Porter’s 5 Forces Within the F&B Industry (Bakery Business)

I’m going to use the hawker food business as an example to discuss and apply Porter’s 5 forces.

Current competition:
New top range chefs and Michelin type high end dining. These competitors offer similar food choices but at highly competitive prices. They also provide more comfortable ambience and atmosphere.

Therefore, hawkers have to regularly review their menu to sustain the interest of regular customers and satisfying changing customer preferences

Threat of entry:
The F&B industry has low barriers to entry. Opening a hawker business requires relatively low start-up capital. The cooking skills involved to sell edible and hygienic food are not too difficult to acquire. As a result, there are thousands of restaurants to choose from. In addition that, hawker do not stay in business for very long due to bad menus, dining experience, food quality and service.

Furthermore, as addressed by Dr Vivian Balakrishnan, rents would need to be realistic and not only profit focused or orientated to encourage new hawker entrepreneurs to set-up and existing ones to survive with current high inflation, cost of living and business operational costs. This will increase the threat of entry as the barrier to enter is getting lower.

Threat of substitutes:
In the hawker food business, there are not any substantial substitutes to food because people have to eat food every day. Food is a basic need and nothing can substitute that. Since there are no major substitutes the threat is relatively low.

However, hawker food is similar to home-cooked food. With the current inflation, individuals may just substitute to home-cooked food where they can have their food according to their own taste and preferences.

Power of buyers:
Power of buyers is relatively high for a hawker. The hawker must constantly be staying in tune to customer preferences or the customers will easily eat at another stall. The F&B industry is highly competitive and in addition there are low switching costs for consumers and consumers have access to quality and nutrition information.

Many hawkers have seen this and are now posting nutrition information because customers are more likely to visit a stall that posts the information. Also, in Singapore there have been passed that requires hawkers to post inspection results in a visible spot. This now makes hawkers pay closer attention to the stall quality because they may lose business if they do not receive a good inspection.
Power of suppliers:
Hawkers’ suppliers have a relatively low bargaining power because they implement a lot of controls to keep their bargaining power low. Hawker’s controls the quality of their main product by making the spices, noodles, etc, themselves daily.
Hawkers’ have numerous suppliers for each ingredient so that it can obtain ingredients from other suppliers when necessary. This lowers the risk of a supplier driving up the price for hawkers because if one does, the hawkers could simply switch to another supplier.
Hawkers could take many initiatives to continue to survive and thrive in the coming years. Hawkers could increase their focus on catering to expand their stall brand. The hawkers could also continue to focus on a healthy menu to meet customer demands. Hawkers could increase the awareness of the use of all natural ingredients to attract new customers. Also, hawkers could increase their dinner offerings to increase their sales and customers at off peak hours instead of just focusing on the lunch-time hour.