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What happens when new competitors enter an industry
What Happens When New Competitors Enter an Industry John L. Haverty
Myroslaw J. Kyj This article examines the impact that evolving competitive environments have on traditional business relationships in the baking industry. The entry of supermarket in-store bakeries and franchised donut shops not only has significantly altered the competitive reality but also has sown the seeds of mistrust among long-established business partners--retail bakers and bakery ingredients distributors. The article also shows how disequilibrium within the retail baking industry offers an opportunity for new competitors to consolidate and enlarge their market penetration, and the need for the traditional players to redirect their marketing strategy.
INTRODUCTION Large, well-financed organizations have dramatically altered the nature of competition in diverse industries. For example, McDonald's in fast food, Service Corporation International in integrated funeral services, and Midas Muffler in automotive repair centers have had a major impact on redefining business conduct Address correspondence to John L. Haverty, Department of Food Marketing, St. Joseph's University, 5600 City Avenue, Philadelphia, PA 19131-1395.
Industrial Marketing Management20, 73-80 (1991) © Elsevier Science Publishing Co., Inc., 1991 655 Avenue of the Americas, New York, NY 10010
across their respective industries. Their intrusion has resulted in a profound disturbance of the status quo and in turn brought about a reexamination of traditional business roles, relationships, and practices. Retailers and distributors in these turbulent industries, who once considered themselves partners, may be forced to reach out to broader market segments in order to maintain a leading edge in a more competitive, dynamic market. One of several options for a distributor is to " j o i n " the new competition, by selling to them, risking the ire of the distributor's traditional customers. Regardless of whether a distributor exercises this option, the retailer may perceive disloyalty on the part of the distributor, resulting in a spiral of mutual distrust and instability that increases the difficulties for all the traditional players. Thus, the presence of a new, aggressive, wellfinanced competitor in any field is the start of a series of potential scenarios for the traditional distributors and retailers in that field, depending upon how they view the future direction of their environment. The types of actions that traditional industry members undertake, either collectively or singly, depend on the meaning they assign to the conduct of the new indus-
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Developments that spawned new competitors try members who define the emerging competitive climate. For instance, if the operations of the new competitor appear equally hostile to both retailers and distributors, we could expect greater cooperation to fend off the peril of the new intruders. Another scenario is possible, however. The change for a distributor may be a welcome opportunity, indeed a golden occasion, to capture large accounts while it is at the same time a serious threat to the very existence of the retailer. Such a scenario lays the foundations for channel conflict among members that have historically been closely linked to each other's economic welfare. This article examines these phenomena in one traditional channel of distribution that is currently being faced with new competition from several large, wellfinanced organizations: the retail baking industry. Currently this industry is striving to cope with the challenge of two aggressive, new forms of competition: supermarket in-store bakeries and franchised donut chains. The tension and stress within the retail baking industry that are resulting from these new competitors compel industry members to reconsider not only their long-established business practices, but also their traditional business alliances. In order to understand the developments in the retail baking industry, we first present an overview of the traditional players in the industry. We then show how technological changes are transforming the industry by facilitating the entry of large, well-financed firms that are capable of exploiting the technological changes. We call these firms "the new competitors."
JOHN L. HAVERTY is Associate Professor of Food Marketing at St. Joseph's University in Philadelphia. MYROSLAW KYJ is Associate Professor at Widener University in Chester, Pennsylvania.
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The Retail Baking Industry: Traditional Players The retail baking industry is composed of two tiers: retail bakery operators and bakery ingredients distributors. There are by recent estimates 19,925 operating bakeries, the vast majority (89%) employing fewer than 20 people. Indeed, 42% or some 8,370 bakeries had between 1-4 employees; over half of these establishments reported a sales volume of less than $200,000 [6]. The picture of the typical retail bakery as a morn-and-pop-operated business competing against another morn-and-pop still remains an accurate portrayal of the industry. Historically, retail baking relied on a skilled work force, was laborintensive, and was geographically constrained in scope of operation. The typical marketing strategy of any given retail bakery was to serve narrowly defined consumer tastes, frequently along regional or ethnic lines. Even today, despite encroachments by larger competitors, there are still many bakeries specializing in German, Italian, French, or Eastern European pastries. Thus, while retail baking has been aided by new technology, many of its practices are similar to the ways of generations past. Bakery ingredient supply houses or distributors make up the second tier of the industry [8]. While distributors tend to be much larger in terms of sales volume ($15 million to $20 million) than the retail bakers they service, many are family-controlled like their baker counterparts. The typical bakery ingredients distributor works within a radius of 50 miles, though some large operators do business in several states and solicit accounts as far as 500 miles from their warehouse. Likewise, there is a degree of distributor differentiation based on the branded products that each distributor has the franchise to carry.
The Retail Baking Industry: Technological Forces The retail baking industry has shared in the technical advances of society and has reaped the benefits of increased mechanization. Today, not even the smallest shop
would knead dough by hand but instead would rely on a dough mixer. The rapid march of technology has continued to alter the market of the traditional retail baker. Out of a 20-year time frame, two significant trends emerge: the increased reliance on deep-freezing [3], and the greater availability and variety of quality bakery mixes [10]. These two developments broke the retail baker's dependence on labor-intensive" scratch baking," the performance of numerous serially linked tasks, such as scaling, mixing, forming, proofing, and baking, that are integral to most baked products. Additionally, advances in baking chemistry shortened the time for these procedures in many instances. For example: Scaling poundcake requires measuring out 12 different items from scratch, but with a mix a similar cake requires weighing only two. Freezing allowed the retail baker to buy or build up an inventory of products and "bake off" as demand warranted. With the ability to buy quality frozen products from a third party, the retail baker's dependence on skilled help was decreased. If, on the other hand, the retailer chose to freeze his own output, he could take advantage of the economies inherent in larger production runs.
Technological change is often a two-edged sword, however. The dual factors of efficient freezing and availability of quality frozen bakery products made it feasible for new participants to enter the baking industry and encroach on market segments that traditionally were the sole preserve of retail bakers. Dunkin Donuts, Mr. Donut, Winchell's Donuts, and a number of smaller chains became the prime representatives of the baking industry within this market segment. All depended heavily on donut mixes for attaining product consistency and quality without the services of skilled professional bakers who also happened to command high wages. Another important competitor spawned by these technological developments was the in-store supermarket bakery. In-store bakeries produced a wide assortment of bakery products and typically relied on preformed frozen products for their bake-offs. The high traffic and the marketing expertise found in the supermarket worked well to promote the sights and smells of an operating bakery without the less attractive backup facilities in a full-function shop. The retail baking industry is evolving from one in which within-type competition, retail baker versus retail baker, has been the norm to one that is characterized increasingly by intertype competition, a retail baker against a franchised chain or supermarket in-store bakery.
