Weetabix - Grade: B PDF

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Mid module assignment...

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University of South Wales Business School Strategic Analysis, Tools and Techniques (ST4S38-V1) MBA Lecturer: Bernardo Batiz Lazo Topic: Critical Strategic Analysis of Weetabix Acquisition by Post Holdings Student No.

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Enrolment

R1704D2560370

Otto Tawanda Chisiri

ST4S38-V1

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Table of Contents Introduction .................................................................Error! Bookmark not defined. Strategic Position of the Company ............................................................................. 4 Porter Generic Strategy Grid ...................................................................................... 4 Bowman’s Strategy Clock ...........................................Error! Bookmark not defined. Stakeholders Analysis and Mapping .......................................................................... 7 PEST Analysis ............................................................Error! Bookmark not defined. Industry Analysis .........................................................Error! Bookmark not defined. Porter’s Five Forces Analysis ................................................................................... 12 Conclusion ..................................................................Error! Bookmark not defined. References ................................................................................................................. 3

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Introduction

"Growth is never by mere chance; it is the result of forces working together,” as aptly put by James Cash Penney, founder, JC Penney, this masterpiece statement gives an insight into what it takes to grow personally or grow a company. In a dynamic global market where companies constantly jostle for pole position and dominance executives have to be deliberate about their plans to grow their companies and enhance the market share there by increasing shareholder value. As noted by Lieberman et al (2009), Malik et al., 2014 organisation use acquisition as a strategy to enter into new markets and as well as to increase to their market share.

This essay is at pains to do a critical strategic analysis of Post Holdings Inc. , an American , consumer packaged goods holding company that specialise in both branded and private label cereal products, that entered into the British market through acquisition of Weetabix Limited in 2017, also breakfast cereal company a company previously owned by a chines food company called Bright foods. The idea behind acquiring Weetabix by Post Holdings was to expand to other markets as Weetabix had a strong footprint in Britain and other African markets especially South Africa and Kenya and this was an opportunity for them as Weetabix already has an international foot print that Post holdings can leverage on. This strategy is the trademark of Post holding which in the previous years had grown in leaps and bounds through acquisitions of companies in the food industry. In 2013, Post acquired a private label cereal and granola business of Hearthside Food Solutions followed by acquisition of Dakota Growers Pasta CompanyInc, Golden Boy Foods Ltd, Dymatize Enterprises, LLC, Michael Foods, all in 2014. Between 2014 and 2017 the Post Holdings acquires more 8 companies according to the information on their website.

The British cereal market is a highly competitive market with leading brands like Nestles Kellogg’s, Weetabix , Cheerios’ , among

others. The entrant of Post

holdings into this market brought with it changes to Post Holding stakeholders both internally and externally. This change prompted the company to analyse and reevaluate its strategic objectives in order to maintain competitive advantage as well

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as to set up the new team for success and give it direction. In order to do this the organisation needs to re-organise, refocus and come up with new strategies to function in the new environment. It is without doubt that Post holdings had previously employed acquisitions as a vital strategic choice for its organizational growth and meeting its business objectives and maintaining competitive edge. In this essay focus will be on critical strategic analysis of the current strategic change within Post Holdings buying Weetabix covering areas such as, strategic position of Post holdings, stakeholder analysis, external analysis and industry analysis. This will be in the context of acquisition of Weetabix by Post Holdings and applying strategic frameworks for us to critically appreciate the strategic change brought by this acquisition. Strategic Position of the Company Strategic position of a company is borne out of the understanding the industry that the company operates in and using that understanding to give the company a competitive leverage over its competitors. Porter, 2008, highlighted that the understanding of the competitive forces helps companies to know the background and source of industry profitability whilst creating basis for anticipating and forecasting profitability in the future. Once an organisation has understood its industry and how it fares compared to its rivals it then seeks to define its strategic position by differentiating itself from its competitors Wickham (2001). Porter 2012 further reiterate by asserting that strategy expresses an organisation unique style to competing and the competitive advantages it has. (Isc.hbs.edu, 2018) defines strategic position as a reflection, “…of choices a company makes about the kind of value it will create and how that value will be created differently than rivals……” and this will lead to achieving superior performance within an industry through an organisation being able to select a peculiar niche Galal (2013). Using Porter Generic strategy Analysis and Bowman’s Strategy clock as strategic frameworks organisation can easily formulate strategies to gain competitive advantages over their rivals. They are three distinctive generic strategies that are applicable to industry as set out by Michael Porters in 1985 namely Focus, Cost Leadership and Differentiation. These generic strategies are used differently to achieve strategic goals as per organisational focus. When a company applies cost

