CPG HW1 Essay - 1098 Words

AEM 2480 Food and CPG Industry Dynamics

Assignment #1

Marcela Patino

Jieyu (Emma) Yang

Net ID: mp659 jy345

1.
After acquisition of Bumble Bee, Thai Union Frozen (TUF) increases its market shares of canned tuna from 13 % to 38% and expends its company size in the United States. This means there are two similarly sized and dominated players, TUF and Dongwon Enterprise (DE), control more than 2/3 of US canned tuna sales and cause the canned tuna market become more centralized. This leads to a serious competition among those canned tuna manufactories which include TUF and DE. Moreover, TUF enhances its price setting power through the acquisition of Bumble Bee. So, it could set their own prices or corporates with DE to avoid destructive price competition so as to achieve a win-win situation. However, if TUF wants to get one more piece of pie in the canned tuna market, it has to narrow its profits due to market competition and low switch costs. Furthermore, people are more willing to buy fresh and healthy food rather than purchasing processed food, such as canned tuna now. That causes the sale of canned tuna has been decreasing dramatically these years in the United States. Nevertheless, after the acquisition of Bumble Bee, TUF improves both its supply chains and production lines. Thus, it has more capitals to invest different projects to maintain and increase its total sales. For example, TUF could sale packaged fresh tuna to meet US domestic consumers’ demands and expand its international markets to dump canned tuna.
2.
For Dongwon Enterprise, TUF becomes the major competitor since it accounts for nearly 2/5 of canned tuna sales in the United States after the acquisition. In addition, DE loses dominate price setting power and should consider TUF’s pricing strategies in order to keep its competitiveness and the market share. Moreover, since canned tuna market becomes more centralized and competitive after the acquisition, DE needs to find ways to strengthen its brand loyalty and shows how its canned tuna and services are different from the others so as to boost its US domestic sales revenue. For example, DE should spend certain amounts of money on advertising, do some promotions, and diversify its products to attract more consumers’ attentions and meet their different demands and satisfactions. Furthermore, TUF threats DE’s overall profits.US consumers are tend to buy products with lower prices under this certain economy environment, DE has to decrease its unit price if the company wants to attract consumers. So, DE’s overall profits perhaps drop significantly.

3.
Thai Union Frozen (TUF), which previously possessed 13% of the market with Chicken of the Sea, gains 25% more of the market by the acquisition of Bumble Bee. Hence, increasing its market share up to 38%, that is to say 2% more market share than its main competitor, Dongwon Enterprise (DE) 36%. Therefore, these two companies share 74% of the U.S market in the canned tuna category and there are major consequences retailers can face.
First, economies of scale, which allow firms to reduce their average costs as they increase their rates of output, favors large-scale production over small-scale production; hence TUF and DE can establish the sale price for canned tuna, and newcomers or small scale-industries, will have difficulties competing in this category. Therefore, concentration of power, lack of players in this category and an increase on price by TUF and DE, will narrow retailer's options and they will have no other choice to reduce their profit in the sale price, which will represent financial losses.
Second, industrial concentration can facilitate the exercise of market power if the members of the industry agree to cooperate rather than compete. This means that main manufacturers TUF and DE, can try to maintain or increase its 74% in market share, by a decrease in the sale price of canned tuna. As a consequence of the power in market by

Show More