Zotter Case Study

Zotter’s Case Write-up

Name: Anran (Bianca) Bian

Student Number: 1000762953

Professor: Jan Klakurka

Executive Summary

Zotter GmbH is an Austrian chocolate venture founded by Josep Zotter in 1999. Headquartered in Bergl, it produces hand-created chocolate with a variety of flavors using organic and Fairtrade ingredients. After successfully serving the chocolate market in Austria as well as in other European countries such as Germany for decades, Zotter, the founder of Zotter GmbH is now thinking of the right way to grow his business. One the one hand, the business possesses very unique strategic advantages by its ingredients, flavors, packaging design and distribution model. On the other hand, it has some decisions to make in terms of production, distribution model and market selection.

This report will provide an overview of the chocolate industry as well as Zotter GmbH’s competitive position in the European chocolate industry and then bring up a suggested resolution in detail to the issues that Zotter is currently facing.

A Glance at the Chocolate Industry

Gained widespread popularity in the mid-1800s in Europe, chocolate is one of the most popular snack and dessert in many parts of the world. It is predicted that global chocolate sale will grow to $98.3 billion by 2016, resulting from an annual growth rate of approximately 3 percent.

The three major cocoa-producing companies are Archer Daniels Midland (ADM), Barry Callebaut and Cargill Incorporated, taking up about 40 percent of the cocoa bean being processed globally. Meanwhile, in order to focus on final chocolate production steps and marketing activities for their chocolate, many chocolate manufacturers reduced cocoa-processing activities. As a result, they are buying processed raw materials or premixed chocolate mixes from global suppliers.

The chocolate market can be segmented into dark, milk, white and filled chocolate. It can also be categorized to mass-market and premium products. The organic and Fairtrade segment is mostly perceived as premium chocolate product, which experienced high growth partially because of the recent market trends. Speaking of market trend, it is worth mentioning that nowadays customers tend to consume healthier chocolate, making dark chocolate experience increasing sales. Additionally, customers are paying more attention to food safety and environmental issues, which increased consumption of ethical organic and Fairtrade chocolate. Premium segment chocolate also benefited from the health trend and more interest in more exotic flavors.

Porter’s Five Forces Analysis

After taking a broad look at the chocolate market overall, performing a Porter’s Five Forces Analysis would help to better understand where power lies within the chocolate industry.

Taken into consideration the required high initial capital and complicated supply channels, the industry faces low new entrant power. Moreover, since knowledge and experience is required for a new entrant to possess a competitive position, the threat of new entrants is further limited.

In terms of the bargaining power of suppliers, the raw material in the chocolate industry is mainly cocoa and nuts, which are pretty much undifferentiated. However, the suppliers’ products are very important to the industry because there is no substitute. Also, the number is suppliers is growing, thus overall the industry faces moderate bargaining power of suppliers.