilibrium quantity of Q1 also increase to P2 and Q2 respectively. That means BreadTalk still sells more products even though they increase the price. Equilibrium occurs at any price for which the quantity demanded and the quantities supplied are equal† (Layton et al. , 2005). So, changes in consumers’ income have effect on the price that BreadTalk can sell its products. 3. 0 Market structure and how it affects competition 3. 1 Features BreadTalk is considered as monopolistic competitor with the following characteristics: †¢There are many small firms in the market. †¢The products are different. †¢Low barriers of entry and exit. 3. 1. 1 Many small firms In monopolistic competition, the market consists of many small firms with the small market share. Because there are a large numbers of firms, firm must pay attention to the average market price (Parkin, 2005, p. 284). 3. 1. 2 Product Differentiation Product differentiation means that each firm’s products are slightly different from the products of competitors. For example, the taste of â€Å"floss bun† from BreadTalk is slightly different from other brands’ â€Å"floss bun†. â€Å"Product differentiation can be real or imagined, but it does not matter if it is only imagined so long as consumers believe such differences exist† (Layton et al. , 2005, p. 235). For example, consumers (Layton et al. 2005) may think that BreadTalk sells the best breads in town, although breads from other brands have similar quality. This consumer’s perceived differences are a key success for firm to compete with competitors. 3. 1. 3 Low barriers of entry and exit It is easy to enter into monopolistic competitive market because only a small amount of capital is required to start up a business. Imagine there are numerous different brands of bread in the market compared with the available number of different airlines. 3. 2 How firms in monopolistic competition compete with each other Firms in monopolistic competition compete with each other in non-price competition, which involves advertising, packaging, product development and quality and service. 3. 2. 1 Advertising One way to compete in monopolistic competition market is by advertising. The main purpose of advertising is to create brand awareness. A brand name (Parkin, 2005, p. 293) provides information about the quality of a product to consumers. When consumer recognizes the brand name, he or she tends to choose that familiar brand over other brands because there is a perception that the brand has a better quality than others. BreadTalk market their products through the local media. They have also created publicity for the brand through interviews with the local newspapers and various articles about the products have been published in both the English and Chinese local newspapers (BreadTalk, 2008). 3. 2. 2 Design The design is important to attract the customers. The eye-catching design will definitely win the customers’ attention. Good design differentiates firm’s products from that of competitors. BreadTalk’s products are perfectly crafted and designed with colorful artwork and each bread also has a unique special name of its own. . 2. 3 Product development Since there are a lot of similar products from other firms in monopolistic competition market, firm must be innovative, and constantly introduces new products that will provide firm with a competitive edge. â€Å"A firm that introduces a new and differentiated product faces a less elastic demand curve and is able to increase its p rice and earn an economic profit† (Parkin, 2005). BreadTalk’s product development is very excellent that it is constantly introduce new products to cater customer’s changing taste. â€Å"The company introduces approximately 10 items every four months. Its retail outlet presently offers over 150 varieties of breads, buns, pastries and cakes for customers† (BreadTalk, 2008). 3. 2. 4 Quality and Service â€Å"The quality of a product is the physical attributes that make it different from the products of other firms† (Parkin, 2005). The quality is important to create customer loyalty. If the product is reliable and the service is good, customers will be most likely to come back again in the future. To provide customers with a better service, the retail outlets of BreadTalk is designed in a way that it allows customers to shop in a comfortable environment. For the ease of access to the shop, the outlets are opened near public transport system such as the Mass Rapid Transit stations, bus terminals and several shopping malls (BreadTalk 2008). 4. 0 Conclusion The Group has been making profit since started in 2000 by diversifying and expanding business overseas. Even though most of the profits came from Singapore division, the business cannot be expanded any further because Singapore market is small with tiny size of population. For long-term growth, the group should further seek out the opportunities in others countries with the big market to bring in even more profit.