Introduction
of the company
Gardenia bakeries (KL)
Sdn Bhd is an associate company of Padi Beras Nasional Berhad. Gardenia is 30% owned by Tan Sri Syed Mokhtar
Al-Bukhary. The year of establishment of this firm is 1986.
Within four years, it became the bread leader in the industry. The factory
located at Shah Alam, Selangor. Gardenia produces all type of bread with
different kind of flavor and jam for consumers to choose from. For example European Cottage style bread,
Twiggles, Squiggles, Delicia, Quick Bites, Fluffy Buns, Bonanza, Butterscotch
and Breakthru. We
can find Gardenia’s product in supermarket, mini mart, grocery shop and etc in
all state in Malaysia. Gardenia bakeries concerns about consumers health by
using healthy ingredient as recipe to make all kind of bread product. It is
also a halal product which suitable for muslim and non-muslim consumers. (IT, 2013)
Demand
and its determinants
Gardenia supplies
different kind of bread to satisfy human needs and wants and also the demand of
consumers. Demand defines as the consumer’s desire and willingness to pay for a
specific goods or service. Law
of demand states that when the price of goods and services decrease, demand for
the goods or services will increase and vice versa.
The price of 400g loaf of Gardenia bread had increased from
RM2.70 to RM3.00 in Sabah. (Freemalaysiatoday.com,
2013) This result as the
quantity demanded of Gardenia product in Sabah decrease as the consumers who
have lower income can’t accept the price increase. They will tend to shift to
other brand of bread which has lower price compare to Gardenia. Substitution effect
happens in this situation. The quantity demanded of Gardenia will decrease if
people switch to other brand which is affordable. Whereas there are still
consumers will continue support Gardenia’s product because of brand loyalty. Although
there is lots of bakeries and firms producing bread every day but Gardenia
still the market leader in the industry as it has been a part of our morning
routine for decade years. But Massimo bread that establish few years ago soon
become the great competitor of Gardenia. Last year, Gardenia had arises
political and racial issue with Massimo.
Gardenia had stopped purchasing flour
from Federal Flour Mills Bhd (FFM) but Padi Beras Nasional Bhd (Bernas). Bernas
is controlled by Tan Sri Syed Mohktar Al-Bukhary while FFM is owned by hong
kong based Malaysian, Tan Sri Robert Kuok. Soon after, an online boycott
through mass emails and Facebook to stop purchase Gardenia product but Massimo
because Massimo bread brand by FFM is priced lower than Gardenia. Gardenia then
came up with an advertorial in newspaper clarify that they choose Bernas insist
of FFM due to commercial reasons. (Hidayat, 2013) Malaysian Chinese believe that
Gardenia stop purchasing flour from FFM due to racist issue but not commercial
purpose and started to switch to Massimo. Some grocers and retailer had reduced
the price of Massimo to encourage consumers to purchase instead of Gardenia. As
a result, the demand of Gardenia product decreases and the demand of Massimo increase.
Supply
and its determinant
As a market leader in
bread industry, Gardenia needs to supply enough bread products to fulfill the
market needs. Supply defines as total amount of a specific good or service that
is available to consumers. Law of supply states that when the supply of a
certain product and service decreases, the price will increases and vice versa.
When the cost of
production remain the same but the price of a loaf of bread increase, Gardenia
has to supply more bread to consumers to generate more net profits. Wheat is
the main ingredient of making bread. United States and Australia is the main
supplier of wheat to Malaysia. According to the articles, the price of wheat
increase and this directly increase the price of bread. (Worldwatch.org,
2013) When
the price
of wheat increase, the supply curve will shift to the left, this cause the
price of bread increase. Nowadays, there is lots of mini mart opening around
all the housing area. The increasing retailers also increase the demand of
bread and this affect the supply of bread too. Hence, the supply curve will
shift to rightward because Gardenia bakeries need to supply enough of bread
every each day.
For the determinants of supply, the technology in Gardenia
factory is very important to meet the consumer’s need. The modern the
technology of Gardenia factory, the more supply can provide to consumers every
day. According to the Gardenia official website, Gardenia bakeries is producing
2million of bread every day to fulfill the demand in 22,000 outlets around all
the state in Malaysia. This makes the supply curve shift rightward.
Elasticity
of Demand
The elasticity defines
as the degree of sensitivity to the good or the service to the changes of the
price. Gardenia bakery is inelastic demand as the price of demand increase or
decrease, the quantity demand changes less than the prices of demand. This kind
of situation is when there is very less substitution goods exist. For example,
the price of Gardenia is RM3.20 while the price of Massimo is RM3.50. Both the
prices do not differentiate that much and so the consumers are not sensitive to
the price. This less affect the consumer’s willingness and the elasticity of
demand are inelastic.
