Bega-Cheese-ER-Report PDF

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SCHOOL OF BUSINESS ER – TEAM ASSIGNMENT COVER SHEET

STUDENT DETAILS Ainslie Zakis - 20117128 Lucy Burgess - 20057884 Maddison Northam - 20114028

Brandon Tran - 20186500 Nahyah Sario - 20064567 Pia Parrenas - 18395567

UNIT AND TUTORIAL DETAILS

Unit name: Enterprise Innovations and Markets Campus & Day: Parramatta City Campus, Tuesday Tutor’s name: John Hayek

Unit number: 200911 Tutorial Time: 11AM - 1PM

ASSIGNMENT DETAILS

ER Report title: Bega Cheese ER Report Word count: 3,6003 Due date: Week 12, May 19 2020

Date submitted: May 19, 2020

DECLARATION

X We hold a copy of this assignment if the original is lost or damaged. X We hereby certify that no part of this assignment or product has been copied from any other student’s work or from any other source except where due acknowledgement is made in the assignment. X We hereby certify that no part of this assignment or product has been submitted by us in another (previous or current) assessment, except where appropriately referenced, and with prior permission from the Tutor / Unit Coordinator for this unit. X No part of the assignment/product has been written/produced for us/me by any other person except where collaboration has been authorised by the Tutor /Unit Coordinator concerned. X We are aware that this work will be reproduced and submitted to plagiarism detection software programs for the purpose of detecting possible plagiarism (which may retain a copy on its database for future plagiarism checking).

Student signature: Ainslie Zakis Student signature: Lucy Burgess Student signature: Maddison Northam

Student signature: Pia Parrenas Student signature: Nahyah Sario Student signature: Brandon Tran

Assessment 2: ER Report Bega Cheese Limited. AUTUMN 2020

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TABLE OF CONTENTS: Executive Summary

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Evaluation of current Innovations Vegan cheese Lactose free cheese options

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Marketing Analysis Bega’s Major Competitors

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Microeconomics Analysis

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Problem Identification

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New innovation and target market profile

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New marketing mix strategy References Appendices Appendix A Appendix B Appendix C

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Executive Summary This Entrepreneurship Report was constructed to critically analyse the dairy product category as well as investigate and conduct thorough research of Bega Cheese Limited; a leading company within the Australian dairy marketplace. With comprehensive study and careful consideration of Bega's business function, the report discusses the extensive development of a new product innovation to launch into this progressive market. This research evaluates innovations such as vegan and lactose free cheese options which are marginally existent within the dairy industry. Such products have been scarcely introduced due to gradual rates of demand and trends within the emerging veganism/ health conscious market segment. As an incremental innovation, the growing consumer market is beginning to give recognition and acknowledgement of this product relevancy, and thus companies in the dairy industry are slowly offering equivalent product ranges to meet these demands. Analysis of the current dairy market consists of the industry leading company Bega, including their strong competitors Saputo Dairy Australia Pty Ltd and Fonterra Co-operative Group Ltd. Evidently, these competitors have similar marketing environments, target markets, marketing mix elements, and situational analysis factors. Microeconomic research has confirmed that such companies have a monopolised marketing structure however are distinguished through their product diversification. Further investigations reveal that fluctuations in the magnitudes of supply and demand are relatively minimal, hence the price inelasticity and marketing approaches. Despite the expansion and increased awareness of demand for modified dairy products, Bega has inadequately identified the potential success and growth in this market opportunity. In spite of this concern, this report concludes that Bega’s inability to effectively forecast this demand, their limitations in product variety/range, and lack of market research has restricted possibilities of creating and delivering a potential advantageous innovation. Through these observations, the report elaborates the consultation of designing and offering a new extensive product range that incorporates/innovates elements of vegan and lactose free cheese. Conclusively, this report details Bega's new marketing mix and advancements in marketing strategies, as well as emphasizing how the company has improved to be inclusive of the trends and demand of the veganism and health conscious target market.

