Economic Analysis of Linda’s Bakery Limited

sparing compendium of Lindas bakeshop express mailIntroductionLindas was established in 1959 by Mr. Lionel Chin Fatt who pr everywhereb the need for flavour baked goods at an affordable toll. They newly put up 12 locations in Trinidad with plans to affix 10 more by 2017. Their product line today includes bakery items such as bread, gamy retiring(a)ries, sweet treats, cakes and their Lindas upstart line consisting of salads, sandwiches, wraps, subs, bagels and coconut bakes.Macroeconomic AnalysisGDPThe Trinidad Tobago (TT) economy is predicted to brood sustainable growth (1.8-2.1%) over the short to medium term (see Figure 1.1), but less than in 2014 (2.3%). This go away be driven by robust growth in the non-energy sector (2.0-2.5%) (IMF 2014).The main risk to taxation Domestic Product (GDP) growth in the energy sector which contributes 40% of national GDP volition be a sustained decline in energy prices. At the current price of $45 for West Texas Intermediate crud e oil (WTI), we anticipate a further downward revision of 2015 project growth in the sector.We ar of the opinion that both Liquefied Natural Gas (LNG) and WTI result delay at or around current prices, at least for 2015. This is in line with the International monetary Fund (IMF) forecast for LNG but non for WTI (see Figure 1.2) only we agree that crude oil prices leave alone non go into further decline given current circumstances.Interest RatesThe Repo Rate was change magnitude to 3.25% for three main reasons, to keep in line with expected annexs in U.S. interest pastures, the headline pompousness rate driven mainly by double digit nutrition inflation, and continued steady process in non-energy output (Kissoon 2014). We expect as the U.S. rates increase, so go forth the Repo Rate.The Federal Reserve is basing changes in its rate on economic performance however current indicators show mixed results. We expect that the rate of increase for both rates will be slower than originally anticipated.Unemployment RateWith an unemployment rate of 3.5%, thither is extremely limited excess capacity in the labour market. Lindas has a staff turnover of 8% monthly in entrepots. This whitethorn be attributed to government make work programmes. Reforms that will help modify the economic base and reduce the fiscal deficit will be difficult to implement, especially in an election year. As such we do not anticipate significant changes to the makeup of the labour disembowel in the short to medium term.WheatThe major ingredient in Lindas products is flour. Although the flour is produced locally, stubble is trade mainly from the USA the worlds largest wheat exporter. Wheat exports from the USA are at its lowest over the past three years and are expected to decrease because of reduced essential and a surging dollar.In the short term prices are predicted to move lower then recover in 2016, depending on demand for wheat as feed and a recovery in corn prices (Wilson and Mulvany 2015). When coupled with change magnitude turnout worldwide, we anticipate continuing fluctuations in the price of wheat in the short term but not to the extent of 2010-2011 which triggered the last local price increase.Consumer ConfidenceIn Quarter 3 of 2014 aboriginal rely conducted its first Consumer Confidence survey measuring at -4. This can be an indicator that consumers will blow over less and save more as they are mildly pessimistic about the economy. If consumers spend less, suppliers whitethorn decrease their product output which can affect national productivity and wages. (News.gov.tt, 2015)Porters Five ForcesSupplier powerfulness FlourLindas purchases its flour exclusively from the National Flour Mills (NFM) a state controlled Public Limited Company, and is their second largest customer.NFM recently adopted a more proactive relationship with its major stakeholders, including Lindas and the Seamen Waterfront Workers Trade matrimony (SWWTU), such as including them in its strategic planning. This bore positive results like a collective negotiate agreement for wages in place for 2013 to 2016 (Trinidad Express 2015).We would expect this proactive mindset to continue with the meaning of wheat, if US wheat becomes too expensive. NFM can easily import wheat from Canada and Uruguay, two politically durable countries that NFM previously or currently imports some former(a) grains from.We dont expect the fluctuations in the world wheat price to affect the price of NFM flour locally, as it is set by the government NFMs volume shareholder. Historically