Microeconomics Individual Assignment
Apollo Food Holdings Berhad (APOLLO)
Apollo Food
Holdings Bhd (APOLLO) is a leading manufacturer of the Chocolate Confectionery
Products and Layer Cake industry in Malaysia (Anon., 2009) . It was incorporated as a private limited
company under the name Apollo Food Holdings Sdn Bhd on 5th March 1994. On 8th September 1994, it converted into a
public company and changed name to Apollo Food Holdings Bhd. Executive chairman and managing director of APOLLO is Liang Chiang Heng and the company has a total of 764 employees (Anon., n.d.) . APOLLO is a Malaysian-based investment
holding and management company with subsidiaries include Apollo Food Industries
(M) Sdn Bhd, engaged in the manufacture and trading in chocolate confectionery
products and cakes and Hap Huat Industries Sdn Bhd, engaged in marketing, distribution and sale of compound
chocolates and chocolate confectionery products and cakes(Anon., 2013) .
Apollo Food
Holdings Berhad distributes its products in Malaysia and other overseas markets
such as Singapore, Indonesia, Thailand, the Philippines, Vietnam, China, Hong
Kong, Taiwan, Japan, India, the Middle East, Mauritius, and Maldives (Anon., n.d.) . APOLLO is headquartered
in Johor Bahru, Malaysia and it is a subsidiary of Keynote Capital Sdn Bhd. Since 1966, Apollo’s
group companies have manufactured and distributed compound chocolate wafer
coating and chocolate confectionery products and cakes under the Apollo and
Nikko brands. The group operates from the Larkin Industrial Estate in
Johor Bahru. Its factory, which is owned by subsidiary Hap Huat Food Industries
Sdn Bhd, has a production capacity of 10,089 tons per annum. About 90% of the
raw and packaging materials are procured locally (Anon., 2013) .
As different people have different
needs and wants, APOLLO comes out with variety products for the customers such
as wafer products, layer cake products and Swiss roll products in many flavours
like chocolate, strawberry, blueberry, coffee, peanut, pandan and many more as
compared to last time. This allows the
consumers with different preferences to have more choices to choose the
products with flavours that they want.
Besides that, with different types of products produce, this increases
the level of utility of consumers. As
more consumption of various products of APOLLO, the total satisfaction of
consumers will increase up to a certain extent as in Figure 1. The consumers can shift to another type of
APOLLO products with different flavour if they feel bored in certain type or
flavour of the product.
Figure
1: Total utility from consuming product of APOLLO
Moreover, there are also
determinants that affect demand. As
price remain constant, people with different preferences and tastes can have
more choices on the APOLLO products, the demand for different types of the
products of APOLLO increases and this cause the demand curve to shift right as
in Figure 2.
Figure
2: Right shift of demand curve
In order to
attract the consumers, APOLLO has used various types of communication methods
to advertise their products. For
example, APOLLO advertised its products through television, newspapers, and
electronic media such as Internet as well as company’s webpage. When there is new product coming out in the
market, APOLLO will also advertise its products so that the new products are
known by people. With this, the
successful advertising will increase the demand for the APOLLO products. This affects the demand curve to shift
rightward as also illustrated in Figure 2.
In addition, the
demand of the products of APOLLO will also affect by the price and availability
of other goods. If there is presence of
the substitutes, such as biscuits, chocolate, sweets and other snacks and the price
of these substitutes is lower than APOLLO’s layer cake products, the demand for
the APOLLO’s layer cakes will decreases and the effect of this is shifting of
the demand curve to the left as shown in Figure 3.
Figure 3: Leftward shift of demand curve
There is also elastic demand of the
products of APOLLO. The quantity demand
can have huge change as there is slightly change in price of the products as
illustrated in Figure 4. If the price of
the APOLLO products is high, consumers can search for substitutes such as other
snacks like biscuits or swift to another brand of snacks such as brand of
London Biscuits Berhad and others brands which are in a lower price.
Figure
4: Elastic Demand Curve
The law of supply states that when
the price of a good increases, there is a decrease in quantity supplied. For
the supply side, the most important ingredients needed to produce APOLLO
products like layer cakes, chocolate wafer, and Swiss roll is sugar. Sugar is a controlled commodity in Malaysia which it is selling at RM2.50 a
kilogram now. On 28 September 2012, Prime
Minister Datuk Seri Najib Tun Razak announced that the subsidy on sugar will be
reduced by 20 sen per kilogramme (Koon et al., 2012) . As illustrated in Figure 5, S0 is the supply curve with more subsidy imposed, S1 is
the supply curve after deduction of 20 sen per kg of subsidy on sugar. As there is reduced of subsidy, the supply
curve shift left, the firm is not willing to produce more quantity of sugar
than before. Shortage may happen due to
quantity demand is higher than quantity supply.
