SECTOR

OF DRY PASTA
Business Management

LLLL. DDDDDSSPSP
INDEX
1. PORTER'S FIVE COMPETITIVE FORCES
1.1 COMPETITION IN THE SECTOR
1.2 THREAT OF NEW ENTRANTS
1.3 THREAT OF REPLACEMENT PRODUCTS
1.4 SUPPLIERS' BARGAINING POWER
1.5 CUSTOMERS' BARGAINING POWER
1.6 CONCLUSION
2. THE ABELL MATRIX
INTRODUCTION
A new startup the "Connor Company" was born inApril 2021 in Italy following an agreement
between a group of partners with the intention of entering the dry pasta sector.
To assess the actual entry into the Italian market, a careful analysis of the sector was carried
out using two important tools such as porter's five competitive forces and Abell's matrix.

1. PORTER'S FIVE COMPETITIVE FORCES

Through the detailed analysis of some useful factors to better understand the dry pasta
market, the study of the model of the five competitive forces developed by Michael Porter was
made, which serves to understand the attractiveness of the sector compared to the focal
company "Connor Company".
1.1 COMPETITION IN THE SECTOR
CONCENTRATION RATE IN THE SECTOR
Table 1 Market shares

Company 2013 2014 2019

Barilla 32,7 32,1 26,4
From Cecco 11,7 12,3 14,9
Divella 8 8,1 7,8
Garofalo 6,3 6,5 7,9
The Molise 3,1 3,8 6,2
Granoro 2,1 2,2 2,2
Pallante
(Pallante) 1,4 1,2 1,7
Rum 0,6 1 5,7
Source : Pasta consumption and market shares of producers - Info Data (ilsole24ore.com) ;
http://tesi.luiss.it/26859/1/197711_VALENTINI_EDOARDO.pdf

Table2 % change in market shares

Company 2013 2014 2019

Barilla - -2% -18%
From Cecco - 5% 21%
Divella - 1% -4%
Garofalo - 3% 22%
The Molise - 23% 63%
Granoro - 5% 0%
Pallante
(Pallante) - -14% 42%
Rum - 67% 470%
Source: Our reworking Table1

From Table 1 which indicates the market shares of the companies producing dry pasta, it is
possible to calculate the C4 index (i.e. the sum of the market shares of the first four competitors).
It is possible to highlight the C4 and its variations over the years, in fact in 2013 it was equal to
58.7%, in 2014 59% and in 2019 47%. It can be seen that in six years the C4 has decreased by 11.7%
and therefore despite the sector is still concentrated other companies record (as can be seen from
Table 2) very significant changes in market shares. Although the market leader still remains Barilla,
it is important to note that it has lost a large slice of the 18% share, while Rummo is the company
with a lower share but with an exponential growth that in just six years has seen its share increase by
as much as 470%. It is important, therefore, to highlight how there is a fierce competition between
the various companies given by the fact that those with smaller market shares are trying to reduce
the gap as much as possible. Among the companies that are part of the C4 we certainly cannot fail
to mention the growth recorded by De Cecco and Garofalo who have managed to reduce the
differences in shares considerably, with a variation of 21% and 22% respectively. From the point of
view of our company (remember potential entrant in the sector) it can be seen that the latter turns
out to be not at all attractive as there is a very marked concentration of market shares among the top
four companies and also those with smaller shares are trying to climb the hierarchy.
GROWTH RATE OF THE SECTOR
Tab.3 Consumption of pasta per capita in the world in kg

  2018 2020
Italy 23,1 23,5
Tunisia 17 17
Venezuel
12 12
a
Greece 11,4 11,4
Chile 8,5 9,4
USA 8,8 8,8
Argentina 8,8 8,6
Turkey 8,7 7,2
Iran 8,3 8,5
Germany 8 7,9
French 8 8,3
Source: https://www.foodweb.it/2021/03/lexport-di-pasta-italiana-vola-16-nel-2020/#:~:text=L%27anno%20della%20pandemia%20va,rispetto
%20ai%20dodici%20mesi%20precedenti, https://www.pastaitaliani.it/consumi/, https://www.pasta-unafpa.org/newt/unafpa/default.aspx?
IDCONTENT=89

Tab.4 Consumption of pasta in the world in kg

  2018 2020 % change

1. 394. 305. 1. 392. 552.
Italy
513 801 0,100%
Tunisia 196. 608. 451 200. 916. 489 2,191%
Venezuela 346. 645. 404 341. 231. 316 -1,562%
Greece 119. 953. 582 114. 653. 605 -4,418%
Chile 159. 197. 911 179. 692. 355 12,874%
2. 878. 447. 2. 912. 823.
USA
114 294 1,194%
Argentina 390. 378. 120 393. 203. 260 0,724%
Turkey 716. 358. 783 733. 749. 883 2,428%
Iran 695. 301. 726 722. 744. 452 3,947%
Germany 664. 995. 304 670. 271. 560 0,793%
French 519. 924. 096 522. 188. 096 0,004%
Source : Our reworking Tab.3

From Table 3 and Table 4 it is possible to highlight the consumption of pasta in the world. In
particular, Table 3 shows the consumption of pasta per capita in kg while Table 4 was obtained by
multiplying the data of the third by the population in those years. Table 3 shows that the country
with the highest per capita consumption is Italy, while in Table 4 where the total consumption
(and therefore the total population) has been taken into account, the first consumer isthe USA. It
can be noted that Tunisia is the second world country for per capita consumption, this for the
strong Italian influence due to the strong migratory flow during the nineteenth century, in these
years members of the Italian middle and petty bourgeoisie settled in Tunisia 1. Other very relevant
countries in the ranking are the South American ones, also due to the strong immigration of
Italians in those countries, just think that only in Argentina there are over a million Italian-
Argentines2. In European countries Greece stands out due to the fact that this country has many
affinities also with our "Mediterranean diet", other countries such as Germany and France are also
highlighted for consumption. From the point of view of total consumption the sector would be
attractive, but as always the data must be interpreted and therefore we must consider as already
done previously the presence of companies with smaller market shares that are elbowing to carve
out a better position, and also although in many countries the consumption values are high if we
go to analyze the variations we can see how (except for China which has a increase in consumption
of 12% and Tunisia Iran and Turkey) in the other countries we present a decrease in consumption
or stagnation, therefore a very limited growth.
Sources: 1-Italians of Tunisia; 2-https://www.genteditalia.org/2020/09/30/linfluenza-dellitalia-in-argentina/

Tab.5 Pasta production in Italy in millions of tons

Years million tons % change

2013 3,2 -
2014 3,4 6%
2015 3,2 -6%
2016 3,3 3%
2017 3,2 -3%
2018 3,36 5%
2019 3,5 4%
2020 3,5 0%
Source: Italian Pasta: recipes, curiosities and news (welovepasta.it); our re-elaboration of the data

From this table it is possible to analyze how the production of pasta in Italy in the last few years
has not undergone great variations,thenmade from 2013 to 2020 there is an increase of only 0.3
tons produced;however, to analyze year by year the variation in production it turns out to be very
fluctuating. We must also highlight the excessive drop in production in 2015 which, according to
Coldiretti, is due to the excessive dependence of the Italian industry for the purchase of durum
wheat from abroad, and consequently from the lack of investment in national agriculture. Only in
Italy the durum wheat crops have suffered a decrease of -4%, in the EU of -10%, and a collapse of
27% in Canada which is the main supplier of Italy. Worldwide, there was a decrease of 15% in that
year. (https://www.corriere.it/cronache/15_gennaio_04/dieta-Mediterranean-risk-2015-calo-
produzione-alimentare-35c2d4f4-9414-11e4-8745-dbfbe9a3a0e4.shtml#:~:text=Pasta,di
%20investire%20sull'agricoltura%20nazionale)
With a comparison of table 4 we note how the national demand is clearly lower than
theproduction, this is due to the fact that that of dry pasta is a sector where our country is also a
leader in exports, as can be seen in the following tables. The problem, therefore, is not the size of
the market but that the growth is almost zero and fluctuating.

Table 6 Foreign production million tonnes

Argentin
USA Turkey Egypt Brazil Russia Nigeria Iran
a
Production 2020 (million tons) 2 1,78 1,2 1,108 1,075 0,7 0,56 0,407
Source : https://www.foodweb.it/2019/10/world-pasta-day-2019-il-meglio-del-made-in-italy/; https://www.pasta-
unafpa.org/newt/unafpa/default.aspx?IDCONTENT=89
A comparison between this table and the previous one shows that our country is the largest
producer of pasta in the world, this is certainly a very positive fact that makes us trust in having to
open our own production plant in Italy.

Table 7 Exports in billions of euros

Years Export Change%

1. 469.
2012 861. 100 -
1. 577.
2013 817. 000 7%
1. 611.
2014 034. 200 2%
1. 444.
2015 948. 200 -10%
1. 386.
2016 818. 100 -4%
1. 395.
2017 122. 400 1%
1. 586.
2018 121. 300 14%
Source: https://www.statista.com/statistics/688294/export-value-of-uncooked-pasta-without-eggs-italy/; ourtable datareworkings

From this table and also from the next one it is possible to analyze the importance of export for this
sector. It is important to highlight how our country is recognized worldwide as an emblem in the
pasta sector, and therefore this certainly facilitates the maintenance of high levels of exportand.
Still in the spotlight (in a negative sense) is 2015, with a very heavy drop in exports (-10%), also
due in this case to the problems highlighted above for production. Overall, the levels of growth are
contained and in fact from 2012 to 2018 there was an increase in the value of exports of 7%. This
low value justifies (despite the general high levels) the lack of attractiveness.

Table 8 Exports in million kg

Years Volume % change

2012 1600,14 -
2013 1705,79 7%
2014 1721,37 1%
2015 1623,36 -6%
2016 1657,7 2%
2017 1735,62 5%
2018 1749,61 1%
Source: https://www.statista.com/statistics/688331/export-volume-of-uncooked-pasta-without-eggs-italy/

With this table it is possible to analyze the levels of exports in volume of our country and making a
comparison with table 6 we note how Italy exports a volume greater than the entire national
production of Egypt and very close to that of Turkey and the USA. Thisshows that our country is a
leader in the sector.
As for the segmentation of the pasta product it is possible to identify six main segments, which will
be discussed in the following tables.

