Uk Organic Food

Contents 1. Introduction2 1. 1 Why this industry was chosen for analysis2 1. 2 Aim2 1. 3 Brief Background of the organic food producing industry2 1. 4 Competitive environment? 3 2. PESTEL analysis5 2. 1 Political factors5 2. 2 Economic factors6 2. 3 Socio-cultural factors7 2. 4 Technological factors8 2. 5 Environmental factors9 2. 6 Legal factors10 3. Porter’s Five Forces analysis12 3. 1 Threat of new entrants12 3. 2 Threat of substitute products14 3. 3 Threat of established rivals14 3. 4 Bargaining power of suppliers16 . 5 Bargaining power of buyers16 4. Conclusion18 4. 1 The industry at present18 4. 2 Future changes19 5. Appendices20 5. 1 Critique of tools and research limitations20 5. 1. 1 PESTEL framework20 5. 1. 2 Porter’s Five Forces20 6. References22 1. INTRODUCTION 1. 1 Why this industry was chosen for analysis The chosen industry for analysis in this report is the organic food producing industry in the United Kingdom. This encompasses groups of firms that produce similar products, in this case, organic food produce.

In recent years, there has been a heightened awareness in the media in relation to organically produced food, and a great emphasis has been placed on ‘healthier eating’ and a reduction in the production of genetically modified food. As this awareness increases, it is important to analyse the industry in order to assess whether the industry is favourable to exist in, and to ascertain whether it is likely that it will be penetrated by new competitors.

Another reason for choosing to examine this particular industry is due to the lack of an updated Mintel report, or a similar financial report, especially since there has been so much extra attention being placed on this industry of late in the media. In order to get a better picture about the macro- and micro-environment in relation to the UK organic food producing industry, frameworks will be used in order to analyse information about the industry. 1. 2 Aim

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The aims of this report are to research and assess the nature of the organic food producing industry in the United Kingdom. This will occur by using two different frameworks, a PESTEL analysis and the use of Porter’s Five Forces in order to fully understand the competitive micro- and macro-environment of this industry. When the analysis is complete, it will be determined whether the industry is favourable to enter or not, and future changes in the industry will be predicted. 1. Brief background of the UK Organic Food Producing Industry The term ‘organic’ has been defined by the Organic Trade Association as an ‘ecological production management system that promotes and enhances biodiversity, biological cycles, and soil biological activity... based on minimal use of off-farm inputs and management practices that restore, maintain, and enhance ecological harmony’ [1]. In practice, this means that artificial chemical fertilisers and pesticides are not used, and animals are reared without the drugs that are normally routinely used [2].

Protection of the environment is of great importance, and the quality of the soil is what determines whether the produce can be deemed as ‘organic’ or not. Historically, it was common practice to only have relatively few family run farms in which organic food was produced, and this could be purchased in farmers’ markets and smaller stores, such as green grocers. However, since the 1990s, organic food has had growth rates of around 20% per year, and figures from April of this year show that organic food now accounts for 1 to 2% of food sales worldwide [3].

This growth rate has been partly due to large supermarket chains adopting ranges of organic foods, which is reducing the farmer to consumer link, and providing a convenient new way to eat ‘organically’, and also due to an increased interest from the media in this industry. For example, large supermarket chain Sainsbury’s has more than 1000 organic products, had a 14% increase in sales of its organic produce in 2006/2007, sources all its organic meat, fish, poultry, milk, and eggs from the UK and has contracts with farmers to guarantee minimum prices to ensure the long-term supply of organic beef [4].

A quote from Jerry Dryer, who wrote an article called ‘Organic Lessons’ stated, “Organic is here to stay, not a fad marching by in the night” [5], which is a hopeful suggestion that the market share is set to increase and that new opportunities can be targeted, but this will be confirmed or denied at the end of the report. 1. 4 Competitive environment? The organic food producing industry consists of a large number of small producers, who produce food which can be certified as ‘organic’ by the Organic Farmers and Growers Organic Standards and the Soil Association.

Due to there being a large number of fragmented producers in the industry, it may be seen as a competitive market who are vying for the attention of large or small supermarket chains and stores, green grocers, and individual purchasers of organic food. Organic produce in itself is reasonably homogeneous, so all producers in this industry will be trying to sell similar products which are largely undifferentiated. This increases competition between the producers as to how they are going to get their goods sold over the goods of a competitor.

