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ST4S38-V1
Mentor’s Name:
Dr. Bernardo Batiz Lazo
Date of submission:
11/10/2018
Summary :
Introduction: ............................................................................................................. 1
References: ............................................................................................................. 13
List of figures
In context of globalization and open market, there are a swarm of companies which
propose and sell same products and services. To be the choice of the customers and
find a competitive position, an organization must differentiate from others. In other to
do the differentiation, the organization has to put in place diverse strategies. One
strategy that a Company can use according to Porter (1980) is: the diversification of
products like the case of Starbucks. Another strategy that used the organization was
the acquisition of other brand to enter in new markets and diversify its products.
Gwendolyn and Marvin (2009, p.140) found during their investigation that “the
acquisitions are used to extend the enterprise in new directions”. It is the case of Post
Holdings which bought Weetabix.
Post Holdings is an American consumer packaged Goods Company founded in St
Louis, Missouri. It stands as third position with 19,1% in US ready-to-eat cereal
category through its renowned brands such as Honey Bunches of Oats, Pebbles.
Post Holdings, 2017). To tackle other markets such as United Kingdom, Post comes
with strategy that of ‘acquisition of Weetabix’ a breakfast cereal company, which is
number 2 in its industry. This transaction is going to lead to many changes in this
sector. In view of this, the aim of this report is to present a critical strategic analysis of
current strategy change within the case of post holdings buying Weetabix. In other to
do this critical analysis, the following points are going to be explored. Firstly the
evaluation of the relevant levels of strategy of company, secondly the critical analysis
of the key stakeholders, thirdly the External analysis and finally industry analysis.
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I. Evaluation of the relevant strategy
In a company, there are three levels of strategy: corporate level, business level
strategy and functional level strategy. But in this report, we are going to focus only on
first two ones.
The corporate is concerned according to Surhi (2017) “with the overall objective and
scope of business to fulfil stakeholder’s expectations”. There are three major
corporate strategies: stability, expansion and retrenchment. As far as the case post
holdings buying Weetabix, the strategy level of the post holdings is the expansion
particularly the internationalize one. Besides William and Robert (2017) stated
“Weetabix is our first major international expansion platform”. This expansion
strategy is used by companies which are looking for higher profit, prestige, survival,
etc. different techniques are used. For instance, Starbucks to get high profit has
focused on the creation of stores around all America and world (Team Macchiato,
2018).
Business level strategy was focused on the customers’ needs and satisfaction, the
selection of the product and competitive advantage (Surbhi). A successful business
model is the one which permit to generate competitive advantage over competitors.
“The ability to adequately determine the position of an organization in its external
environment, i.e. in terms of other entities in the sector, is essential for strategic
decision making. ………Ensuring a unique strategic position is directly related to (and
depends on) the ability of an organization to create value”. Teofana (2017). The
ability of a Company to create sustainable position in its industry is the most
important element of its success (Porter, 1985).Porter in his book “Competitive
Strategy: Techniques for Analyzing Industries and Competitors” proposes three
generic strategies that enable organization to create this position and gain
competitive advantage from its competitors. These are: Cost Leadership,
Differentiation and market segmentation (cost focus and differentiation focus) as it is
shown in the figure 1 below.
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Figure 1: Generic strategy
In cost leadership strategy, the company is leader in its industry in terms of cost
minimization. At this level all the strategies of the organization focus on the cost
reduction. The products and the services propose to customers are produced at the
lowest cost in comparison to its competitors. This position enable to gain competitive
advantage and make profit. By reducing its cost, its revenue doubtlessly increase.
But in case of usage of this strategy by some competitors, the company risks to lose
market share. (Mindtools, 2012).
As far as the differentiation is concerned, company which used this strategy has to
propose to customers products or services which are different from those of
opponents in the same sector. The proposed products or services must be more
attractive. This attractiveness can be done at the level of the functionality, brand etc.
To maintain competitiveness, the organizations in this differentiation position have to
put emphasis on research and development. Otherwise, they are subjected to attacks
of competitors which use the same strategy. (Mindtools, 2012).
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In terms of market segmentation, a company identifies a segment of market which is
neglected by the competitors and focuses on it. In this segment calls niche market,
the company can use either cost focus or differentiation focus (Mindtools, 2012).
The strategy which suits with Weetabix is the strategy of differentiation of porter. As
explained by Porter in the differentiation, this company has range of products
Weetabix + Fruitibix variant, Alpen, Crunchy Bran, Weetos, Advantage and Ready
Brek (Katherine and Richard, 1996).
