Bega Cheese Report Final PDF

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CONTENTS Executive Summary  1 Evaluation of Current Innovations  2 Current Marketing Analysis  3 Current Microeconomics Analysis  4 Problem Identification  5 The New Innovation & Target Market Profile  6 The New Marketing Mix Strategy  References  Appendix

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1 Evaluation of Current Innovations

1.1 Bega’s Bar-B-Cubes Aspects of innovation Bega’s tasty Bar-B-cubes are one of many innovative products to enter the cheese market. The Bega Cheese group took advantage of an unfolding market opportunity and successfully expanded its target market to the younger generation with pre-cut cheese cubes, ideal for kids’ lunch boxes. According to the report (Global  Industry Analysts, 2010), the growing social demand for dairy products that meet consumers' changing diet and nutritional needs resulted in strong growth for innovative and healthier cheese products, such as the Bar-B-cubes made with reduced salt levels and added ingredients such as Omega-3 fatty acids for good health. Sources of innovation By methodically analysing several areas of opportunity, Bega Cheese identified a more versatile and easier cheese  snack option that has been enthusiastically received by younger users. The Bar-B-cubes responded to consumers  that are exhibiting shifting preferences from general cheese to healthier options, due to a rise in health concerns. Bega recognised an opportunity to provide consumers  who once had to cut their own cubes, with an ultra convenient cheese format. Current concerns over increasing childhood obesity in Australia means it's important to keep an eye on fat and energy contents of children’s foods, especially since the Bar-B-cubes are part of the kid’s snacking segment (Webster, 2018). Type of innovation Bega has the Bar-B-Cubes cheese, which would fall into the incremental type of innovation as Bega has innovated a pre-existing product with the plain tasty cheese block (Roberts 2019). This cheese innovation has the cheese already pre-cut into cubes, which increases the convenience when compared to a block of cheese, which shows steady improvement from the standard block of cheese and the process would be easy to implement (Garlin et. al. 2018). Dimensions of innovation These determine the parameters surrounding a successful innovation and consist of four aspects namely Product, price, position and paradigm. In Bega's case the manufacturing processes for the business have significantly improved since its establishment in 1899 (Communicating and cutting cheese at Bega. 2005). The company looking to improve down-time on its cheese cutting machines collaborated with British engineering firm Norgren (About us, 2020) to integrate its range of

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Smoothline cylinders instead of the conventional ISO ones with the goal of being leaders in cleanliness and peak cutting capacity.

1.2 Bega’s Stringy Cheese Aspects of innovation The development of stringy cheese has created the opportunity for businesses in the cheese industry to open up into a new target market. A target market which focuses primarily on kids and youth in school. This is evident, as the packaging on Bega stringy cheese is targeted to appeal towards kids, and made for kids. The actual peeling of the skin is enjoyable and fun for kids, and thus, the innovation of stringy cheese has created a niche in the market segment of cheese, (Mealtime, 2017). Sources of innovation Within the cheese industry, Stringy cheese has developed a source of innovation through process needs, based on Drucker's areas of opportunity within a company or an industry (Garlin et al. 2018). The process needs exist whenever demand arises for the entrepreneur to innovate in order to satisfy a particular need. For example, in the US, 3 in 5 consumers say snacking is necessary throughout the day, Bongards (2020). In turn, Bongard cheese created stringy cheese which is healthy, containing 14g of protein which is sure to keep consumers satisfied. Hence, it is evident that Bongard cheese delved into the process needs, and thus innovated and created stringy cheese which appeals to consumers. Type of innovation String cheese is a current innovation within the Australian marketplace, which would fall into the incremental type of product innovation (Garlin et al. 2018) as it has derived from natural cheese, but that can be peeled into strings of cheese instead (Roberts 2019). It targets school-aged children, as a form of snack to take to school or between meals that are also wrapped individually for pure freshness focusing on the health and wellness of young consumers. Dimensions of innovation The new ventures of many businesses' does not quite often reach success, although it is critical for businesses to understand that failure is an intrinsic part of the process. For example, Bega discovered that the quick shifts in the marketplace were about changes in consumer tastes and preferences (Bega Cheese Limited, 2019). Hence, it brought out the attention for Bega to strengthen their product characteristics in order to satisfy the changing needs of their consumers. Bega introduced their 'Stringers' range with four different types and flavours. Available in Bega Junior, Bega Cheddar Cheese, Bega Swiss Cheese and the Original Stringers (Bega Cheese Products n.d.).

