Strategic Analysis; Tools and Techniques (ST4S38-V1-19032) ASSIGNMENT 1 PDF

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UNIVERSITY OF SOUTH WALES BUSINESS SCHOOL

Strategic Analysis; Tools and Techniques (ST4S38-V1-19032)

TUTOR: Amarachi Amaugo

SUMMATIVE ESSAY:

Present a critical strategic analysis of the current Strategic Change within the following case: Post Holdings buying Weetabix

INIOBONG AKPANWA ID: 74111258

September 25, 2020

INTRODUCTION

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This paper discusses critically the strategic position of Post Holdings in the buying of Weetabix taking into consideration the various factors that Post Holding would have to consider in the process. Strategy is the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for those goals (Chandler 1962, p. 13). ‘’Strategy has long had its historical distinctions; fortunately, it is experiencing a newfound eclecticism’’ Mintzberg and Lampel, 1999. Managers are constantly mandated to plan and review strategies that help them to become competitive and increase market shares for their businesses. Mergers and Acquisition is one of those strategies that Post Holding is going of deploy to in buying Weetabix. Though this is an important corporate strategy for

rapid growth (Ramakrisham, 2010), the performance facet of this strategy decision has not been widely researched (Roll, 1988: Haspeslagh and Jemison ,1991; Sirower 1997) though the financial aspect has been due to it cruciality (Gupta and Gerchak, 2002). This has created the necessity for Post Holding to deploy all the Critical strategic tools to analyse the issues that surround and that may arise from the buying of Weetabix from the Bright Foods which is a Chinese company and a major shareholder in Weetabix company. This text will attempt to highlight using the different strategic tools to discuss how Post Holdings can have a competitive advantage in the UK market as a US company.

AN EVALUATION OF THE RELEVANT LEVELS OF STRATEGY

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STRATEGIC POSITIONING OF A COMPANY The positioning strategy of the company is the core of the marketing strategy of the company (John R. Hauser, 2015). Corporate strategy is a process through which a company defines where it is to be located, in relation to its target market and its competitors (Chew, 2009). It tells you which segment of customers that you are addressing, how the company is perceived by the customers which are the company’s strengths, and how that compares to your competitors. The company influences strategy by selecting the benefits you provide to customers (your product, by communicating to customers [promotion]), by the benefits provided by the channels of distribution (place), and by the strategic price. Positioning is the first step, but not the only step, in developing effective marketing strategies and tactics. A real example is a Chinese Bright Food Group brand Weetabix which though was a widely accepted brand in the English market failed to achieve the same market strategy in China due to the customer demands. In china, the customer base preferred a hot rice-based breakfast as opposed to the cold cereal breakfast that Weetabix was offering. The customers preference affected the profits of the negatively which informed the company to refocus on the UK market and other markets like the US markets where the customers’ demands were largely cold based cereal breakfast.

PORTER’S GENERIC STRATEGIES Porter postulated in 1998 that the success of businesses depended largely on certain business strategies which he summed up under three generic strategy points namely, cost leadership, differentiation, and focus. These strategies set businesses

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apart from rivals, building strong customer loyalty, and winning a competitive advantage.

COST LEADERSHIP STRATEGY This cost leadership proposes that firm should lower their cost of production to become a low-cost provider there by aiming to achieve a cost-based advantage over their rivals. Low-cost provider strategies could produce a durable competitive step over its competitors who would find it difficult to rival the low-cost leaders’ approach of reducing or eliminating costs in the business. According to Porter, 2008, when there is a price war between businesses, the business that provides the lowest prices of goods or services are the ones that will sell more and survive in the long term. Weetabix experienced a negative shift in it cost leadership strategy when in 2015, the company started experiencing high production per unit cost due to the falling power of the pound sterling. This meant that even when the brand was widely accepted by consumers, it would start experiencing a decline in profit as more consumers would shy away from it due to the cost. This meant that rivals businesses would take over the market except Weetabix improves on its cost-leadership strategies processes and strategies like mergers and acquisitions to enhance profitability ultimately.

