Executive Summary The variables of external environment demonstrate various threats and opportunities of an industry. This study has selected Food and Beverage industry of Australia and analyzed its industry structure through porter’s five force analysis. There is tough competition amongst the players in this industry. The study has described the profitability driver of the industry in terms of Government support, competition, low cost and strong economy of Australia. Moreover, the study has also analyzed the changes in these profitability drivers and its impact on the industry profitability.   Table of Contents 1.0 Introduction 3 2.0 Porter’s Five Force 3 2.1 Threats of New Entrants 3 2.2 Threats of Substitutes 4 2.3 Competitive Rivalry 4 2.4 Bargaining Power of Buyers 5 2.5 Bargaining power of Suppliers 6 3.0 Measuring Profitability and Factors Driving Profitability 7 3.1 Relative Cost 7 3.2 Competition 7 3.3 Markups 8 3.4 Government Support 9 3.5 State of Economy 9 4.0 Change in Profitability Factors and Affects on Industry Profitability 10 4.1 Changes in Cost of Industry 10 4.2 Fierce Competition 10 4.3 Changes in Government Policies 10 4.4 Changes in Economic Condition 11 5.0 Conclusion 11 Reference List 12   1.0 Introduction External environment of an industry defines all those outside factors, which have direct impact on the industry operation and its profitability (Navarro-García, Arenas-Gaitán and Rondán-Cataluña 2014). Industry structure describes the number and size distribution of the competitor in an industry. This study will choose Food and Beverage Industry of Australia. The aim of this study is to identify the external variables and industry size of the industry through porter’s five force analysis. Moreover, the study will also demonstrate the profitability driver of the industry. Furthermore, the study will also describe the ways in which the changes in profitability driver will affect the industry profitability. 2.0 Porter’s Five Force In order to measure the industry structure and profitability of an industry, it is extremely essential to assess the external environment of the industry. Porter’s Five Force Analysis is an effective model to analyze the external environment and industry structure of an industry. Hence, this model has been used here to analyze the Food and Beverage Industry of Australia. 2.1 Threats of New Entrants Australian Government provides enough subsidies to the food processing of their Food and Beverage industry. According to Business.qld.gov.au (2017), the industry gets huge grants from Rural Industries Research and Development Corporation, if the projects of the industry develop rural sides of the country. With increasing food processing and production, the economies of scale of the industry is quite low. Moreover, the industry is gaining huge profit from low cost production and increasing sells. It has covered up 1/3 of the Australian manufacturing sector. On the other hand, Austrade.gov.au (2017) opined that recently, Australian Government has imposed huge barriers on the food and beverage industry. The companies under this industry are to maintain high standard in their food quality. Moreover, with the existing competition, new entrants face tough competition to enter into the market. Hence, there is high threat for the new entrants. 2.2 Threats of Substitutes Food and beverage is the core of living for any person. The trends of eating and drinking habit of the customers can be changed but they cannot replace the food and beverage requirement with any other substitute products. Hence, the unique requirement of the customers has enhanced the profitability of the industry. Moreover, there is no such industry, which can be used as substitute for food and beverage industry. In this way, the food and beverage industry face less threats of substitute in its business. 2.3 Competitive Rivalry There is high concentration of competitive rivalry amongst the Food and Beverage industry of Australia. According to Business.qld.gov.au (2017), there are lots of players in this industry, which are creating tough competition amongst them. Most important market player in food and beverage industry of Australia are Coca-Cola Amatil, JBS Australia, Bidvest and Lion Nathan National Foods. On the other hand, Ho, Yang and Hung (2015) opined that the retail industry sometimes causes tough competition for Food and Beverage industry in Australia. However, within the manufacturing industries of Australia, Food and Beverage Industry has hold majority of gross value added (GVA) amount. The current gross value added of manufacturing industry industries in Australia is $107.6 billion (Australia.gov.au 2017). The Food and Beverage industry has hold 21.9% of this GVA amount, which is approximately $23.6 billion (Haskelberg et al. 2016). Figure 1: Gross Value Added Share of Australian Food and Beverage Industry (Source: Australia.gov.au 2017) Moreover, it can be said that the industry has tough competition amongst the players in the market. However, the tough competition amongst the players within Food and Beverage Industry has actually fostered the growth and profitability of the Industry. 2.4 Bargaining Power of Buyers Day by day, increasing numbers of food and beverage companies are growing in this industry of Australia. Hence, there are wide ranges of food products available to the customers. According to Garcia Martinez et al. (2014), innovation is the common thing amongst the players of food and beverage industry. Therefore, buyers have huge ranges of options to have their preferred food and beverage products. On the other hand, Aph.gov.au (2017) opined that Government has also allowed 100% FDI in Food and Beverage Industry. However, food and beverage is the ultimate necessity of the customers. Hence, they cannot switch to any other industry for meeting their food necessities. However, they can shift amongst the players of food and industry itself. Hence, the industry face moderate bargaining power of buyers. 