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Griffith University

Sebastian del Basto S5124147

Situation Analysis Bellamy’s Organic

Assessment #2 MKT103 Introduction to marketing Tutor: Dr Keith Weaven Lecturer: Mr Mike Thomes

BELLAMY’S ORGANIC

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Griffith University

Sebastian del Basto S5124147

Introduction The Value of the Australian baby food market is expected to reach 176 million U.S dollars by the end of 2018(Euromonitor, 2017), primarily driven by sociocultural and economic trends. Similarly, the organic food industry have experience a steady growth motivated by more aware health-conscious customers. As a result, Imminent organic baby food brands are taking place in the industry. This situation analysis will present an eye-opening understanding of the internal and external factors affecting Bellamy Organics, in order to find and determine the next best steps for the business within the marketplace.

Company Background Who is Bellamy’s Organic? Is a subsidiary company owned by Bellamy’s Australia, which was founded by a Tasmanian family in 2004 wanting to provide a convenient nutritious organic choice for their children. On 2007 was acquired by Tasmanian Pure Foods Ltd, which later was renamed to Bellamy’s Australia Ltd. Currently, is Australia’s largest organic formula and baby food company, offering over 40 products of snacks, cereals, pastas and ready to serve pouches that are tailored to the needs of babies and toddlers. Bellamy’s operates and supplies primarily to supermarket chains and pharmacy chains across Australia, China and South East Asia. (Bellamy’s Australia Ltd, 2017) Bellamy’s Organic(BO) is highly committed to deliver superior products to their customers and is sustainable growing by following four fundamental motifs: Natural, Pure, Organic, Safe and Healthy. This forms the centrepiece of Bellamy’s corporate mission statement, brand appeal and brand promise “A pure start to life”. Bellamy’s brand is the core underpinning of their success, as they appeal to user's emotions by using a core proposition which is not simply a marketing line it is a universal truth that resonates with all parents. (Bellamy’s Australia Ltd, 2017) According to the Director’s report of 2017, The company wants to focus on investment, capacity and capability to bring Australia and China to full potential. The Chinese market is particularly important to the business due to its size and projected growth rate. Moreover, The firm is evaluating new markets for longer-term growth beyond the core business. (Bellamy’s Organic, 2017)

BELLAMY’S ORGANIC

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Sebastian del Basto S5124147

SITUATION ANALYSIS Market analysis! The! Australian baby food market is an Oligopolistic competition between six main companies, Nutricia Australia 32.1%, Aspen Pharmacare Australia 12.8%, Bellamy’s Australia 9.2%, Heinz Co Australia 9.1%, A2 Dairy Products Aus 8.2% and PZ Cussons Aus 7.9%. They primarily compete on milk formula products, as it continued to be the major contributor to value sales with a 73% value share of baby food in 2017. After milk formula, prepared baby food is the next largest contributor to the overall category, comprising an 18% value share in 2017.(Euromonitor, 2017) The Australia Baby food market records 13% current value growth to reach AUD965 million in 2017.(Euromonitor, 2017) The market has experienced significant growth over the past few years, primarily due to the rise of female participation in the workforce, parents concern for good nutrition for their babies and the demand of busy parents for healthy but convenient “on the go” prepared food.(Euromonitor Analysis, 2018) Moreover, Australian consumers trends are moving towards healthy chemical free nutrition and the! organic baby food segment holds in total a 166% value growth from 2012 to 2017. (Bellamy’s Australia Ltd, 2017) Bellamy’s!Australia! is the leading branded player in! organic packaged food, thanks to its near-monopoly in!organic!milk formula. Furthermore, studies reflect the 88th percentile of Australians have access to the internet. Companies in effort to keep up to rapid sociocultural and technological changes have integrated e-commerce and social media marketing strategies to maintain consumers informed and facilitate distribution among their customers. On the other hand, Legal regulations on the manufacturing of baby food under strict Australia health and safety standards has helped create the awareness about the usefulness of!packaged baby food! in providing the required nutrition for babies. (Euromonitor, 2017) Undoubtedly, concerns related to food safety, falling birth rates, and the practice of feeding home cooked! food to babies! are the key restraints on this market.! Declining in birth rates and milk intolerance in babies may pose severe! challenge for baby food market. (Mordorintelligence,2017) As birth rates remain stable for the last years, companies increased their diversification by “up-ageing” their baby foods products to ensure parents continue purchasing their products for longer. (Euromonitor, 2017)

BELLAMY’S ORGANIC

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Griffith University

Macro Environment Analysis! Political Analysis • Both major political parties are not actively promoting organic farming.

Even though both are in favour of organic farming, they are not promoting it because of the fear of loss of output. Bellamy’s Organic approach to organic farming not only requires higher water, but also yield lower output per hectare. (Smee, 2018)

Levying taxes on carbon emitting industries would promote low-

• Struggle on conservative policies that support a levying taxes on carbon emitting industries.

carbon innovations, which induce great economic benefits of generating more knowledge in the economy, which can be used by other innovators to develop new technologies across various sectors of the economy. This could generate economic growth and justifies strong public support for clean technology development. (Dechezleprêtre & Sato, 2014).

