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Enrolment No. : 74104605

UNIVERSITY OF SOUTH WALES

A CRITICAL STRATEGIC ANALYSIS OF THE CURRENT STRATEGIC CHANGE WITHIN THE FOLLOWING CASE: POST HOLDINGS BUYING WEETABIX

Name: Ryan Jackson Lecturer’s Name: Demetris Vrontis Course Code: Strategic Analysis; Tools and Techniques [ ST4S38-V1] Enrolment No. : 74104605 1

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TABLE OF CONTENT Introduction

3-4

Strategic Position of Company

4-7

Stakeholder Analysis

8-9

PEST Analysis

9

i.

Political

9-10

ii.

Economic

10

iii.

Social

10

iv.

Technological

11

Industry Analysis

11

i.

Supplier Power

12

ii.

Buyer Power

12

iii.

Competitive Rivalry

13

iv.

Threat of Substitution

13

v.

Threat of New Entry

14

Conclusion and Recommendations References

15 16-18

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Introduction

In a globalized and constantly evolving world, competition between companies seems to have become the norm with each company developing specific strategies to meet company goals and to be the best in the industry. Companies may employ various strategies, such as corporate, business and operational strategies which create value, outline frameworks to achieve company objectives and increase competitive advantage. In order to remain relevant, productive and profitable, organizations constantly venture into new markets to increase market shares and to expand their company through mergers and acquisitions. Mergers and acquisitions, in the present scenario, have emerged as vital corporate strategies for rapid growth, development, and success according to Ramakrishnan, as cited by Mittal and Jain (2012). Mergers and Acquisitions are not just successful in the realization of underlying intents but they are also helpful in the attainment of other objectives, according to Brother et al. (1998) and Lahovnik (2000) as cited in Mittal and Jain (2012). Acquisition strategies are amongst the easier methods employed by organizations when entering new markets, increasing market shares and remaining competitive in a volatile business environment (Lieberman and Lee, 2009). Post Holdings is a consumers packaged goods holding company headquartered in St. Louis, Missouri with numerous subsidiaries including Weetabix Limited. It operates in the food processing industry, with food ranging from potatoes and eggs to sausages and cereal. On the 3rd of July 2017, Post Holdings acquired Weetabix Limited (United Kingdom-based manufacturers of Weetbix, Alpen and Ready Brek brand of breakfast cereals) from bright food and baring private equity Asia for $1.4 billion dollars (‘Post Holding’, 2018) and as a result of this acquisition, there were changes in the stakeholders affiliated with the company. This acquisition would have caused the company to change its strategy to facilitate the newly acquired Weetabix 3

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Limited and to incorporate its old vision and objectives in creating a coherent and systematic company. This report will be a critical strategic analysis of Post Holding’s acquisition of Weetabix limited which covers the strategic position of the company, provides an analysis of stakeholders, an external analysis using the PESTEL method and Industry Analysis using 5 forces to critically analyze the important industry factors.

Strategic Position of the Company

The strategic position of a company forms an indispensable part of its strategic management process and if there is an absence of a clear strategic position, strategic planning and the execution of planned strategies becomes impossible. According to Whittington et al. (2008, pp.13) strategic position is concerned with identifying the impact on the strategy of the external environment, an organization's strategic capacity and expectations and influence of stakeholders. Morrison (2011) defines strategic analysis as an external review of what is happening in the environment in which your organization operates now, as well as short, medium and long-term futures. Like any other company, Post Holdings strategic positioning takes into consideration the changing environment and the systematic realization of achieving an end goal of high levels of perceived value and suitable prices for the company. The relevant strategic levels in Post Holdings that are necessary to 4

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evaluate are the corporate level strategy which is concerned with the overall purpose and scope of an organization and how value is added to different parts of the organization, Whittington et al. (2008; pp7) and the strategic business unit which is the part of an organisation for which there is a distinct external market for goods and services that are different from another strategic business unit, Whittington et al. (2008; pp7). The external market is not only accessible by its competitors, so to remain productive, cost-effective and profitable, but Post Holdings would also have to consider competitors movements that might affective their company in the future. According to Ahmed (2014), the Bowman's strategy clock is a model used by companies while designing marketing strategies to analyze its competitive position in comparison to the offerings of competitors. It is a model that connects the perceived value to the consumer and the price of the goods or services. It was Michael Porter who developed the basic economic and marketing theory on competitive strategy in 1980, which initiated the rise of the three generic strategies in companies; Cost leadership, Product differentiation and Marketing segmentation (Shakhshir, 2104). Cost leadership refers to a strategy which a company establishes to obtain a competitive advantage over its industry rivals by having a low operation cost (‘Cost Leadership’, 2018), Product differentiation is a marketing process that has the objective of making customers perceive the product of a specific firm as unique or superior to any other product belonging to the same group, and so creating a sense of value (Policonomics, 2017) and Marketing segmentation is the process of dividing the population of possible customers into distinct groups (Financial Times, 2018).In 1996, Cliff Bowman developed the Bowman’s Strategy clock based on Michael Porter’s three generic strategies and expanded his idea to eight strategic options when positioning your company strategically. The eight positions of the Bowman’s strategy clock includes the low price and low value-added position, the low price position, the Hybrid (Moderate price and Moderate differentiation) position, the Differentiation position, the Focus Differentiation position, the Increased Price and Standard Product position (risky high margins), the High price and Low value-added position (monopoly pricing) and finally the Low value-added and Standard price position (Ahmed, 2014).