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leadership as a strategy it seek to reduce cost of delivering products and services to their clients through offering competitive prices to the market thereby gaining and increasing its market share. Another strategy that a company can pursue is that of differentiation strategy, this is when a company makes sure that its products are different and carry unique characteristic as opposed to rival’s products. This can be through adding extra functionalities that stand out from rival’s products, or support service that goes beyond normal market standards. Focus strategy can either be cost focus or differentiation focus, either of the two the company seeks to focus and concentrate as pointed by Tanwar (2013) on a particular niche in the industry. Whether it is cost focus or differentiation

focus there is need to make sure that

particular niche chosen receives extra value. From the analysis of Post holdings we can see that Weetabix chosen strategy is Differentiation focus as the firm chose to focus on few targeted niche markets. This can be seen in 2013 when Weetabix introduced a niche product in form of breakfast biscuits to cater for those who did not find value in the cereal breakfast. This is epitomised by a research carried out by Visionone in 2017 that revealed that Weetabix focus strategy aimed at meeting consumers unique needs. Porter Generic Strategy Grid

Source: Mindtools.com,

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In addition to Porters’ generic strategy, Bowman’s strategy clock is another strategy framework that can be used to identifying company strategic position. Bowman’s Strategy Clock

Source (Google.com, 2018) The Bowman’s strategy clock which is an extension of Porters generic strategy main focus is value proposition to customers (Thebusinessprofessor.com, 2018). This framework was established to analyse how organisations products and services can be placed in order to snip the most competitive position in the market. This characteristically means placing products in the market to guarantee its best competitive position in the market. Looking at Weetabix we can see that it falls under differentiation strategy as it engages in creating unique value for their customers through niche products like Weetabix protein and protein crunch which spurred them to market leadership and differentiated them for their rivals. The company through products like The Go drinks introduced in 2014 after a lot of research and development marked the company as market leader as sales results soared above

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expectations as they were able tap into a niche market of customers who sought healthy sources of protein. This differentiation focus strategy by Weetabix has transcended global markets as they had to adapt to the unique attributes of different markets. In places like Kenya they have been delivering using bicycles to the consumer showing their ability to adapt to market needs and dynamics (Allchin, 2012). (Roger, 2017).noted that company has been able to create different brands that service various customers in different segments. Stakeholders Analysis and Mapping According to business dictionary a stakeholder is, “a person, group or organization that has interest or concern in an organization.” Stakeholders have an affect or are affected by the organization's actions, objectives and policies. According to Walker Bourne and Shelley (2008) stakeholders are people and groups who have interest in a business. When Weetabix was acquired by Post Holdings they were many stakeholders involved and the success of such ventures requires consensus of the stakeholders pulling in the same direction in order create and sustain winning coalitions (Riker 1986; Baumgartner and Jones, 1993). These key stakeholders satisfaction even minimal is necessary for policies organisations and communities to be successful (Bryson and Crosby 1992; Jacobs and Shapiro 2000). Stakeholders do not hold the same importance and it is important for an organisation do to a stakeholder analysis and to engage them according to their rank of priorities for its programs to be successful. Primary stakeholders are the most important and powerful group of stakeholders as they have internal control of activities include but not limited to shareholders, customers, suppliers, investors, employees, etc. While secondary stakeholders might not have control over the internal operations of the organisation they still exact a lot of power and such stakeholders are public, government, regulatory bodies, media competitors etc. In the acquisition of Weetabix they were a lot of stakeholders that were involved and have grouped them diagrammatical below. The stake holders relevant to the acquisition of Weetabix by Post Holdings and strategies of dealing with them can be categorized as following: R1704D2560370

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Stakeholder Analysis Matrix of Post Holdings acquisition of Weetabix

Keep satisfied

High

Manage closely

1. Customers

1. Senior Executives

2. Investors

2. Shareholders

3. Partners

3. Employees 4. Competitors

Monitor (minimum effort)

Keep informed

1. Press

1. Government

2. Public

2. Regulatory bodies 3. Supplier

POWER

Low

Low

High Interest

As we can see from the diagram various stakeholders were involved and different strategies and different methods of engagement had to be used to make the acquisition a success. External Factors Driving the Strategy PEST Analysis PESTLE Analysis is a tool that can be used to have a comprehensive analysis of an organization's external environment. As a strategic tool used in the analysis it paints a clear picture of the macro environment of the organization is operating in. The tool allows the organisation to have an understanding the Political, Economic, Social.