Table9 Segmentation by sales volume

  2019 2020*
Weigh
Segment Volume t Variation Volume Variation
Semolina 583.797.696,00 87,5% -0,5% 166.808.052,00 14,6%
Egg 33.327.932,00 5,0% -1,7% 9.593.011,00 5,9%
Wholemeal, spelt, Kamut 36.600.580,00 5,5% -1,1% 10.289.979,00 12,6%
Gluten-free 6.381.416,00 1,0% 6% 1.843.241,00 22,3%
Dry Stuffed 3.832.603,00 0,6% 10,1% 1.310.646,00 18,3%
Flavored/enriched
semolina 2.986.173,00 0,4% -3,2% 631.679,00 -10,1%
100,0
DRY TOTAL 666.926.400,00 % -0,5% 190.476.608,00 14,0%
Source: https://www.iriworldwide.com/getattachment/4aa71eb0-7352-488f-9e9c-9aac432ce33b/Food-Speciale-pasta-giugno-2020.pdf?lang=it-IT
*1st quarter 2020

Tab.10 Segmentation by value

  2019 2020*
Segment Value € Weight Variation Value Variation
Semolina 773.892.864,00 73,4% 1,4% 226.730.460,00 18,0%
Egg 126.516.160,00 12,0% -0,7% 35.623.208,00 5,7%
Wholemeal, spelt, Kamut 89.883.872,00 8,5% 1,6% 25.699.967,00 14,7%
Gluten-free 32.129.278,00 3,1% 7,2% 9.075.736,00 17,5%
Dry Stuffed 22.226.384,00 2,1% 5,9% 7.754.219,00 17,8%
Flavored/enriched
semolina 9.835.602,00 0,9% -5,3% 2.058.538,00 -10,4%
DRY TOTAL 1.054.484.160,00 100,0% 1,3% 306.942.128,00 15,9%
Source: https://www.iriworldwide.com/getattachment/4aa71eb0-7352-488f-9e9c-9aac432ce33b/Food-Speciale-pasta-giugno-2020.pdf?lang=it-IT
*1st quarter 2020

We can see how the semolina segment suffered a very slight decrease in 2019 compared to 2018
of just 0.5% in volume but in value an increase of 1.4% and this increase is due to the revenge of
major brands and niches. On the other hand, the Gluten-free segment is the driving force in recent
years, showing an increase in volume of 6% and in value of 7.2%. Also interesting is the segment of
stuffed dry pasta that closes 2019 with a positive trend both in volume and in value, while the
variations in 2019 in the integral segment, spelt and kamut are anomalous, closing with a decrease
in volume of 1.1% but in value an increase of 1.6%. Finally, we can analyze the segment that at this
moment is in greater difficulty which is that of flavored and enriched semolina that in addition to
presenting very negative variations in 2019, is the only one to show a negative trend also in the first
quarter of 2020. For our focal company all this segmentation decreases the attractiveness towards
the sector, as having to make a standardized product would have been much easier.

Tab.11 Segmentation according to the average selling price in €

Segment 2017 Change% 2018 Change% 2019 Change% 2020*
Semolina 1,28 2% 1,3 2% 1,32 3% 1,36
Egg 3,7 1% 3,75 1% 3,79 -2% 3,71
Wholemeal, spelt,
2,4 -2% 2,36 4% 2,45 2% 2,5
Kamut
Gluten-free 5,02 -1% 4,99 1% 5,03 -2% 4,92
Dry Stuffed 6,39 -1% 6,35 -9% 5,79 2% 5,92
Flavored/enriched
3,38 2% 3,44 -4% 3,29 -1% 3,26
semolina
Source: https://www.iriworldwide.com/getattachment/4aa71eb0-7352-488f-9e9c-9aac432ce33b/Food-Speciale-pasta-giugno-2020.pdf?lang=it-IT;
our data reworking *Q1 2020

With regard to this table, we can analyze the price trend from 2017 to 2020, and it is highlighted
that the increase in the value of sales analyzed for semolina in table 10 is due to the increase in
the average price that has undergone growth in the last three years. It is also interesting to note
that the gluten-free sector has suffered an overall reduction in the average price of 10cents, but
has not decreased the value of sales, indeed they haveornot grown thanks to the increase in sales
volume (Table 9) . Finally, it can be said that the segment with the greatest total variation was
precisely that of semolina which recorded an overall variation from 2017 to 2020 of 6.25%, while
that of the stuffed dry, better for variation in sales volume (table 9), turns out to be the segment
that has reduced the price the most in these three years;infact, there was a negative change of
-7.36% which, however, did not affect the value of sales, which in any case in 2019 recorded an
increase of 5.9% (table 10).

Table12 Segmentation by index price

Segment 2017 2018 2019 2020*
Semolina 100 100 100 100
Egg 289 288 287 273
Wholemeal, spelt, Kamut 188 182 186 184
Gluten-free 392 384 381 362
Dry Stuffed 499 488 439 435
Flavored/enriched
semolina 264 265 249 240
Source: Our data reworking table 11 *Q1 2020
DIVERSITY OF COMPETITORS
Table13 Key facts about Barilla

Property 100% Barilla Family

Number of
establishments 29
Source: https://quotidianosostenibile.it/azienda/barilla/ ; https://www.barilla.com/it-it/aiuto-e-supporto/domande-sull-azienda/in-quali-paesi-e-
presente-il-gruppo-barilla

Tab.14 Main data about De Cecco

Property 100% De Cecco Family

Number of
establishments 3
Source: https://www.corriere.it/economia/aziende/20_gennaio_29/de-cecco-riassetto-famiglia-nell-anno-conti-record-2f016080-4289-11ea-8fab-
5eae1fe9ccd1.shtml#:~:text=Pochi%20giorni%20fa%20ha%20chiuso,ora%20il%2050%25%20della%20societ%C3%A0 ;
https://www.dececco.com/wp-content/uploads/2018/11/NEW_De-Cecco-Documento-di-Ammissione-Borsa-
Italiana.pdf'shttps://www.dececco.com/wp-content/uploads/2018/11/NEW_De-Cecco-Documento-di-Ammissione-Borsa-Italiana.pdf

Tab.15 Main data about Garofalo

52% Ebro Foods

Property 48% Menna Family
Number of
establishments 1
Source: https://www.ilfattoquotidiano.it/2014/06/04/pastificio-garofalo-lantica-azienda-campana-passa-agli-spagnoli-di-ebro-foods/1012808/ ;
http://burc.regione.campania.it/eBurcWeb/directServlet?DOCUMENT_ID=00050759&ATTACH_ID=66673

Tab.16 Main data about Rummo

100% Rummo SpA Molino &

Property Pastificio
Number of
establishments 2
Source: http://www.ca.milano.giustizia.it/allegato_corsi.aspx?File_id_allegato=3302 ; https://www.wikiwand.com/it/Rummo#/Produzione

Tab.17 Main data about Divella

72.02% Divella family

Property 27.98% small shareholders
Number of
establishments 3
Source: https://it.wikipedia.org/wiki/Divella ; Divella – Sustainable Daily

Tab.18 Main facts about La molisana

 Property 100% Iron Group
Number of
establishments 1
Source: La Molisana – Sustainable Daily

Tab.19 Key data about Granoro

Property 100% Mastromauro Family

Number of
establishments 1
Source: http://trasparenza.comune.corato.ba.it/web/trasparenza/papca-g?
p_p_id=jcitygovalbopubblicazioni_WAR_jcitygovalbiportlet&p_p_lifecycle=2&p_p_state=pop_up&p_p_mode=view&p_p_resource_id=downloadAll
egato&p_p_cacheability=cacheLevelPage&_jcitygovalbopubblicazioni_WAR_jcitygovalbiportlet_downloadSigned=true&_jcitygovalbopubblicazioni_
WAR_jcitygovalbiportlet_id=10655&_jcitygovalbopubblicazioni_WAR_jcitygovalbiportlet_action=mostraDettaglio&_jcitygovalbopubblicazioni_WAR
_jcitygovalbiportlet_fromAction=recuperaDettaglio ; Pastificio Granoro - Sustainable Daily

From Table 13 to Table 19 it is possible to analyze the main data or the identity cards of some
leading companies in Italy. Starting from the properties you can see how there is a strong
characterization on the part of the families, so in this context the history of the family andthe
company also becomes importantand therefore, certainly, from this point of view we start
disadvantaged. As for the marketleader, Barilla, it can be noted that 100% of Barilla Holding (the
first multinational in the world for pasta production) is of thehomonymous family. Being also a
multinational it can draw on much higher resources than other competitors and also can
implement unpredictable strategies thanks to its huge brand portfolio (subsequent tables) and
dthe great geographical diversification and therefore the presence in countries where we have no
knowledge due to the the difference of cultures. As for Garofalo we can see how 52% of Ebro
Food has been present since 2014 (the same multinational that had already purchased 25% of Riso
Scotti). A very important aspect is certainly that of the production plants where the undisputed
dominion is of Barilla which actually owns not 29 production plants but 29 districts (15 in Italy
and 14 abroad), where there may also be more plants inside. It is also important to highlight how
DeCecco, which is the second company by market share, has three plants, two of which are located
in Abruzzo and one in Russia. In this perspective, not only the number of plants becomes fundamental
(because as seen De Cecco has many fewer than Barilla) but also the place where they arelocated
ornot. Taking into considerationand, instead, companies such as La molisana, which have a number
of establishments equal to one,it is important tounderline the size of the latter; infact, within this
single production plant there are 10 production lines that allow to reach a production of 444 tons
per day and in addition,thereare also 18 packaging lines capable of producing about 100 different
shapes of pasta. All these considerations combine with each other and lead to consequences (for
example the high impact of fixed costs) that reduce the attractiveness of the sector.