As a result, the firm increases the price of sugar, buyers may withdraw
from the good, cause the demand curve move along to the left and sellers emerge
in the market and cause movement along the supply curve to right and new market
equilibrium is achieved.
Figure 5: Shift of
supply curve due to changes in subsidy and increase of price to achieve market
equilibrium
The price of sugar
had been revised upward five times since 1 Jan 2010, there is a whopping increase
of RM1.05 from RM1.45 a kilogram to RM2.50 on 29 September 2012 until
now (Anon., 2013) . As the price of sugar increases, so thus the
cost of production of APOLLO increases, this will affect profitability, the
firm is not willing to supply as more products than before. Therefore, as there is increase in cost of
production, there will be decrease in the supply of the products. This will cause the supply curve to shift
leftward as shown in Figure 6.
Figure 6: Leftward shift of supply
curve
As there is fewer products produce because the
cost of production increases due to reduction of subsidy on sugar by government
in the year 2012, but price of APOLLO products in market only has slightly
change, APOLLO may earn less and there is less total revenue. As shown in Figure 7, the earning for APOLLO
on the year 2012 is the lowest among the year 2008 until 2013.
Figure 7: Graph of price and earnings and dividends per share
of Apollo Food Holdings Berhad (Anon., 2013) .
Besides that,
technology is also one of the determinants that affect the supply. APOLLO is using world class wafer and layer
cake manufacturing machinery from Europe and it will constantly upgrade and
improve the technology (Anon., 2009) . With advances technology, it creates new
products and decreases the cost of producing products. Therefore, advances in technology will
increase supply and shift the supply curve rightward as shown in Figure 8. In addition, greater efficiency of large machines
will also achieve economies of scale in long run in which there will be larger
increase in output for a given input.
(1570 words)
Figure 8: Rightward shift of supply curve
APOLLO is selling consumer goods
which are perishable include layer cakes, swiss roll, wafer and many more. Its products are mostly demand by the middle
income and even low income family especially the family consists of
children. APOLLO is a monopolistic
competition market structure.
Monopolistic competition is a market structure in which there are many
producers sells the products that are substitutes but are not viewed as the
same by consumers (McEACHERN, 2012) . There are quite a number of firms in the
market besides APOLLO such as London Biscuits Berhad, Hwa Tai Industries Berhad,
Cocoaland Holdings Berhad and others.
However, they are independence to each other in which a firm does not
have to worry how its rivals will react if it wants to make its decision (Sloman et al., 2012) . Under monopolistic competition, APOLLO is a
price maker and it has some power over the price charged. There is also low
barrier to entry in the market. The
firms can easily enter and leave the market.
Each firm produces products in some way different from its rivals which
is product differentiation. This causes
the demand curve downward sloping in which the demand is relatively elastic
because of the large number of competitors appeared in the market in which
customers can choose from. APOLLO
differentiates its products in its physical look. For example, the size, colour, taste and
texture of the layer cakes are different from its competitors. Furthermore, the product image also differs
among APOLLO and its rivals. For
instance, APOLLO is famous for its rocket symbol when it advertises while
London Biscuits Berhad uses Disney characters to advertise the products. APOLLO creates and maintains its brand
loyalty through advertising and promotion.
Although there are many firms appeared in the market, they are selling
the products with almost similar price.
Therefore, there is non-price competition in monopolistic
competition.
In conclusion, APOLLO always tries
to satisfy its customers. It has an aim
to always fulfil the customer needs and requirement by using the latest
equipments and technology. Besides, it
recognizes its customers’ needs by introduce independence packaging and it also
ensures that its products are HALAL so that the products can be consumed by all
people (Anon., 2009) . With this, APOLLO can always maintain its
brand loyalty and with the advance technologies as well as successful advertising,
these lead to increase of sales and the cost of production can be cover by the
sales profit. APOLLO can maintain its
position and continue to become leading manufacturer of chocolate confectionery
products and layer cakes industry in Malaysia.
Prepared by: Lee Lin Lin (0311572)
Reference
Lists:
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