Introduction
Generally, every business aims to make financial gains from its activities, even though sometimes the estimated profit may become unachievable. Essential factors influencing firms, such as competitors, consumers, industry, and suppliers, determine profit-making. An organization will profit or incur losses depending on how the elements affect its operations.
Positive influence on business leads to profit-making, while negative impact contributes to losses. Similarly, Dusty Knuckle’s firm is affected by factors such as its consumers, suppliers, competitors, and industry nature regarding barriers and position, which influence profit-making. Porter’s Five Analysis demonstrates how consumer power, competitors, supplier power, and industrial metrics have negatively impacted Dusty Knuckle’s profit.
The Porter’s Five Analysis
Competitive Rivalry
The presence of rival and similar products in the food industry affects DK’s strength in the market. The food industry in the London market where DK operates is congested with many food firms. Even though DK enjoys a significant market share, rival firms that command the market equally affect it. As a result, DK is not the only price determinant in the industry. Similarly, the presence of competitors influences factors such as promotion since DK must invest heavily in popularizing its brand and products to maintain the market leader, increasing the costs related to the advertisement.
The Threat of New Entrants
In this case, the London food industry is an open market where firms are allowed to join the industry. New companies can enter the market and compete for the market share with existing firms, including Dusty Knuckle, thereby putting pressure on the business to adjust the prices and, in turn, affect the profit. In addition, the industry is open to exit; hence, Dusky Knuckles can exit the market whenever needed.
Threat of Substitutes
Based on Dusky Knuckle, several substitutes in the market, such as cakes, burgers, hotdogs, and biscuits, among other wheat snacks, provide a cheaper alternative. Thus, DK must keep its prices low to prevent consumers from going to the substitutes. Furthermore, DK has substituted the rival firms which enjoy an equally large market share; hence the business must maintain their prices at a minimum to avoid losing the competitive advantage.
Bargaining Power of Consumers
The bargaining power of consumers can affect prices, which in turn impacts profit-making. In this case, DK enjoys the largest market share within the London bakery industry. However, consumers enjoy bargaining, which influences prices. Firms within the industry cannot make huge profits by setting prices higher since the consumers have power. DK, in particular, is dictated by the customers on prices.
Bargaining Power of Supplier
The food industry relies on suppliers for raw materials, giving sellers much power over the market. The suppliers can dictate essential factors such as cost, value, and reliability. As in the case of DK, vendors can influence profit-making by reducing or increasing the cost of raw materials for baked food, which affects most industries’ pricing and results in profit.
2 DK Gross Profits
The DK’s Gross Profit for the Financial Year Ending 31 March 2022
Gross profit = total sales – expenses
The estimated gross profit for the financial year 2022 is 4,340000
Recommendations to Improve Profitability
Increasing Income
Even though DK enjoys the largest market share among the bakery businesses, it must increase its income to improve profitability. The firm will use the strategies of increasing sales by attracting more customers and increasing profit margin by reducing the many expenses that incur many costs. For instance, the company should reduce the number of employees to lower the wage bill.
Reducing Expenses
Furthermore, DK can increase profitability by reducing expenses, which will lower production costs. There are unnecessary costs that can be reduced by decreasing the number of employees to lower the wage bill. The firm can use online trading by reaching consumers virtually to reduce the need for manual operation, which is labor intensive.
Feasibility Study on Profit
DK has been enjoying profit due to its large market share. However, most countries were affected by the covid19 and the Russia-Ukraine war, which destroyed many economies. As a result, most governments, including England, depend on raising taxes, which will increase the cost of production, thus inhibiting the firm from making the anticipated profits. The current political-legal and environmental factors are not favorable to profit making. On the other hand, the availability of technology may lead to reduced labor requirements and cost of production, leading to increased profit.
Conclusion
In summary, DK’s profit situation in the market is influenced by factors such as the free market, consumer bargaining power, competitive rivalry, and substitutes, as explained by Porter’s Five Analysis. The company will employ strategies such as increasing income to increase sales and decreasing expenses to reduce the cost of production.