2.5 Bargaining power of Suppliers According to Aph.gov.au (2017), Food and Beverage industry of Australia is to largely depend on the agricultural products. Agricultural products seem to be the raw material for the industry. The agricultural products produced in Australia are quite sufficient. However, all the agricultural products are used up by the food and beverage industry. On the other hand, (news.com.au (2017) pointed out that the agro product like milk production has been reduced by 2% in the year 2016. Hence, the industry is to depend on the imported agro products for manufacturing their food products. In this way, the Food and Beverage Industry of Australia faces moderate bargaining power of suppliers. Figure 2: Porter’s Five Force of Australian Food and Beverage Industry (Source: Austrade.gov.au 2017) 3.0 Measuring Profitability and Factors Driving Profitability 3.1 Relative Cost An increase in production cost can ultimately hamper the profitability of an industry. These costs include raw material cost, labor cost and cost of rent. In the five force analysis, it can be seen that Australia has enough capability to produce sufficient raw materials for the production of food and beverage. According to Afgc.org.au (2017), the food and beverage industry of Australia do not have to import much raw materials from foreign countries. Hence, the production cost of the industry is quite low. It ultimately increases the profitability of the industry. On the other hand, Afgc.org.au (2017) opined that AusIndustry and the Australian Taxation Office offer tax offset for the research and development activities of the food and beverage industry. It has also reduced the cost of industry for producing their products. In this way, Australian Food and Beverage industry has enough potential to be profitable in the market. 3.2 Competition The above five force analysis demonstrates that there is fierce competition among the companies in Australian Food and Beverage industry. Therefore, the market players are trying to produce more and more innovative food products as per the changing taste of the customers. For example the confectionary companies like Lindt and Ferrero are benefiting from the changing customer taste and have trends towards premium food quality. It has ultimately resulted strong revenue growth of whole industry. According to Afgc.org.au (2017), the more numbers of products are being produced, the more numbers of the customers are being interested to buy those food products. In this way, the industry is earning huge profit. On the other hand, Economicshelp.org (2017) opined that competitive force drive the industry to improve its position by increasing profit level. The recent turnover of the industry is $118.8 billion, which demonstrates high level of profits in this industry. Fruits and Vegetable processing companies have the largest market share and contribute huge profit to the Australian Food and Beverage industry. Figure 3: Australian Food and Beverage Market (Source: Dairyaustralia.com.au 2017)) 3.3 Markups Markup is the amount of money, which an organization can charge on the actual cost of delivering its products in the market. An industry can be more profitable, when the organizations under it can charge competitive prices for their unique products. From the five force analysis of the industry, it can be seen that Food and Beverage industry do not have any threat of substitute product. Hence, customers have less scope to shift in any other industry to get their necessary products (News.com.au 2017). Therefore, the industry charges competitive prices for the food and beverage products, which ultimately increase the profitability of the industry. On the other hand, the unique value of the food and beverage products of this industry has also enhanced its demand in foreign markets. Moreover, the export of processed food and beverage in Australia has been increased by 28.3%, which also enhanced the profit level of the industry. For instance, the wine companies like TWE and Casella has gained huge profit from exporting in Asian countries. Number of transaction is being increased with increasing numbers of food outlets in Australia, which is also contributing to the overall profit of the industry. Figure 4: Number of Transaction with Number of Food Outlets (Source: Afgc.org.au 2017) 3.4 Government Support According to Foodanddrinkbusiness.com.au (2017), Australian Food and Beverage Industry always get huge Government support for its research and development activities. Hence, the industry cost of operation of the industry is quite less. It actually enhances the profitability of the industry. On the other hand, Afgc.org.au (2017) opined that Australian government has also formed key partnership with the Food and Beverage industry towards tackling non-tariff barriers and boost food and beverage exports. In this way, this sector is running a trade surplus of $9.1 billion. Moreover, it has also contributed 0.8% to the GDP of Australia. Hence, it is clear that Government support is ultimately increasing the profitability of the industry. 3.5 State of Economy According to News.com.au (2017), economic growth of Australia is ultimately increasing the purchasing the power of the customers. Hence, customers are becoming more willing to purchase premium quality food even for high prices. In this way, economic growth of the country is enhancing the profitability of the country. On the other hand, Australia.gov.au (2017) opined that the industry is also facing less inflation rate for the economic growth of the country. It has huge impact on the profitability and growth of the industry. 4.0 Change in Profitability Factors and Affects on Industry Profitability 4.1 Changes in Cost of Industry Changes in production cost can have direct impact on the industry profitability. Increasing labor cost in Australian market can enhance the production cost of the Industry. High wages paid to the workers can increase the production cost, which can have direct relation with the industry profitability (Aph.gov.au. 2017). On the other hand, it has been found that the production of agro product in Australia has reduced by 2%. In such situation, Food and Beverage Industry of Australia may need to import their raw materials from foreign markets, which can increase the production cost by diminishing the profitability of the industry. 