Microeconomics Individual Assignment

Background of GBKL

            Gardenia Bakeries (KL) Sdn Bhd is a subsidiary of Singapore listed Food Group, QAF Ltd. It also associates with Padi Beras Nasianal Berhad. Mr. Horatio Sye Slocumm is the founder of Gardenia. He founded Gardenia in 1969 with his thirty five years baking experience. Gardenia Bakeries (KL) Sdn Bhd manufactured its first loaf of bread in 1986. It has become the bread market leader within four short years in Malaysia. Gardenia achieves tremendous growth and dominance, through the production of distinctive style bread. It dominates the market with its various type of breads, buns and rolls. With a 70% share of the bread market in Malaysia, its consumers across the entire spectrum of socioeconomic groups （Anon, 2012). There are over 20 types of product that Gardenia is launching which are Classic White Bread, High Fiber Whole Wheat Bread, Twiggies Tea Cake and more.

Demand

            The main products that Gardenia Bakeries manufacture is breads. Demand can be explained as the willingness and ability of consumers to pay for the goods during a specific time. Demand Curve is the graph shows how the demand for a goods with their changes. It is a negative slope. According to the Law of Demand, when the price of the bread rises, the demand of the breads will decrease. On the contrary, when the price of the bread falls, the demand of the breads will increase. The change in quantity demanded is moving upward or downward along the demand curve.

The other determinants of demand are the prices of related goods (substitute goods, complementary goods), income of consumers, expected future prices and so on. Gardenia Bakeries has many competitors. When the price of substitute goods falls, the demand of Gardenia breads might decrease. It is because the consumers may change to consume other brand bread such as Massimo and High 5. At this moment, the demand curve of Gardenia breads will shift to the left. On the other hand, when the expected price of breads in future is higher than current price, the current demand of breads rises. The consumer will buy more now because the price is going to rise. The demand curve will shift out exactly.

Supply

            There are many ingredients included in the breads such as wheat flour, yeast, sugar, and so on. The main ingredient of the bread is wheat flour. It also means that the price of wheat flour will affect the supply of the breads. Supply refers to how much the market can provide. Supply curve shows the relationship between the quantity supplied of goods and the influences of goods. It is a positive slope. According to the Law of Supply, when the price of wheat flour rises, the supply of bread increases. Adversely, when the price of wheat flour falls, the supply of bread decreases. So, the change in quantity supplied move upward or downward along the supply curve.

            Supply is determined by many factors such as the number of suppliers, expected price, the prices of related goods and more. As more producers of bread, the supply of bread rises as well. The supply curve shifts to the rightward. Apart from this, if the expected price of bread is higher than current price, the producers will decrease the supply of bread at that moment. They will wait until the price goes higher then they will start producing more bread. The supply curve shifts to the left obviously. Each monopolistic firm faces a particular demand and supply curve of its own.

           

Market Structure

            Gardenia Bakeries adapts a monopolistic competition market structure. Monopolistic competition market is defined as numerous sellers offer differentiated products (Anon, 2013). Monopolistic market has a large number of sellers of a product but each seller acts independently and has no influence on (Anon, 2013). The competitors compete their own products on different quality of goods and marketing without pricing competition. The competitors are able to enter or exit the market freely without any barriers.

Price Decision

Gardenia Bakeries is a non-price competitor. In bread market, the price of bread of Gardenia is not the cheapest as well. Even so majority of consumers are still supporting its breads because Gardenia breads are known for their nutritive value, good taste, oven-baked aroma, freshness, and softness. The company ensures that serve the freshest breads to their delight consumers by using superior ingredients and high hygienic standards. Gardenia Bakeries has their own special recipes of making breads. It is his strength.

According to the news, there was a silent bread war happened in 2011(Wee Hing,T, 2013). Massimo spring up suddenly in 2011 with the Massimo Sandwich Loaf with Wheat Germ in promotional price, RM2.50 until now. The original price of the Gardenia 100% Whole Grain is RM3.20. Hence, the Gardenia bread is more expensive than the Massimo bread. Certainly, Gardenia Bakeries was affected by the appearance of this competitor. By the way, Gardenia Bakeries still maintain its status in the bread market. The main reason is the features of its whole grain bread. The bread contains a special ingredient which is sunflower seeds. The sunflower seeds have rich nutrition so it increases the nutritive value of the whole grain bread. As a result, the delight consumers are still supporting the Gardenia Bakeries.

Besides, Gardenia Bakeries has put a lot of effort on promoting its products to develop its own market. They promote their products using mass communication, newspapers, distinctive packaging and promotional techniques. They have built a good marketing brand image and reputation as everyone know it very much. As the good brand image and reputation, it increases its value in the bread market. When they succeeds in its object, the company almost account for a monopoly position. The company can raise its product prices without losing its customers (Anon, 2013). Therefore, Gardenia Bakeries will be able to be the most successful bread manufacturer in Malaysia.

Short Run

Meanwhile, profit are maximized at the output when marginal cost equals to marginal revenue (MC=MR) in every firms. The most suitable decision of production is the point of MR=MC. If the firms produce their product at the optimum output position, it is perfect to the market and itself. When the monopolistic competition market in short run, the company is possible to incur three types of economic profit. There are supernormal profit, normal profit and negative economic profit.

            When the market price is greater than the average total cost (P >ATC), the company incurs the supernormal profit (point A). The reason is the company has earned the revenue more than the average total cost that they have to be charged with. When the market price equals to the average total cost (P=ATC), the company incurs the normal profit. It means the revenue of the company is able to cover their average total cost. Lastly, when the market price is less than the average total cost (P <ATC), the company incurs the negative economic profit, the economic loss. It is because the company’s revenue cannot afford the average total cost. So, the company is making loss at this moment.

 Long Run

            As the freedom of entry and exit, the firms are earning supernormal profit (P >ATC) will attract a lot of new firms enter the market continuously so the supernormal profit will be disappeared.  The new enter firm will divide the market of the established firms. Market dominance power will be lower. In the long run, the firms maximize its profit by producing the quantity at which its marginal revenue equals its marginal cost (MR=MC). Therefore, the profit of the firms will falls until the firms earn the normal profit (P=ATC) As a result, there is only normal profit in long run monopolistic market. Based on the data research, Gardenia Bakeries are still earning the supernormal profit in short run. The reason is there is no enough many competitors in the bread market. Gardenia Bakeries are still the manufacturer which dominants the most bread market.

Conclusion

In conclusion, Gardenia Bakeries (KL) Sdn Bhd will still grow bigger in future, eventually it might become the leader of bread in the world. Bread is still considered as an affordable consumption product for most of the Malaysian. The population of Malaysia is become more and more, the demand of bread in future will increase as the bread is a healthy food which is accepted by majority of individual. Besides, the new entrants of the bread market will become more so the supply will increase.   

(1397 words)

Reference List

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