There is also the option of individuals growing their own organic produce, which may reduce the demand for the purchase of produce. The competitiveness of the environment will be discussed in more detail when an analysis is carried out using the Porter’s 5 Forces framework [6]. ? 2. PESTEL Uncontrollable, external forces that influence decision making, which thus affect the performance of an industry is known as the macro-environment. The macro-environment consists of political, economic, socio-cultural, technological, environmental, and legal forces, which can be referred to as ‘PESTEL’ forces [7].

A good definition of this framework for analysis is given by Kotler [8], which is “PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations”. This is also useful for forecasting the direction in which an industry is taking, and the intensity of this change. Factors can be assessed and placed in order of importance, so it is clear to see what external factors are the most pressing issues in an industry.

In order to find out information for each of the factors, reliable secondary data sources shall we used, such as newspapers, periodicals, books, trade organisations, Government agencies information, and industry analysts results. Once this kind of analysis is complete, it is clearer to see how to take advantage of arising opportunities, and plan to prevent potential threats that may occur in the industry. The sections below break down the macro-environment into six parts. 2. 1 Political factors

Government legislation may dictate what is considered to be organic in a particular country. This report looks at organic food producers in the UK, and this is regulated by the Organic Farmers and Growers Organic Standards [9], and the Soil Association [10]. The Department for Environmental Food and Rural Affairs (DEFRA) states many outlines of what how produce should be grown and the feeding of livestock, in order for in to meet UK Government standards [11]. These standards vary from country to country, within and outside of the EU.

This can have a profound impact on the exporting of produce by UK farmers, as what may be deemed as organic in this country, may not be so in another. Relations with politicians need to be upheld, as legislation is subject to change at any given time. For example, it recently has been decided to ban battery hen cages starting in the year 2009 [12]. 93% of eggs in the UK market come from battery hens, so once the legislation is fully in place, this will not occur. This will increase competition in the market, as all eggs will now be from free range hens, which may affect the poultry side of the organic food industry.

By adapting to meet the new laws now, favourable relations will be kept with politicians, and current organic egg producers will need to find new ways in which to gain market share in what may be an increasingly saturated market. The Government currently provides farmers’ subsidies, but current news from May 2008 shows that the EU is looking to cut the money it provides, and reinvest it with incentives on looking after agricultural land, rather than giving money to help produce more food [13].

This may benefit farmers wishing to enter the organic food producing market, as they have extra incentives to convert their land to organic soil, but may hinder those already in the market due to the increased competition, and the lack of money to produce extra food needed to meet demand. 2. 2 Economic factors The organic food producing industry can be largely affected by the UK economy, such as interest rates, exchange rates, buyer power, and consumer confidence, which will all now be discussed in turn.

The current ongoing credit crunch, and high inflation has reduced chances of any interest rate cuts, and a real threat of a downturn is present [14]. Mervyn King, the governor of the Bank of England, has previously reported that UK inflation will rise above its target and the economy will sharply slow down [15], which does not mean good things for an industry such as this, which relies on people buying premium quality products.

If interest rates are high, then it costs more money to borrow from banks, which deters investment, and may make it harder for farmers to convert their land to organic soil and methods of production, as this is a costly business [16]. This inflation may cause any employees working in the industry to demand higher wages in order to cover any losses that they are making, which can cause a problem for employers, especially if the industry declines if there is a recession. The credit crunch has also affected housing prices, which have fallen, and a ollapse in these sales have been predicted to cut consumer spending by 8% [17], which will affect the industry. Exchange rates can affect the way UK organic food producers’ export their products, as a strong currency can make exporting difficult, if foreign buyers cannot get a lot of produce for their money. Buyer power can have a strong economical hold over the industry, as disposable income and willingness to spend can affect the sales of premium quality produce, especially as there are cheaper alternatives. The state of the economy affects spending, as if there is a recession, or currently with the credit crunch in the UK, spending falls.