government is averse to increasing the price of flour, regardless of who is in power. This can be seen in flour and bread maintaining Value Added Tax (VAT) exempt status, the discounts offered on flour by the current administration, and other price fluctuations being absorbed except in 2011.Buyer PowerLindas recently increased the prices on some products and, according to their chi ef executive officer, this has had no effect on their sales. Lindas believes that once they harbour a quality product, their customers will pay the price for it. As such we are of the opinion that buyer power is not a major factor at this point in time.Competitive RivalryLindas is second in the bread market to Kiss Company Limited and they state that they are number one in the pastry furrow in the country. Whilst Kiss sells the same product bread we are of the opinion that they have different target markets. Kiss is available from groceries to sidewalk shops by dint ofout the country, whereas Lindas products are only available in their stores. Lindas products have little or no preservatives and they believe that this is to their advantage since some customers will choose their products over for this reason.threat of Substitution Gluten FreeThe number of consumers who think gluten-free is generally healthier fell from 46% in 2010 to 35% in 2012, and the number who thinks it is effective in managing weight fell from 30% to 27%. (IFT 2014) ground on the premium in product costs, we do not foresee gluten-free entering the mainstream in TT.Threat of New Entry in that respect are some significant barriers to entry for this type of business.Capital Requirements The CEO of Lindas stated that the minimum investment required to enter this business is approximately $50 to $70 million. cardinal of their major investors are Prestige Holdings and Trent Restaurant Group.Economies of Scale In order to produce bread and pastries for fivefold geographic locations, capacity must be significant and utilization maximized. Lindas expanded its factory in El Socorro, where they prepare all the products to be distributed to all locations.Product Differentiation Lindas has recently rolled out their orthogonal line which is an attempt at differentiating their product line from other bakeries.Sector of the EconomyLindas is catergorised under the food and beverage manufacturing sector of the local economy. fit to the Food and Beverage sedulousness Development Company, with the continued expansion of the local economy, the domestic food and beverage sector is expected to continue along its progressive track. In addition, expansion of the regional economy, renewed efforts for research and further product development, and strategic niche marketing will also support sustained growth over the longer term. (FoodAndBeverageTT.com 2015)CompetitionTrinidad and Tobago has a free market economy with Lindas Bakery operating in as an oligopoly. The bread market is dominated by the draw Kiss Baking Company followed by Lindas Bakery. There are other competitors but they are subtile in comparison. In order to compete at the same level as Lindas you would need to have at least $50-$70 million TTD in startup costs.Their products however are differentiated. They are price makers utilizing product differentiation by offering a wider range of spunky quality products some of which may not found in other bakeries. They have also added a new line called Lindas Fresh to accommodate changing customer demands and to stay one step away from the competitor.Customer AnalysisAnalysis of Demand and SupplyThere is limited statistical data on demand and supply deep down the industry. Therefore we made assumptions using the theoretical concepts and behavioural changes in wheat imports and consumer purchasing.Wheat imports steadily declined from 2011 to 2014 from cxl to 135. It is projected at 135,000 MT in 2014/2015MY in the Trade report and current USDA domain of a function Markets (USDA 2015). The wheat import forecast fell by -2 (1.45%) thd. mt in the 2014/2015 in comparison to 2013/2014 season. The origin stock for 2014/2015 was 5 thd. mt (indexmundi.com 2015).Using this trend we can assume that the utilisation of flour establish products (such as bread) has decreased over the years. We can assume that this may be due to lifestyle changes considering Th ere is an explosion of diabetes in Trinidad and Tobago and the Caribbean and it is now the second leading cause of death in TT. (Baboolal 2015) With a preponderance rate of 14.2% and an undiagnosed rate of 37.6%, it is possible that 1 out