To go deeper in the analysis of the position of Strategy business unit, let us use the
Bowman’s strategy clock. The Bowman clock is a marketing model used to evaluate
a company’s position in relation to its competitor’s in term of competition (Mulder,
2018).According to Bowman (2008), a company has eight possible strategies in
function of price and customer value. Those strategies are distributed as a clock in
figure 2 below:
Source: Mbaknol,
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Like with porter strategies, with the bowman clock is the strategy of differentiation
which is used too by Weetabix. It proposes a diversify portfolio with leader brands
such as Alphen, Ready Brek and Weetabix. To be unlike to competitors, it always
tries to give a high value to its customers. Verbruggen the head of brand stated in
fact in marketing week “We’ve got to try and make our products as relevant to
consumers today and a lot of that comes back to the fact people want a healthy
breakfast”. To response to that need, Weetabix launched in January 2016 the
Weetabix protein and Protein Crunch.
Despite the used of the strategy of differentiation, its competitors such Kellogg and
Nestle which used the same strategy are more positioned than them. With Kellogg as
the leader of the industry.
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Table 1: Stakeholders Register
Low
KEEP SATISFIED MANAGE CLOSED
Customers UK government
Competitors
Shareholders
Public Employees
Partners
As showed on the interest-power grid, stakeholders who have high level of interest
and high level power have to be managed closely. In the case of Post Holdings
buying Weetabix, those to manage closely are UK government, competitors, lenders
and shareholders. If for example we take the UK government, at the level of power,
this government has to approve the acquisition by verifying that the transaction is
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done to respect the legislation. At the level of interest, this transaction is good for
local economies.
For those who have low level of power and high level interest, they have to be
informed. The organization has to keep them informed. In this case, they are
suppliers, employees and Partners. The organization must inform them about shift of
owner.
Stakeholders with high level power and low level of interest have to be satisfied. It is
the case of customers who can make company lose market share if they are not kept
satisfied. Concerning those with low level of power and interest, firm must just
monitor them. In our case, we have media.
- Political: The political analysis is the evaluation of the effect of the political
factors on business. Among other factors, we have political stability, trade
regulations, and employment laws. Thus, Post holding by buying Weetabix
has to deal with standard implemented by UK government and other markets
such as Kenya. In the regards of employment law for instance, post holdings
has to handle the every year changing of minimum wage. As shown by the
graph 1 below, this wage ranges from 5.73 in 2008 to 7.5 in 2017 (trading
economics, 2018). By handling the every year changing, Post holdings is
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going to see every year an increase of its salary expenses. Out of the
standard, post holdings has also to manage consequences of Brexit view that
UK is still in process of exiting from European Union.
- Economic: As far as the economic factors are concerned, the analysis has to
be done on the unemployment, interest rate, gross domestic product, inflation
change etc (Jenifer; 2018). The current political situation of Britain (exit from
European Union) is going to lead to slower growth. According to Richard
(2017) “the growth would slow to 1% for the year”. Post holdings by entering in
this market has to deal with this regression situation. Even though this
expectation was changed from 1% to 1, 5% in 2017, it is possible that this
condition continue in 2018. Richard (2018) declared in fact that “This trend
could persist into 2018, confounding the worst forecasts for the rate of
expansion to slow closer to 1%”. View that, Post holdings must be able to
manage this state. Another trend that can be discussed in this case is the
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inflation that undergoes this country at this time due to devaluation of livre
sterling. Richard (2018) said indeed that the prices of products increase in the
shops and that household are asphyxiated by the rise. Thus, Post holdings
risk to seeing the reduction of its sale because customers could not be able to
afford Weetabix products view its prices.
- Social: Analysis of social factors comes down to consider the consumers
habits and needs, what is the change at the level of culture and society
(Jenifer, 2018). By acquiring Weetabix, post holdings is going to face different
types of customers given the extent of its market. Angela ( 2017) declared
that aside UK, Weetabix operate also in south Africa, Germany, Spain, North
America china and African market through joint venture of Kenya. For
instance, China customers and UK ones have different needs. UK population
like to eat cereal in the morning. Katherine and Richard (1996) declared “UK
enjoys the highest global per capita consumption of cereal at 7.62kg, with
approximately 95% of the population eating cereal” This preference of cereal
in UK is going to affect positively the sale of Post holdings. Also, the majority
of the population are now more concerned by their health. Weetabix
introduced a lot of healthy products. Post Holdings by buying has to continue
to keep producing those products why not introduce new ones.
- Technological: Here it is to determine the impact of internet, advancements in
technology, the lifecycle of technologies and technological research on
introduction of new products or the entry in new market. (pestleanlysis
contributor, 2013). Post holdings is going to be influenced by the new method
of manufacturing products and the introduction of the project of delivery
system implemented by leading of the industry Kellogg. Also, post holdings is
going to be impact by Marval MSM Platform put in place by Weetabix to
improve its service and the journey of its consumers.(James, 2017).
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techniques are PESTLE and Porter’s Five Forces. While PESTLE is trying to identify
the forces which impact the company’s activity at the level of macro environment,
Porter’s five forces attempts to seek the level of power in competitive situation by
using fives forces of the industry. In the present analysis, we are going to use the
method of five forces to evaluate and assess UK cereal industry.
According to Porter, the five forces which identify the competition in an industry are:
Competitive rivalry, bargaining power of supplies, bargaining power of customers,
treat of new entrants and treat of substitute products or services.