Evaluation of current Innovations 🧀3

Vegan cheese Aspects of innovation This innovation provides a new product that provides vegan customers with a cheese substitute. This demonstrates a new way of serving the existing animal product free market unlike traditional dairy cheeses. Sources of innovation This innovation was sourced from perceptual changes in the social environment. Changes in the perceived health effects of dairy have created significant demand increases in vegan and dairy-free dairy options. Dairy products have been linked to increased saturated fat intake which is a significant contributor to obesity (IBISWorld 2019). Due to the continuing rise in fitness and health conscious consumers serving this market is essential (IBISWorld 2019). It is expected that there will be increased demand for vegan products due to a continued rise in vegan consumers. Type of innovation This is an incremental innovation as the product is formulated from existing technologies that have been altered to meet the needs of vegan consumers. Vegan cheese has been incrementally implemented in demand of cultural routines and norms relating to the veganism trend (Kateman 2020) Dimensions of innovation This is a product innovation as vegan cheese is a new product market offering that was previously not available to the Australian marketplace. This product has been rapidly implemented to capture the vast majority of the market due to the low supply of existing vegan products (Kateman 2020).

Lactose free cheese options Aspects of innovation This product is a new way of serving existing dairy-free markets and customers who favour a nutritional diet. Lactose-free cheese also provides a cheese substitute for customers who require a lactose-free diet. 🧀4

Sources of innovation Lactose-free cheese depicts perceptual changes within in Australian society as the nutrient benefits are overlooked due to salt and fat intake. According to the National Health and Medical Research (NHMR) there is no link to the risk of obesity and weight gain in adults (Diary Australia 2016). Type of innovation Incremental innovation is based on sustained technologies as it is an extension of improving what already exists (Garlin et al. 2018). This product is catered towards those who may be lactose intolerant as lactose-free cheese contains less sugar than any other cheese on the market. Dimensions of innovation Lactose-free cheese is a product innovation as it is a tangible market offering. There is an increase in the availability of lactose-free cheese worldwide, such as 100% vegan cheese sold in Malaysia (Tan 2018).

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Marketing Analysis Bega Cheese Ltd Market share: 21.5%

Marketing environment Bega Cheese Ltd promotes company values to effectively manage all aspects of the marketing environment. These values include; passion for the customer, growing employees, investing in the future, supporting each other for long-lasting positive impacts and making a difference (IBISWorld 2019). These common values allow Bega to effectively manage all aspects of the marketing environment while also maintaining internal structures that allow the company to effectively respond and manage external influences. Target market Bega Cheese Ltd has a broad target market. However, primarily, Bega focuses on families and customers who regularly purchase products at affordable prices (See appendix B). Recently Bega has focused on extending the product line to satisfy the growing market of children and families with school-aged children. Marketing Mix Bega Cheese Ltd provides high quality products that uphold the reputation and expectations of the brand (See Appendix A). As shown through the expansion of the dairy farmer supply network, Bega focuses on creating relationships with farmers to ensure the best possible product (IBISWorld 2019). Bega uses multiple distribution methods including selling through Coles and Woolworths supermarkets and selling direct through the Bega Cheese website. This ensures that customers are able to easily access products while also maintaining the brand’s presence in the marketplace. Bega’s marketing mix has allowed the company to become the biggest competitor within the Australian cheese industry with a large market presence in international markets.