The local retail baker must now compete directly with aggressive, well-financed organizations such as Dunkin Donuts of America or Safeway Supermarkets.
The New Competitors: Supermarket In-Store Bakeries and Franchise Operations Supermarkets operated an estimated 22,288 in-store bakeries in 1989 [7]. As expected, this segment of the industry is outperforming both retail and wholesale bakers in sales growth rates [4,5]. Supermarkets are discovering that a good in-store bakery is capable of adding an ever larger percentage to the overall sales of the store. Adding to the interest is the growing conviction that bake-off operations have a positive impact on other departments. Supermarket bakeries have the capability to attract new customers, which enhances the strategic position that instore bakeries have in the eyes of top management. These factors suggest that in-store bakeries are not a temporary fancy of supermarkets but rather a permanent fixture with which traditional bakers must contend. The donut chains have redefined a small segment of the baking industry. Dunkin Donuts, with over 1,400 units, has done for the donut business what McDonald's has achieved for hamburgers and french fries, with the notable exception that the former has a larger share of its market [9]. The big three of Dunkin Donuts, 'Mister Donut, and Winchell's Donut House together account for nearly 70% of the nearly 4,000 outlets nationwide. The absolute numbers become more meaningful when contrasted with the base year of 1979, which showed seven donut chains with 2,016 outlets [2]. A typical Dunkin Donut store reports sales in the vicinity of $450,000, the very good stores showing sales of $1.5 million per year. In a departure from past practices, some donut chain operators are moving beyond the established production and sit-down facilities to secure sales. In the Los Angeles and San Diego markets, Winchell's has been building alliances with 7-Eleven convenience stores to sell their product and gain market penetration. Likewise, Dunkin Donuts is experimenting with kitchenless satellite outlets at various passenger terminals and convenience stores to increase their product availability.
Response to the Threat: The Spiral of Mistrust The presence of new competitors in an industry may elicit a response from the existing players, but only if the existing players, first of all, perceive the threat. Once
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A spiral of mistrust o c c u r s this occurs, the individual players must decide if some action is appropriate. If the actions of the new competitors appear equally threatening to the traditional players in the industry, some collective action is possible. This scenario is not a certainty, however. As the number and variety of channel participants increase, the probability of similar perceptions of the competitive environment decreases. For example, a distributor might perceive a supermarket in-store bakery or a franchised donut shop as a potential large sale, while a retail baker might see either of these new competitors as a serious threat. Furthermore, the very reactions of established firms within the channel to the environmental threat posed by new, large competitors may become in themselves sources of distrust, leading to potential conflict among firms that have been doing business for years. For instance, the perceptions of each firm in a business relationship of the behavior of its business partner becomes part of its relevant environment. In other words, what a retailer thinks the distributor is doing is as important as the distributor's actual conduct. Thus, the groundwork for possible misperceptions is multiplied. Lack of agreement concerning the assessment of environmental threats on the part of business partners within a distribution channel decreases the likelihood of a "correct" or unified managerial response. Consequently, it is likely that one or both partners might take hedging responses, and might try to reach some accommodation with the new competitors. These responses in turn are apt to be perceived as threatening by the corresponding channel partner, resulting in a spiral of mistrust that foments channel conflict and instability. Quite simply, established members of the industry may be unable to mount a coordinated response to a new threat because of a lack of consensus, since they see the world through a different prism. And this spiral of mistrust may represent a strategic window of opportunity for the new competitors to more fully exploit their competitive edge.
THE RESEARCH STUDY The study reported in this article explores the reactions of the traditional players in the retail baking industry to 76
the new competitors. Three specific aspects of this reaction are examined. The first involves the perceptions of environmental trends held by the traditional players: retail bakers and ingredient distributors. We investigate whether these two sets of players assign the same significance to the new competition. The second aspect of the study involves the perceptions held by retail bakers and ingredient distributors of their channel partners' behavior. We investigate what retail bakers are perceived by ingredient distributors to be doing, and what ingredient distributors are perceived by retail bakers to be doing. Finally, we investigate the strategic and tactical managerial actions that retail bakers and distributors feel are appropriate, given the new competition.
RESEARCH METHODOLOGY The sample for this study was chosen from Bakery Production and Marketing 1986 Redbook. The Redbook annually lists the major bakeries in the United States along with their dominant method of business, wholesale or retail. From this listing a total of 213 establishments from each region of the country were identified as retailers. The vast majority of the listed retail bakeries had reported yearly sales of at least $1 million. Two separate mailings produced 66 responses and 8 questionnaires returned as undeliverable, for an effective response rate of 32%. Likewise, the directory identified the bakery supplies distributors and the types of accounts they serviced. Most distributors served all types of customers in the baking industry, whereas some specialized in a given segment, selling to only wholesalers as an example. In this study only those distributors who were listed as actually serving retail bakeries, regardless of other types of accounts, were surveyed. Thus, a total of 416 were sent a mail questionnaire. From this group, 21 were undeliverable and 111 responded, for an effective rate of 29%. In both cases the respondents were asked to indicate their degree of agreement, on a five-point scale, with a series of 68 statements covering the retail baking industry. The questionnaire instructs respondents to assign a 1
TABLE 1
Perception of Environmental Trends in the Baking Industry Bakers
Distributors
Supermarket bakeries are a major threat to retailers' market share
61
73
Competition from supermarket bakeries has increased compared to ten years ago
82
88
Chains such as "Dunkin Donuts" are a problem for retail bakers
31
31
In the next ten years, supermaket bakeries will give retail bakeries more competition
83
74
Supermarket bakeries or franchised chains stimulate demand for all bakery foods
60
61
Supermarket bakeries are the wave of the future and distributors must serve them
53
58
In contrast to retail bakeries, supermarket bakeries offer lower quality products
77
45
Data are the percentages of respondents agreeing with statements.
to a statement with which they "Completely Disagree," a 3 if they "Neither Agree Nor Disagree," and a 5 if they "Completely Agree." The statements were the product of extensive consultation with knowledgeable people in the industry and the findings of a mailed pre-test questionnaire. Included in the research instrument were items about bakery product assortment, competition from supermarket bakeries and franchised operations, retail bakery practices and the conduct of bakery ingredients distributors in general.
RESEARCH RESULTS The research findings are organized into an overview of retailers' and distributors' assessments of the trends affecting the industry, their perceptions about each others' behavior, and the type of managerial action that they find appropriate in light of environmental trends.
