Apollo Food Holdings Berhad (APOLLO)

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.

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.

(1570 words)

Prepared by: Lee Lin Lin (0311572)

Reference Lists:

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