Strategic Review of Kepak - Case Study Example

? Strategic Review of Kepak Executive Summary This project aims to throw light on the Kepak’s business environment and how the changing trends of thecountry is influencing the company’s strategic decisions. It also aims to study the current strategy of the company to survive in the market and how well these strategies will fit into the current environment to fully utilize the opportunities and gain a competitive advantage. The report gives emphasis of the use of various research tools for analysis of the market and business. PESTLE analysis has been used to analyze the external environmental factors which influence the beef industry. Porter’s five force model has been used to evaluate the current scenario of the beef industry and how it influences the decision processes of the businesses. To analyze the current strategies followed by the firm internal business analysis has been done by using TOWS Matrix which analysis the strengths, weaknesses, opportunities, and threats of the organization to produce accurate and strategic solutions and approaches for a better business outcome. Table of Contents Table of Contents 3 Introduction 4 Industry Analysis 4 PESTLE Analysis 4 Porter’s Five Forces 5 Success Factors Driving Beef Industry 6 Company Analysis 7 Competitive Stance 7 Differentiation 7 Positioning 7 Value Chain Analysis 7 Strategic resources 8 Critical strategy 9 Introduction Kepak is one of the three largest beef producers in Ireland. Noel Keating founded the company in mid 1960s and is headquartered at Meath, Ireland. The Business divisions are Kepak Convenience Foods (KCF), Kepak Meat Division (KMD), and Agra Trading. Started as a retail butcher’s business, it soon expanded as a wholesale supplier selling beef to the food service sector and other larger markets (Bell, Mcloughlin and Shelman, 2011). The company is facing some challenges as well as some significant opportunities due to the changing business and economic environment in Ireland. Industry Analysis A business environment consists of three major components (American Accounting Association, 2013). These are suppliers, competitors and customers. Kepak’s external business can be assessed by using pestle analysis and porters five forces model. PESTLE Analysis Economic The current gross domestic product (GDP) of Ireland is $191.5 billion and the purchasing power parity is $41,700 (CIA, 2013). The agri-food sector is considered as one of the major indigenous manufacturing sector in Ireland (Department of Agriculture, Food and the Marine, n.d.). Around 85% of the food supplies are exported to a large number of countries. Ireland is considered as Europe’s largest net exporter of beef and is well known for producing highest quality beef (Ukfg, n.d.). Almost 1 lakh Irish farmers are involved in cattle rearing and out of these almost 70000 are categorized as specialist beef producers (Bell, Mcloughlin and Shelman, 2011). In the wake of the current economic crisis, the Irish government has identified food and agriculture business as the major sector which will significantly increase the country’s growth in exports and imports. Social 62% of the total population in Ireland lives in urban areas getting access to the most of the daily requirements. The average age of farmers kept on increasing. In 2007, 51% of the family farm holders were above 55 years old and only 7 percent were under 35 years of age (Bell, Mcloughlin and Shelman, 2011). This was because of a significant change in the occupational trends of people, who gradually shifted from agribusiness to other alternatives for a more stable and secure life. Beef consumption in the European market has fallen since 2007 (Bordbia, n.d.).Various reasons accounted for this. Because of the economic crisis the consumers started cutting back their beef purchases and changed to lesser expensive alternatives such as protein supplements and dairy products. Environmental High waste-water discharges, air emissions associated with energy consumption, solid waste and order and a moderate to high consumption of energy and waste are the major environmental issues associated with meat processing (Envirocentre, 2009). Beef is considered as one of the most expensive protein after lamb (Carter and Hersom. 2012). Thus it needs high maintenance and proper storage facilities. Meat production also requires more feeding and water and produces higher amount of waste than other form of meat or vegetables. Also various environmentalists argued that cows were higher emitter of greenhouse gases compared to other animals. These environmental concerns led many organizations to initiate campaigns against meat eating and reducing the intake of meat. Porter’s Five Forces Rivalry among Established Companies: High The main reason behind high rivalry among beef industry is due to declining beef consumption. The only way of remaining profitable, in a declining market, is to grab market share from other companies (Haberberg, and Rieple, 2007) Beef is considered a commodity in the European market. Profits got further eroded due to the lack of product differentiation. To increase the market share, pricing became the major competitive force. Bargaining Power of Customers: High Higher value retail chains, food services and manufacturing markets are the major customers of the Irish beef industry. The largest retail chains across Europe have increased their market share and are also entering into new geographical locations. This encourages retailers to call for tenders with the aim of getting supplies at the least price, even if they are satisfied with their current supplier. This increases the bargaining power of customers is for beef industry Bargaining Power of Suppliers: Low The bargaining power of suppliers is comparatively weak in this industry. Declining consumption of beef, increase in the number of retail chains and organized food services, demand for a higher quality beef have increased the competition among the suppliers. This has reduced the bargaining power of suppliers in this industry Threat of Substitute Products: High In consumer’s diet, chicken can be a good substitute for beef (Dobbins, n.d.). Because of the economic recession consumer became more price-sensitive, and started to cut back their beef purchases or shifted to a lesser protein diet. This led to a rise in the demand for poultry products. Other substitutes included pork, turkey, sea foods and dairy products. The demand for substitute products ahs thus, increased in this industry. Threat of New Entrants: Low New entrants usually come with new capacity and competition for customers and resources (Johnson, Whittington, and Scholes, 2011). Threat of New Entrants is relatively weak for beef industry. Because of the declining market the beef industry has become unfavourable for new entrepreneurs and people looking to start a new business. Also the net profit margin of the industry is as low as 1% of sales, which makes it further unattractive (8m, n.d.). While the Irish beef sector has shown a considerable adaptability to changing environment, these are significant challenges for the producers as well as the suppliers which need to be properly analyzed so that the firm can gain maximum benefit from the current industry environment. Success Factors Driving Beef