Perceptions of Environmental Trends Among distributors and retail bakers there is an agreement about the major trends in their industry. Table 1 shows a consensus of opinion that supermarket bakeries are an ominous threat in the competitive environment, but that franchised donut shops are not a serious menace. Retailers and distributors agreed not only that supermarket bakeries are a current threat to retailers' market share, but also that the nature of this threat has increased in the past decade and the next 10 years promise even
greater competition from supermarket bakery operations. The perceived entrenchment of supermarket bakeries is illustrated by the shared opinion that they are the wave of the future. For instance, 53% of retail bakers and 58% of the distributors shared the opinion that supermarket bakeries would characterize the competitive environment of the future. It is not clear, however, whether the presence of this new competitive type is necessarily detrimental to the traditional participants, since the majority of retailers and distributors (60%) are of the opinion that supermarket bakeries, along with franchised donut chains, stimulate the demand for all types of bakery foods. In other words, through their marketing knowhow and technical expertise they can be the force that expands the market for the benefit of all. Thus, while retailers apparently fear the intrusion of supermarkets and respect their business skill, they continue to exhibit confidence in their own future. Retail bakers overwhelmingly feel that they offer superior products relative to supermarket competition, an opinion that is not shared by distributors. This stance does seem to suggest that retailers will attempt to escape the long shadow of the supermarket in-store bakery and preserve a competitive niche by emphasizing product quality. Table 1 clearly shows the emergence of a serious new channel-type competitor for the traditional retail baker. This competitor has the power to significantly alter existing channel relationships by placing service demands on the bakery ingredient distributor, the traditional partner of the retail baker. Supermarket bakery operations by their sheer presence are stressful for traditional channels of distribution in the baking industry: They possesses the potential for creating intrachannel conflict between retail bakers and their distributors. In contrast to the consternation with which supermarket bakeries are perceived, the retail baking industry does not view the donut chains as particularly dangerous competitors. Indeed, 45% of the retail bakers reported that their sales of donuts have increased. Furthermore, the fact that only 31% of the retailers and 31% of the distributors stated that this type of competition presented a problem suggests that the retail baking industry has reached an accommodation with the donut chains. Retail bakers have either chosen to abandon the donut market and concentrate on upscale items such as cakes, cookies, or custom-made pastries or maintain a presence at premium prices. Thus, the donut chains may no longer be viewed as a threat, because retail bakers are not aggressively participating in that segment of the market, which 77
C h a n n e l conflict b r e a k s out
Bakers
Distributors
Distributors are willing to listen to retailers' complaints and make adjustments for damaged or spoiled merchandise
64
75
Distributors sell to firms competing directly with retailers, even if this means economic harm to retail bakers
80
61
Distributors suggest ways retailers can compete against supermarket bakeries
20
59
Distributors provide similar services to supermarket and retail bakeries
48
58
Distributors will assist retail bakers during financial emergencies
26
45
disharmony is retail bakers' willingness to believe that distributors would readily take actions (selling to supermarkets, for instance) that would result in economic harm to bakers. Retailers seemed to view their distributors as organizations with short-term profit motives as opposed to partners with mutual long-term interests. For their part, distributors indicated a greater sense of awareness of the crucial role they play in the retail baking channel. Consider that nearly three times as many distributors (59%) as retailers (20%) stated that distributors suggest ways for retail bakers to compete against supermarkets. This sharp discrepancy in perceptions would indicate that distributors are not effectively communicating their suggestions, retailers are not listening, or retail bakers view the suggestions as trite and unrealistic, and therefore do not categorize them as advice. Regardless of the cause, the effect will be an attitude of devil take the hindmost. In response to such perceived threats, retailers feel they need to have more than one distributor, while distributors operating under a different set of premises understandably prefer sole sourcing. The important point to emphasize here is that channel conflict can break out over subjective perceptions rather than some objective reality. It must be also of some concern to bakery ingredient distributors that retailers are convinced that distributors will service accounts that in turn can bring economic hardships to retail bakers. All indications are that there is little if any sense of channel unity, and the prime motivator that animates all participants is their own specific economic welfare.
Distributors selling to supermarket bakers help retail bakers" competitors
34
27
Appropriate Managerial Actions
In return for technical assistance to retail bakers, distributors can count on continued patronage
59
41
Retailers resent distributors who service supermarket bakeries
15
20
Retail bakers get charged more for products than do supermarket bakeries
46
26
Retail bakers appreciate the technical help provided by distributors
77
72
As a group, retail bakers are powerless to offset distributor business policies
33
25
This research indicates that retailers and distributors feel that substantially different managerial actions are appropriate in light of current economic trends. Even though there is disagreement on the substance of managerial action, both parties concur in essentially identical proportions that the retail bakery is an important link for the distributors' financial viability. If true, this factor should be a powerful cohesive force in the retail baking industry. Next, let us turn to the tactical and strategic
has been historically their domain. The other explanation may be that donut shops are merchandisers of a limited product line, primarily fried breakfast items, which are not particularly in vogue with an increasingly healthconscious public [1]; as long as donut shops remain limited producers, retail bakers see no reason for alarm.
Perceptions of Channel Partner Behavior Much of the potential conflict between retailers and distributors arises from different interpretations of their respective behavior. Table 2 lists some sharp areas of disagreement with regard to channel partners' behavior. Far more retail bakers (46%) than distributors (26%) felt that retail bakers as a group are charged more for merchandise than supermarket operations. Another area of TABLE 2
Perceptions of Channel Partner Behavior in the Baking Industry
Data are the percentages of respondents agreeing with statements.
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actions that each channel partner feels are appropriate in the current environment. Tactical actions included in Table 3 include actions the retailers might take to modify conduct of distributors that compromises retailers' interests. Decreasing purchases, vocal expressions of dissatisfaction with the distributors' conduct, and slow payment of bills were seen as ineffective by both channel participants. On the other hand, retail bakers felt that it was imperative to have more than one distributor to get a fair deal, whereas only half of the distributors concurred with this position. For example, twice as fnany distributors as retail bakers agreed with the premise that it is a nuisance and waste of time to have more than two distributors. This undoubtedly is a self-serving position, since there are very few baking ingredient distributors that rely on a single source of supply, be it flour, sugar, or shortening. Parochial interests of respective channel members are further brought out in the attitude towards minimum order quantities. As could be expected, more distributors than retailers were in favor of $100 minimum orders. Strategic actions included in Table 3 concern decisions whether to abandon segments of the market or to enter TABLE 3 Appropriate Managerial Actions in the Bakery Industry
The retail bakery is an important link in the distributors' economic health Voicing displeasure with a distributor serving supermarket bakeries is an effective technique in dealing with supermarket competition Decreasing purchases from distributors serving supermarket bakeries can get them to change their ways Slower payment of bills is a good way to signal displeasure with a distributor
Bakers
Distributors
76
79
9
9
9
13
8
10
In order for the retailer to get a fair deal, it is necessary to have more than one distributor
89
51
To increase profitability, distributors ought to move into related businesses
29
51
To increase profitability, distributors ought to move into nonrelated businesses
20
28
Having more than two distributors is a nuisance and waste of time
14
30
Bakery distributors should impose a minimum order quantity of at least $100
50
79
4
8
Once a supermarket bakery goes after a market segment (e.g., bread, cookies, cake), it is best for the retailer to concede the market
Data are the percentages of respondents agreeing with statements.