of 2 adults (20-79) in TT are diabetic (IDF 2015). We anticipate a surge of diabetic related issues over the medium to long term. According to the World Health Organization the life expectancy for Trinbagonians has increased from an average of 70.85 to 72.5 years. This can lead to suppliers producing less. price ElasticityLindas Bakery product is price inelastic. Their bread prices are lower when compared to Kiss Bakery however Kiss is the market leader. Bread is considered to be a necessary commodity used in terrestrial life and is highly consumed in Trinidad. If there is an increase in price, then ceteris parabus, the quantity demanded will not decrease. The percentage of income spent is relatively low there is a wide availability of substitutes , a high degree of necessity and no switching costs.Complementary and Substitute ProductsOn a very radical level Lindas complemented their goods with drinks for sale, a common practice for most food outlets. For example the sale of a sandwich or Lindas fresh capacity increase the demand for drinks. However with a substitute the buyer might buy something other than the intended good in store but if the substitute is outside the business then the company will not maximise profit.Externalities (Positive and Negative)Positive externality in consumption is Lindas Bakery training their staff resulting in an increase of human capital. They are therefore able to educate other people who benefit from them. Positive externality in production is the tax break in manufacturing that will encourage entrepreneurship to lead to diversification, employment and economic growth.Free markets allow the negative externality in consumption is the increase rate of diabetes and obesity in Trinidad and Tob ago.ConclusionThere are major opportunities and challenges for Lindas within the current economic environment. Lindas Bakery has plans for expansion nationally and potentially regionally. Based on the expense to expand production capacity, Lindas must continue on its current expansion path to effectively utilize this increase in production capacity.They can accomplish this expansion by utilizing their current resources and revenue to accomplish the task. As such they currently do not need to go for financing and are not affect by the increase in interest rate. This is another reason why we recommend Lindas continue on its current expansion path.They can gain a competitive advantage through the activity of technology. For example the introduction of an app can boost the companys visibility and brand awareness, generate sales and capture customer data to make projections.However, a major challenge for the company is the limited supply of labour in the country. Even though persons ca n seek employment at Lindas with limited experience, there exist easier options through government programmes. The application of technology above may also mitigate some of the burdens of in store staff by shifting the effort needed to the customer.AppendixFigure 1.1Figure 1.2Works citedBaboolal, Yvonne. 2015. Diabetes In TT Ranked No 2 Killer. Trinidad Tobago Guardian. http//www.guardian.co.tt/news/2012-03-12/diabetes-tt-ranked-no-2-killer.FoodAndBeverageTT.com,. 2015. Industry Profile Food And Beverage Industry Development Committee . http//www.foodandbeveragett.com/industry-profile/.Government of Trinidad Tobago. 2014. Budget Presentation 2015. Port of Spain.IDF, International Diabetes Federation. 2015. Trinidad And Tobago. http//www.idf.org/membership/nac/trinidad-and-tobago.IMF, International fiscal Fund,. 2015. Trinidad And Tobago And The IMF. http//www.imf.org/external/country/tto/.Indexmundi.com,. 2015. Trinidad And Tobago Wheat Imports By Year (1000 MT). http//www.index mundi.com/agriculture/?country=ttcommodity=wheatgraph=imports.Kissoon, Carolyn. 2014. Repo Rate Increases To 3.25 Per Cent. Trinidad Express. http//www.trinidadexpress.com/news/Repo-rate-increases-to-325-per-cent-284545331.html.News.gov.tt,. 2015. Central Bank Local Consumers Pessimistic. http//www.news.gov.tt/content/central-bank-local-consumers-pessimistic.VRYEofnF_xV.Sloan, Elizabeth. 2014. The Top Ten Functional Food Trends.Food Technology.http//www.ift.org/food-technology/past-issues/2014/april/features/toptentrends.aspx.USDA, United States department of Agriculture. 2015. Data Analysis. http//www.fas.usda.gov/dataWilson, Jeff, and Lydia Mulvany. 2015. Russians, Argentines, Cows Are Squeezing U.S. Wheat Price. Bloomberg.Com. http//www.bloomberg.com/news/articles/2015-01-29/russians-europeans-cows-are-squeezing-u-s-wheat-price.