Government
Intervention- Subsidy
Flour is a necessity
for house-hold use and also some manufacturers. Every day, Gardenia needs a lot
of flour to produce enough bread to satisfy the market. Flour is a controlled
item in Malaysia. Government provides subsidy to flour as the retails price of
flour is RM1.35. Without the government subsidy, flour would cost RM2 per kg. (Theedgemalaysia.Com, 2013) The new supply curve with subsidy
is form and this shift the curve to the right. According to the law of demand,
when the price decreases and this increases the quantity demand of flour. The new equilibrium point will also shift to
the right and meet at the price of RM1.35. The total amount of subsidy provide
by government is RM0.65, this make the price more affordable and decrease the burden
of Gardenia company.
Government
Intervention- Price Ceiling, Shortage, Black Market
The Government set
price ceiling to avoid supplier from setting the price high above the price
ceiling and so consumers can buy it at an equilibrium price. A price ceiling is
a regulation that makes it illegal to charge a price higher than a specific
level. When the price ceiling is set above the equilibrium, it has no effect. The
market works as if there were no ceiling and it is illegal. But if the price
ceiling is set below the equilibrium line, it has powerful effect. This will affect
the suppliers as the price has to remain low. To increase the demand and
maximize the profit, suppliers will produce less amount of flour. This will
cause a shortage and some consumers are willing to pay more which is above the
equilibrium price to get the same amount of flour. Shortage goes serious when
flour produces in Malaysia who export flour to overseas are taking advantage of
the higher price. (Thestar.com.my,
2013) This
will create a black market due to high demand and higher price. Black market
defines as a transactions conducting ‘under the table’ to avoid government price
controls or taxes and the price of goods sold are above legal maximum prices. When
consumers willing to pay more than the market price, peoples will try to get
flour from other country and sell it with higher price to generate more
profits. This make the illegal region happens. Gardenia has no choice and so to
increase the price of bread product.
Government
Intervention- Price Floor, Unemployment
There are lots of workers
working in Gardenia factory and also work as a drive to deliver fresh bread to
all the retailers in Malaysia every day. As earlier in year 2012, the prime
minister of Malaysia has set the minimum monthly wage of RM900 in Peninsular
and RM800 in east Malaysia. (Thestar.com.my,
2013) A minimum wage defines as the lowest price for
workers that any employer may pay.
Minimum wage can
be considered as a price floor which is a regulation that makes it illegal to
trade at a lower price than a specific level. Generally, the market is at risk
of being distorted when the minimum wage is higher than the equilibrium level.
The greater the wage level, the lower the quantity demanded of workers. Thus,
Gardenia can only afford a few numbers of workers to work in their companies.
In another point of view, when the wage rate increases, the quantity supply of
workers also increases. As a result, there will be a surplus of workers where
the quantity supply of workers exceeds the quantity demanded. The company has
to reduce the number of workers since it cannot afford the minimum wage. The
legal wage rate cannot eliminate the surplus and this creates the unemployment.
References
1.
Freemalaysiatoday.com.
2013. Price
of bread up in Sabah? | Free Malaysia Today.
[online] Available at:
http://www.freemalaysiatoday.com/category/nation/2013/05/16/price-of-bread-up-in-sabah/
[Accessed: 24 Oct 2013].
2. Hidayat, N. 2013. The Gardenia Bread Wars - Buzz Worthy, Malaysia -
VenusBuzz.com. [online] Available at: http://www.venusbuzz.com/archives/4041/the-gardenia-bread-wars/
[Accessed: 24 Oct 2013].
3.
IT, G. 2013. Gardenia Bakeries (KL) Sdn Bhd.
[online] Available at: http://www.gardenia.com.my/ [Accessed: 24 Oct 2013].
4.
Theedgemalaysia.Com, C. 2013. KFM:
Higher flour prices will be seen as positive.
[online] Available at:
http://www.theedgemalaysia.com/in-the-edge-financial-daily-today/237949-higher-flour-prices-will-be-seen-as-positive.html
[Accessed: 24 Oct 2013].
5.
Thestar.com.my. 2013. Archives | The Star Online..
[online] Available at:
http://www.thestar.com.my/story.aspx?file=%2f2008%2f1%2f10%2fnation%2f19955254&sec=nation
[Accessed: 24 Oct 2013].
6.
Thestar.com.my. 2013. PM: Minimum monthly wage is RM900 - Nation | The Star Online. [online] Available at: http://www.thestar.com.my/News/Nation/2012/04/30/PM-Minimum-monthly-wage-is-RM900.aspx
[Accessed: 24 Oct 2013].
7.
Worldwatch.org. 2013. Increase in Grain Prices Affects U.S. Food Donations |
Worldwatch Institute. [online] Available at:
http://www.worldwatch.org/node/5408 [Accessed: 24 Oct 2013].