new businesses. Distributors felt they should hedge, and move into related businesses (a strategy of product development) but retailers disagreed. Retailers, despite the problems posed by supermarket in-store bakeries, exhibited a higher level of commitment to their current line of business--a strategy of market penetration. Despite the fact that many retailers saw supermarket bakeries as the wave of the future, a minuscule portion (4%) of the retail bakers thought it best to concede a segment of the market simply because supermarkets attempt to establish a presence. This sentiment was shared by distributors in only a slightly higher percentage (8%). Far from being intimidated by the growth of supermarket operations, industry observers report a renewed interest in retail bakery operations. One of the distributor respondents whose family has been in the business for four generations reported: " W e have seen a new growth in the last four to five years of small M a - P a or two-partner retail quality bakery shops and we hope the trend continues."
CONCLUSIONS ANO RECOMMENDATIONS The research leads us to believe that distributors and retailers are taking contradictory actions in light of the environmental threats shown in Table 1 and the respective misperc0eptions shown in Table 2. Distributors of bakery goods appear to be engaged in hedging actions, such as entering a related line of business. Retail bakers, on the other hand, appear to be directing their resources for a defense of established market shares within their current line of business.
Managerial Implications What are the implications of this research for channel organization and how can marketing managers adjust to the aftermath of environmental turbulence? Several implications of this research are presented for participants in the traditional retail channel. At the same time, however, the study has uncovered some unforeseen opportunities for in-store bakery operators. It is evident that both retail bakers and distributors of bakery ingredients scan the environment similarly. There is a general consensus that supermarkets have made major inroads into the traditional retail baking channel with their in-store bakeries but that franchised donut chains do not constitute a serious threat. There is substantial disagreement, however, about appropriate tactical and strategic 79
managerial actions that should be taken in response to these trends, indicating a spiral of mistrust that in turn can be expected to destabilize e~(isting business relationships. For instance, retail bakers are convinced that distributors favor supermarkets despite the latter's denial. Whether this lack of trust on the part of the retail baking industry is the result of fact or fancy, it is apt to elicit a response that bodes ill for the entire industry as respective components of the retail channel seek to protect their status at all cost. It stands to reason that new entrants into the retail industry would benefit as the traditional business partners bicker among themselves. Any action that retards a concerted effort against in-store bakery inroads would serve the interests of the supermarkets. The traditional retail bakery channel needs to develop a mechanism to dampen this spiral of mistrust in light of the supermarket threat. There are a number of concrete steps that the retail baking industry can take collectively and by individual participants that can rectify the climate of suspicion. Existing institutions that are familiar to channel participants could be used to moderate this instability. For example, trade shows and professional associations provide the bridge for the interchange of ideas, opinions, and beliefs among channel members in a neutral, nonthreatening manner. The research indicates that all members of the channel, regardless of position, have a good sense of environmental trends, so it appears that these mechanisms are functioning well. Trade shows and professional associations should continue to perform this environmental scanning function, but these activities need to be supplemented by mechanisms that focus on appropriate tactical and strategic actions in light of these trends. It becomes imperative for bakery ingredient distributors to emphasize their historic partnership with retail bakers and to be clear about their intentions. In addition to publishing a product list, distributors may want to consider publishing price lists for stated quantities of merchandise that are available to all categories of customers. Otherwise, distributor contentions that they provide advice to their retail bakery customer base will be seen as nothing more than lip service. Despite the serious nature of the supermarket threat retail bakers are not powerless. They should seriously consider a hedging strategy to lesson their risk in a single
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line of business. For many retailers a limited catering service can provide additional outlets for their traditional products. The editors of the leading bakery journals have been long espousing this approach, which in the light of the discussed developments has taken on a new urgency. Furthermore, retailers must continue to stress quality at every turn, because competing against the supermarkets on a price basis is a formula for disaster. One additional area that retailers can exploit is to arrange creative labor conditions in an era of shortage of labor power, especially of trained bakers. Many jobs can be divided into relatively simple tasks that can be performed by persons seeking part-time employment such as students or retirees. Finally there are implications for institutions such as supermarkets, which are attempting to encroach upon the traditional retail bakers' domain. The channel instability noted in this research may indicate a window of opportunity for an integrated operator, such as a supermarket. Likewise, a high degree of channel cohesion in a particular market might indicate a more difficult challenge for the integrated operator. In any case, research into the level of cohesion in the traditional channel should be a crucial input into the strategic planning decisions of an integrated operator.
REFERENCES 1. Business Week, Why Dunkin' Donuts LooksSo Yummy, 42 (May 8, 1989). 2. Gorman, Tom, Big Donut Chains Are Expanding in Markets, Bakery Production and Marketing 56, 88-89 (May 24, 1988). 3. Gorton, Laurie, Expansion Continues at Pestritto Foods, Baking & Snack Systems 10, 6-9 (June, 1988). 4. Harris, Doug, In-Store Sales Soar Even Higher, Bakery Production and Marketing 23, 42--46 (May 24, 1988). 5. Kapp, Sue, In-Stores Mount Grand Expansion Plans, Bakery Production and Marketing, 20:121-125 (February 24, 1985). 6. Kroskey, Carol M., Pawns in a Battle of Market Forces, Bakery Production and Marketing 24, 72-78 (May 24, 1989). 7. Krumrei, Doug, In-StoresCounterRestructuringPloy, and Marketing 2,4, 64-67 (May 24, 1989).
Bakery Production
8. Lee, Edward, In Thompson Bakery Supply's View Bakers Seek Convenience with Quality, Modern Baking 2, 92-100 (March, 1988). 9. Pereira, Joseph, Dunkin' Chief Wants No Holes in Defense, Wall Street Journal, BI0 (June 7, 1989). 10. Sjoquist, Kathy, Look of Today, Taste of Yesterday, Modern Baking 2, 62-70 (May, 1988).