Organic food may be seen by some users and non-users as a premium product, so when disposable income is reduced, this may be something which is cut back on in order to use the extra money elsewhere. If people are being more price conscious, new motivations to purchase the produce need to be discovered aside from price. However, many purchasers of organic food do so because of what it stands for, and is a lifestyle choice which may not be affected by a bad economy. Consumer confidence may be dented if willingness to spend decreases. The more affluent a person is, i. e. he higher wages and better lifestyle someone has, the more likely they are to start or continue to purchase organic food [18]. 2. 3 Socio-cultural factors A major socio-cultural factor affecting the industry is the media. A recent heightened awareness of organic food issues in the media has prompted an increase in organic food sales, with a 70% increase since 2002 to ? 1. 5billion in 2007 [19]. There is currently a bit from the media to use the upcoming 2012 Olympic games to promote organic eating, in order to avoid an obesity crisis and to appear a fit and healthy country.

This increase awareness of the importance of healthy eating and protecting the country by reducing its carbon footprint can have an effect on consumer attitudes. The effect of the media may change attitudes of people towards organic food, such as the more impetus placed on this industry in the media, means more people are aware of the benefits of eating organically. People may then change their attitudes about the way they eat, and believe that it is worth paying more for the food, even if the economy is not as strong as it could be. Figures from a recent Mintel report [20] show that attitudes towards rganic food show that people believe firstly that the food is healthier, secondly that it tastes better, and thirdly that it is better for the environment. With these belief systems becoming widely in place, the opportunity for the growth of the industry in people’s minds is increased. However, the media may too have a detrimental effect on the industry in two ways. Firstly, there has been bad press saying that the industry is losing its values, and that the industry itself is ‘out of control’ due to an increased demand and people not knowing the real reasons behind why they are choosing ‘organic’ [21].

Secondly, increased advertising spend (even though it is relatively low [22]) can draw too much attention to the industry which is not prepared to supply the increased demand. A typical shopper of organic food has been outlined in a survey taken from the Organic Monitor website [23], which identifies them to usually live in an urban area in a big city, consider quality and provenance in decision making when choosing which foods to purchase, being well-educated and of a middle to high social class, and to belong to a medium to high income household.

These factors have been determined of the types of people who normally purchase these premium products, and usually fall into the AB consumer base, due to a larger disposable income [24]. Further analysis of recent demographic trends show that the London and the South of the UK are more willing to accept the introduction of organic produce, compared to the rest of the UK [25]. With this in mind, it may be deduced that these areas are more prone for targeting, and further consideration needs to be given to where the industry should go next should these places become saturated with producers. . 4 Technological factors Technological advances in transportation means that the ease of moving produce around the UK is increased. Better roads and an increase in motorways have advantages for farmers to get their produce into busier cities. Transport has however been scrutinised in this industry in recent years if air freighting is used for the moving of food or livestock, but this will be further discussed under the environmental factors section of the PESTEL analysis.

The internet has provided new methods of selling organic produce, such as online shopping, and electronic sourcing of produce to find local organic food suppliers [26]. Looking at figures from a 2007 Mintel report on organic food, box schemes and mail order have had the biggest percentage increase of usage between 2005 and 2007 (109. 2% change in this time period). The ‘box scheme’ comprises of the delivery of fresh organic produce which is chosen because it is in season in the UK at the time of ordering, and many farms have used the internet in order to allow this scheme to take place.

For example, Riverford Organic Vegetables [27] allow people to choose different size boxes, and also give information about how much CO2 emissions are given off from the transport of their produce from door to door. This shows the potential for how the increase in usage of the internet can be applied to the organic food industry. 2. 5 Environmental factors National and Global environmental issues can greatly affect the UK organic food producing industry, such as weather and climate change respectively. Without the right growing conditions for some organic produce, i. . having good, well-nourished soil, harvesting may not reap many rewards. Last year in 2007, the wettest weather for more than 240 years was recorded in the summer by the Met Office, which obviously had adverse effects on this particular industry [28]. Following this particular summer, it was reported that organic food prices would rise even further than the already premium costs that they have, partly due to the weather reducing the amount of land fit for cultivation in order to grow and harvest organic produce [29].

If adverse weather conditions do occur, the supply or organic goods will be reduced further still, which may strongly affect an industry that already has increased demand and not enough produce to meet this. Climate change has gained increasing coverage in the media, convincing more people than action needs to be taken in order to protect the earth, in particular, the notion of a ‘carbon footprint’. A ‘carbon footprint’ can be described as ‘a measure of the impact of human activities on the environment in terms of the amount of greenhouse gases produced’ [30].