THE DIFFERENTIATION STRATEGY This strategy seeks to differentiate the company’s product or service from that of rivals in ways that will appeal to a broad spectrum of buyers. A successful application of differentiation by companies sees its products exhibits certain qualities like innovative products, product reliability, luxury and prestige, design, and performance.

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These companies use to sustain their leadership in the market and prevent rivals from product imitation. Weetabix as a brand has been able to in the market as a unique brand with its originality since creation and this has enabled it to survive in the cereal market environment and even make higher profits according (Lasitha, 2008).

THE FOCUS STRATEGY This strategy emphasizes that businesses can concentrate on a streamlined buyer segment and out play rivals by having lower costs and thus become able to serve a segmented market at a lower price. When businesses focusing on the needs of certain groups of customers, it will gain their trust and loyalty which will demoralize rivals from competing for the same customers. Weetabix achieved 70% sales in Kenya by creating a simple process of distribution using bicycles to deliver products to kiosks in remote villages (Allchin, 2012). The focus strategy approach though gives the business the loyal customer base can also be a limiting factor in the business bargaining power with suppliers which would result in low turnovers.

A CRITICAL EVALUATION OF THE KEY STAKEHOLDERS THE BOWMAN’S STRATEGY CLOCK MODEL This model explores the option for how products should be positioned to give it the most competitive position in market. In addition to the three strategies mentioned above Porter’s generic strategies, Bowman’s Strategic Clock Model has gone further to propose that a focused differentiation strategy and a best-cost provider strategy can enhance a business profitability if applied. The focused differentiation strategy concentrates on a narrow customer population and outperform their rivals by offering

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customized preferences that meet their needs and tastes better than the competitions products. The best-cost provider strategy is often about giving the consumers more value for the money by meeting their expectations on important quality compositions, performance, and or service attributes while driving the down the price expectations. Weetabix has stood the taste of time through this strategy by tailoring its products specification to streamlined customers in the UK who have been satisfied with the products while providing the best price to suit the preferences of its consumers in the market out performing their rivals and ensuring they main a good consumer base. It took the R&D to understand the need for a adverts and campaigns, for instance the Weetabuddies’ that was tailored towards endearing children to eating fruit and cereals composed breakfast. This campaign accounted for a 14% rise in revenue for the company (Talking Retail, 2016). In applying the two strategies Weetabix was able to achieve an 11 months innovation process target (Happen, 2017).

STAKE HOLDERS ANALYSIS According John M.B., 2003, stake holders in a business comprise of shareholders, individuals, workers (staff),groups, organizations, and the environment who directly or indirectly influence decisions of a business and considered by the business leaders or managers as important aspect of the business. Shawn (2017), proposes stakeholders should not be confused with shareholders in the business though both have some convergence of interests and some differences. . It is important to note that other stake holders’ influences come to play in the move by both companies like the government, customers, and the environment or society. In attempting to decouple the stakeholder’s positions, we consider two types of stake holders. The internal and external stakeholders. No matter which stakeholder is 6

involved in decision making, its certain that the company’s business model affects both to different degrees either through decision or the outcome. The implication of Post taking over Weetabix would mean that both Weetabix and Post would likely have to relief most of the workers who are also stake holders in the company in order to streamline their operations to achieve the mergers and acquisitions financial and staffing goals. There is the government aspect where the process must be transparent by following the governments procedures in mergers and acquisitions. the entire process of Post and the bright group take acquisition process contains all aspect of stake holder’s positions in the business. The figure below depicts the positions of stakeholders.

EMPLOYEES Decision which affects their jobs: -Jobs cuts, -Promotions and/or demotions -Change the strategy of employment. - Salaries increase or cuts

GOVERNMENT Observer, to ensure the deal is lawfully transacted

KEY STAKEHOLDERS

SHAREHOLDERS of both BRIGHT GROUP(Weetabix) and Post holdings. These are the decision makers

INVESTORS Acquisition may affect their ROI (based on performance of the new company)

Table 1: Key Stakeholders in the Weetabix acquisition deal.