Myroslaw J. Kyj This article examines the impact that evolving competitive environments have on traditional business relationships in the baking industry. The entry of supermarket in-store bakeries and franchised donut shops not only has significantly altered the competitive reality but also has sown the seeds of mistrust among long-established business partners--retail bakers and bakery ingredients distributors. The article also shows how disequilibrium within the retail baking industry offers an opportunity for new competitors to consolidate and enlarge their market penetration, and the need for the traditional players to redirect their marketing strategy.
INTRODUCTION Large, well-financed organizations have dramatically altered the nature of competition in diverse industries. For example, McDonald's in fast food, Service Corporation International in integrated funeral services, and Midas Muffler in automotive repair centers have had a major impact on redefining business conduct Address correspondence to John L. Haverty, Department of Food Marketing, St. Joseph's University, 5600 City Avenue, Philadelphia, PA 19131-1395.
Industrial Marketing Management20, 73-80 (1991) © Elsevier Science Publishing Co., Inc., 1991 655 Avenue of the Americas, New York, NY 10010
across their respective industries. Their intrusion has resulted in a profound disturbance of the status quo and in turn brought about a reexamination of traditional business roles, relationships, and practices. Retailers and distributors in these turbulent industries, who once considered themselves partners, may be forced to reach out to broader market segments in order to maintain a leading edge in a more competitive, dynamic market. One of several options for a distributor is to " j o i n " the new competition, by selling to them, risking the ire of the distributor's traditional customers. Regardless of whether a distributor exercises this option, the retailer may perceive disloyalty on the part of the distributor, resulting in a spiral of mutual distrust and instability that increases the difficulties for all the traditional players. Thus, the presence of a new, aggressive, wellfinanced competitor in any field is the start of a series of potential scenarios for the traditional distributors and retailers in that field, depending upon how they view the future direction of their environment. The types of actions that traditional industry members undertake, either collectively or singly, depend on the meaning they assign to the conduct of the new indus-
73 0019-8501/91/$3.50
Developments that spawned new competitors try members who define the emerging competitive climate. For instance, if the operations of the new competitor appear equally hostile to both retailers and distributors, we could expect greater cooperation to fend off the peril of the new intruders. Another scenario is possible, however. The change for a distributor may be a welcome opportunity, indeed a golden occasion, to capture large accounts while it is at the same time a serious threat to the very existence of the retailer. Such a scenario lays the foundations for channel conflict among members that have historically been closely linked to each other's economic welfare. This article examines these phenomena in one traditional channel of distribution that is currently being faced with new competition from several large, wellfinanced organizations: the retail baking industry. Currently this industry is striving to cope with the challenge of two aggressive, new forms of competition: supermarket in-store bakeries and franchised donut chains. The tension and stress within the retail baking industry that are resulting from these new competitors compel industry members to reconsider not only their long-established business practices, but also their traditional business alliances. In order to understand the developments in the retail baking industry, we first present an overview of the traditional players in the industry. We then show how technological changes are transforming the industry by facilitating the entry of large, well-financed firms that are capable of exploiting the technological changes. We call these firms "the new competitors."
JOHN L. HAVERTY is Associate Professor of Food Marketing at St. Joseph's University in Philadelphia. MYROSLAW KYJ is Associate Professor at Widener University in Chester, Pennsylvania.
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The Retail Baking Industry: Traditional Players The retail baking industry is composed of two tiers: retail bakery operators and bakery ingredients distributors. There are by recent estimates 19,925 operating bakeries, the vast majority (89%) employing fewer than 20 people. Indeed, 42% or some 8,370 bakeries had between 1-4 employees; over half of these establishments reported a sales volume of less than $200,000 [6]. The picture of the typical retail bakery as a morn-and-pop-operated business competing against another morn-and-pop still remains an accurate portrayal of the industry. Historically, retail baking relied on a skilled work force, was laborintensive, and was geographically constrained in scope of operation. The typical marketing strategy of any given retail bakery was to serve narrowly defined consumer tastes, frequently along regional or ethnic lines. Even today, despite encroachments by larger competitors, there are still many bakeries specializing in German, Italian, French, or Eastern European pastries. Thus, while retail baking has been aided by new technology, many of its practices are similar to the ways of generations past. Bakery ingredient supply houses or distributors make up the second tier of the industry [8]. While distributors tend to be much larger in terms of sales volume ($15 million to $20 million) than the retail bakers they service, many are family-controlled like their baker counterparts. The typical bakery ingredients distributor works within a radius of 50 miles, though some large operators do business in several states and solicit accounts as far as 500 miles from their warehouse. Likewise, there is a degree of distributor differentiation based on the branded products that each distributor has the franchise to carry.
The Retail Baking Industry: Technological Forces The retail baking industry has shared in the technical advances of society and has reaped the benefits of increased mechanization. Today, not even the smallest shop
would knead dough by hand but instead would rely on a dough mixer. The rapid march of technology has continued to alter the market of the traditional retail baker. Out of a 20-year time frame, two significant trends emerge: the increased reliance on deep-freezing [3], and the greater availability and variety of quality bakery mixes [10]. These two developments broke the retail baker's dependence on labor-intensive" scratch baking," the performance of numerous serially linked tasks, such as scaling, mixing, forming, proofing, and baking, that are integral to most baked products. Additionally, advances in baking chemistry shortened the time for these procedures in many instances. For example: Scaling poundcake requires measuring out 12 different items from scratch, but with a mix a similar cake requires weighing only two. Freezing allowed the retail baker to buy or build up an inventory of products and "bake off" as demand warranted. With the ability to buy quality frozen products from a third party, the retail baker's dependence on skilled help was decreased. If, on the other hand, the retailer chose to freeze his own output, he could take advantage of the economies inherent in larger production runs.
Technological change is often a two-edged sword, however. The dual factors of efficient freezing and availability of quality frozen bakery products made it feasible for new participants to enter the baking industry and encroach on market segments that traditionally were the sole preserve of retail bakers. Dunkin Donuts, Mr. Donut, Winchell's Donuts, and a number of smaller chains became the prime representatives of the baking industry within this market segment. All depended heavily on donut mixes for attaining product consistency and quality without the services of skilled professional bakers who also happened to command high wages. Another important competitor spawned by these technological developments was the in-store supermarket bakery. In-store bakeries produced a wide assortment of bakery products and typically relied on preformed frozen products for their bake-offs. The high traffic and the marketing expertise found in the supermarket worked well to promote the sights and smells of an operating bakery without the less attractive backup facilities in a full-function shop. The retail baking industry is evolving from one in which within-type competition, retail baker versus retail baker, has been the norm to one that is characterized increasingly by intertype competition, a retail baker against a franchised chain or supermarket in-store bakery.