• “Chinese government recently took action to discourage its citizens from engaging in E-store “daigou shopping” (Euromonitor, 2018)

Strong demand for organic and baby products produced in Australia come from consumers living in China. However, it had caused little impact on Chinese demand for Australian infant milk formula because the demand has been driven by food safety concerns rather than price due to infant formula scandals involving domestic Chinese manufacturers (Euromonitor, 2017)

Economic Analysis • Australia has one of the highest per capita incomes in the world. (Euromonitor, 2018)

• Australian organic food industry is growing at 17% annually for last 5 years.(Marty McCarthy, 2016)

• Female participation rise in the workforce

BELLAMY’S ORGANIC

85th percentile of households have a disposable income over USD25,000. Therefore, vast majority of consumers are able to spend higher prices for better quality organic food at its current price. More supermarkets are creating a dedicated section to the organic offerings. As organic food only comprises 5% of the total food output of Australia, the cost is currently high. The prices will certainly come down as more organic food is produced in the coming years, increasing the demand for its products.

Milk formula records fastest current value growth of 21% in 2017. There is a correlation between female employment rates and milk formula consumption. Women returning from maternity leave often need to abandon or reduce breastfeeding. (Euromonitor Analysis, 2018)

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Griffith University

Social Analysis • Australian consumer trends are moving toward healthy eating and chemical free food • Busy parents look for convenient “Ready to Serve” healthy food to feed their toddlers.!(Euromonitor, 2017) • Food Provenance

The trend to be concern over industrial food production methods and the risk to health from pesticide residues result in more consumers favouring organic products. (Bellamy’s Organic, 2017) Baby food records 13% current value growth in 2017. The increase in products available formats and age ranges have made an increase in demand of busy parents that look for healthy but convenient “ready to serve” food and snacks. Consumers take preference to local-made products because they trust the quality and safety of locally declared foods and to support their local economies.

• Birth rates have remained stable over the last years and are predicted to remain the same.

Firms will continue to focus on creating products for older infants. Therefore, encouraging parents to continue shopping in the baby aisle for longer.

Technological Analysis • Technological innovation to measure the conversion process can lead to shorter certification cycle.

• Massive research to develop new products (Bellamy’s Organic, 2017)

The certification process time period has limited the growth of organic food in the entire market, on an average it takes a farmer three years to convert to organic production methods. (Bellamy’s Organic, 2017)

Organisations are looking for ways to create new products that can serve the customer needs without any chemical or artificial addition to the products, in order to fill the market gaps currently existing in the industry.

• E-commerce

Most companies are offering their catalogue through their website online store for taking orders and delivering at their client’s home to boost sales. (Meyer, 2015) Number of Internet users who participate in social media platforms has incredibly increased over the last years. (Euromonitor, 2017). Social Media Marketing should be importantly integrated into the overall communication plan.

• Social media

• Building and improving website ranking in search engines

BELLAMY’S ORGANIC

Companies who do not adopt social media marketing and rely on traditional means of marketing may risk losing or damaging their image.! Online media enable companies to involve their customers in creating new products or services through their feedback.(EssaysUk, 2013)

Search engine optimisation: helps the design of a website meets the needs of customers and improve their chances of them finding you online. Should! be considered as an objective in overall!marketing strategy for a company.(Businessgov,2018)

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Legal Analysis • After smoking, agriculture and food industry is now under increasing pressure to mend ways.

• Business ethics and sustainability

Across the world, it is facing legal challenges regarding the presence of various components in the food chain. Numerous countries have banned GMOs widely available in food products.(Meyer, 2015) Business that complies on environmental protection laws and fair trade labour laws affect positively their brand image. Consumer perceptions and confidence improves towards the company.

• Legal regulations to become an organic farm

In order to be certified organic a farmer needs to go through many extensive regulations. This makes the conversion process to take up to 3 years. (Bellamy’s Australia Ltd, 2017)

• Australia new labelling laws

The new labelling requirements are to provide consumers with full transparency about the source of the key ingredients. This may affect consumer demand, as consumers look to purchase those products which use Australian ingredients. (Bellamy’s Australia, 2017)

Environmental Analysis This had led to a conscious nutritious eating trend.

• Mix of chemical components in the food chain (Bellamy’s Australia Ltd, 2017)

More people are getting aware about the presence of chemical components in the food chain and the harmful effects those components have on their health. BO is as a promoter of mindful eating culture, where the customer has complete information about not only what he is eating but also about the complete food chain.

• The farming community is suffering from multi-year

• Rapid degradation of the environment

drought.(Smee, 2018)

• Consumers praise companies who have ecological, economic and social sustainability in mind.