EXTERNAL ANALYSIS: The external environmental forces that exerts its influences on companies or businesses operations important parts to play in the markets the businesses operate. This influence vary from region to region as would be described shortly using the

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PESTEL framework. Using the Post and Bright Food transaction that would lead to the acquisition of the Weetabix brand.

POLITICAL FACTORS The acquisition of Weetabix was about to happen when the BREXIT was at its peak though it was not followed through, Post and the Bright Group would have to critically consider what their positions would be especially if the UK was to leave European Union. The political undertones would mean that there might be fewer customers to service after the merger or acquisition due to import and export restrictions that will arise from the BREXIT. This might lead a plunge in profit as other countries might cut off trade deals with the UK. Also, there might be political unrest in the country which could lead to uncertainties in employment laws which could affect the smooth take over and running of the business (minimum wage Uk, 2017).

ECONOMIC FACTORS This has significant impact on how an organisation business operates and how profitable they are. The factors include economic growth, interest rates, inflation rates, disposable income of consumers and businesses. At the time of the acquisition of Weetabix by Post Holdings, there a rising inflation rate in the UK and the power of the pound was on the low side. This was an advantage for Post because the United States Dollar was power strong. This was a disadvantage for Weetabix as the owners would marginally gain in the transaction (Chu, 2017). This also would mean that If Post Holdings acquired Weetabix, they would have to research on how to make a low-cost product to suit the customers economy, pecially in the UK where Weetabix had experienced a pre-tax decline from 4% to 7% in 2014.

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SOCIAL FACTORS These factors deal with how business understand their customers and what drives them. When Bright Group bought Weetabix, they presumed that it would be widely accepted in china as it was in the UK. It turned out that what drives the customers in that region is their traditional hot rice meals as opposed to the cold breakfast Weetabix offered. Therefore, Bright Group did not make the profits they targeted. However, this would be an advantage to Post Holdings because the US and the Uk share a lot in common in the cereals market and another factor is that Weetabix faced a profit drop due to the decline in demand in the market according to Williams, 2015.

TECHNOLOGICAL FACTORS With increased demands in whole cereals food, Weetabix will need to develop or adopt new technologies in the way they do business from production to the markets. They should develop new ways of production, new ways of products distribution, and new ways in communicating with the target market in terms of advertising and understanding the social landscape of its regions of operations. This will help them stay in business in the UK and in the US. Maskan in 2016 proposed that a holistic technological approach to production in the snack industry can boost profits due to the abilities of snack industries to satisfy need and wants of consumers.

ENVIRONMENTAL FACTORS These factors have only recently been highlighted in the last fifteen years or so. They have become important due increasing scarcity of raw materials, pollution targets, doing business as an ethical and sustainable company, carbon footprints targets set

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by governments in regions of operation. According to the Weetabix limited 2019 sustainability review, the company has gone further to use sustainable ingredient through a program they developed in 2010 called the Weetabix Wheat Protocol which allows the company to source for raw materials from wheat farms within 50miles reduce to its mills enabling them to ensure assurance and environmental stewardship schemes to further reduce food miles and fertilizer use, reduced packaging waste by recycling 30% of their waste ahead of the UKs government target for recycling plastics and in 2016 commenced sending their waste to landfills, efficient operations as member of the EUs emissions trading system, Weetabix has committed to managing and reducing carbon footprints association the operations in their sites through using on-site combined heat and power plant.