The local retail baker must now compete directly with aggressive, well-financed organizations such as Dunkin Donuts of America or Safeway Supermarkets.
The New Competitors: Supermarket In-Store Bakeries and Franchise Operations Supermarkets operated an estimated 22,288 in-store bakeries in 1989 [7]. As expected, this segment of the industry is outperforming both retail and wholesale bakers in sales growth rates [4,5]. Supermarkets are discovering that a good in-store bakery is capable of adding an ever larger percentage to the overall sales of the store. Adding to the interest is the growing conviction that bake-off operations have a positive impact on other departments. Supermarket bakeries have the capability to attract new customers, which enhances the strategic position that instore bakeries have in the eyes of top management. These factors suggest that in-store bakeries are not a temporary fancy of supermarkets but rather a permanent fixture with which traditional bakers must contend. The donut chains have redefined a small segment of the baking industry. Dunkin Donuts, with over 1,400 units, has done for the donut business what McDonald's has achieved for hamburgers and french fries, with the notable exception that the former has a larger share of its market [9]. The big three of Dunkin Donuts, 'Mister Donut, and Winchell's Donut House together account for nearly 70% of the nearly 4,000 outlets nationwide. The absolute numbers become more meaningful when contrasted with the base year of 1979, which showed seven donut chains with 2,016 outlets [2]. A typical Dunkin Donut store reports sales in the vicinity of $450,000, the very good stores showing sales of $1.5 million per year. In a departure from past practices, some donut chain operators are moving beyond the established production and sit-down facilities to secure sales. In the Los Angeles and San Diego markets, Winchell's has been building alliances with 7-Eleven convenience stores to sell their product and gain market penetration. Likewise, Dunkin Donuts is experimenting with kitchenless satellite outlets at various passenger terminals and convenience stores to increase their product availability.
Response to the Threat: The Spiral of Mistrust The presence of new competitors in an industry may elicit a response from the existing players, but only if the existing players, first of all, perceive the threat. Once
75
A spiral of mistrust o c c u r s this occurs, the individual players must decide if some action is appropriate. If the actions of the new competitors appear equally threatening to the traditional players in the industry, some collective action is possible. This scenario is not a certainty, however. As the number and variety of channel participants increase, the probability of similar perceptions of the competitive environment decreases. For example, a distributor might perceive a supermarket in-store bakery or a franchised donut shop as a potential large sale, while a retail baker might see either of these new competitors as a serious threat. Furthermore, the very reactions of established firms within the channel to the environmental threat posed by new, large competitors may become in themselves sources of distrust, leading to potential conflict among firms that have been doing business for years. For instance, the perceptions of each firm in a business relationship of the behavior of its business partner becomes part of its relevant environment. In other words, what a retailer thinks the distributor is doing is as important as the distributor's actual conduct. Thus, the groundwork for possible misperceptions is multiplied. Lack of agreement concerning the assessment of environmental threats on the part of business partners within a distribution channel decreases the likelihood of a "correct" or unified managerial response. Consequently, it is likely that one or both partners might take hedging responses, and might try to reach some accommodation with the new competitors. These responses in turn are apt to be perceived as threatening by the corresponding channel partner, resulting in a spiral of mistrust that foments channel conflict and instability. Quite simply, established members of the industry may be unable to mount a coordinated response to a new threat because of a lack of consensus, since they see the world through a different prism. And this spiral of mistrust may represent a strategic window of opportunity for the new competitors to more fully exploit their competitive edge.
THE RESEARCH STUDY The study reported in this article explores the reactions of the traditional players in the retail baking industry to 76
the new competitors. Three specific aspects of this reaction are examined. The first involves the perceptions of environmental trends held by the traditional players: retail bakers and ingredient distributors. We investigate whether these two sets of players assign the same significance to the new competition. The second aspect of the study involves the perceptions held by retail bakers and ingredient distributors of their channel partners' behavior. We investigate what retail bakers are perceived by ingredient distributors to be doing, and what ingredient distributors are perceived by retail bakers to be doing. Finally, we investigate the strategic and tactical managerial actions that retail bakers and distributors feel are appropriate, given the new competition.
RESEARCH METHODOLOGY The sample for this study was chosen from Bakery Production and Marketing 1986 Redbook. The Redbook annually lists the major bakeries in the United States along with their dominant method of business, wholesale or retail. From this listing a total of 213 establishments from each region of the country were identified as retailers. The vast majority of the listed retail bakeries had reported yearly sales of at least $1 million. Two separate mailings produced 66 responses and 8 questionnaires returned as undeliverable, for an effective response rate of 32%. Likewise, the directory identified the bakery supplies distributors and the types of accounts they serviced. Most distributors served all types of customers in the baking industry, whereas some specialized in a given segment, selling to only wholesalers as an example. In this study only those distributors who were listed as actually serving retail bakeries, regardless of other types of accounts, were surveyed. Thus, a total of 416 were sent a mail questionnaire. From this group, 21 were undeliverable and 111 responded, for an effective rate of 29%. In both cases the respondents were asked to indicate their degree of agreement, on a five-point scale, with a series of 68 statements covering the retail baking industry. The questionnaire instructs respondents to assign a 1
TABLE 1
Perception of Environmental Trends in the Baking Industry Bakers
Distributors
Supermarket bakeries are a major threat to retailers' market share
61
73
Competition from supermarket bakeries has increased compared to ten years ago
82
88
Chains such as "Dunkin Donuts" are a problem for retail bakers
31
31
In the next ten years, supermaket bakeries will give retail bakeries more competition
83
74
Supermarket bakeries or franchised chains stimulate demand for all bakery foods
60
61
Supermarket bakeries are the wave of the future and distributors must serve them
53
58
In contrast to retail bakeries, supermarket bakeries offer lower quality products
77
45
Data are the percentages of respondents agreeing with statements.
to a statement with which they "Completely Disagree," a 3 if they "Neither Agree Nor Disagree," and a 5 if they "Completely Agree." The statements were the product of extensive consultation with knowledgeable people in the industry and the findings of a mailed pre-test questionnaire. Included in the research instrument were items about bakery product assortment, competition from supermarket bakeries and franchised operations, retail bakery practices and the conduct of bakery ingredients distributors in general.
RESEARCH RESULTS The research findings are organized into an overview of retailers' and distributors' assessments of the trends affecting the industry, their perceptions about each others' behavior, and the type of managerial action that they find appropriate in light of environmental trends.