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2 Current Marketing Analysis Target Market Bega and Coon cheese look to serve similar target segments spanning from children to mature adults who have a strong preference for consuming locally sourced and manufactured products. Both brands compete for offering cheap, readily available processed cheese ranging from breakfast slices (Bega Super Slim and Coon Light'n Tasty) to traditional meal ingredients (Coon Tasty and Bega Mild) with Coon having the greater market share of 9%. Mainland, on the other hand, seeks to satisfy the premium cheese market with its unprocessed hard cheese offering like Mainland Gouda. According to the PASSPORT Cheese in Australia report, cheese recorded a 3% current value growth in 2020 reaching a net of $3.1 Billion and expecting to continue this positive growth due to an increase in domestic consumers stuck at home amidst the Covid-19 pandemic. Marketing environment Bega Cheese Limited strives to position itself strategically to take advantage of the favourable provisions of the internal environment, whilst eradicating or shielding itself from any negative provisions of its external environment. Throughout late 2019 to early 2020, Bega Cheese demonstrated the ability to quickly respond to a succession of unforeseen challenges and opportunities as they emerged. This included their supply chain responsiveness to bushfires in January, ramping up production of consumer products through March due to increased domestic demand, managing and redirecting production destined for export markets, and quickly implementing new policies and procedures to protect the safety of our people and products as the implications of the COVID-19 pandemic unfolded (Bega Cheese Limited, 2020). Although they have no direct control over these challenges, they continued to satisfy evolving consumer preferences, for example addressing the rise in health concerns by manufacturing and marketing more healthier cheese options as opposed to general processed cheese. (Bega Cheese Limited, 2019) Furthermore, COON, a brand considered to be one of Bega's primary competitors in Australia, adopts a similar proactive approach, continuing to carefully monitor their markets, identify additional opportunities to maximise efficiencies and control costs whenever possible. Following the contribution of recent acquisitions including the Murray Goulburn, COON revenues reached $13.502 billion, up 17.0% in 2019 as compared to 2018. As highlighted in the Saputo Annual Report (2019), COON also aims to meet consumer demands in response to current market trends, including health and wellness, organic, and "clean labelling". Since COON prioritises customer relationships, a focus on sustaining and optimising their supply chain activities to ensure the satisfaction of customers is adopted to meet market needs effectively. One other company identified as a competitor within the cheese industry is Mainland cheese, owned by Fonterra. Due to a rise in environmental sustainability concerns and

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awareness, Mainland increased their efforts in sustainable packaging in Australia by conducting an analysis of all consumer packaging using the Australian Government-endorsed Packaging Recyclability Evaluation Portal (PREP) tool, which determined that 92 per cent of their packaging is recyclable (Fonterra 2019). Nonetheless, Mainland’s evaluation of external factors and customer needs is essential in creating sustainable value for their stakeholders, customers and farmers through innovation, sustainability and efficiency. SWOT Analysis Bega cheese is the leading manufacturer in the Australian cheese industry. Bega has a very successful track record of developing new products along with strong distribution channels, allowing the products to have close reach to consumers. This is evident as they export over 60 million units of cheese to over 40 countries per year ((ANZSIC)  REPORT C1133A). Building an online platform is a new way to generate customers. Bega can use this opportunity for the company to understand its customer better and serve their needs using big data analytics (Fern Fort University, 2020). However, their weakness is that gaps in the product range can pave the way for competitors to gain a foothold in the market., whilst they also face a threat from local farmers as they pay higher margins to local distributors. Saputo Coon is the second-largest Company which manufactures cheese in Australia. The strengths in the current market are that they have a 22.5% market share, expected to reach 22.9% by 2021 (ANZSIC) REPORT C1133A).In turn, this allows them to achieve economies of scale as the high production due to market share can reduce labour costs. A potential opportunity for Saputo Coon is to diversify their product range, which can increase revenue, which has decreased by 9.7% from 2019 - 2020 (ANZSIC) REPORT C1133A). Saputo Coons 50% of the company’s cheese production is bound for international markets (ANZSIC) REPORT C1133A). This is a threat as economic factors as well as global pandemics such as COVID-19 can impede and disturb the exports, which may lead to a significant decrease in sales of their cheese products. A weakness of Saputo Coon is that the Name ‘Coon’ in some countries is considered as a racial slur, resulting in a major lawsuit against Saputo Coon, costing Millions of dollars and potentially removing the established brand name of Coon. Marketing Mix Bega manufactures and sells products with a lot of variety available. This includes manufacturing and distributing natural and processed cheese, spreads, cream cheese, butter, powders, dips, bio-nutrients and grocery items (Bega Cheese Products n.d.). This allows Bega to differentiate its product from its competitors like Mailand & Coon as they can offer more comprehensive selection in products to its consumers. It is advertised through target marketing and techniques of branding, advertising and sales promotion (Garlin et al. 2018). Bega has a price level that follows a competitive based pricing strategy, for example, product bundle pricing and fixed pricing. Whilst selling its