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Technological, Environmental and Legal Environment that it will be operating in since the success of the organisation lies in its ability to navigate in its environment. Political The acquisition of Weetabix took place during the much touted Brexit which brought so much uncertainty in the political and business environment. The continued delay in finalisation of the exit from the European Union (E.U) made it impossible for many businesses to plan well ahead as they are still to find out about the trading terms with E.U after the exit. This is further compounded be a declaration of a deadlock in the exit negotiators further clouding the obscure political fate of the nation. The company also find itself subject unsure whether to prepare for European Union business operating legislative laws, foreign trade regulations or not. The company is also unsure of how it will be affected by the free-zone trading existed between Britain and E.U since this is some of the matters that created a deadlock in the negotiations. This continued dragging of Brexit has affected the pound weakening it amongst major currencies and forcing the company according to chief Executive to absorb high cost dollar denominated wheat thereby affecting cost and profitability of Weetabix. Above it also means that the company will now be affected by political environment in both USA and Britain unlike previously when it only concentrated on political environment in USA 3.3 Economic As a global company the acquisition of Weetabix by Post Holdings meant that it will be affected by different economies being the US and UK. Unfortunately for the organisation these economies are not growing at the same rates thereby requiring that management strategies and figure out on how to handle the disparities in the two economies. The difference in the economic growth between UK and USA in 2017 as noted to Chu (2017) due to the weakening pound brought about high inflation in the country. Weetabix require individual economic approach to each economy due to disparities in the economies they operate in. Each economy presents its own different challenges as far as inflation, interest rates and purchasing power among other variables is concerned. Globally the economic recession would ultimately drive the Weetabix customers to substitutes unless the company find a way to reduce it cost and push the savings to the consumers. R1704D2560370

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In UK the government increased the minimum hourly wage (minimum Wage U.k, 2017). This increase in minimum wage will consequently result in ballooning cost for labour the U.K economy as opposed to American front. 3.4 Social Social factors include but not limited social aspects of life like cultural trends, demographics, , population analytics and future consumer taste. It is important for nay organisation to understand the social aspect of the environment they are operating in. Whilst consumers in China and Asia would prefer a hot breakfast the case in to so with consumers in U.K and USA who would prefer a cereal breakfast (Monaghan, 2017). With such knowledge of the social aspect of the market the success rate of Weetabix is higher in UK as opposed to China. In order to grow sales the company had to start selling products that align and are sensitive with the social taste of their consumers. Another aspect that the company has to take into account Is the rising consciousness of healthy food among its consumers and increased activism against food that causes obesity especially in children. As a result the company has to develop healthy cereals to meet the consumer needs. 3.5 Technological We live in a world of ever changing technology, the rapi change in technology avails opportunities for product improvement and continued research. This technology has made it possible for the company to introduce Drinkable Cereal called Weetabix on the go aimed on those that love to take their breakfast in liquid form. For the organisation to be in tune with the demands of its customers it had to deploy technology in various ways like deploying machines that cut cereal in different shapes tubes, bars, rings etc. (Maskan, 2016). E-commerce has also opened a platform to deal directly with customers and getting feedback and the organisation has to harness the power of this platform to get to know their customers

Environmental With the global warming and climate change being the current buzz words, it is imperative that the organisation operate within the acceptable environmental laws.

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Recycling-Reuse and Reduce are the motto of any organisation that seek to be considered a social citizen of repute, Post Holdings has to make sure that its packaging materials are degradable and minimise use of packaging and materials that harm the environment like plastics. Legal Employment rules and work time regulation 1998 allows employees 28 days paid leave. On the other hand the employment rights act 1996 regulates that employees with small children are allowed flexible working hours. For the organisation to operate in the British environment it has to comply with the said rules among others or it will face lawsuits and backlash from the unions and society at large 4. Industry Analysis The breakfast cereal industry is a cut throat industry with higly visible and established competitors like Kellogg, Cheerio’s Nestle among others. In such an industry there is a a need for one to maintain competitive edge of rivals. The Porter’s Five Force Model is the most popular tool deployed in analysing the Industry competitiveness. This tool is used in helping the organisation develop its competitive strategy and gain understanding of competitive forces against it. The model is used to analyse the industry based on the following forces: 1) Supplier Power 2) Buyer Power 3) Competitive Rivalry, 4) Threat of Substitute entry 5) Threat of new entry

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Porter’s Five Forces Analysis

Source: (CGMA)

4.1 Supplier Power The fewer the suppliers they are in the market the more power they yield against an organisation. These input suppliers of raw materials and unique are aware of the power they yield and the high cost of switching suppliers. (Newswire, 2017) established that the suppliers of wheat in the cereal industry are not many hence the suppliers have huge bargaining power. To counteract the bargaining power the organisation has to develop good and long-term relationship with its suppliers to create dedicated suppliers. The organisation can also employ the tactic of backward integration and buy or partner with its suppliers subject to approval from Anti-competition trust. 4.2 Buyer power

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Having realised that the buyers who are supermarkets and grocery stores wielded higher bargaining power as the number of competitors in the market were numerous and switching costs were low, Weetabix decided work closely with wholesalers to grow sales and consequently get bigger shelf spaces as a reward (Drakakis, 2017). In order also to get relative bargaining power Weetabix grew a large customer thereby cutting the bargaining power of the buyers; The Weetabix brand commanded big sales and projected positive brand image with the British markets resulting in huge sales that allowed them to negotiate favourable with their buyers. 4.3 Competitive Rivalry

The breakfast cereal industry is a cut throat industry rivalry dominated by the likes of Kellogg’s and Nestle. Companies seek to outdo each other as they introduce new products periodical thereby keeping ...