Perceptions of Environmental Trends Among distributors and retail bakers there is an agreement about the major trends in their industry. Table 1 shows a consensus of opinion that supermarket bakeries are an ominous threat in the competitive environment, but that franchised donut shops are not a serious menace. Retailers and distributors agreed not only that supermarket bakeries are a current threat to retailers' market share, but also that the nature of this threat has increased in the past decade and the next 10 years promise even
greater competition from supermarket bakery operations. The perceived entrenchment of supermarket bakeries is illustrated by the shared opinion that they are the wave of the future. For instance, 53% of retail bakers and 58% of the distributors shared the opinion that supermarket bakeries would characterize the competitive environment of the future. It is not clear, however, whether the presence of this new competitive type is necessarily detrimental to the traditional participants, since the majority of retailers and distributors (60%) are of the opinion that supermarket bakeries, along with franchised donut chains, stimulate the demand for all types of bakery foods. In other words, through their marketing knowhow and technical expertise they can be the force that expands the market for the benefit of all. Thus, while retailers apparently fear the intrusion of supermarkets and respect their business skill, they continue to exhibit confidence in their own future. Retail bakers overwhelmingly feel that they offer superior products relative to supermarket competition, an opinion that is not shared by distributors. This stance does seem to suggest that retailers will attempt to escape the long shadow of the supermarket in-store bakery and preserve a competitive niche by emphasizing product quality. Table 1 clearly shows the emergence of a serious new channel-type competitor for the traditional retail baker. This competitor has the power to significantly alter existing channel relationships by placing service demands on the bakery ingredient distributor, the traditional partner of the retail baker. Supermarket bakery operations by their sheer presence are stressful for traditional channels of distribution in the baking industry: They possesses the potential for creating intrachannel conflict between retail bakers and their distributors. In contrast to the consternation with which supermarket bakeries are perceived, the retail baking industry does not view the donut chains as particularly dangerous competitors. Indeed, 45% of the retail bakers reported that their sales of donuts have increased. Furthermore, the fact that only 31% of the retailers and 31% of the distributors stated that this type of competition presented a problem suggests that the retail baking industry has reached an accommodation with the donut chains. Retail bakers have either chosen to abandon the donut market and concentrate on upscale items such as cakes, cookies, or custom-made pastries or maintain a presence at premium prices. Thus, the donut chains may no longer be viewed as a threat, because retail bakers are not aggressively participating in that segment of the market, which 77
C h a n n e l conflict b r e a k s out
Bakers
Distributors
Distributors are willing to listen to retailers' complaints and make adjustments for damaged or spoiled merchandise
64
75
Distributors sell to firms competing directly with retailers, even if this means economic harm to retail bakers
80
61
Distributors suggest ways retailers can compete against supermarket bakeries
20
59
Distributors provide similar services to supermarket and retail bakeries
48
58
Distributors will assist retail bakers during financial emergencies
26
45
disharmony is retail bakers' willingness to believe that distributors would readily take actions (selling to supermarkets, for instance) that would result in economic harm to bakers. Retailers seemed to view their distributors as organizations with short-term profit motives as opposed to partners with mutual long-term interests. For their part, distributors indicated a greater sense of awareness of the crucial role they play in the retail baking channel. Consider that nearly three times as many distributors (59%) as retailers (20%) stated that distributors suggest ways for retail bakers to compete against supermarkets. This sharp discrepancy in perceptions would indicate that distributors are not effectively communicating their suggestions, retailers are not listening, or retail bakers view the suggestions as trite and unrealistic, and therefore do not categorize them as advice. Regardless of the cause, the effect will be an attitude of devil take the hindmost. In response to such perceived threats, retailers feel they need to have more than one distributor, while distributors operating under a different set of premises understandably prefer sole sourcing. The important point to emphasize here is that channel conflict can break out over subjective perceptions rather than some objective reality. It must be also of some concern to bakery ingredient distributors that retailers are convinced that distributors will service accounts that in turn can bring economic hardships to retail bakers. All indications are that there is little if any sense of channel unity, and the prime motivator that animates all participants is their own specific economic welfare.
Distributors selling to supermarket bakers help retail bakers" competitors
34
27
Appropriate Managerial Actions
In return for technical assistance to retail bakers, distributors can count on continued patronage
59
41
Retailers resent distributors who service supermarket bakeries
15
20
Retail bakers get charged more for products than do supermarket bakeries
46
26
Retail bakers appreciate the technical help provided by distributors
77
72
As a group, retail bakers are powerless to offset distributor business policies
33
25
This research indicates that retailers and distributors feel that substantially different managerial actions are appropriate in light of current economic trends. Even though there is disagreement on the substance of managerial action, both parties concur in essentially identical proportions that the retail bakery is an important link for the distributors' financial viability. If true, this factor should be a powerful cohesive force in the retail baking industry. Next, let us turn to the tactical and strategic
has been historically their domain. The other explanation may be that donut shops are merchandisers of a limited product line, primarily fried breakfast items, which are not particularly in vogue with an increasingly healthconscious public [1]; as long as donut shops remain limited producers, retail bakers see no reason for alarm.
Perceptions of Channel Partner Behavior Much of the potential conflict between retailers and distributors arises from different interpretations of their respective behavior. Table 2 lists some sharp areas of disagreement with regard to channel partners' behavior. Far more retail bakers (46%) than distributors (26%) felt that retail bakers as a group are charged more for merchandise than supermarket operations. Another area of TABLE 2
Perceptions of Channel Partner Behavior in the Baking Industry
Data are the percentages of respondents agreeing with statements.
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actions that each channel partner feels are appropriate in the current environment. Tactical actions included in Table 3 include actions the retailers might take to modify conduct of distributors that compromises retailers' interests. Decreasing purchases, vocal expressions of dissatisfaction with the distributors' conduct, and slow payment of bills were seen as ineffective by both channel participants. On the other hand, retail bakers felt that it was imperative to have more than one distributor to get a fair deal, whereas only half of the distributors concurred with this position. For example, twice as fnany distributors as retail bakers agreed with the premise that it is a nuisance and waste of time to have more than two distributors. This undoubtedly is a self-serving position, since there are very few baking ingredient distributors that rely on a single source of supply, be it flour, sugar, or shortening. Parochial interests of respective channel members are further brought out in the attitude towards minimum order quantities. As could be expected, more distributors than retailers were in favor of $100 minimum orders. Strategic actions included in Table 3 concern decisions whether to abandon segments of the market or to enter TABLE 3 Appropriate Managerial Actions in the Bakery Industry
The retail bakery is an important link in the distributors' economic health Voicing displeasure with a distributor serving supermarket bakeries is an effective technique in dealing with supermarket competition Decreasing purchases from distributors serving supermarket bakeries can get them to change their ways Slower payment of bills is a good way to signal displeasure with a distributor
Bakers
Distributors
76
79
9
9
9
13
8
10
In order for the retailer to get a fair deal, it is necessary to have more than one distributor
89
51
To increase profitability, distributors ought to move into related businesses
29
51
To increase profitability, distributors ought to move into nonrelated businesses
20
28
Having more than two distributors is a nuisance and waste of time
14
30
Bakery distributors should impose a minimum order quantity of at least $100
50
79
4
8
Once a supermarket bakery goes after a market segment (e.g., bread, cookies, cake), it is best for the retailer to concede the market
Data are the percentages of respondents agreeing with statements.