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According to Mulder (2018), the low price and low value-added position is a position which lacks variation in products and services resulting in a low perceived value for customers. This position is not the most competitive and the only competitive strategy in this position is keeping the prices very low. The low-price position is usually employed by companies that produce in large quantities. The products are sold at a low price which intern lead to low-profit margins on individual products but due to economies of scale may still result in a respectable profit. One example of a store which employs this strategy is Walmart (Ahmed, 2014). The Hybrid position is used by companies that offer large variations of products resulting in very high perceived value from customers. In this position, the volume is an issue, but companies build a reputation of offering fair prices and reasonable goods and services. One prime example of a store that pursues this strategic position would be a discount department store (Ahmed, 2014). The differentiation strategic position 6

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describes where companies do their best to offer high-quality products at average prices. Their objective is to offer to the customers the highest perceived value added possibly. This strategy will cause customers to even pay above the average for products because of the perceived value (Mulder, 2018). Companies which employ this strategy include Nike and Reebok (Ahmed, 2014). The focused differentiation strategic position is a position on which luxury and exclusive brands focus, offering customers high-quality products at high prices (Mulder, 2018). Some companies that adopt this strategy are Gucci, Armani, Rolls Royce, Lamborghini etc. Increase price and standard product is a strategy taken by companies that increase the price with no innovation in products and services, high price and low value is a strategic position which can only be taken in markets where only one company offers that specific good or service (monopoly pricing) (Ahmed, 2014). Examples of companies employing this strategy are Jamaica public service (JPS) and National Water Commission (NWC). Finally, the eighth and last strategic position on Bowman strategy clock is the low value and standard price position. According to Ahmed (2014), companies that pursue this type of marketing strategy will certainly lose market share and the difficulty companies’ face in this position is that they are not able to offer products or services that customers value (Mulder, 2018). According to Mulder (2018), of the eight different strategic positions on the Bowman’s strategy clock, three are not competitive. These positions are the ones in which price is greater than the customers' perceived value, namely; the increased price and standard product position, the high price and low value-added position and the low value-added and standard price position. In the case of Weetabix, the strategy employed would have been the differentiation strategy given that it seeks to offer the best quality of products and services possible at suitable prices. Weetabix has successfully achieved the strategy through the variation of products and a wide range of customers in various parts of the world (Roger, 2017). As a cereal brand Weetabix through the differentiation strategic position was able to capture 70% of cereal sales in Kenya (Rogers, 2017). In Britain they have also been successful in employing this strategy and as a result of this, the United Kingdom has become the largest market for Weetabix behind the United States and China (Financial Times, 2017) also according to Visionone (2015) when

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compared to its main competitors; Kellog's Cornflakes, Special K and Cheerios, Weetabix has the tastiest brand equity score which highlighted there attempt to produce high-quality products whilst satisfying its customers.

Stakeholder Analysis

According to Freedom (1984, pp.31), stakeholders are considered as any group or individual who can affect or is affected by the achievement of the organizations objective, as cited by Gomes (2006). This implies that a stakeholder is essentially anyone who influences or causes a company's successes or its failures. A stakeholder can be classified in two ways, primary or secondary, Savage et al. (1991). Primary stakeholders are the stakeholders who control the internal day to day activities of the organization, example, customers, employees, creditors, suppliers etc. While secondary stakeholders are external stakeholders who although they do not engage in the direct economic exchange with the business, are affected by or can affect its actions, example, the general public, communities, the media, the government etc (‘Stakeholder (corporate)’,2018). The primary stakeholders were inclusive of the shareholder of Weetabix and Post Holdings. These are any person, company or institution that owns at least one share of a company stock (Investopedia, 2018). In the acquisition of Weetabix, Post Holdings shareholders were acquiring Weetabix while Weetabix shareholders had the selling stake. Stakeholders in Post Holdings would have been positively impacted through the acquisition of Weetabix because according to Watrous (2018) the net sales within the Post Holdings Company increased by 7.5% from $1,490.2 million to $1,601.6 million which coincides with the period in which Weetabix was being purchased. The employees were another group of primary stakeholder that were affected as a result of the acquisition. According to Eckelbecker (2018), the acquisitions of Weetabix will inevitable negatively affect Weetabix employees with Post Holdings set to close the 8