Bega’s Major Competitors 🧀6

Saputo Dairy Australia Pty Ltd Market Share: 20.0 %

Marketing Environment Saputo Inc. is known as one of the top ten dairy processors in Canada and Australia (Saputo Dairy Australia Pty Ltd 2020). Saputo is one of the largest developers in cheese and dairy. Saputo has a seven pillar approach to social, environmental, and economic performance. Which they base their values on their stakeholder’s concerns allowing pillars to focus on what matters and where it matters. Saputo’s seven pillars consist of Food Quality & Safety, Our People, Business Ethics, Responsible Sourcing, Environment, Nutrition & Healthy Living, and Community (Saputo Dairy Australia Pty Ltd 2020). Target market Saputo Inc. targets emerging markets around the world to build diversified customer bases demographically and geographically (see Appendix A). They are potentially investing in new acquisitions in Brazil while increasing their market share in Australia and New Zealand with their known brands of coon, cracker barrel and devondale cheese (see Appendix B). Saputo Inc. is not stopping at any chance in expanding its potential target to expand its company portfolio (Okumura 2015). Okumura (2015) stated Saputo CEO Lino Saputo Jr. is eyeing potential regions for expanding in emerging markets of Oceania, Northern America, and Latin America to maintain a presence to build potential growth in the market. Marketing Mix Saputo’s promise and commitment is to demonstrate good corporate citizenship in everything they do. It is vital for them to build close relationships with the local farmers and suppliers in order to produce products of the highest quality (Saputo Dairy Australia Pty Ltd 2020). Saputo’s domestic market differs from their international market due to mlk intake and production. Saputo Inc. has faced some issues moving into the Australian dairy industry as milk production has declined seasonally (See Appendix A) but they are in the final stages of integrating manufacturing production in Australia as of 2018 and plan to expand in 2019 - 2020 (Dowie 2019).

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Fonterra Co-operative Group Limited Market share: 8.8% (as of 2019)

Marketing environment Fonterra Co-Operative Group Limited is one of the most complex operating supply chains who distribute their brands internationally. Fonterra embraces cultural diversity and professional experiences; building a reputation for the importance of sustainability, nutrition, community, and the environment (see Appendix A). Their strategic use of new technology and science applications establish a modern approach to improve efficiency and effectiveness of executing general operations. “Fonterra produces more than two million tons of dairy ingredients, specialty ingredients, and consumer products each year with 95 percent of these exported globally” (Fonterra Co-operative Group 2019). Fonterra has heavy concentration in the Australian Milk Powder Manufacturing and the Ice Cream Manufacturing industries. Environmental forces such as weather conditions and the climate as well as rapid fluctuations of the economy densely influence buying behaviour, meaning Fonterra is highly cautious of forecasting trends within the market. Target market Fonterra targets their products to individuals of all demographics and is inclusive of varying cultural backgrounds. Fonterra also aims to promote ingredient specific products to international businesses and well-known brands such as Bega, Mainland, and Perfect Italiano (See Appendix B). It is through these reputable brands that Fonterra is able to reach the consumer market. Marketing Mix Fonterra utilises premium pricing to mimic the quality of their products and cover production costs. They gain strong customer loyalty through the use of psychological pricing with perceptions of good quality dairy. Fonterra utilises extensive distribution through readily available supermarkets. Promotional strategies of extensive advertising complement the high demand of their products and position their consumer brands to be of superior quality. Their New Zealand dairy farmers supply milk to their manufacturing plants distributed in Victoria and Tasmania

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Microeconomics Analysis Market Structure Bega Cheese Ltd, Saputo Dairy Australia, and Fonterra Co-operative have a monopolistic market structure as they sell similar products whilst differentiating themselves through different types of cheeses. They have several competitors in a highly competitive market, domestically and globally, causing firms to have limited power over prices and a downward-sloping demand curve in consequence (Reeves 2019) (Garlin et al. 2018). Many competitors try to increase their firm power by differentiating, such as Fonterra’s ‘Perfect Italiano’ cheeses, and even those competitors who produce low fat, organic cheese, such as Bega’s ‘Country Light Tasty’ range, focusing on nutritional content. (Reeves 2019). However, the profitable success of these healthier products has encouraged new external competitors to compete with the cheese industry by making more nutritional substitutes, such as soy, oil, and nut-based products targeting vegan consumers (Reeves 2019). Hence, when existing monopolistic firms face increased competition, their profits and market share decreases as a result of consumers demanding less for their products. (Garlin et al. 2018).