This affects the organic food producing industry when organically grown produce is air freighted into the UK. The Soil Association is threatening to remove its stamp of approval from organic food which has been imported by air, as they believe this to be increasing the carbon footprint, and going against the morals that organic food stands for [31]. This change may benefit UK organic food producers, as there will be less competition coming from overseas, but may be of detriment for internal UK flights, if this is how they normally transport their goods around the country.

The danger here is that people who already purchase organic food may instead switch to locally sourced produce, be it organic or not, in order to help the local community, and to do their bit to reduce the carbon footprint. There may be an opportunity here for organic food producers to also trade locally, so that people can get the best of both worlds. A benefit of organic produce is that it attempts to ensure that minimal amounts of pesticides and fewer artificial methods are used in the growing of the food.

Only 25% of organic food carries pesticide residues, compared to 77% of conventionally grown food [32]. This reduces harm to any soil or wildlife in the area, and is reported to have added health benefits, all contributing to less of a bad impact on the environment from harmful chemicals. 2. 6 Legal factors Legal changes in the United Kingdom may affect the behaviour of firms and producers within this particular industry. Back in 1984, the Food Act was introduced, which outlined the description and purity of foodstuffs, and affected the way in which food could be produced [33].

This legal act is still completely applicable today, and is regularly updated, notably affecting organic food producers in how they can describe and label their food. As well as an organic product having to meet UK organic standards, it also must abide by this Food Act when selling to respective buyers, so as not to mislead customers, i. e. it must be what they claim it to be, in this case, organic. A European ruling in 2007 states that for food to be labelled free of genetically modified ingredients, it must contain 0. 9% or less of such elements, which may in turn affect the price of organic food [34].

Producers need to factor these sorts of legal requirements into pricing how much they are going to sell their food for. For the past few years, recorded minimum wage has risen, with October 2007 being the last review at ? 5. 52 per hour for workers aged 22 and over, ? 4. 60 per hour for workers aged 18-21 inclusive, and ? 3. 40 per hour for all workers under the age of 18 who are no longer of compulsory school age [35]. These increases may pose problems for producers who cannot afford to meet these payments, especially if inflation ontinues to rise, and the credit crunch continues to beckon a recession in the financial market. If the producers cannot afford workers to help them look after livestock or harvest crops, this may pose to be a big threat as to whether they can afford to meet the requirements of customers. ? 3. PORTER’S FIVE FORCES The micro-environment is a set of forces that directly impacts the ability of an industry to serve its customers, which were described by Michael E. Porter in an analytical framework as five forces that determine the competitive intensity of a market.

This can also be described as the ‘attractiveness’ of an industry [36]. It must be remembered here that even if a market is determined to be ‘attractive, this does not mean that every firm in the industry will yield the same profitability. Only by having uniqueness in resources or a distinctive business model can help to achieve greater profits. The five forces suggested by Porter are the threat of new entrants, threat of substitute products, and threat of established rivals from horizontal competition, and the bargaining power of suppliers, and bargaining power of buyers from vertical competition [37].

The strength of these forces combined determines how competitive the industry is, and can determine whether it is favourable to enter. In reference to Porter’s Five Forces, the term ‘industry’ will be used to describe any products which are similar, and are close substitutes for each other. These five forces that affect how competitive the industry is will be discussed below. 3. 1 Threat of new entrants In order to assess the threat of new entrants in the industry, it needs to be assessed whether the barriers to entry in the UK organic food producing industry are high or low.

This will be looked at in relation to economies of scale, product differentiation, cost disadvantages in relation to the capital required, and access to distribution channels, in relation to UK organic legislation. Economies of scale occur when the costs of producing are reduced from making more units, as it is more efficient to increase output. Some organic food producers may benefit from the fact their purchasers may be large supermarket chains, who have the ability to buy in bulk due to the benefits of their economies of scale. Organic food producers an then sell their goods to these chains, who realise that their customers are becoming increasingly aware about the benefits of this quality produce. However, due to these chains being in a position to buy bulk, in order to compete in this market, organic farmers may have to sell their goods at a cut price if the supermarkets want to sell it on to turn a profit. In this case, new entrants may be put off from entering the market if they cannot afford to compete with already established providers of organic food to these main players.