new businesses. Distributors felt they should hedge, and move into related businesses (a strategy of product development) but retailers disagreed. Retailers, despite the problems posed by supermarket in-store bakeries, exhibited a higher level of commitment to their current line of business--a strategy of market penetration. Despite the fact that many retailers saw supermarket bakeries as the wave of the future, a minuscule portion (4%) of the retail bakers thought it best to concede a segment of the market simply because supermarkets attempt to establish a presence. This sentiment was shared by distributors in only a slightly higher percentage (8%). Far from being intimidated by the growth of supermarket operations, industry observers report a renewed interest in retail bakery operations. One of the distributor respondents whose family has been in the business for four generations reported: " W e have seen a new growth in the last four to five years of small M a - P a or two-partner retail quality bakery shops and we hope the trend continues."
CONCLUSIONS ANO RECOMMENDATIONS The research leads us to believe that distributors and retailers are taking contradictory actions in light of the environmental threats shown in Table 1 and the respective misperc0eptions shown in Table 2. Distributors of bakery goods appear to be engaged in hedging actions, such as entering a related line of business. Retail bakers, on the other hand, appear to be directing their resources for a defense of established market shares within their current line of business.
Managerial Implications What are the implications of this research for channel organization and how can marketing managers adjust to the aftermath of environmental turbulence? Several implications of this research are presented for participants in the traditional retail channel. At the same time, however, the study has uncovered some unforeseen opportunities for in-store bakery operators. It is evident that both retail bakers and distributors of bakery ingredients scan the environment similarly. There is a general consensus that supermarkets have made major inroads into the traditional retail baking channel with their in-store bakeries but that franchised donut chains do not constitute a serious threat. There is substantial disagreement, however, about appropriate tactical and strategic 79
managerial actions that should be taken in response to these trends, indicating a spiral of mistrust that in turn can be expected to destabilize e~(isting business relationships. For instance, retail bakers are convinced that distributors favor supermarkets despite the latter's denial. Whether this lack of trust on the part of the retail baking industry is the result of fact or fancy, it is apt to elicit a response that bodes ill for the entire industry as respective components of the retail channel seek to protect their status at all cost. It stands to reason that new entrants into the retail industry would benefit as the traditional business partners bicker among themselves. Any action that retards a concerted effort against in-store bakery inroads would serve the interests of the supermarkets. The traditional retail bakery channel needs to develop a mechanism to dampen this spiral of mistrust in light of the supermarket threat. There are a number of concrete steps that the retail baking industry can take collectively and by individual participants that can rectify the climate of suspicion. Existing institutions that are familiar to channel participants could be used to moderate this instability. For example, trade shows and professional associations provide the bridge for the interchange of ideas, opinions, and beliefs among channel members in a neutral, nonthreatening manner. The research indicates that all members of the channel, regardless of position, have a good sense of environmental trends, so it appears that these mechanisms are functioning well. Trade shows and professional associations should continue to perform this environmental scanning function, but these activities need to be supplemented by mechanisms that focus on appropriate tactical and strategic actions in light of these trends. It becomes imperative for bakery ingredient distributors to emphasize their historic partnership with retail bakers and to be clear about their intentions. In addition to publishing a product list, distributors may want to consider publishing price lists for stated quantities of merchandise that are available to all categories of customers. Otherwise, distributor contentions that they provide advice to their retail bakery customer base will be seen as nothing more than lip service. Despite the serious nature of the supermarket threat retail bakers are not powerless. They should seriously consider a hedging strategy to lesson their risk in a single
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line of business. For many retailers a limited catering service can provide additional outlets for their traditional products. The editors of the leading bakery journals have been long espousing this approach, which in the light of the discussed developments has taken on a new urgency. Furthermore, retailers must continue to stress quality at every turn, because competing against the supermarkets on a price basis is a formula for disaster. One additional area that retailers can exploit is to arrange creative labor conditions in an era of shortage of labor power, especially of trained bakers. Many jobs can be divided into relatively simple tasks that can be performed by persons seeking part-time employment such as students or retirees. Finally there are implications for institutions such as supermarkets, which are attempting to encroach upon the traditional retail bakers' domain. The channel instability noted in this research may indicate a window of opportunity for an integrated operator, such as a supermarket. Likewise, a high degree of channel cohesion in a particular market might indicate a more difficult challenge for the integrated operator. In any case, research into the level of cohesion in the traditional channel should be a crucial input into the strategic planning decisions of an integrated operator.
REFERENCES 1. Business Week, Why Dunkin' Donuts LooksSo Yummy, 42 (May 8, 1989). 2. Gorman, Tom, Big Donut Chains Are Expanding in Markets, Bakery Production and Marketing 56, 88-89 (May 24, 1988). 3. Gorton, Laurie, Expansion Continues at Pestritto Foods, Baking & Snack Systems 10, 6-9 (June, 1988). 4. Harris, Doug, In-Store Sales Soar Even Higher, Bakery Production and Marketing 23, 42--46 (May 24, 1988). 5. Kapp, Sue, In-Stores Mount Grand Expansion Plans, Bakery Production and Marketing, 20:121-125 (February 24, 1985). 6. Kroskey, Carol M., Pawns in a Battle of Market Forces, Bakery Production and Marketing 24, 72-78 (May 24, 1989). 7. Krumrei, Doug, In-StoresCounterRestructuringPloy, and Marketing 2,4, 64-67 (May 24, 1989).
Bakery Production
8. Lee, Edward, In Thompson Bakery Supply's View Bakers Seek Convenience with Quality, Modern Baking 2, 92-100 (March, 1988). 9. Pereira, Joseph, Dunkin' Chief Wants No Holes in Defense, Wall Street Journal, BI0 (June 7, 1989). 10. Sjoquist, Kathy, Look of Today, Taste of Yesterday, Modern Baking 2, 62-70 (May, 1988).