- Competitive rivalry: According to James (2013) “The intensity of rivalry
among competitors in an industry refers to the extent to which firms within an
industry put pressure on another and limit each other’s profit potential.
Weetabix faces strong competition from Kellogg, Nestle and supermarket
which introduced their own brand of breakfast cereal (Paperop, 2007). Kellogg
the number 1 of the industry put in place all the strategies to maintain its
position. It diversifies its products and for instance, once it is aware that
customers are more interested by their health, it revues all its products by
reducing salt, sugar, fats and even introduce new products like Special K.
Weetabix and Nestle don’t stay behind, they have range of products and
introduce heathy products too. Also, Weetabix knowing the need of protein by
customers has lunched Weetabix protein crunch (Tryfon, 2017).
- Bargaining power of supplies: it is referred to pressure that suppliers have
on businesses (James, 2013). In the UK cereal market, the majority of
supplies in this industry are farmers. Their power is high. The companies in
sector Kellogg, Nestle and Weetabix don’t have any control on their supplies
(Paperop, 2007). The production of wheat principal raw material for the
breakfast cereal is low. The companies of the industry don’t have a lot of
possibility to change from one supplier to another and can’t dictate the conduct
to the suppliers. Knowing this information, suppliers control companies by
dictating the price of wheat.
- Bargaining power of buyer: this power refers to the pressure that customers
put on organizations to have high quality products at lower price. (James,
2013). In UK cereal industry, there are two type of buyers. The first type is the
buyer who takes products directly at the level of the company to sell back. This
buyer has a high level of power. If he doesn’t buy the products of a company,
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this firm cannot be able to sell to the end customer. Knowing this, Weetabix
decided to reward wholesalers in function of the purchase (Drakakis, 2017).
The second type of buyer is the final customer (families, individual person etc).
The control of this buyer is low even though he can change from one brand to
another. (Paperop, 2007).
- Threats of substitutes: refers to the existence of products of another industry
which offer the same value to customers (James, 2013). In the cereal industry,
the threats of substitutes is really high. There are a lot of substitutes to
breakfast cereal which are croissants, cereal bars, egg-based breakfasts, fast
food and breakfast menus. For Paperop, as those products attract the
customers, they are going to replace the breakfast cereals in future. Thus, the
companies of breakfast cereal to keep their market share have started to
produce some of these products. It is the case of the Kellogg, general,
Weetabix which made cereal bars and energy drinks (Stealing Share, 2017).
- Threat of entry: refers to the menace of entering the industry by new
competitors (James, 2013). The cereal industry in UK, the threat of entry is
low, as the cost of entry is really high and it takes long time to put in place
such organization. Also, the leaders in this industry (Kellogg, Weetabix and
Nestle) dominate the market, it will be difficult for a new comer to gain market
share.
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Conclusion and recommendations:
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References:
Angela, M. (2017) ‘Weetabix sold to US firm after breakfast cereal fails to catch on in
China’. The guardian. [Online]. Available at:
https://www.theguardian.com/business/2017/apr/18/weetabix-sold-us-firmcereal-fails-
catch-on-china-breakfast (Accessed: 07 October 2018).
Drakakis, H. (2017). ‘Rise and shine: Weetabix’s 2017 wholesale strategy - Better
Wholesaling’. [online] Betterwholesaling.com. Available at:
http://www.betterwholesaling.com/weetabix-2017/ [Accessed 4 October. 2018].
James, W. (2013) Supplier Power (one of porter’s Five Forces), Available at:
https://strategiccfo.com/supplier-power-one-of-porter fives forces, (accessed on: 09
October 2018).
Jim, D. and Technical information Service, (2007) Strategic Analysis Tools, Serie 34,
CIMA.
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Paperap, (2007), Breakfast Cereals in UK 07, Available at:
https://paperap.com/paper-on breakfast-cereals-in-uk-07/; (Accessed on 08 October
2018)
Porter, M.E., 1980. Competitive Strategy, Techniques for Analysing Industries and
Competitors. Free Press, New York.
Praizion, 2016 Stakeholder Register & Power Interest Grid - PMP Exam/PMBOK
Guide Study, youtube, https://www.youtube.com/watch?v=2QhvKlQhleQ
Richard, P. (2018) ‘UK economy in 2018: steady growth tempered by Brexit politics’.
The Guardian. [Online]. Available at:
https://www.theguardian.com/business/2017/dec/31/uk-economy-in-2018-steady-
growth-tempered-by-brexit-politics. (Accessed on: 09 October 2018).
Rogers, C. (2017) Weetabix on why TV is ‘very hard to beat’ for ROI, Marketing
Week [online] Available at: https://www.marketingweek.com/2017/05/30/weetabix-tv-
hard-to-beat-roi/ (Accessed: 6 October 2018)
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Stealing, Share (2017), Breakfast cereal market, Available at:
https://www.stealingshare.com/pages/breakfast-cereal/, (Accessed: 6 October 2018).
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