Tab.20 Barilla brand portfolio

Barilla
Semolin Wholemeal, Gluten Dry Flavored/enriched Premiu
WALKING a Egg spelt, kamut -free stuffed semolina Was m
Barilla X X X X X X X X
 Filiz (Turkey) X X X X
Voiello (Voiello) X X X
Yemina (Southern
Mexico) X X
Vesta (South of
Mexico) X
Misko (Greece) X X X X X
Catelli (Canada) X X X X
Lancia (Canada) X
Tolerant organic X X
Source: https://www.barillagroup.com/it/i-nostri-marchi

Table21 Garofalo brand portfolio

Garofalo
Semolin Wholemeal, Gluten Dry Flavored/enriched Premiu
WALKING a Egg spelt, kamut -free stuffed semolina Was m
Russian X X X
Garofalo X X X X X X X
Three mills X
Conad X
Source: https://www.dissapore.com/spesa/pasta-chi-produce-per-le-marche-dei-supermercati-e-dei-discount/; http://russodicicciano.it/;
https://www.pasta-garofalo.com/it/

Tab.22 Brand portfolio of La Molisana

The Molise
Semolin Wholemeal, Gluten Dry Flavored/enriched Premiu
WALKING a Egg spelt, kamut -free stuffed semolina Was m
Conad X X
The Molise X X X X X X X X
Esselunga (Italy) X
Source:https://www.dissapore.com/spesa/pasta-chi-produce-per-le-marche-dei-supermercati-e-dei-discount/; https://www.lamolisana.it/

Tab.23 Brand portfolio of Pastificio Zara

Pasta Factory Zara
Semolin Wholemeal, Gluten Dry Flavored/enriched Premiu
WALKING a Egg spelt, kamut -free stuffed semolina Was m
Zara X X X X X X X X
Combino X X X
Coop X
Source:https://www.dissapore.com/spesa/pasta-chi-produce-per-le-marche-dei-supermercati-e-dei-discount/; http://www.pastazara.it/en/

Tab.24 Rummo brand portfolio

Rum
Semolin Wholemeal, Gluten- Dry Flavored/enriched Premiu
WALKING a Egg spelt, kamut free stuffed semolina Was m
Rum X X X X X X X X
Selex X
Esselunga (Italy) X
 Castiglioni (Castiglioni) X X X X
Source: https://rosmarinonews.it/19420/; https://www.dissapore.com/spesa/pasta-chi-produce-per-le-marche-dei-supermercati-e-dei-discount/;
https://www.pastarummo.it/; PASTIFICIO CASTIGLIONI - History (advensys.com)

Tab.25 Liguori brand portfolio

Liguori
Semolin Wholemeal, Gluten- Dry Flavored/enriched Premiu
WALKING a Egg spelt, kamut free stuffed semolina Was m
Coop X
Liguori X X X
Crossroads X
Source:https://www.dissapore.com/spesa/pasta-chi-produce-per-le-marche-dei-supermercati-e-dei-discount/; http://www.pastaliguori.com/

Tab.26 Granoro brand portfolio

Granoro
Semolin Wholemeal, Gluten- Dry Flavored/enriched Premiu
WALKING a Egg spelt, kamut free stuffed semolina Was m
Granoro X X X X X X X
Esselunga (Italy) X
Source:https://www.dissapore.com/spesa/pasta-chi-produce-per-le-marche-dei-supermercati-e-dei-discount/; HTTPS://WWW.GRANORO.IT/

From table 20 to 26 it is possible to analyze the brand portfolio of our competitors. Almost
allcompanies, except Barilla, produce under license for trademarks, and this is an unfavorable
event againstus, because as a new entrant we would not be able to propose ourselves even as
producers for these brands becausethe distr ibuzione companies are already able to meet the
demand thanks tothe other companies. If we then go to analyze the presence of the brands
owned by the companies,it is clear that Barilla has a vast portfolio not only in Italy but also in the rest
of the world and therefore the presence on markets not only Italian makes it unpredictable and this
certainly does not make the sector attractive; on the contrary, our entry into the sector will
subsequently lead to an excessive aggressiveness of the other competitors.

LEVEL OF FIXED COSTS

Tab.27 Average costs and revenues of large pasta factories (processing capacity>400tons/24h)
% of
  € revenues % of costs
Revenues from the sale of pasta 126.005.678,90 100,00% -
Total costs 123.188.585,89 97,80% 100,00%
Purchase of semole 62.162.711,12 49,30% 50,50%
Manpower 11.930.305,16 9,50% 9,70%
Energy 6.964.920,40 5,50% 5,70%
Packaging materials 11.544.550,28 9,20% 9,40%
Other variable expenses 16.068.766,26 12,80% 13,00%
Depreciation 6.218.369,29 4,90% 5,00%
Insurance 505.535,45 0,40% 0,40%
Taxes and fees 2.354.249,09 1,90% 1,90%
Other overheads 5.439.178,86 4,30% 4,40%
Income 2.817.093,01 2,20% -
Source: ISMEA

Tab.28 Average costs and revenues of small pasta factories (processing capacity<400 tonne/24h)
% of % of
  € revenues costs
Revenues from the sale of pasta 29.961.979,91 100% -
Total costs 28.968.122,38 96,70% 100,00%
Purchase of semole 11.970.353,02 40,00% 41,30%
Manpower 3.416.205,99 11,40% 11,80%
Energy 1.187.534,51 4,00% 4,10%
Packaging materials 2.870.749,65 9,60% 9,90%
Other variable expenses 4.694.997,84 15,70% 16,20%
Depreciation 1.500.055,59 5,00% 5,20%
Insurance 152.373,54 0,50% 0,50%
Taxes and fees 473.518,08 1,60% 1,60%
Other overheads 2.702.334,17 9,00% 9,30%
Income 993.857,53 3,30% -

Source: ISMEA

Thetables dividedthe total costs intothe various items and then analysed their impact on total costs
and revenues for both small/medium and large pasta factories. The entry taxes and fees has been
colored in yellow to highlight that only a part is a costor fissor (only taxes that do not weigh on
income such as,forexample, the IMU and registrationtaxes). It should be considered that the higher
the fixed costs, the less attractive the sector will be for us. In thiscase, for small/medium-sized
pasta factories there is anincidence of fixed costs on total costs of 19.1% while on revenues of
18.5%. For large pasta factories, the incidence of fixed costs on total costs is 17% while on
revenues it is 16.7%. In conclusion, it can be said that the incidence of fixed costs on total costs is
not very high, but it must be considered not only the incidence, but also the overallvalue: for small
/ medium-sized pasta factories the total is € 5,542,153.2 and for large pasta factories the total
is of 21.008.458,9€. Therefore, since these cost items are very high, even in this case the sector
turns out to be unattractive. However, it should be noted that in reality the item with the highest
incidence of cost is represented by the purchase of semole (variable cost) in both cases.
1.2 THREAT OF NEW ENTRANTS
The threat posed by potential new entrants entering a market is conditioned by so-called barriers
to entry and waiting for the reactions of competitors already present in the sector. The higher
theyare, the more difficult it will be to enter the market, the more protected the companies in the
sector will be and the more difficult it will be for our focal company to enter it.

LEVEL OF BARRIERS TO ENTRY

a) economies of scale (decreasing average unit cost)
As seen in Tables 27 and 28, in the analysis of competition in the sector, for small/medium-sized
companies the incidence of fixed costs on revenues is 18.5%, while for large companies it
decreases to 16.7%. It is therefore noted that the increase in production corresponds to a
decrease in the ratio between fixed costs and revenues. Therefore, there will be economies of
scale, especially in favor of large companies (Barilla, De Cecco, Divella) and this makes the sector,
from the point of view of our focal company, less attractive as it increases the level of barriers to
entry.
b) economies of breadth/purpose (product/geographical diversification)
Going to analyze the geographical diversification of the two main companies in the sector we see
that this is remarkable; in fact, Barilla has plants in 8 different countries: the United States,
Mexico, France, Russia, Greece, Turkey, Germany and Sweden. In addition to these it has sales
offices in Canada, Mexico, Spain, Finland, United Arab Emirates, Japan, Australia, Brazil, China and
Singapore (https://www.italiainprimapagina.it/barilla-fa-la-pasta-in-giro-per-il-mondo-e-vuole-l-
etichetta-made-in italy/#:~:text=In%20Francia%20gli%20stabilimenti%20sono,(Thessaly)%20e
%20ad%20Atene , https://www.barillagroup.com/sites/default/files/Bilancio%20Economico
%20Barilla%202019_ITA.pdf)
De Cecco has n-paste production plants in Russia (PMK Group)
(https://www.ilcentro.it/abruzzo/de-cecco-acquista-tre-stabilimenti-in-russia-1.880465?
utm_medium=migrazione) and is present in the United States, France, Germany and England with
its subsidiaries De Cecco France S.a.r.l., De Cecco UK Limited and De Cecco Deutschland Gmbh and
De Cecco Usa ( https://www.ilcentro.it/abruzzo/de-cecco-un-anno-positivo-e-il-2014-va-ancora-
meglio-1.312535 )
Analyzing the product diversification, we can see how the different companies produce:
 Barilla (https://it.wikipedia.org/wiki/Barilla, https://www.barilla.com/it-it/prodotti) prod
secca, pbaking rods, sughi pronti, farine e cereali;
 De Cecco (https://www.dececco.com/it_it/products/
https://it.wikipedia.org/wiki/De_Cecco_ (company))Pasta) pdry auction, rice, flour,
semolina, oil, vinegar, ready sauces, tomato derivatives, organic products, bread, gnocchi,
bakery products;
 Divella (https://it.wikipedia.org/wiki/divella) durum wheat semolina pasta, fresh pasta,
biscuits, oil, vinegar, rice, ready-made sauces, flour,hazelnut cream, croissants, wraps;
  Pastificio Lucio Garofalo (https://it.wikipedia.org/wiki/pastificio_lucio_garofalo ) drypasta,
weaning pasta, organic pasta, gnocchi and potato goodies, flour;
 La molisana (https://it.wikipedia.org/wiki/la_molisana https://www.lamolisana.it/i-
prodotti/)dry pasta, flours, sauces;
 Granoro (https://it.wikipedia.org/wiki/granoro, https://www.granoro.it/it/c/45/i-prodotti)
drypasta, ready sauces, soups and legumes, rice and risotto, oil, biscuits, couscous, gnocchi;
 Pastificio pallante (http://www.pastareggia.it/, https://videoinformazioni.com/il-
pastificio-pallante-rileva-il-marchio-pasta-sara/) dry pasta, pasta frasca, sauces,flours.

This product diversification brings considerable advantages tothe companies present in the sector
and represents a barrier for our potential entrant. Inf, the companies present could also agree to
temporarily reduce profit margins in this sector by having the possibility of earningbackand in
others, in order to hinder the entry of a new entrant. In addition, it hasthe advantage of having
greater bargaining power vis-ing to their suppliers as they negotiate, where possible, the purchase
of the same raw material for different businesses.