Product differentiation is an issue, as the organic products in this industry are largely homogenous. If new entrants wanted to penetrate the market, they would have to think of innovative new ways for buyers to choose their products over another product which is the same as the one they are offering. This does however mean that producers already in the market may have less competition enter alongside them, as long as the existing producers offer fair prices and top quality food, with well established networks.

Cost disadvantages may pose a threat to new entrants, as a large amount of capital is required in order to enter the market. Firstly, modern agri-technology is expensive to purchase, and the largest cost of deciding to produce organic food is the conversion of land [38]. In order to convert land so that it meets the UK Organic standards requires a great capital investment, which is one of the reasons why the supply is still short. This may put off potential entrants to the market if they believe they cannot afford to make their land meet national requirements.

These national requirements are subject to change, so barriers to entry can be heightened or lowered at given times, depending on what is decided by the ruling bodies. This may also affect international entrants, as national standards vary in different countries. What is seen as organic in one country, may not meet the requirements in the UK, so producers may be protected from further competition in that respect. For example, new regulations in Japan caused the majority of products to lose their organic status [39].

This also ties in with access to distribution channels, as UK producers may be fighting for space on supermarket shelves or stalls in a local farmers’ market, and only the best will survive. Even though supply is short, a limited amount of space is still given to organic produce, which on one hand may deter entrants into the industry, but equally may give some producers wishing to enter the market a bigger incentive to increase awareness about organic produce, and try to meet that supply in innovative new ways. 3. 2 Threat of substitute products

Substitute products are products which can fulfil the same function, but from a different industry. In the case of the organic food industry, substitutes can occur in the form of different kinds of eating, or fad diets, such as calorie-counting healthy eating, and or locally sourced conventional produce. First to be discussed is reduced-fat and reduced-calorie food, which may appeal to the organic food shopper. If people are buying organic food as a misunderstanding of what it really is, and do so for the health benefits, then they may switch to specific ‘healthier eating’ options, rather than organic food.

This threat however has been reported to be minimal at the moment, as figures in a Mintel report from 2007 on organic food show that organic food is experiencing a much greater growth than reduced calorie options [40]. The reduced-calorie options, as well as functional foods, still continue however to rise in popularity. Locally sourced conventional produce also poses a threat to the organic food industry, as some people may choose to support local farmers rather than to choose organic produce.

This is especially difficult on the organic food industry, as more farmers may decide not to convert their land to organic if people are more willing just to buy conventional locally produced food [41]. This threat may encourage organic farmers however to sell produce locally, so they are covering both segments of their target market. An example of this threat is posed by milk, as demand for organic milk far exceeds the supply, so people are facing the dilemma of having to buy non-organic locally sourced milk, as this is a necessary substitute for people buying milk in the premium market [42].

Organic food may be seen as necessity to some, but to most it is a luxury, and conventional foods can replace the premium priced, undersupplied organic food. 3. 3 Threat of established rivals The simplest rival in this industry may be seen as people who grow their own organic produce in their garden or local allotment. This reduces the need for organic farmers to sell their produce to consumers, and this has the potential to reduce the need for them to sell, as it may be cheaper for people to grow their own. Aside from this threat, there are other forms of competition within the industry.

Rivals in the industry have different ways of competing against each other, including varied forms of price, marketing strategies, and innovation techniques. Firstly, a sustainable competitive advantage can be gained through the innovation from producers in the industry. For example, organic farmers may decide to provide their goods only to local outlets and consumers, which increases the likelihood of people wishing to buy products which are organic and sourced locally. This can provide a competitive advantage over organic producers in the UK who have a larger carbon footprint by delivering their products across the country.

Competitive rivalry may continue here as more competitors enter the market to satisfy the growing demand for organic produce. As new entrants penetrate the market, it needs to be increasingly thought of new ways to differentiate products, as the nature of the produce in this industry is largely homogenous. There is not a large diversity of competitors, as organic produce is the same from one farmer’s land to another, so competition will be high in order to get people to choose one farmer’s particular produce.

This is also true when considering who will purchase this food, as supermarkets are increasing their ranges of organic food, so competition to get produce chosen to be sold in these will be high [43]. If a supermarket already purchases a particular farmer’s produce, it may be difficult for other competitors to penetrate the market if customer loyalty already exists, so new ways of doing so will need to be thought of, such as competing on price. This, however, will only be possible to a certain extent, as a profit still needs to be made by the producers in order to continue their business.

