Shibin Nadar PGDM (08) - Maggi

Porter’s Five Forces Model of Maggi
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.

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Porter’s Five Forces Model of Maggi

Following is a detailed Porter Five Forces Model Analysis of Maggi:

Competitive Rivalry – High

Threat of New Entrants – High

Bargaining Power of Suppliers – Low

Bargaining Power of Buyers – High

Threat of Substitutes – High

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