Industry Consumer Demographics Consumer demographics such as disposable income, age and ethnic background have a significant influence on beef demand. Changing factors such as transfer of wealth to the next generation, growing female work force and growing trends to eating out etc., have resulted in a changed preferences in taste, eating habits etc. this has also resulted in a changed and more diverse target market for beef. The beef industry needs to monitor them in order to capitalize them fully. eBusiness Demand and usage of internal is increasing rapidly. A large number of businesses in food industry and agriculture have started using internet to sell goods and services and exchange information. Knowing the applications of this technology and determining the opportunities where it can be used is the key to capitalize this technology. Global Growth Opportunities By increasing access to export markets, leveraging the brand equity of beef industry to promote it in the foreign market and utilising the global trends in the beef market are the drivers of success in this industry (Arkansas beef, 2013). Company Analysis Competitive Stance Providing high quality products and value based pricing are the competitive strategy followed by Kepak. The beef is manufactured from technologically advanced farms and the cattle used are of highest quality. Through an efficient supply chain, Kepak is able make its products range affordable, which gives the company an edge over its competitors. Differentiation High quality products with affordable pricing has been the differentiating strategy for Kepak Continuous innovation in the development of chilled meat brands, frozen and chilled convenience food brands is the major differentiating strategy of Kepak. Out of the total beef volume, about 25 percent, which are also the highest quality product undergo special programs, where the company takes control of the cattle from birth to slaughter scrutinizes the process in each step. Positioning Formulating a strategy requires both analysis and synthesis (Kluyver, and Pearce, 2012). Kepak’s positioning strategy is based on two forces- providing quality products and competitive pricing. Beef has been primarily sold as a commodity. To gain an edge over the market, Kepak has been involved in cost reduction and strategic acquisitions to achieve economic growth and build scale. Value Chain Analysis Primary Activity Description Inbound logistics Of the total volume of raw meat, 25% are reared and controlled by the company and rest 75% are bought on spot from the farmers. To add value to its business the company has a unique strategy of rewarding farmers by setting the price on the basis of weight and fat content, which is determined by government regulated grid system Marketing and sales The key marketing activities of the company includes retail simulations and store promotions. Value-Added Service Advising retailers on which category to focus, what SKU’(stock keeping unit) should be kept and what should be removed, how to display the meat and how to use store traffic are few of the value-added service the company provides to its customers, in order to retain brand loyalty. Strategic resources Tangible and Intangible Resources Kepak is among Ireland’s top Beef Manufacturing firms (The Association of Convenience Stores, 2013). It processes around 3,00,000 cattle and 1.5 million lambs each year. It has a total of nine manufacturing facilities in Ireland and the UK. Kepak’s principal business departments included Meat Division, Convenience Food Services and the Trading Business. Rustler is one of the trademark products in the convenience food category of Kepak. The brand reputation of kepak’s food products is on the higher side. This can be explained from the fact that 80% of kepak’s fresh meat business comes from 10 customers who are regular and loyal to the company. This shows that the customer profile of Kepak is stable. Kepak Group has also established a beef club named KK KEPAK GROUP Beef Club under European trademark association (Bordbia, n.d.). VRIN Analysis From the above analysis it is clear that the successful strategies to sustain in the beef industry depend on the following factors; Quality products Competitive pricing Distribution Value-added service Based on the above factors VRIN analysis has been done to find out the sustainability of the firms competitive advantage in future. Key Success Factors Valuable Rare Difficult to imitate Supported by organization Competitive implications Performance High quality products Yes No Yes Yes Sustained competitive advantage Above Normal Competitive Pricing Yes No Yes Yes Temporary competitive advantage Normal Distribution Yes No No Yes Competitive parity Normal Value-added services Yes yes No Yes Sustained competitive advantage Above Normal Therefore, from the above analysis it has been found that high quality products and continued value added services are the key factors for the sustainability of the firm’s competitive advantage in future Critical strategy From the industry analysis it was found that there has been a growing concern among consumers about wastage of food, concerns about animal welfare and as a result the percentage of beef eating people is decreasing. The company can utilize this situation by educating customers about the nutritional value of beef and its health benefits. This can be done by educational campaigns and health educational programmes. The company can also put useful information about the health benefits of beef in its website. To continue making high quality products Kepak needs to adopt proven technologies in order to increase the efficiency and subsequent volume of products. Areas such as animal breeding, grassland breeding, management and utilization, animal health and feeding, cost control are few of the major technological advances, which will help in better production. Mutual understanding and co-operation from stakeholders, retailers and primary producers are essential in bringing this change. In order to sustain the volatile beef market, the company needs to present value-added services like ease in logistics, support in store operations etc., to its customers. Beef is considered as a staple food product for the people of Ireland (Johnstone and Tait, 2007). Ireland is considered as on the largest exporter as well as consumer of beef. More than half of the population in Ireland is engaged in cattle rearing and farming. This makes beef industry as very lucrative avenue for business. Kepak entered the business in as early as mid-1960’s which gave it a competitive advantage over late entrants. Beef industry’s key success factors are efficient utilization of the natural resources, getting the best quality cattle from the farmers, and leverage customer loyalty by providing best quality products and services to the customers. Kepak has high quality farms with stringent process to gain maximum outcome. By providing highest quality beef with competitive pricing, Kepak has created an edge in the market, over other competitors. References 8m, No Date. IBP and the U.S Meat Industry- Case Analysis [online] Available at < http://balan.8m.com/ibp.html> [Accessed 08 April 2013]. American Accounting Association, 2013. Changes in the Business Environment. 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