Existing firms may compete in this industry through diversification of how the produce is offered, as some farmer’s may set up a market stall or store in order to deliver their produce to the consumer. An advantage of this is the added convenience to consumers of having a place they know they can go to in order to source locally produced organic food. An example of this is the ever increasing popularity of the chain ‘Planet Organic’, which is continuing to expand upon its outlets in urban areas in London, so that people don’t have to live in rural areas in order to get there organic food [44]. 3. Bargaining power of suppliers There is an estimated 4630 producers in the organic market who have converted their land to organic soil, and this is ever increasing [45]. Even though this is still increasing, it is expensive to convert conventional land, so this may be one of the reasons for a relatively low number of suppliers in this industry. This section focuses on whether suppliers in the organic food producing industry have high or low amounts of power over the happenings in the industry. The brand of organic food may be seen as powerful, as there is a high consumer demand for these products.

This gives the suppliers the added advantage of being able to choose how and where to supply their produce. However, even though this increases supplier power, the customers for their produce are fragmented, so there may be a reduced bargaining power over price, as there is only so low that producers are able to offer their goods for. Organic food in itself is a unique offering, which gives an alternative to conventionally produced food, and can satisfy the needs of particular consumer groups who crave quality and are concerned with the provenance of what they eat.

This allows suppliers to have a greater power over the conventional or locally sourced produce, as organic food is seen as a lifestyle choice and not just one of convenience or necessity. Figures from Mintel show that 65% of people shop in supermarkets where the food is of high quality and is fresh [46]. This choice from consumers gives suppliers the added advantage of being able to provide a service that people actually want. 3. 5 Bargaining power of buyers The bargaining power of buyers in the market can have a great effect on the industry itself, which will now be outlined in terms of how much power they have over the industry.

Buying power may be deemed to be relatively low in some respects, but high in others in this industry for a number of reasons. With an increase in demand for organic produce, a large amount of buyers are competing for a relatively short supply of food. This may mean they are willing to pay higher prices for the produce, due to its availability being decreased. This supply shortage was outlined in The Grocer, which shows sales were up to ? 3. 1billion when they reported in March 2007 [47]. However, few large buyers, such as large chains of supermarkets, may have an increased buyer power due to suppliers wanting their goods to be sold in these stores, as they can ensure produce is sold via a contract for a certain period of time. This reduces uncertainty for suppliers, and ensures less food is spoiled. The fact that this industry contains a large number of undifferentiated suppliers may mean that buyers have more power over who to choose to supply their produce if there is a large amount of suppliers in that particular area.

The cost for buyers of switching suppliers for produce is very low, which further still increases their power, assuming that there is an appropriate amount of supply existing. Buyers are aware that there is a shortage of supply of organic produce, so this may give them less power over suppliers, and over the industry in general. It has been previously mentioned about the increased demand over supply, so buyers may have to pay the prices being offered to them by suppliers if they want this non-conventionally grown produce.

Buyers may also have higher power in some respects due to existing substitute products, which have previously been discussed. There is an opportunity in some cases for people to switch to locally sourced conventional food, rather than organic food. This can increase buyer power, if they decide to refrain buying organic food altogether, which may force producers to reduce their prices, or just to exit the market. ? 4. CONCLUSION 4. 1 The industry at present Looking at the information which has been discussed in the 2nd and 3rd sections of this report, deductions and analysis can be made about the industry at present.

In its simplest form, the UK market for organic food is reported to be worth ? 1. 5 billion in 2007 [48], and this is continually growing. Issues affecting the macro-environment include current Government legislation managed by the Soil Association and the Organic Farmers and Growers Association, buyer power and spending habits in the organic food industry, effects of the growing media attention on the industry itself, new ways to sell produce, and environmental concerns facing producers. Issues ffecting the micro-environment include the threat of new entrants joining the industry due to a lack of supply and an increase demand, substitute products being present such as locally sourced produce, established rivals having better distribution links, suppliers having increase amounts of power due to the increased demand from consumers, and the buyers having relatively low power due to the lack of supply. This is a small summary of how the industry can be seen at present, and from looking at the information collected, there are various reasons why it may or may not be a favourable market to enter.