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products to wholesalers and retail outlets in Australia, such as grocery stores, convenience stores, farmers markets, and specialty cheese shops. Furthermore, company brands such as Coon and Mainland are competitors in the cheese industry. Coons’ product mix is mainly cheddar cheese that comes in different forms. Forms such as slices, shreds, blocks and small snacks for kids' lunchboxes (Coon Cheese Products n.d.). On the other hand, Mainland provides a wider variety of choice in cheese to consumers such as edam, colby, mozzarella, parmesan, swiss, smoked, organic, noble, egmont, halloumi and feta (Mainland Products n.d.). Mainland and Coon sell their products at an affordable price as it stands out to customers who are price conscious whereas the premium high-end ranges would appease the value buyer for high quality and taste. Both companies' products are advertised through social media, television advertisements, radio channels and sales promotion. Hence, Mailand and Coon distribute their products mostly in retail stores and wholesalers. Perceptual positions Bega – Bega is perceived as a domestically grown company in Australia, embodying the country's values and characteristics, which Bega invests into rural communities where its cheese is produced (Roberts 2019). It is also perceived as a company that looks after Australian farmers and the Australian environment, due to the companies focus on farming sustainability and also factory sustainability (Roberts 2019). Mainland – Mainland cheese perceives itself as higher quality cheese when compared to the other major cheese brands. As shown through their company slogan "good things take time", Mainland is perceived as taking care of the cheese they produce, by making sure the production process is carefully undertaken (Mainland: About us n.d.). Coon Cheese – After recent events in 2020 involving the black lives matter movement, Coon has been perceived with negative racial connotations, as Coon has been a racial slur against black people. Succumbing to pressure from customers, Coon has decided to change its name to “eliminate racism”, so it will stop negative connotations (Visontay 2020). Aside from that, Coon cheese perceives itself as a cheese that has been used for generations by Australians (Coon Cheese Our Story n.d.).