Geographical diversification also allows them to expand demand and to be able to exploit
economies of scale even more.

c) product differentiation
One of the main tools to be able to differentiate your product from that of competitors in the dry
pasta sector is certainly that of investment in communication.
Inview of the communication investments of the three main producers, it is notedthat:
  2019 (€ million) 2018 (€ million)
Barilla 392,796  378,834 
By Cecco 86,461  81,688 
Divella 9,633  9,339 
Source: Our elaboration on company financial statements
are quite high, especially with regard to Barilla which, in addition to spending more than four
times as much as De Cecco, has further increased (+ 3.7%) its investment also to counterbalance
the decline in its market shares. De Cecco himself, however, increased his investment by 5.85%,
while Divella recorded a +3.14%.
In particular, De Cecco's investments are dedicated to television communication, focusing onthe
promotion ofits ownquality,obtaining great media visibility thanks to the partnerships withwell-
known football clubs such as Juventus and also,following the collaboration with the University of
Milan, demonstrating with scientific research that their wholemeal pasta has better characteristics
(https://www.dececco.com/it_it/news/de-cecco-prima-azienda-in-italia-per-crescita-nel-food/).
In conclusion, therefore, it is clear that our potential incoming focal company will have to make
huge investments in order to make its product known given the fierce competition and that in any
case the degree of differentiation of Barilla products is remarkable.

d) capital needs (own and third parties)

For large companies, as can be deduced from Table 27, the annual variable costs for the production
of pasta exceed on average € 85,000,000, while for medium-small companies (Table 28) they are
around € 20,000,000. The initial investment for the construction of the plant and the purchase of
machinery must also be considered, knowing that there are also multi-plant companies such as
Barilla (29), De Cecco (3), Rummo (2) and Divella (3) (Table 9-15). These cost items are
deductible from depreciation, which are a considerable part of the total costs: 5% for large pasta
factories, 5.2% for small pasta factories (Table 27-28). Therefore, considerable financial resources
will be required to be able to start such a business. This represents an important barrier to entry for
our company.
e) conversion costs
Among the barriers to entry, the presence of conversion costs must also be considered in the
event that, as is the case in some circumstances, the new entrant is forced to abandon production
having failed to impose himself.
The production process is carried out according to the following
phases(https://www.pastaitaliani.it/notizie/ciclo-produttivo-della-pasta/):
1 –Selection: The semoats are selected according to their physical characteristics (specific weight
and impurities) and technological (proteins, gluten quality and yellow index).

2 –Grinding: the flouris then sieved, cleaned of impurities and finally ground through a series of
rolling mills. Subsequently, the ground is passed through the buratti, which separate the bran, the
bran and the tritello and finally through the use of a rimacina cylinder, the flours are refined until
semolina and semolina are obtained.

3 – Dough andkneading: the durum wheat semolina is then kneaded, with water, inside special
kneading tanks and the kneading, or the diameter of the particles in which the semolina is ground,
affects the final invoice of the dough.

4 – Drawing:thedough obtained is then shaped by drawing in order to give it its final shape. If you
use a bronze drawing process the dough will have a rough and porous surface while with a Teflon
drawing it will be smoother and smoother.

5 – Essiccamento: the pasta is then left inside dryers and ventilated with hot air to reduce the water
content up to at least 12.5% humidity required by law.

6 –Cooling: si then cools the dough inside special coolers to bring it back to roomtemperature.

7 –Packaging: thedough, stored in silos, is packaged using cardboard boxes or transparent bags,
with the dual purpose of preserving the product from external agents and presenting it to the
consumer with the information label containing the information required by law (it will be better
discussed during the paragraph on public policy).

Theseproduction processes are carried out with a Layout that could be defined as "layout by
product" (Dispense corso Impianti Industriali Prof.M. Palumbo ) and therefore, in almost all cases,
the production takes place through specialized machinery optimized for the specific production
process. http://www.moriondo.com/layout.html)
(https://italpast.it/catalogs/Secca/mobile/index.html#p=19)

("Appunti di tecnologia della pasta" Zeppa G. – University of Turin)

In fact, these allow to maximize the productivity of the single specific product (pasta) at the
expense of flexibility, as they do not allow to vary the production mix (outside the various formats
of the same).
Therefore, it must be considered that following a possible exit from the sector those machines
cannot be reused, if not marginally, to carry out other types of processing and will constitute the
so-called sunk cost.
f) public policy
Pasta produced in Italy, being a good intended for food use, is bound by stringent rules regarding
its manufacture and marketing, depending on whether it is intended for the Italian market or for
foreignmarkets.
The following rules are contained in Presidential Decree no. 187 of 9 February 2001, published in
the Official Gazette no. 117 of 22 May 2001. It is in fact divided into:

 Pasta (understood as pasta obtained from flours of durum wheat semolina)

 Special pastes (containing different types of flour compared to semolina, but still complying
with sanitary hygiene standards)
 Egg pasta
 Fresh and stabilized pasta
And if intended for trade, it must have precise characteristics depending on the specific type.
Pasta:
According to current legislation, "durum wheat semolina pasta" and "durum wheat semolina
pasta" are called those products "obtained from the drawing, rolling and consequent drying of
dough prepared respectively and exclusively: with durum wheat semolina or semolina and water" (Art.
6 paragraph 1).
Source: http://www.pasta.it/legge.htm#:~:text=1%2D%20%C3%88%20consentita%20la%20produzione,il%20limite%20di
%207%20gradi.

As for the flour to be used, except for pasta intended for export, the production of dry pasta
prepared from soft wheat flours is prohibited. In semolina pasta, in "special pasta" (containing
different types of flour compared to semolina), and in egg pasta, however, soft wheat flour can be
present up to a maximum of 3% of the total.
Special pastas:
The production is allowed but must be put on sale with the mention of all the ingredients used,
under the name of durum wheat semolina pasta.
Egg pasta:
It must be produced"exclusively with semolina and at least four
whole chicken eggs, without shell, for a total weight of not less
than two hundred grams of egg for each kilogram of semolina" (Art.
8 paragraph 1). Instead of eggs, the same quantity of liquid egg
product may also be used, provided that it meets the requirements
of Legislative Decree no. 65 of 4 February 1993.

Source: http://www.pasta.it/legge.htm#:~:text=1%2D%20%C3%88%20consentita%20la%20produzione,il%20limite%20di
%207%20gradi
Ultimately:

 It is expressly forbidden to sell in Italy, or to keep for the purpose of sale, pasta that does
not meet the previous characteristics.
 It is possible to produce pasta and flours with characteristics different from those provided
for by the legislation if intended for export only, provided that they are not harmful to the
health of the consumer, after notifying the Ministry of Agricultural and Forestry Policies of
the specific goods to be produced, the quantity, the specific discrepancies from the
standard, the date of the beginning and end of processing and the country of final
destination. The processing of the latter must also be done in such a way that it can be
easily inspected by the supervisory bodies and these products, as well as raw materials
other than those intended for national use, must be stored in special rooms with the words
"Storage of raw materials and finished products not intended for the national market" (Art.
12 paragraph 2).
(https://www.normattiva.it/uri-res/N2Ls?urn:nir:presidente.repubblica:decreto:2001;187 )
In addition, there are stringent regulations regarding the labeling of products, contained in EU
Regulation 1169/2011. In particular, in Article 4, the mandatory information to be affixed to the
label is given:

 the name of the food;

 the list of ingredients;

 any allergens present;

 the quantity of certain ingredients or categories of ingredients (quid);

 the net quantity of the food;

 the date of minimum storage or expiry date;

 the special storage conditions and/or conditions of use;

 the name or business name and address of the food business operator (responsible for the
product);

 the country of origin or place of provenance if any;

 instructions for use, in cases where their omission would make it difficult to use the food
properly;

 in the spirits of alcoholic beverages, the actual alcoholic strength;

 a nutrition declaration.

With respect to Legislative Decree 109/1992, however, it does not impose the obligation to indicate
the location of the production or packaging plant. This information may be maintained at the behest
of the person responsible for the product provided that it does not replace the name/business name
and address of the operator.

The mandatory information must also be indicated by words and numbers on the label, in an evident
point so as to be easily legible and possibly indelible and in this regard the minimum heights of the
characters used are also adjusted, making sure to highlight in particular the allergens.

Each individual country can then freely and discretionally establish the language or languages to be
used for these indications and also regulates the penalties applied for non-compliance with the
regulations.

In Italy these penalties range from a minimum of € 1,000.00 to a maximum of € 150,000.00.

(EU regulation 1169/2011: what changes for pasta producers ‹ PASTARIA)

g) access to distribution channels

Source: https://tesionline.it/tesiteca_docs/19677/Marketong_-_Analisi_del_settore_istat_15.85_paste_alimentari.pdf

As for the distribution channels, it is observed, as will then be seen in more detail by analyzing the
bargaining power of customers, that most of the pasta is sold through supermarkets and
hypermarkets that together make up almost 65% of the total
(https://tesionline.it/tesiteca_docs/19677/Marketong_-
_Analisi_del_settore_istat_15.85_paste_alimentari.pdf).

Therefore, going to consider the possible access to distribution channels these are the categories to
be taken into consideration most.

Starting from a research carried out by the company Doxa (https://www.bva-doxa.com/pasta-

viaggio-nella-categoria-regina-dellalimentare/),analyzing 115 supermarkets and hypermarkets of
eight GDO brands (Carrefour,Conad, Coop, Despar, Esselunga, Pam, Simply, Unes), conclusions
were drawn relating to the exposure of pasta. First of all, attention was focused on the space
dedicated to pasta on the shelves of the various stores. Esselunga with 13.7 meters is the one that
dedicates the most space, a figure clearly higher than the average that stands at 9.4 meters. Coop
(10.5m), Simply (10.3m) and Conad (9.8m) follow, while below average are Pam (8.6 meters),
Unes (8.1 meters), Carrefour (7.6) and finally Despar (5.7).

The constant presence on the shelves of high-end dry pasta, due to the existence of a share of
customers who usually buy it, allows, thanks to the various brands present, to respond to the need
to segment the offer, particularly felt by the GDO in a very battled category in terms of price. The
brand most on the shelves is Barilla, which is only held by the brands of the various distributors.
The second industrial brand is De Cecco (87%), followed by Garofalo (77%) and Voiello (which
belongs to Barilla and still has a basic cost per kg higher than the leader). Also noteworthy is the
growth of the national brand La Molisana (61%) which has greatly increased sales.

