Breville Case Study
If there were sudden downturn in the first half of the financial year, BRG’s whole year result would be affected. Business and Strategic Analysis 1. Economic Analysis 2. 1 Exchange Rate (Appendix 1) Half of Breville Group (BRG)’s revenue comes from places outside Australia. With a consistent strong Australian Dollar (AUD), BRG products would become relatively more expensive. If BRG didn’t raise the export price, BRG has to absorb the loss from currency exchange. Moreover, BRG imports raw materials from the US, which is also affected by a volatile exchange rate.
From the notes in the 2011 Annual Report (AR), BRG was losing money in “currency translation difference” and on “cash flow hedges”. It seems that the currency market would maintain a period of volatile due to the European Debt Crisis and BRG’s hedging strategy needs to be investigated. 1. 2 Macro Environment in Australia (Appendix 2) Australia is BRG’s largest market, recording half of the group’s sales, hence, Australia’s macroeconomic environment is very important to BRG. The graph is the GDP growth rate of Australia by quarter from Q1 2008 to Q1 2012.
From the graph, we can see that when the GDP growth rate falls from previous quarter, it rebounds rigorously in the following quarter, escaping from a recession. The Westpac Consumer Sentiment Index (CSI) is also an important indicator for BRG as this index reflects whether consumers are willing to spend or not which directly affect BRG’s sales. From the 2 graphs, we can see that when the economy is contracting, the CSI will fall as well. We could also see that the current CSI had not yet return to the pre-GFC level which means that BRG is still facing a relatively weak consumer sentiment.
From the third graph, we can see that Australian people are less willing to spend which is bad news for companies like BRG. The figure obviously had not return to pre-crisis level. Moreover, recent commodity prices had fallen significantly which will affect Australia’s short and long term economy. 1. 3 Demographic The pattern of population in Australia is quite stable despite the fact that the increase of population in the age group of 60-69 is increasing. BRG focuses in selling kitchen appliances and it is of a high probability that people who move homes will replace their old kitchen appliances with new ones.
Putting more emphasize on the age group between 20 and 59 may help to investigate BRG’s potential although the figures are mixed. 1. 4 Employment High unemployment rate would surely affect people’s incentive to spend, especially on discretionary goods which BRG sells. According to the ASX, discretionary goods are goods which are sensitive to the business cycle means they bear higher systematic risk. The unemployment rate in Australia surged to over 6% in the GFC and had not yet return to the pre-crisis level. To conclude, exchange rate will affect BRG’s revenue and net profit.
If Australia and the other markets of BRG were to experience high unemployment rate, low GDP growth rate and weak consumer sentiment, this will surely be negative to BRG’s sales. Moreover, the population of Australia is relatively stable as it is a developed country, hence, further population boom which could results in demand boom for kitchen appliances seems to be of a low probability. 1 Industry Analysis In the following part, we will perform an industry analysis using the Porter’s Five Forces. Force 1: Industry rivalry: medium * International and local players competing
There are numerous competitors in the world kitchen appliances market. The international competitors include Allen Babour LLC, Whirlpool Corporation, Home retail group and LG. Local competitor is GUD Holdings Limited which produce and distribute kitchen electrical appliance, cleaning products, cabin air and fuel filters (GUD Holdings ltd website, 2012). * Non-price competition Breville always put quality and safety in the first place. In order to provide superior service and products, Breville use good materials, and improving technology to extend useful life of each kitchen electrical appliance.
Breville has a dominant place in the Australian kitchen electrical appliance market. Breville has a large group of loyal buyers, some of them have stay with BRG’s product many years, its product information is shared millions times on Facebook. Force 2: Threat of new entrance: medium * Capital requirement According to Black, A (2011), the cost for a new company to entry into this industry is not high if compare with automobile industry. Companies can pay high salary to hire skilled engineers and build production line. * Economies of scale Generally, as an electrical appliance producer, the more units it produce, the lower per unit cost is.