LEGAL FACTORS In the Weetabix 2019 sustainability review, the have carried out conscious steps to avoid legal issues which hinge on health and wellbeing, equal opportunities, consumer rights and laws, and product safety. In the health and wellbeing, they have been able to work within the England’s public health regulation on sugar and reduced the sugar contents of their products from 3,000 tonnes from 2015 to 2019. They have also been able to carries out its CSR through a Cransley Hospice Trust by caring for people living with life-limiting illnesses. They also work with a supplychain bodies, such as Roundtable on Responsible Palm oil (RSPOL), to ensure ingredients from recognisably sustainable sources.

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INDUSTRIAL ANALYSIS In understanding the industrial analysis of the two companies, the need to use the Porter’s Five forces of Competitive Position model to analyse and understand the competitive environment Post Holdings is going to face in the buying of Weetabix from Bright Group. The five forces are, the threat of new entrants, the power of buyers, the power of suppliers, the threat of substitute products and technology development and the intensity of rivalry among competitors in an industry (Porter, 2008).

COMPETITIVE RIVALRY This force analyses the might of various competitors in an industry in terms of size, trends, fixed and variable cost bases, product/services ranges, differentiation strategies. According to Porter (2008), a market looks unattractive when there is a huge number of competitors or few firms that are nearly equal in size and resources, offering undifferentiated products and services. The breakfast cereal market faces intense competition in the global and western markets, where according to Wood (2014), the US accounts for more than four companies namely Kellogg, Post, General Mills and Quacker (PepsiCo) occupying around 85% of the global cereals market. This competition presents Post holding an opportunity to improve their position in the cereals market by introducing technologies that will enable it drive down its production costs and introducing more brands into the market. It will also improve on the focused marketing strategy and improved customer care services to gain more trust in customers and increase its market shares.

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POWER OF SUPPLIERS This represents the pressure that suppliers can put on companies by raising their prises, lowering quality or reducing availability of products. In the cereals industry, the bargaining power of suppliers is low because wheat and grains, main raw materials, are quantitatively produced in both US and UK (Newswire, 2017). Weetabix in its 2019 sustainability review confirmed that it can control the quality of its raw materials by sourcing wheat from farmers within 50 miles of their production facilities. Weetabix suppliers’ power has little or influence on the company’s overall profit outlook due to Weetabix’s commitment in this direction.

BUYERS POWER The buyer power affords the consumers the ability to pressure firms to reduce prices or increase the quality of services or products. The cereals industry in the UK has a lot of players with a fair share of the markets. Weetabix would have to deploy the power of differentiation to ensure it continues to stay as a favourite in the fruit cereals market. This it has done by producing a lot of variety to have the consumers satisfaction. Increasing sales is another option to explore when a company needs to increase revenue.

THREAT OF NEW ENTRANTS This refers to threat that new companies pose in entering any existing market. When new companies venture into a market offering the same goods and services, an existing company’s competitive position will be at risk. Weetabix’s position in the cereals market might not be threatened due to its focused and differentiation abilities

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to evolve to the needs of its customer as mentioned in 2019 sustainability review publication.

THE THREAT OF SUBSTITUENTS According to Mars (2013), “Substitutes limit the potential returns of an industry by placing a ceiling on the prices that firms in that industry can profitably charge”. Notably, the cereals industry is flooded with lots of varieties and options that have loyal customers. For a company to survive in such a playing field, it must maintain a good quality assurance and quality control in its production processes, services, and loyalty programs to keep its customer base from switching to other alternatives. A clear example is where consumers in china preferred hot breakfast, especially rice, over Weetabix’s cold cereals (Wade, 2017).

New market Entrants, eg: Entry ease. Geographical factor. Incumbents resistance. Entrant strategy. Routes to market.

Supplier Power, eg: Brand reputation. Geographical Coverage. Customer Relations. Bidding process/ capabilities.

Buyer Power, eg: Competitive Rivalry, eg: Number/ size of firm. Product, services range. Differentiation/ strategy.

Buyer choice. Buyer size. Change cost. Product/service importance.

Product and Technology Development eg: Alternative prices. Market distribution. changes. Trends. Legislations.

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Table 2 Michael ...