Source: https://www.bva-doxa.com/pasta-viaggio-nella-categoria-regina-dellalimentare/

The signs examined use two different exposure strategies. Some favor their brands (Mdd) and
others that, perhaps not having wide private ranges, favor the display of industrial products.
Inparticular, it has been seen that Esselunga in as many as 64% of commercial areas devotes more
space to MDD than that assigned to each of the other brands. The same thing happens in Unes
(47%), Coop (43%) and Pam (40%). In the other four chains analyzed (Carrefour, Conad, Despar
and Simply) it was not found in any of their stores a greater space dedicated to the shelves to MDD
and indeed in some happens exactly the opposite (for example Simply 80% unbalanced towards
industrial brands).
Source: https://www.bva-doxa.com/pasta-viaggio-nella-categoria-regina-dellalimentare/

This gives an idea of how, going to proporrsi with a new personal brand, without therefore going to
produce on behalf of distributors, it is really difficult to find space on the shelves because, despite
being in stores that give priority to industrial brands, these will always tend to prefer products
already well known and will therefore not risk selling a new product that could be unattractive to
customers. This is demonstrated by the fact that Barilla is present in almost all the stores while
De Cecco, Voiello and Garofalo in over two thirds. To this is added that the brands that offer more
space on the shelves to pasta (Esselunga and Coop) are also those that guarantee more space
alland brands of the distributor thus constituting a further disadvantage.
So, inconclusion, the level of barriers to entry turns out to be quite high making the sector
unattractive for our focal company.
WAITING FOR THE REACTIONS OF THE COMPETITORSALREADY PRESENT
a) Previous energetic reactions
An example of a reaction to the entry into the market of new competitors is that of Barilla's
decisions in the late eighties and early nineties. In this period, in fact, Nestlè bought Buitoni (1988,
second pasta producer after Barilla) while BSN bought the majority stake in Agnesi (1990) and
hard-discounters spread with the consequent growth of the so-called "private labels" (27 smaller
brands experienced a sudden growth). Barilla, in response to all this, decided to adopt a very
aggressive growth strategy, increasing investments in advertising and promotions. The result was a
strengthening of the presence of the Emilian company in the domestic market, with a growth in
market share that went from 20% in 1981 to 37% in 1996(Microsoft Word - Glocal Marketing - The
case of Barilla communication on international markets bis (luiss.it)).
b) Allocation of excess resources
As for the competitors present in the sector it is important to check what the level of their profits
is since, if high, these could be reinvested to finance a price war, or even in advertising to take
away visibility from the new entrant.

Table 29 Operating profit (million)

Companies 2017 2018 2019

Barilla 241,22 251,117 266,637
By Cecco 12,768 14,055 13,747
Garofalo 10,64 12,23 8,16
Divella 9,99 16,32 12,06
The Molise 6,62 6,59 10,76
Pallante
(Pallante) 3,49 3,48 3,43
Liguori 1,85 2,35 2,46
Black elk 1,32 1,26 0,03839
Berruto 0,95507 0,96515 1
Coconut 0,55405 0,39063 0,22889
Granoro 0,52255 0,45295 0,58209
Rustichella 0,1184 0,10663 0,10665
Rum -0,24586 0,35511 18,19
Pasta zara -59,54 -99,88 -8,13
Source : https://www.reportaziende.it/

https://www.barillagroup.com/sites/default/files/Bilancio%20Economico%20Barilla%202019_ITA.pdf

https://www.dececco.com/wp-content/uploads/2019/06/31736_Bilancio-Consolidato-2018-min.pdf

https://www.dececco.com/wp-content/uploads/2020/04/Bilancio-Consolidato-31.12.2019.pdf

https://www.ilsole24ore.com/art/barilla-utile-netto-gruppo-2017-sale-241-mln-2percento-35-mld-ricavi-AEeah2iE

As can be seen from Table 29, Barilla is the master and has at its disposal an incredible amount of
resources to be able to implement reactions to the entry of some competitors, as well as other
companies such as La Molisana, Divella and De Cecco which, despite having lower profits, are
dangerous having a positive and remarkable operating result. It should also be noted that Rummo
closed the last financial year with a marked profit.
In the case of Barilla, again based on the company's financial statements, we also noted that from
2018 to 2019 the reserves grew from 821,984 to 1,009.519 million euros, giving a further reaction
capacity of the companythat and, in the face of this increase in netcapital, also saw an increase in
cash, bank and postal deposits (Immediate Liquidity) from 295.982 to 452.308 million euros.

c) High investments already made + d) Poor recoverability of investments

Table 30 Investments in the assets of the top three companies in the market

2019 (€ million) 2018 (€ million)

Barilla 2.031,517 1.684,070
By Cecco 409,907 413,202
Divella 51,154 48,420
Source:https://www.dececco.com/wp-content/uploads/2020/04/Bilancio-Consolidato-31.12.2019.pdf
https://www.barillagroup.com/sites/default/files/Bilancio%20Economico%20Barilla%202019_ITA.pdf

https://www.uniba.it/docenti/muserra-anna-lucia/attivita-didattica/BilancioCasodistudion.1.pdf

For the market leader Barilla, investments,in addition to beingremarkable,have also increasedin the
last year (+20.6%), while for De Cecco and Divella the variations have been minor, respectivelyand
-0.78% and +5.65%, although in the case of Divella there has always been an increase.
This is a further indication in favor of a possible reaction of competitors already present in the
sector, who will be more aggressive in order to be able to recover these investments.
Added to this is the fact that, as seen above, these reactions will be even greater because in the
dry pasta sector, due to the specific production process, the machinery used is difficult to
reconvert for other applications and would therefore represent Sunk Cost if the companies were
forced to leave due to the entry of our focal company, but this is definitely unlikely since these are
the main companies in the market.
d) Limited growth rate
The sector, as seen in Tables 3 and 4 in the analysis of competition in the sector, has a very limited
growth rate, almost absent, therefore a new entrant will necessarily have to take away market
shares from other competitors causing a harsher level of reactions.
So ultimately, even the expected level of reactions of competitors already present is high, so also
for this reason, the sector is unattractive for a new entrant like our focal company.

1.3 THREAT OF REPLACEMENT PRODUCTS

Replacement products are those products that can replace those already present for the function
of use. The possibility of becoming replacement products increases thanks to two factors:
 a) Best value for money
b) Coming from industries that enable large profits
In Italy the consumption of pasta is part of its culture and history: 9 out of 10 Italians (88%) eat
pasta regularly, 1 in 3 (36%) brings it to the table every day
(https://www.repubblica.it/economia/rapporti/osserva-
italia/trend/2020/10/16/news/pasta_aumento_di_consumi_con_il_covid-270780194/).

PANE
By 2020 the average annual consumption of bread per capita in Italy stands at 41kg, a figure lower
than in other European countries, for example in Romania 88kg per capita is consumed, in
Germany 80kg, in the Netherlands 57kg, in France 44kg and in the United Kingdom 43Kg. The
consumption of bread takes place mainly during the main meals (dinner and lunch), in competition
with what are the functions of use of pasta (gdo_ind_1203231520.pdf(b2b24.it).

Source: Consumption of bread. Italy lag behind in Europe with 110 grams per day per capita | Cia Agricoltori Italiani Toscana
(ciatoscana.eu)

In 2016, on the otherhand, consumption was higher (https://www.foodweb.it/2016/06/pane-italia-

al-terzo-posto-per-i-consumi/),in fact Italy was in third place in Europe for bread consumption,
behind Germany and France. As for the annual per capita consumption, on the other hand, a
consumption of 57 Kg was estimated against 41 Kg in 2020.

90% of households buy bread very frequently (almost every day or 2-3 times a week), on average
750g each time. Mainly they do it in supermarkets/hypermarkets/small neighborhood
supermarkets (51.6%) but also in traditional bakeries/ovens (47.3%). In this, therefore, there is a
lower weight of the GDO compared to what has been seen for pasta (Consumptionof bread. Italy
lag behind in Europe with 110 grams per day per capita | Cia Agricoltori Italiani Toscana
(ciatoscana.eu)).
84% of Italians habitually consume bread, the remaining part usually excludes it from their diet for
health and dietary reasons. Lately, in fact, a real "carbophobic" fashion has developed that sees
carbohydrates as responsible for weight gain, insulin resistance and related diseases. This explains
a decrease in sales of the bread product and in particular of fresh bread produced by hand or
obtained from some flours, such as flour 00, penalized by journalistic information that, too often,
tends to favor unfounded alarmism not supported by irrefutable scientific data. On the other
hand, the percentages of those who consume wholemeal flour bread are growing. In fact, in 68%
of households, an average of 2.6 different types of bread are consumed.
The bread is made with soft wheat that can be purchased at an average price of € 0.21 / kg. The
national milling industry transforms 5,400,000 tons of common wheat every year, producing
4,000,000 tons of flour, of which 65% is destined for the production of bread or substitutes for it.
The average price of bread is instead around € 3.1 / kg in 2020 (of which each kg contains 1 kg of
wheat which corresponds to 800g of flour). Therefore, the annual per capita consumption results
in a quantity of bread purchased in Italy (always in a year) of 2,475,990,000 Kg which corresponds
to a total value of € 7,675,569,000 (Flourand flour in Italy: all the official data of Italmopa
(ristorazioneitalianamagazine.it); How much does bread cost in Italy? And in the rest of Europe?
Here's how the quality of life is changing - Info Data (ilsole24ore.com)).
Going then to compare the average price of bread with those of pasta (Tab 25) we observe how,
on average, the price of dry pasta, considering all the various types, is € 3.61 / Kg and therefore
slightly higher than that of bread.

As for theper capita consumptioninstead while pasta, in 2020, stands at a value of 23.5Kg (tab.3),
bread, as previously mentioned,reaches 41 Kg. Therefore, sales volumes and turnover are also
higher overall than the pasta itself and this could make bread appear as a potential threat.

In reality, however, the bread market is in sharp decline compared to 2016, except for the first half
of 2020 when the impact of the pandemic caused an increase in consumption of 10%, but against
a simultaneous increase of 23% of pasta (https://www.repubblica.it/economia/rapporti/osserva-
italia/trend/2020/10/16/news/pasta_aumento_di_consumi_con_il_covid-270780194/;
https://www.assitol.it/consumi-il-pane-quotidiano-ai-tempi-del-coronavirus/ ).