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3 Current Microeconomics Analysis Brands current patterns of demand Bega Bega has seen significant growth over the past decade and holds the biggest market share at 24.7% in the cheese industry in Australia, with the revenue in 2010 to 2011 financial year being estimated around $469.6 million to an estimated $718.8 million in revenue for 2020 to 2021 financial year which is a slight decrease from last financial year due to COVID-19 epidemic (ANZSIC Report C1133A 2020). Bega has shown that it is outperforming its competitors in the cheese industry by having a steady increase in revenue through the past decade (ANZSIC Report C1133A 2020). Bega has also set up supply deals with Mondelez International and Fonterra, to expand further Bega's market share in the cheese industry (ANZSIC Report C1133A 2020). Due to the higher prices for exported cheese Bega has been positively impacted by this, which has also further increased the market share in the cheese industry (ANZSIC Report C1133A 2020). Saputo Coon Saputo the producers of Coon cheese has seen significant growth in the past decade and only second to Bega cheese in sales revenue as in 2014 sales revenue was estimated to be around $115.2 million to $665.5 million in 2020 but has seen a slight decrease in growth in sales revenue due to COVID-19, holding a market share of 22.9% (ANZSIC Report C1133A 2020). The export prices are expected to harshly affect Coon cheese due to the recent economic fallout in 2020 and sales in Australia are expected to decrease due to the fall of discretionary household incomes (ANZSIC Report C1133A 2020). The company website states that approximately 50% of the company's cheese production is bound for international markets (ANZSIC Report C1133A 2020). Fonterra mainland Fonterra, the producers of Mainland cheese, has not been as successful in sales when compared to Bega and Coon cheese, holding a market share of 8.1% and has not seen any significant growth in sales revenue since 2010 which was estimated around $237.5 million, whereas in 2020 revenue is estimated at $234.9 million. Mainland's cheese production facilities in Stanhope was damaged during a fire in December 2014, which hurt sales in that financial year (ANZSIC Report C1133A 2020). Fonterra's lack of private-label contracts to significantly produce cheese over the past five years has limited the growth of Mainland cheese's sales revenue. The profitability of Mainland cheese is estimated to be much lower in the financial year of 2020 to 2021, due to rising production costs of cheese and the economy falling (ANZSIC Report C1133A 2020). Cheese industry overall Overall the entirety of the cheese industry's estimated sales revenue is valued at $2.9 billion with annual growth in the period of 2016-2021 at -0.8% (ANZSIC Report C1133A 2020). The most in-demand cheeses are cheddar cheese, Semi-hard and stretch

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cheese, Fresh cheese, Mould-ripened cheese and Hard-grating cheese, with cheddar cheese being the most produced (ANZSIC Report C1133A 2020). Cheddar cheese has seen a decrease in demand domestically in Australia over the past five years (ANZSIC Report C1133A 2020). There have been increases in demand for cheese in Asia, overall increasing the number of exports, which will continue to be a significant source of growth for the cheese industry (ANZSIC Report C1133A 2020). Gourmet cheeses have been increasing in demand and likely be the focus for the major cheese brands for the next few years (ANZSIC Report C1133A 2020). COVID-19 is also expected to harm the cheese industry significantly and will cause drops in prices and therefore drops in revenue (ANZSIC Report C1133A 2020). Factors Causing Shifts to Left and Right of Demand, The demand curve for the overall cheese industry has shifted to the left in recent periods due to COVID-19, impacting heavily on the employment and income levels of Australia's population, resulting in unemployment increasing from 5% to 7.5% (ABC,2020). In contrast, the supply has shifted to the right, due to the growth in exports as there  have been significant increases in demand for cheese in Asia ANZSIC Report C1133A 2020). Price Elasticity of Demand Between 2019-2020, the change in quantity increased by 9.7%, whilst the change in price increased by 9.%, with the price elasticity of demand equalling 1.3% (Statista 2020). Since the price elasticity of demand is greater than 1, the cheese industry is considered to be elastic . This means that if the consumer demand for cheese is high, the prices of cheese will increase. Market Structure Bega, Coon and Mainland are competing in a monopolistic competition facing a downward-sloping demand curve. Monopolistic competition is a market model in which numerous companies provide products or services that are similar but also differentiated (Garlin et al. 2018). For example, the difference between product branding, quality, size and weight. As reflected in all three brands, their products are identical, which has resulted in the need to differentiate their products and make it stand out to the individual buyer. For example, Bega's stringy cheddar cheese is an innovative product that's the same in the type of cheese but different in form and convenience competing in a more diverse market. Each firm also has a price range that is greater than or equal to the average cost so that each firm earns maximum possible returns (Garlin et al. 2018).

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4 Problem Identification As a result of COVID-19, governments and spokespeople across the globe have promoted an improved diet as a way to stay healthy during quarantine, which has seen an increase in demand for healthier dairy product options perceived to help regulate the digestive system, such as lactose-free cheese (Dairy Situation and Outlook 2020). Data collected from Dairy Australia highlights that specialty cheese made up 30 per cent of Australia's total cheese production volume about three decades ago, ...