Micro Environment Analysis! Company Analysis Bellamy Organics are pioneers in the organic baby food industry. For instance, their brand promise “A pure start to life” appeal’s to user’s emotions and has developed a very strong brand loyalty among its customers. Besides, they have built a near-monopoly in the organic milk formula sector, as Australian consumer trends continue to grow towards favouring organic products. Furthermore, their history of donating funds, time and resourcing into

BELLAMY’S ORGANIC

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charities, research and community groups has built a strong reputation among its customers. Equally important, Bellamy Australia has been recovering from their last sunk in 2015, due to their high dependence on unofficial and unpaid sales online agents from China. Their competitive position can be improved if they increase their investment in strategic marketing over social media and concentrate on improving direct sales to China. Table 1: Positive aspects of Bellamy Organics

Positive aspects of Bellamy Organics Intellectual property rights and patents that have

• Leading branded player in organic packaged food.

enabled the company to create innovative, organic and safe products for its customers and create a near-monopoly in the organic milk formula sector. (Euromonitor, 2018) BO gives back to society, with a history of donating funds, time and resourcing into

• Excellent Corporate social responsibility

charities, research and community groups. Bellamy’s Organic’s primary sponsorship is with Clown Doctors™ Australia. (Bellamy’s Organic, 2018) Consumers take preference to local-made

• Engages well with Australian local communities

products because they trust the quality and safety of locally declared foods and to support their local economies

Table 2: Negative aspects of Bellamy Organics

Negative aspects of Bellamy Organics Marketing and promotion costs are just 4% of the

• Under investing in the brand.

total revenue. Given the gross margins and net margins (Bellamy’s Organic, 2017) Bellamy’s dependence on “daigou shopping”

• High dependence on unofficial and unpaid sales online agents from China

sales let to a marginal decline from a 10% value share in 2015. This decline was due to the Chinese government implementing policies to lower purchasing rates on websites like “Daigou”. (Yosufzai, 2017) The certification process time period has limited

• Extensive Regulatory laws in their conversion process

the growth of organic food market. On average takes a farmer three years to convert to organic production methods.

BELLAMY’S ORGANIC

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Griffith University

Competitor Analysis The!Australian Oligopolistic baby food market consists of 5 main companies: Nutricia, Bellamy’s, Heinz, A2 Dairy Products and PZ Cussons. This competitors sell similar milk formula and prepared baby food for toddlers and infants, However as they cannot purchase by themselves, their parents are their direct customer to purchase. Nutricia continues to hold the leading milk formula brands Aptamil and Karicare. Though, Nutricia lost competitive advantage. Bellamy’s, Heinz and PZ Cussons increase its shares, as they adapt to the “Busy parent” consumer trend!and increase their product diversification to “on the go” prepared food. Moreover, Bellamy Organics future prospects are promising, as the organic food industry is expected to steadily grow in the future. Table 3: POS and POD analysis

Oligopolistic competitor

Nutricia

A2 Diary Products

Hj Heinz

PZ Cussons

Point of similarity to Bellamy Organics (POS)

• Nutricia have milk formula brands that are targeted to the same consumer group • Their products are sold in the same supermarkets, convince store and pharmacies

• A2 have milk formula brands that are targeted to the same consumer group. • Both have their own intellectual property rights and patents that has enabled them to create innovative and safe products for its customers.

Point of Difference to Bellamy Organics (POD) • Nutricia products are marketed more as a health medical product. • Nutricia was criticised for having nanoparticles in their baby formula, While Bellamy’s is praise for their organic milk formula. (Shop Ethical, n.d.) • Bellamy has high social media participation in Australia, while Nutricia don’t. • A2 focuses only in milk formula, is not diversified as Bellamy’s. • A2 haven’t implemented environmental friendly industrial food production methods and neither respond to consumers demand towards favouring organic products.

• Heinz is not perceived as having a strong Australian local community perception. • Heinz produces prepared baby food brands • Heinz does not have an e-commerce that are targeted to the same consumer platform available for Australia group as BO • Heinz haven’t implemented environmental • Their products are widely diversified as BO friendly industrial food production methods to meet consumer demands . and have not respond to consumers demand favouring organic products.

• PZ Cussons have prepared baby food brands that are targeted to the same consumer group • Both firms are local-made products, consumers trust the quality and safety of locally declared foods and to support their local economies.

BELLAMY’S ORGANIC

• PZ Cusson does not have an e-commerce platform. • PZ Cusson haven’t implemented environmental friendly industrial food production methods and have not respond to consumers demand favouring organic products.

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BELLAMY’S ORGANIC

Sebastian del Basto S5124147

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Consumer Analysis Consumers of Organic Formula Milk are parents or guardians who are aware of the benefits of eating organic food and want to implement good eating habits right from the start to their infant/toddler. In addition, trends suggest that increase in formula milk demand its caused by the increased participation of women in the workforce, who cannot provide or regularly provide breastfeeding. Tough, they still want to purchase the best alternative for their children. Consumers of “Ready to Serve” Organic foods are usually busy parents or guardians who don’t have time to prepare a meal, but, still care or are aware of the benefits of eating organic food for their infant/toddler. This consumer makes spontaneous purchases, often a quick stop by the supermarket or pharmacy.

Organic Formula Milk Who

Organic healthy conscious middle to older age consumers who are parents or guardians of an infant/toddler.

What

Parents or guardians purchase organic milk formula

When

Purchase are planned by their parents or guardians they make a conscious decision to provide health benefits to a infant/toddler. Usually a weekly or monthly purchase.

Where

Purchases take place at the supermarket at health/organic aisle, Pharmacies and EStores.

How