Therefore the product itself does not appear to be a particular threat, even considering the similar
nutritional characteristics that make it suffer the same negative effect regarding recent health
trends (https://www.my-personaltrainer.it/alimentazione/pasta-alimentare-produzione-valori-
nutrizionali.html https://www.humanitas.it/enciclopedia/alimenti/carboidrati/pane/).

https://www.agricultura.it/2020/09/30/pasta-comanda-litalia-ne-mangiamo-piu-di-tutti-23-kg-
per-capite-e-siamo-il-primo-produttore-al-mondo-con-oltre-35-milioni-di-ton/#:~:text=comanda
%20l'Italia.-,Ne%20mangiamo%20pi%C3%B9%20di%20tutti%20(23%20kg%20pro%20capite)
%20e,3%2C5%20milioni%20di%20tonnellate

LEGUMES

Legumes enhancing their healthy side have managed in the last period to be seen with different
eyes from Italians, who in fact have purchased and consumed more. In 2020, sales increased by
15% in both value and volume. 26 thousand tons of legumes were sold for a total value of 90
million euros (source Nielsen) in the year ending in June. Due to the effects of the lockdown, which
induced to make food stocks, there has been an increase in consumers interested in legumes
(even young people).
The exploit of legumes shows a growing interest of customers for vegetable protein foods, for
"gluten free" products and the passion for local specialties. Important deviations compared to the
numbers of previous years there were in particular for the bean market (+28%), which represent
20% of the market of legumes, chickpeas (+12%) and lentils that have recorded a real boom with +
51% (over 46 thousand kg sold) compared to the year before that have strengthened the market
leadership since they already represented half of the legumes sold in large-scale distribution in
Italy.
Legumes in Italy, however, have recorded a collapse in production in the last 50 years, we are in
fact strong importers of these products (Legumes, growing and successful consumption for the snack
and healthy versions - Il Sole 24 ORE).

Source: Crops : Cereals, legumes, roots, bulbs and tubers (istat.it)

This product will be to be paid attention in the future given the recent health trends that are
increasingly spreading and that favor its consumption, but to date given the limited quantities
sold, despite the strong growth due to covid, it does not turn out to be a realthreat.

RICE
According to the Banco BPM(https://www.risoitaliano.eu/wp-
content/uploads/2020/02/Relazione-Sulpasso.pdf) studies office, rice has a high penetration in
Italian families, standing at about 90%. In fact, it has the advantage of being more digestible than
pasta and can also be consumed by celiacs, which in Italy are almost 215 thousand.
(https://www.habitante.it/habitare/living-e-tendenze/quanti-celiaci-ci-sono-in-italia/?
cli_action=1619968772.592 )
Moreover, Italy, with 1.4 million tons, is currently in first place in Europe and in 27th place in
world rice production.

The trend of surfaces and production (2008-2018)

 Source: https://ita.calameo.com/read/000450154c5194b078d75 (Food-Dossier riso- February 2019)

From this graph, comparing the production of rice with that of pasta (Table 5) the first turns out to
be less than half compared to the second.
The recent regulatory changes have then changed the rules regarding the marketing of rice in Italy
so that national operators have had to adapt by incurring additional costs and charges. In addition,
a significant risk for domestic production derives from the EU's decision not to subject rice from
Cambodia to duties and this could favor its further import from this country, which in 2018 stood
at around 10,130 tons (https://ita.calameo.com/read/000450154c5194b078d75 (Food-Dossier
riso- February 2019))
If we then look at the price of rice in Italy according to the magazine Food
(https://ita.calameo.com/read/000450154c5194b078d75 (Food-Dossier rice-February 2019)) we
can observe that:
Table 31 Rice prices by distribution channels n2018
Rice Average price Every % Volume (kg) Value (€) Weight %
(€/kg)
Total Italy 1.86 -2.5 170.085.429 316.898.686 100%
Hypermarkets 2.23 -1.5 34.822.396 77.593.105 24%
Supermarkets 2.22 -1.9 57.862.572 128.659.245 41%
Free Services 2.26 -3.2 19.195.149 43.430.301 14%
Discount 1.15 -3.0 58.205.207 67.215.795 21%

Here we also note how the weight of the distribution channels, for rice, is almost identical
compared to what has been seen for pasta for Hypermarkets and Supermarkets, but it is noted
that rice is instead much more present in discounters, making it clear that rice is a product with a
lower price but also considered with a different level of quality.

In fact, going to see the price of rice according to the segment to which it belongs, we see how:
Table 32 Price of rice according to the segment to which it belongs
Typology Average price (€/kg) Every % Volume (kg) Value (€) Share %
Total rice 1.86 -2.5 170.085.429 316.898.686 100%
White 1.85 -2.5 90.450.169 167.376.257 52.8
Speciality 1.92 -2.5 50.627.330 97.121.497 30.6
PARBOILED 1.81 -3.0 29.007.930 52.400.932 16.5
Therefore, making a comparison with those of pasta (Table 11)it is observed that rice is positioned
as on average more expensive than semolina pasta but much less than other types of pasta, in
particular Gluten-free pasta that can be eaten by celiacs and which is therefore more subject to
competition from rice than this particular market segment.
Below is the turnover of the ten main producers and the data are also compared with the report
Special Food Rice.

Table 33 Turnover ofthe top ten rice producers

Name Region Turnover Where% Turnover Where%
(thousands of 2015/2016 (thousands of 2016/2017
euros) 2016 euros) 2017
Euricom Lombardy 156.210,0 -17.2 181.477,0 +16.2
Scotti Rice Lombardy 186.281,4 +1.6 179.970,0 -3.4
Curti (Curti) Lombardy 142.652,0 -4.6 147.562,0 +3.4
Rooster Rice Lombardy 101.977,1 -5.4 102.749,0 +0.8
S.P. Piedmont 51.316,7 +9.1 59.619,8 +16.2
Mundi rice Piedmont 39.491,8 -17.6 49.114,7 +24.4
Riseria Vignola Piedmont 49.127,4 +8.0 48.814,7 -0.6
Giovanni
Invernizzi Rice Piedmont 32.580,0 -15.3 33.885.6 +4.0
Gariboldi Lombardy 17.420,2 n.a 33.854.2 +94.3
Ticino Rice Lombardy 34.526,2 -14.5 33.089,7 -4.2
Source: https://ita.calameo.com/read/000450154560bc810ec4a

Table33 is followed by ros (Return on Sales) = (operating income / turnover) which in the years
under review in the weekandassumes the values shown in table 34.

Loss. 34 ROS
PRAISE 2014 2015 2016
Medium Enterprises with 2.2% 2.5% 3.4%
> turnover 40 mln €
Source: https://ita.calameo.com/read/000450154560bc810ec4a

These turnovers are much lower than those that have been had for companies operating in the
dry pasta sector, especially when compared to alarge company such as Barilla, but also if they refer
to the other main producers.

Table 35 Turnover (in millions of euros)

 Company 2017 2018 2019
Barilla 3.468 3.483 3.627
By Cecco 444,9 449,7 454,0
Divella 278,4 266,4 264,2
Pasta Zara 221,2 195,4 205,1
Garofalo 154,2 152,8 160,6
The Molise 102,4 108,2 130,5
Rum 74,8 84,4 92,5
Black elk 72,8 73,2 67,3
Granoro 64,8 63,9 66,9
Pallante
59,71 58,51 21,3
(Pallante)
Source:https://www.barillagroup.com/sites/default/files/Bilancio%20Economico%20Barilla%202019_ITA.pdf
https://www.milanofinanza.it/news/barilla-nel-2018-il-fatturato-sale-del-3-a-3-483-mld-201906051238467369#:~:text=Un
%20fatturato%20di%203%2C483%20miliardi,e%20migliorare%20efficienza%20e%20sostenibilit%C3%A0.
https://www.barillagroup.com/sites/default/files/Bilancio%20Barilla%202017_210x297_IT.pdf
https://www.dececco.com/wp-content/uploads/2019/06/31736_Bilancio-Consolidato-2018-min.pdf
https://www.dececco.com/wp-content/uploads/2020/04/Bilancio-Consolidato-31.12.2019.pdf
https://www.reportaziende.it/

Following an analysis of Tables 3,3, 34 and 35, it can besaidthat the turnover of rice farms is lower
than that of dry pasta producers. In addition, to this adds a ROS certainly not high. This means that
rice is not a threat in this respect.
Or thenobserving the overall trend over time, between 2007 and 2016 of the rice industry we see
that:

Source: https://ita.calameo.com/read/000450154560bc810ec4a

the turnover, except between 2007 and 2008 when due to the worldwide shortage of stocks
(https://www.risoitaliano.eu/crisi-alimentare-come-nel-2008/) there was a significant increase in
price, has remained stable overall, a symptom that rice is not an expanding sector and that therefore
it is not dangerous for pasta. Moreover, to confirm this,theconsumption of rice per capita is 6 kg
and, despite being among the highest in Europe, it is still much lower than that of pasta
(https://ita.calameo.com/read/0004501540ed76b21aa30).
 SPELT
Spele is one of the most important cereals in Italian history, already present on the tables of
Etruscans and Romans.
This cereal, which originated about 9000 years ago in the region of the fertile half moon, then
spread to our peninsula. In fact, speal has always been cultivated in the Apennine areas, and in
recent years it is rediscovering a new life, by virtue of its characteristic flavor and its many possible
uses. For example, spewy proteins unlike wheat proteins are characterized by an extremely low
level of toxicity.
Making an exact estimate of the hectares cultivated with spelt in Italy and their production is
difficult because the areas destined for this crop have varied over the centuries and, in particular,
in recent decades.
The main production area is that of central Italy, with greater productions in Tuscany, Umbria and
Marche. There are two certified typical products: Farro della Garfagnana Igp and Farro
Monteleone di Spoleto Dop. The production area of Garfagnana is today the Italian leader. But this
has not always been the case, despite having maintained a certain productivity over time.
As previously written, spero in recent years is discovering a new life. The demand and the market
around this cereal are growing. In fact, the demand has grown on average in the last decade from
a minimum of 5% to peaks of 15% per year. It is estimated that today the cultivated area amounts
to about 4,000 hectares.
Going therefore to observe the selling price of spele inItaly, we see how this is greater than the
average price of pasta, in particular it is positioned as the most expensive of all types of pasta with
the exception of stuffed dry pasta and gluten-free pasta.
As far as the sales volume is concerned, it is noted that this is much lower than that of pasta
(about 530 times lower) (Table 4) and consequently also the overall turnover. Therefore, it does
not pose a significant threat although its growing demand could make it a product to be looked at
in the future.