4.2 Fierce Competition The market players of Food and Beverage industry can be forced to decrease their price structure for competing in the market. Changes in competition will have major impact on the price structure of the companies in this industry. It can ultimately impact the profitability of the industry. 4.3 Changes in Government Policies According to Australia.gov.au (2017), frequent changes in Government policies can have major impact in the business operation of the industry. Moreover, the industry can also lose the Government support due to changes in Government policies. It can have major impact on the profitability of the industry. 4.4 Changes in Economic Condition According to Haskelberg et al. (2016), changes in economic condition can increase the inflation rate of the country. It can increase the cost of the industry in terms of operational cost. In can ultimately diminish the profitability of the industry. On the other hand, Garcia Martinez et al. (2014) opined that weak economic condition can also decrease the purchasing power of the customers. It can have huge impact of the industry profitability. 5.0 Conclusion While concluding the study, it can be said that the Food and Beverage Industry of Australia is quite profitable. Due to huge Government regulations, there is less threats of new entrants in the Industry. This industry also faces less threat of substitute products, as food and beverage is the core of human life. Hence, the companies under this industry can use competitive pricing for their products, which enhances the profitability of the industry. There is tough competition amongst the players in this industry, which is increase the innovation in this sector. Increasing rate of innovation has direct impact on the profitability of the industry. The industry also gets huge Government support for its businesses. Hence, the cost of operation is quite low and it increases the industry profitability. However, changes in Government policies can diminish the profitability of the industry.   Reference List Afgc.org.au. 2017. AFGC-State-of-the-Industry-Report. [online] Available at: http://www.afgc.org.au/wp-content/uploads/AFGC-State-of-the-Industry-Report-2015.pdf [Accessed 30 Mar. 2017]. Afgc.org.au. 2017. Government Industry Partnership to Unlock Australia’s Agrifood Exports » Australian Food & Grocery Council. [online] Available at: http://www.afgc.org.au/2017/02/government-industry-partnership-to-unlock-australias-agrifood-exports/ [Accessed 30 Mar. 2017]. Afgc.org.au. 2017. State of the Industry 2015 Report: Surge in Food and Beverage Exports » Australian Food & Grocery Council. [online] Available at: http://www.afgc.org.au/2015/10/state-of-the-industry-2015-report-surge-in-food-and-beverage-exports/ [Accessed 30 Mar. 2017]. Aph.gov.au. 2017. Foreign investment in Australian agriculture – Parliament of Australia. [online] Available at: http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1314/ForeignInvest [Accessed 30 Mar. 2017]. Austrade.gov.au. 2017. Food and Beverage - Austrade's industry capability information - Austrade. [online] Available at: https://www.austrade.gov.au/International/Buy/Australian-industry-capabilities/Food-and-Beverage [Accessed 30 Mar. 2017]. Australia.gov.au. 2017. Food industry | australia.gov.au. [online] Available at: http://www.australia.gov.au/information-and-services/business-and-industry/food-industry [Accessed 30 Mar. 2017]. Business.qld.gov.au. 2017. Developing innovative food and beverage products | Business Queensland. [online] Available at: https://www.business.qld.gov.au/industries/hospitality-tourism-sport/food/innovative-products [Accessed 30 Mar. 2017]. Business.qld.gov.au. 2017. Food innovation grants and support | Business Queensland. [online] Available at: https://www.business.qld.gov.au/industries/hospitality-tourism-sport/food/innovative-products/grants-support [Accessed 30 Mar. 2017]. Dairyaustralia.com.au. 2017. Australian Milk Production Statistics - Dairy Australia. [online] Available at: http://www.dairyaustralia.com.au/Markets-and-statistics/Production-and-sales/Milk.aspx [Accessed 30 Mar. 2017]. Economicshelp.org. 2017. Benefits of economic growth | Economics Help. [online] Available at: http://www.economicshelp.org/macroeconomics/economic-growth/benefits-growth/ [Accessed 30 Mar. 2017]. Foodanddrinkbusiness.com.au. 2017. Australia's 2016 Top 100: the big trends - Food & Drink Business. [online] Available at: http://www.foodanddrinkbusiness.com.au/top-100/australia-s-2016-top-100-the-big-trends [Accessed 30 Mar. 2017]. Garcia Martinez, M., Lazzarotti, V., Manzini, R. and Sánchez García, M., 2014. Open innovation strategies in the food and drink industry: determinants and impact on innovation performance. International Journal of Technology Management 23, 66(2-3), pp.212-242. Haskelberg, H., Neal, B., Dunford, E., Flood, V., Rangan, A., Thomas, B., Cleanthous, X., Trevena, H., Zheng, J.M., Louie, J.C.Y. and Gill, T., 2016. High variation in manufacturer-declared serving size of packaged discretionary foods in Australia. British Journal of Nutrition, 115(10), pp.1810-1818. Ho, C.T.B., Yang, J.M.D. and Hung, C.S.V., 2015. The factors of information system success: An example of customer relationship management implementation in food & beverage industry. International Journal of e-Education, e-Business, e-Management and e-Learning, 5(3), p.114. Navarro-García, A., Arenas-Gaitán, J. and Rondán-Cataluña, F.J., 2014. External environment and the moderating role of export market orientation. Journal of Business Research, 67(5), pp.740-745. News.com.au. 2017. Australian milk production down: Fonterra. [online] Available at: http://www.news.com.au/finance/business/breaking-news/australian-milk-production-down-fonterra/news-story [Accessed 30 Mar. 2017].