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facility off Cameron Street to optimize cereal production and manage cost by August 2019. Currently, the facility employs 180 persons according to Eckelbecker (2018) and with a close of the facility on the horizon; it is possible that employees of Weetabix will be left without a job after August 2019, unable to provide for themselves and their families and ultimately increasing the unemployment rate. The government though not a primary stakeholder, played a critical role in the acquisition of Weetabix by Post Holding, by ensuring that the sale-acquisition process entered by the two parties were done with transparency whilst adhering to the corporate rules where ethics is concerned. The governments influence to facilitate the saleacquisition process might have benefited the owners, but the acquisition could have negatively impacted the loyalty of the Weetabix customers. Customers might not have been happy with the sale of Weetabix and as a result of this; the media could have gotten involved and disseminated negative information causing people to speculate, which may result in the fall of share prices for Post Holdings.

PEST ANALYSIS Pest analysis is a measurement tool which is used to assess markets for a particular product or a business at a given time frame. PEST stands for political, economic, social and technological factors. Once these factors are analyzed organizations can make better business decisions (The Economic Times, 2018). According to the Economic Times, the Pest analysis helps organizations to make better business decisions and improve efficiency by studying various factor which might influence a business, such as political, economic, social and technological factors Political The acquisition of Weetabix by Post Holding would have been an acquisition involving the government to facilitate the deal and to impose laws directly or indirectly on Post Holdings. The government effect on the acquisition of Weetabix by Post Holdings potentially could have affected the labor laws, the tax policies, wages etc. During the period in which Weetabix was acquired by Post Holdings, the 9

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minimum wage increased from the previous 7.2 pounds to 7.5 pounds for employees 25 years and over and increase from 6.95 pounds to 7.05 pounds for workers 21 to 24 (Great Britain, Department of labor, 2017 ). And as a result of the acquisition coinciding with the increase in wages employee would have been better off for the period of time before August 2019 where employee cut would have been expected.

Economic The acquisition of the Weetabix Company by Post Holdings would have been affected by the economic environment in Britain due to the fluctuation in the markets. The acquisition of Weetabix coincided with the Brexit event and Britain’s exit from the European Union would have affected trade (‘Economic Effect of Brexit’, 2018). According to the ‘Economic effects of Brexit’ article, the bank of England forecasted an immediate economic downturn due to the referendum which could have been a possible reason for the expected employee cut in August 2019 to remain profitable. Also as a result of the Brexit break away nominal exchange rate also weakened which resulted in a decline in GDP given that GDP is a function of exchange rates. Social The social factors are the factors that affect the markets social environment, models and trends inclusive of demographics and population analysis. It captures consumers taste and idiosyncratic proclivities. For example, customers in the United Kingdom and the United States preferred cereal to those in China which was indicated by the struggle to build significant market share China (BBC News, 2017). As a result of this, the probability that Weetabix would have been purchased by Post Holdings would have been higher. To remain diversified with a differentiation strategy, it would be advisable that Post provides products that cater to the needs of the customers.

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Technological

In this day and age of technological advancements, the need to be technologically savvy in the world of business is becoming increasingly important. Post Holding needs to be sensitive to the constant changes in the needs of its customers and technology would be a critical tool in keeping track of customer variation. Also, the design of Post cereal could be also inspired by technological improvements which could result in the growth and success of the Post brand and a higher demand for its products.

INDUSTRY ANALYSIS Industry analysis is a tool that facilitates a company's comprehension of its strategic position relative to other companies that produce similar products or services. Understanding the forces at play in the overall industry is a critical component of effective strategic planning. Industry analysis enables small business owners to identify the risk and reward for their businesses, and to focus their resources on developing unique capabilities that could lead to a competitive advantage (Industry Analysis, 2018). The first step in performing an industry analysis is to assess the impact of Porter's five forces; the supply power, buyer power, competitive rivalry, threat of substitution and threat of new entry. The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long-term return on invested capital. The objective of competitive strategy for a business unit in an industry is to determine a position in which the company can best protect itself against these competitive forces or can influence them in its favor. 11

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Understanding the underlying forces and determining the structure of the industry can highlight the strengths and weaknesses of a small business, show where strategic adjustments can make a big difference, and shed light in areas where industry trends may turn into opportunities or threats (Industry Analysis, 2018).

Supplier power The supplier power also referred to as the market of input, explains position where suppliers can gain bargaining power within an industry through a number of different situations. For example, suppliers obtain power when an industry depends on a limited number of suppliers, when there are no replacements or substitutes for the suppliers' product, etc. Supplier power can affect the relationship between a small business and its customers by influencing the quality and price of the final. In the breakfast, cereal industry providers of grains and wheat required for creation are moderately low (Newswire, 2017) since Weetabix prefers to get its raw materials from a 50-mile radius of their industrial facility with the end goal to have the capacity to check quality effortlessly (Weetabix, 2017).

Buyer power Buyer power is also referred to as market of outputs. This reverse situation occurs when dealing powe...