SPERO IN ITALY

Apennine areas
  Geographical Area of Cultivation
(in particular Tuscany, Umbria and Marche)

  Direct consumption
  Pastificazione
  Uses Breadmaking
  Pastry
  Breakfast products
  Zootechnical use
  Production Yields 15-25 q/ha
Sales Volume
  2,605,334 kg
Year ending in May 2015

  Average price 4,61 €/Kg

  Turnover 12.010.589,74 €

1. The cereal trend in Italy

2. Spero, the revenge of the minor cereals growing production and consumption

3. Cereals and Health

4. Commodity exchange price list

5. Agrisole

6. Spero, timeless cereal

FRESH PASTA
Table 36 Average selling prices

Typology Price(€/kg) 2017 Price(€/kg) 2018 Price(€/kg) 2019 Price(€/kg) 2020

(1st Semester)
Fresh not 3,62 3,64 3,64 3,72
Stuffed
Fresh Stuffed 8,00 8,07 8,15 8,15
Fresh gluten- 8,86 9,25 7,96 7,89
free
Sources: FOOD-dossier pasta- July August 2019 (https://ita.calameo.com/read/0004501540ed76b21aa30 )
FOOD-Speciale pasta-Giugno 2020 (https://www.iriworldwide.com/getattachment/4aa71eb0-7352-488f-9e9c-
9aac432ce33b/Food-Speciale-pasta-giugno-2020.pdf?lang=it-IT )

Analyzing Table 36 shows that the price of the gluten-free segment is falling because, as will also
be seen in the following tables, the demand for the product is falling.

While below you can see the sales volumes and the corresponding values.
Tab.37 Sales volumes (fresh pasta anddriedpasta)

Typology Volume (Kg) Weight % Volume (Kg) Weight % Volume (Kg) Weight
2018 2019 2020 %
(1st Quarter)
Dry Pasta 666.661.376 83.5 666.926.400 83.3 190.476.608 83.7
Fresh Pasta 131.802.864 16.5 133.398.672 16.7 37.176.447 16.3
Table 38 Value of sales (dry pasta and fresh pasta)

Typology Value (€) Weight Value (€) Weight % Value (€) 2020 Weight
2018 % 2019 (1st Quarter) %
Dry Pasta 1.039.515.45 59.2 1.054.484.16 59.2 306.942.128 59.7
6 0
Fresh Pasta 714.676.032 40.8 727.210.304 40.8 206.991.712 40.3

Table 39 Sales volumes and value of fresh pasta sales (2019-2020)

Fresh Pasta Volume Wher Weight % Value (€) Where. Weight %

2019 (Kg) e. % %

Not Stuffed 80.067.408 +1.4 60,0 292.188.224 +1.4 40.2

Filled 52.886.172 +0.5 39.7 431.477.048 +1.5 59.3

Gluten Free 445.092 -5.2 0.3 3.545.032 -14.8 0.5

Fresh Pasta Volume Where. Weight Value (€) Where. Weight %

(1st Quarter 2020) (Kg) % % %

Not Stuffed 21.688.835 +1.9 58.3 80.694.814 +3.9 38.9

Filled 15.366.408 +4.7 41.3 125.340.094 +6.2 60.5

Gluten Free 121.204 +3.8 0.4 956.804 +2.1 0.6

Questsand tables show that the pasta fresca is on average more expensive than the dry one, although
it isto be considered that this is seen as a more sought-after product than the simple dry pasta, so
it could be said that there are no major differences in the quality / price ratio between the two.
Added to this is the fact that the overall market for fresh pasta is lower than that for dry pasta: by
a lot if you look at the sales volumes, while less if you look at the value of the sold. This is also
evidenced by the fact that the main producer of fresh pasta, Pastificio Rana, has a lower turnover
than Barilla, a leader in the dry pasta sector. The ratio between sales of fresh and dried pasta is
still stable over the years analyzed, a symptom that fresh pasta has not established itself as a
substitute product for dry but the two types have coexisted and, presumably, will continue to do
so in the future without substantial changes in demand.
In conclusion, the threat of substitute products turns out to be low because the only products that
could be "dangerous"are legumes and speloff given the recent healthtendencies, but as seen
above they should not yet be considered as a real threat given the main role that pasta plays in the
Mediterranean diet. So, from this point of view, the sector is attractive to our focal company.

1.4 SUPPLIERS' BARGAINING POWER

The bargaining power of an actor in the supply chain identifies, in Porter's structural model, the
ability of this subject to impose its own contractual conditions concerning the quality and quantity
of the goods, the price, the time and place of delivery, the times and methods of payment.

RAW MATERIAL
In Italy, both by tradition but above all by law, dry pasta must be produced exclusively with durum
wheat even if some exceptions are allowed, but they are carefully and strictly regulated. From its
grinding we obtain the semolina,a type of flour characterized by a greater grain size and a
particular amber yellow color.
From durum wheat it is also possible to produce wholemeal pasta following a different processing
of the semolina that is made integral because it is not subject to the wheat refining process. All the
components of the grain are used including the bran and the outer coating from which most of the
fibers come. As a result, the choice of suppliers for normal and wholemeal semolina pasta will be
the same.
There are many other varieties of durum wheat more or less known as the Kamut, older variety of
durum wheat with greater nutritional values, and the Matt which is used for the production of
organic and high quality pasta.
Finally, the expansion of the market of gluten-free products is increasingly relevant,which are made
with alternative flours to produce pasta, bakery and widely consumed food products in general.
For the production of products suitable for the diet of people with celiac disease, which today are
always in increasing numbers, different flours areused, including that of corn, rice or soy.
Finally, all types of pasta can be enriched with an additional ingredient, namely the egg and will
thus produce egg pasta while remaining in the dry pasta sector
(https://www.spaghettiemandolino.it/blog/340-pasta-italiana-tipi-storia-grani.html).

POWER OF DURUM WHEAT SEMOLINA SUPPLIERS

The bargaining power of suppliers can be defined as average. This is because, on the one hand, the
decline in the supply of durum wheat, combined with a phenomenon of concentration of the
agricultural sector, increase the negotiating power of the suppliers themselves. In addition, the
presence of limited substitutes also affects the increase in bargaining power as only durum wheat
semolina is needed to produce pasta and this cannot be replaced; toadd, is the fact of having high
reconversion costs because the higher the switching costs, the greater the obstacles to change of
supplier that hold back companies.
On the other hand, their power decreases because there is a large number of suppliers in the
sector so the company has a wider choice and, given the high numbers, there is a greater
competition between suppliers that will decrease the price. In addition, very important is the
downstream integration factor that consists, on the part of a company, in the next step compared
to the one it already covers. In our case the supplier who produces durum wheat semolina has
difficulty in producing pasta and therefore is forced to sell his goods.
In addition, thepresence of strong competition from foreign wheat contributes to reducing the
bargaining power of operators in the agricultural sector. It must be taken into account that wheat
is the only raw material available and that any poor quality of the supply greatly affects the final
product. In addition, the growing use of wheat in biofuels must be taken into account and
according to recent forecasts the price of pasta on the shelves will increase by about 40% in the
coming years.
Finally, the bargaining power of suppliers is closely linked to the performance of the national and
international raw material market and the level of concentration of their sector. In order to better
control the agricultural supply market, given the high incidence of the average cost of the raw
material, some companies have implemented the integration processupstream.
(https://www.google.com/url?
sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwiv55ucw5vwAhXDt6QKHaXIA60QFjABegQIAhAD&url=http%3A%2F
%2Ftesi.luiss.it%2F26859%2F1%2F197711_VALENTINI_EDOARDO.pdf&usg=AOvVaw2YzmgwA-Ga2MQMu0R0_IG2).

WORLD PRODUCTION OF DURUM WHEAT

Among the countries of the Mediterranean Sea, Italy is the largest producer of durum wheat with
about 4.0 million tons on average. Turkey and France follow with averages of 2.7 and 1.7 million
tonnes, respectively. In general, Morocco, Algeria and Tunisia have lower productions due to the
dry climate that often occurs during the cycle of the plant.
Table 40 World durum wheat production estimated and planned for the 2014/15 and 2015/16
vintages

Source: http://www.openfields.it/sito/wp-content/uploads/2016/01/PASTARIA2015_N06_it-artOF.pdf

In the lightof Table 40 it can be noted that Italy is the second producer of durum wheat in the
world after Canada and for this reason it is more appropriate to locate the company in the Italian
territory also characterized by a temperate climate that is favorable to the cultivation of wheat.

GEOGRAPHICAL DISTRIBUTION OF COMPANIES AND MILLS

The geographical distribution of durum wheat mills in 2013

Source:https://www.politicheagricole.it/flex/cm/pages/ServeAttachment.php/L/IT/D/2%252Ff
%252F1%252FD.b784957c7ef2948785bf/P/BLOB%3AID%3D1942/E/pdf

Table 41 Consumption of dry pasta in Italy

CONSUMPTION OF DRY PASTA IN ITALY

North 38,8%
Center 23,9%
South 37,3%
Source:http://www.massmarket.it/pastasecca.htm

From the graph above it is noted that most of the durum wheat mills are located in Northern Italy,
therefore, it would be advisable to place the focal company in this area due to the proximity of the
mills which will entail lower incoming logistical costs. Table 41 shows that consumption is higher
in Northern Italy and therefore this item supports the theory of opening a company in this area so
as to also have lower outgoing logistics costs.

