The company Maggi was found in 1885 in Switzerland by Julius Maggi. The aim of the company was to bring in low price protein-rich meals that can be cooked easily and quickly and help improve the nutritional intake of the labor families. In 1897, Maggi GmbH was founded in Germany. Maggi makes instant soups, seasonings, noodles, and bouillon cubes. Currently, the products of Maggi are being manufactured in many different countries. Maggi, over time, has faced a number of issues, especially in its Indian market. It has been banned by many local governments and courts for short periods of time due to complaints and health concerns. Similarly, Maggi has faced controversies when lab tests revealed Maggi noodles to contain lead and mono sodium glutamate. As a result, Maggi had to recall stocks worth millions from the markets and also has been fined heavily. Maggi returned back in 2015 through aggressive advertisements to win back the trust of the consumers.
Following is a detailed Porter Five Forces Model Analysis of Maggi:
Competitive Rivalry – High
For a long time, Maggi especially its instant noodles have dominated the market with very little competition. However, it is now facing competition after the emergence of a number of other brands which are making all the products that Maggi is making. The competitors include Knorr, Sunfeast, Top Ramen, and others. There is no product differentiation. As a result, Maggi has lost significant market share and its market share is still on a decline. The other competitors have done extensive advertisements and other marketing campaigns to snatch the customers of Maggi. The controversies and bans also gave Maggi much loss. Thus, the competitive rivalry against Maggi is high.
Threat of New Entrants – High
There was a time when Maggi had no competition. Now, new entrants are entering the market very regularly. The entry barriers are very low. No extensive investments, cheap raw materials, easy to develop economies of scale, and so on. The competitors of Maggi are positioning themselves differently in the market in order to attract more of the market share (Unitedworld School of Business, 2014). The hurdle that the new entrants face is the access to distribution channels. However, most of the new entrants have the back support of much larger firms that already have strong distribution channels. Thus, making entry into this industry easier and the threat of new entrants, higher for Maggi.
Bargaining Power of Suppliers – Low
The suppliers of Maggi supply it with raw materials such as sugar, salt, wheat, spices, packaging etc. Since these are readily available products and a number of suppliers available for these products, the suppliers are in no position to bargain with magi or attempt to influence the market prices. The switching cost for Maggi from one supplier to the other is low. The suppliers are also happy as Maggi is a bulk purchaser providing the suppliers with large business (Gupta, 2008). Therefore, the bargaining power of the suppliers against Maggi is low.
Bargaining Power of Buyers – High
The products Maggi makes are also being made by all the other competitors. There is no product differentiation. The switching cost for the buyers is also low. Maggi, therefore, is no position to influence the buyers and attempt to increase the market prices. If it does so, the buyers will immediately shift to the products of the other brands. Maggi used to have a strong brand loyalty which has diminished with time. Now Maggi has no bargaining power against the buyers of its products.
Threat of Substitutes – High
Maggi makes food that is easy to cook and instantly provides protein energy. There are a number of other products that also provide this function such as soups, veg cakes, pasta, salads, and so on. In fact, these substitutes are being preferred due to increased health awareness. The substitutes are also easily available and there is no switching cost. The bans and controversies with Maggi have also increased the sales of substitutes. Thus, the threat of substitution is high for Maggi.
References
Gupta, A., 2008. Nestle Maggi. [Online] Available at: https://www.slideshare.net/akhil.gupta/nestle-maggi [Accessed 16 July 2017].
Unitedworld School of Business, 2014. https://www.slideshare.net/unitedworldmba/presentation-on-porters-5-forces-on-maggie. [Online] Available at: https://www.slideshare.net/unitedworldmba/presentation-on-porters-5-forces-on-maggie [Accessed 16 July 2017].