The fact that demand is high but supply is low is a good reason for wanting to enter the market. This would imply that any produce made would be easily sold, and suppliers would be in a better position to bargain on higher prices, as they are well aware of this demand. However, there are issues in being able to enter this industry. The initial outlay costs are high, as it is expensive to convert land into what is considered to be organic, to buy new technology required to grow and harvest produce in the methods stated by the necessary authorities.

It may then be difficult to sell produce in certain areas if people do not agree with the transportation used to get the produce there in the first place. These are factors that need to be taken into consideration when looking at the industry at present, but with expansion set to continue, if the capital is available, it seems favourable to enter. 4. 2 Future changes Increased acceptance of organic food means that the future of the industry looks good for the moment.

People are beginning to accept organic produce into their everyday lives, and with reported health benefits of switching to these products, sales are increasing, with analysts predicting that sales will double before the end of this decade [49]. Increased awareness in the media and new studies into the goodness of organic produce is driving sales and increasing demand. The notion of ‘eating well’ is of key importance to the Government in what they suggest to avoid an obesity crisis in the UK, and organic food may be seen as a way of doing this.

However, it must be remembered that the future, as with any industry, can be uncertain. Factors that must be faced and planned for in the future include bad press in the media, substitute product switching, and a change in legislation. If the media publishes bad press about whether there are really any extra health benefits from paying extra for organic food instead of conventionally grown food, the demand may fall and substitute products used instead.

Products such as locally sourced food are fighting for advertisement space in the media also, so people may switch to this in the future in order to protect the earth, and reduce their carbon footprint. This can all be affected by the hype that is created in the media at that particular time. Standards in legislation are also subject to change, and if this is to change in the future, it may be the case that fewer farmers can afford to convert their land into organic soil, which will reduce the supply of organic food further.

If this occurs, the popularity and publicity of this industry may decline. These are issues that need to be kept in the forefront of the industry’s mind, and plans to avoid this, such as proving the benefits of switching to organic produce, need to be made. ? 5. APPENDICES 5. 1 Critique of tools and research limitations 5. 2. 1 PESTEL framework Advantages are listed below: •Allows the analyst to remove themselves from the industry and look at it more objectively by adapting to the new environment •Can avoid taking actions that will lead to failure Can see the context of the industry Limitations are listed below: •Time consuming •Is done by an individual, so important factors can be missed •May be difficult to know what to include under each heading, so hard to follow by other people reading the report •Industries are constantly changing, so once it is written, it may have already changed •PESTEL analysis only covers the remote environment 5. 2. 2 Porter’s 5 Forces Advantages are listed below: Can effectively analyse competition in an industry, and help decide how to beat competitors •Develop strategies for action from the information found and apply them to gain market share in an industry •Looks beyond obvious immediate competitors, and focuses on substitutes to the organic produce being offered – wider market view Limitations are listed below: •Also is carried out by an individual, so things relating to competition in the micro-environment may go unlooked •This analysis is a static framework, and the industry is constantly changing, so it may not be applicable immediately after it has been written

These limitations imply that a strategy cannot be made just by looking at this report alone. This point may the most important research limitation, as this cannot be taken as to what the industry is like presently. New research is constantly being carried out, and figures continuously change, so up-to-date information is required for marketing strategy development. ? 6. REFERENCES [1]NOSB Definition, http://www. ota. com/definition/nosb. html, [Accessed 18/4/08]. [2]What Is Organic? , http://www. soilassociation. org/web/sa/saweb. nsf, [Accessed 18/4/08]. [3]Organic Food, http://en. wikipedia. org/wiki/Organic_food, [Accessed 16/4/08]. 4]Channels to market, Mintel Marketing Intelligence, 2007, Organics: Mintel Marketing Report. London: Mintel International Group, [Accessed 25/4/08]. [5]Industry Statistics and Projected Growth, http://www. ota. com/organic/mt/business. html, [Accessed 18/4/08]. [6]Porter, M. E. (1980). Competitive Strategy: Techniques for Analysing Industries and Competitors (The Structural Analysis of Industries), . Macmillan: UK, pp. 3-33. [7]Davies, M. (1998). Understanding Marketing. Prentice Hall: Hemel Hempstead, p. 35. [8]Kotler, P. (1998) (9th ed. ). Marketing Management – Analysis, Planning, Implementation and Control.

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