TRENDS IN NATIONAL DURUM WHEAT PRODUCTION

Evolution of national production of durum wheat (000 tonnes)

Source:http://www.pianidisettore.it/flex/cm/pages/ServeAttachment.php/L/IT/D/a%252F6%252Fa
%252FD.3a557161a7ab8f9dd349/P/BLOB%3AID%3D705/E/pdf

On our national territory there are 622,000 farms of which 516 milling companies but only 178 of
them are specialized in the production of durum wheat semolina.
In 2007, 308547 tons of durum wheat were produced which, considering a minimum use of 108 kg
per hectare, allowed to sow an area of 1,714,150 hectares.
For 2008, 267592 tons of durum wheat are certified which, considering a minimum use of 180 kg
per hectare, allow to sow an area of around 1,486,600 hectares.
In the durum wheat supply chain (semolina and pasta supply chain) the following types of actors
operate:

 seed enterprises;
 agricultural holdings (including seed propagation holdings);
 other providers of technical means and services (research and experimentation, technical
assistance, commercial services);
 storage companies (agricultural consortia, cooperatives, producer organisations, private
enterprises);
 first processing enterprises (feed mills, mills and semolina factories, malthouses, etc.);
 second processing enterprises (pasta factories, bakeries, confectionery industry);
 the livestock supply chain, including livestock farming and subsequent meat processing
steps.
Durum wheat is almost entirely destined for human consumption and, in our country, in particular
for the production of semolina for pasta. The pasta product is of great importance both for
domestic consumption (per capita consumption in Italy: 28 kg. per year) and for exports.
The starting point at national level is the supply balance, expressed in the following flow diagram.
The balance sheet shows that the milling and pasta industry is dependent on imports. In fact, out
of an annual requirement of just over 5 million tonnes, more than 2 million tonnes (35%) must be
imported from abroad, mostly from third countries belonging to the dollar area. Imports do not
concern only the "basic" product, but above all durum wheat for "technical" needs. In fact, the
quality level, which in durum wheat is expressed above all in terms of percentage of proteins, is
often insufficient in our country to meet the requirements of the legislation for the quality of
semolina.

Table 42 Production of products intheEU

Source : https://www.ausl.bologna.it/eventi/archivio/auslevent.2016-12-19.7092045707/files/Relazione-Sirri-Filiera-uovo.pdf

From Table 42 it can be seen that Italy is third in the EU for egg production with a value of 766000
tons per year. This large quantity allows Italy to be self-sufficient in terms of egg supply
(https://www.unaitalia.com/settore-uova/).

BREAKDOWN BY REGION FOR EGG PRODUCTION IN ITALY

Source :https://www.ausl.bologna.it/eventi/archivio/auslevent.2016-12-19.7092045707/files/Relazione-Sirri-Filiera-uovo.pdf

Over 50% of Italian egg production is concentrated in the regions of Lombardy, Veneto and Emilia-
Romagna. This information confirms the hypothesis made previously to position the dry pasta
company in Northern Italy so as to have lower incoming logistics costs also for the supply of eggs.
In addition, over 70% of eggs for consumption are produced by companies with 'vertical
integration' or that integrate within their activity a series of "intermediate steps" necessary to
obtain the finished product.
The production is carried out by companies that have breeding farms and hatcheries (mainly in the
meat sector), which produce the feed used to feed the animals they breed in owned or affiliated
facilities or of conferring members, and which own plants for the selection and processing of eggs
and for the packaging and packaging of products.
The bargaining power of egg suppliers is generally low as the product is standardized and
therefore you can easily switch between suppliers. In addition, a fact that further lowers their
power is the purchase in large quantities of product so as to bring down their sales costs following
requests for discounts and price conditions.

1.5 CUSTOMERS' BARGAINING POWER

MAIN PLAYERS IN THE SUPPLY CHAIN

The quantitative flows of the entire durum wheat supply chain can be summarized in the following
points:

 The marketing of wheat is carried out for about 50% by agricultural consortia-cooperatives-
producer organizations that sell the entire product to the milling industry. An important
role is played by private traders who convey about 35% of the national offer, almost totally
directed towards the mills and only to a residual extent destined for export. The direct
transfer of grain by farms to the milling industry is limited to about 15% of the total.
 Imports essentially follow two channels. The milling industry directly absorbs about 60% of
the quantities imported almost exclusively from Community countries. The remaining 40%
is imported by private traders/trading companies that make direct supplies from non-EU
countries.
 A share of about 10%, which can vary from year to year due to the availability of raw
material, consists of the stocks necessary for the mills to ensure the physiological
functioning of the plants.
 The destination of durum wheat semolina is almost entirely towards the pasta industry
(95%); a residual portion is used, mostly locally, for the production of artisan bread.
  The industrial production of pasta is close to 3.5 million tons. Over 50% of the domestic
offer is placed on foreign markets where EU countries prevail (65%); the remaining share is
destined for domestic consumption.
 Domestic consumption is realized largely through distribution in supermarkets,
hypermarkets, hard-discounters and traditional retail.
Source:https://www.reterurale.it/flex/cm/pages/ServeAttachment.php/L/IT/D/4%252Fe%252Ff
%252FD.b28da82b44d4d870cd44/P/BLOB%3AID%3D19079/E/pdf

DISTRIBUTION CHANNELS IN ITALY

One of the critical success factors for the marketing of any product is the choice of distribution
channels.

It is in fact a strategic decision with long-term implications: this choice is undoubtedly one of the
key moments for any producer. It is linked to the identification of marketing objectives and the
selection of quantity, with the identification of possible distribution alternatives. In summary, the
task of the distribution channel is to make the product available in the right place and at the
desired time (https://pastaria.it/il-ruolo-dei-canali-distributivi-vecchi-e-nuovi-paradigmi/).
The consumption of pasta is divided into domestic (Italian) and extra-domestic (foreign) since the
demand is high. As for the first one, the following scheme applies:

Source: https://tesionline.it/tesiteca_docs/19677/Marketong_-_Analisi_del_settore_istat_15.85_paste_alimentari.pdf

From the percentages of the graph it is noted that most of the pasta produced is distributed through
large-scale distribution. The latter includes supermarkets, i.e. retail outlets of food products that
have a sales area of more than 400 square meters and a wide assortment of consumer products and
possibly, some non-food items for domestic use; hypermarkets that have a sales area of more than
2,500 square meters and a wide assortment of products (food and non-food); discounters that have a
sales area generally between 200 and 1,000 square meters and a rather limited range of products
that excludes, in most cases, the fresh department and branded products.
In the past, large-scale distribution has developed hand in hand with the growth of the food
industry, with the birth in the early thirties of the first supermarkets in the United States. However,
it is during the nineties that the companies of the large-scale organized distribution (GDO) have
assumed important dimensions, reaching levels of turnover such as to place them in many countries
at the top of the rankings of the largest companies.

The arrival on the Italian market of new operators of large distribution has radically changed the
contractual relations between industry and distribution; at the same time, the balance of power
between producers and distributors has changed and consequently the structure of the markets
and the offer to the final consumer.
The companies interviewed in the food processing sector have all expressed a certain aversion to
these contractual practices: the existence of various price elements increases ex ante uncertainty
on margins, with repercussions not only on operations, but also on innovation strategies and the
launch of new products. On the other hand, all the large-scale retail operators interviewed argue
that the fragmentation of the Italian production sector, while on the one hand allowing them a
high bargaining power, on the other hand constitutes the main problem in the interaction with
industry, especially for the reflection on transaction and logistics costs and for the inability of small
and medium-sized enterprises to guarantee the high production volumes required by large-scale
distribution. The latter, in addition to having a strong bargaining power towards smaller suppliers,
determines the policies of discounts and promotions, or advertising of certain products on the
shelves and on their flyers. Thehigh fragmentation of the production system would be one of the
reasons why some foreign large-scale retail operators would find it more convenient to source on
international markets, despite the strong preference of Italian consumers for domestic products.
Manufacturing companies also recognise that the degree of fragmentation is a strong weakness.
Despite the tightening of market conditions, some producers agree that the spread of large-scale
distribution, by raising the overall levels of competition, has stimulated the increase in efficiency
and quality standards. In some cases, large-scale distribution has also facilitated access to the
national and international market.
Source:https://www.google.com/url?
sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwjF752f257wAhVsgf0HHQ1JCeEQFjAAegQIAhAD&url=htt
ps%3A%2F%2Fwww.bancaditalia.it%2Fpubblicazioni%2Fqef%2F2012-0119%2FQEF_119.pdf&usg=AOvVaw0f32aPAp2-
AtwgfNZ09oif

For these reasons it is necessary to establish a good relationship with the large-scale retail trade,
especially in the initial phase of the life cycle of the new product to be assigned shelf space. In
support of this initiative, the need to offer adequate incentives to the various large-scale retail
operators must be taken into account.

1.6 CONCLUSIONI
Although there are some factors that make the sector attracting such as the low / medium
bargaining power of suppliers, the low danger of replacement products and the high appreciation
of the product in the Italian market, the analysis carried out showed that the aspects at the
expense of entry into the sector are more relevant. In fact, the strong concentration of the sector
accompanied by an aggressive policy of smaller companies to gain market share, the high fixed
costs to be incurred, the fluctuating growth of the market, the high bargaining power of large-
scale distribution and the product diversification of the most established companies make entry
into the dry pasta sector little or not at all attractive.

2. THE ABELL MATRIX

The Abell matrix allows us to break down the dry pasta sector into a business and to be able to start
processes of technological innovation, diversification or extension of the offer range.
The business concept comes from the combination of three variables which are:
 Customer groups (who is to be served?)
 Functions of use (what do they want?)
 Technologies (how do I satisfy it?)
 CUSTOMER FUNCTIONS OF
GROUPS USE TECHNOLOGIES
Packaging Pasta
Ho. Re. Ca. Nutrition Productive 1
Packaging 2
format Product range 3
format
Families and
private Use for gastronomic Bronze Long
customers purposes drawing Letter Mini (250g)  Semolina smooth
Medium
Food industry Ingredient Teflon drawing Plastic (500g/1kg) Egg Long striped
Wholemeal, spelt Smooth
   Gift    PLAN Maxi (>1kg)  and kamut short
Celebrations, events Short
   and awards         Gift Box4 Gluten-free  striped
               Filled   
Semolina flavored
               and enriched   
           

Source: 1- Bronze drawn pasta and Teflon drawn pasta: the differences | Deseapore;
         2- https://www.academia.edu/4425918/Imballaggi_ecosostenibili_nellindustria_della_pasta;
         3- https://www.iriworldwide.com/getattachment/4aa71eb0-7352-488f-9e9c-9aac432ce33b/Food-Speciale-pasta-giugno-
2020.pdf?lang=it-IT
4- https://www.lamolisana.it/wp-content/uploads/2017/11/catalogo-ita-ver01-280417.pdf