Demand Demand in monopolistic markets can move and shift in various ways causing demand to increase or decrease. When a household’s income increases, they have increased purchasing power and can buy more of a particular product, increasing demand, or buy more of a substitute product if the product they usually purchase is ‘inferior’ (Garlin et al. 2018). This has benefited premium cheeses, such as Saputo’s SouthCape feta cheese, where consumers rather spend money on better quality cheese (Reeves 2019). This causes a shift to the right in the market demand curve for premium cheeses and can cause a shift to the left in staple cheeses for companies like Bega Cheese. However, Bega and Fonterra’s profits have recently fallen as a result of increasing their prices due to milk being more scarce and expensive (Lynch 2020). This decreases the demand for their products as consumers would rather buy better substitutes, moving the demand curve to the left for these companies’ products (Garlin et al. 2018). Another pattern impacting demand is the increase in health and dietary concerns (Reeves 2019). Dairy-Free Down Under is a Gold Coast, family-owned vegan cheese company which has grown ten-fold within a year, now supplying 900 independent supermarkets in Australia and six other countries (Matthews 2019). The idea came after cheese brands could not cater to their dairy-intolerant daughter, creating problems for Bega, Saputo, and Fonterra as the demand for non-dairy products increased, causing greater competition. As seen, demand for dairy cheese will decrease as consumers favour products that cater to their diet, shifting Bega’s, Saputo’s, and Fonterra’s market demand curve to the left. Supply 🧀9

Cheese manufacturers have a considerable demand from supermarkets and can easily provide a large supply since cheese is a staple product (Reeves 2019). However, cheese supply has decreased in recent years, causing prices to increase as a result of the market supply curve shifting to the left (Garlin et al. 2018). This is due to an increase in the price of milk as an input caused by Australian droughts, making cheese production more expensive. This cost increase has impacted cheese manufacturing companies unfavourably. Lynch (2020) states that Fonterra ceased operations in their Dennington factory located in Southwest Victoria last November, blaming drought and a reduction in the Australian milk pool. Bega has blamed the drought for a decrease in profits because the company has been forced to pay higher prices for their milk supply. With this, more private-label suppliers are entering the market globally, causing a higher supply of cheese worldwide (Reeves 2019). This increase in the number of sellers causes a shift in the market supply curve to the right, allowing manufacturers to supply more for a lower price (Garlin et al. 2018). As a result of this, companies like Bega, Fonterra, and Saputo must beat competitors to gain more power over their prices, and charge customers for their products at a desirable price with the desirable quantity they’d like to supply. Hence, the supply of cheese is profoundly affected by the increase in the price of inputs and the number of sellers in the market. Price Elasticity Price elasticity is the percentage change in the quantity demanded when the price of a particular product changes (Garlin et al. 2018). In most instances, cheese products are relatively inelastic as they were stapled as household items or intermediate goods required for other final products such as pizza. According to Bouamra-Mechemache et al. (2007), the average price elasticity for cheese is -0.60 (See appendix C). This means when the price elasticity or change is less than one, making the product inelastic, a change in price has little effect on demand. Additionally, as prices for cheese increase, revenue will also increase for companies whose cheese products are in demand (Garlin et al. 2018).

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Problem Identification Bega Cheese Ltd. has the fundamental problem of not having the product variety to satisfy growing trends and market segments, leaving the company vulnerable. Current innovations such as vegan and dairy-free cheese, provide an opportunity for Bega to expand their product range. As Bega has gaps in its product range and poor demand forecasting, they are missing competitive opportunities, positioning them poorly in contrast to their main competitors, Saputo and Fonterra. Bega needs to take advantage of these opportunities to produce plant-based or animal-free products, which will allow them to capture a more substantial portion of the market and regain a competitive advantage. The broad product range of many competitors is also decreasing the demand for Bega’s products. The gaps in Bega’s product range are decreasing their demand as consumers will prefer a range that caters to them, suggesting how Bega needs to fill these gaps in their product range and take advantage of trends and opportunities to increase their demand and remain competitive. Hence, the growth of vegan and dairy-free markets has indicated a positive response through its high demand, demonstrating success if Bega were to expand into these products by widening their target market and increasing competitiveness.

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New innovation and target market profile Dimensions of Innovation Bega can implement the innovation of vegan cheese targeted towards the non-dairy target market, in response to the problem stated in task 4. Wit...