Kepaks Current Strategy - Case Study Example

?Kepak Case Study Executive Summary Kepak has been recognized to be a leading player in the Irish Beef Industry which has over the years tacked several difficult scenarios with its incisive strategic capabilities. The company initially started its operations as a retail business of butchers. However, it gained its major success through supply of its wholesale beef products in the varied market segments especially the UK market. It has been recognized that the beef or meat industry possesses certain significant challenges for companies operating in the industry such as threat of new entrants, and high buyers’ bargaining power among others. Therefore, Kepak, over the years, has taken certain strategic initiatives such as commencing business through Agra Trading, offering convenience foods along with building a snacking brand spread across European market horizon among others. These incisive strategies as well as the use of co-opetition strategy can be invaluable prospects for the company in the future. However, it has to guard against aspects such as overcapacity to mitigate losses and to avoid downfall in sales. Table of Contents Executive Summary 2 Kepak has been recognized to be a leading player in the Irish Beef Industry which has over the years tacked several difficult scenarios with its incisive strategic capabilities. The company initially started its operations as a retail business of butchers. However, it gained its major success through supply of its wholesale beef products in the varied market segments especially the UK market. It has been recognized that the beef or meat industry possesses certain significant challenges for companies operating in the industry such as threat of new entrants, and high buyers’ bargaining power among others. Therefore, Kepak, over the years, has taken certain strategic initiatives such as commencing business through Agra Trading, offering convenience foods along with building a snacking brand spread across European market horizon among others. These incisive strategies as well as the use of co-opetition strategy can be invaluable prospects for the company in the future. However, it has to guard against aspects such as overcapacity to mitigate losses and to avoid downfall in sales. 2 Table of Contents 3 Introduction 4 Analysis of Kepak’s Business Environment 5 Kepak’s Current Strategy 8 Critical Appraisal of the Strategy 10 References 14 Introduction Kepak was established by Noel Keating, initially as a retail business of butchers during the mid-1960s. Subsequently, Noel Keating commenced the supply of wholesale beef to the food service sector as well as in large markets. The industry for beef in European Union and Ireland during 1970s and 1980s was considered as a commodity business. The process of selling beef under the intervention of Common Agricultural Policy of European Union (EU) was extensively utilised mainly in the regions of North Africa and Middle East. During this period, the strategy used by Kepak was to decrease the prices of products and increase the margin of sales for building Economies of scale and achieving greater monetary success. In that situation, Noel Keating was of the view that the intervention which was applied in the conduction of business was not sustainable in the long run. This prompted him to formulate a strategy based on customer service and differentiation. It was during this period that Kepak started working with Coop Italia, the leading meat producer which was well known for rendering utmost quality based offerings. The company recruited a set of Irish farmers to enhance the quality of production along with maintaining the needs of the customers in the global market context. Kepak used to sell the beef products to Irish and EU retailers for their own profitability and enhancement of their product line. The company also looked for maintaining the quality of products and delivering it to the customers. It has been stated that about 25% of beef volume and quality standards are rigorously controlled by Kepak through the conduction of various special programs. It also can be observed that meat products from these raised cattle went through strict quality standards which supported Coop Italia. Kepak provided service to customers using brands such as Keepak Gold and Donald Russell (Bell & et. al., 2011). With these considerations, the aim of the paper would be to analyse the business environment of Kepak. Moreover, the current strategies of the company will be assessed and appraised through the use of strategic management tools such as VRIN, SWOT and Value Chain analysis. Analysis of Kepak’s Business Environment With reference to the Porter’s Five Forces analysis, it has been recognised that the five forces consist of five determinants which include bargaining power of buyers, bargaining power of suppliers, threat of substitute products, threat of new entrants and rivalry among existing firms. Bargaining Power of Buyers It can be stated that in meat industry which is a part of the fast casual food industry, the bargaining power of buyers plays a significant role. In case if the buyer power is effective, it is the buyers who essentially structure the segment of price. The bargaining power of potential buyers in the meat industry can be observed that during 1980s, 50% of the Irish beef of inferior quality was sold in huge quantity in non-EU markets (Ohio Domican University, 2011). Later on in 2008, it can be observed that Kepak focused on providing valuable products by reducing its exporting terms in non-EU markets. In this context, the bargaining power of buyers is observed to be quite high as 90% of customers shifted to retail markets in same product category. Moreover, Bord Bia facilitated the industry by offering a variety of services that include information about markets and consumers along with trade buyers and consumers. The Irish Food Processors, a key rival of Kepak produced lamb, pork and beef emphasizing on rendering high quality products of meat to various leading buyers in food service and retail industry. The main buyers of meat products include Dunnes Stores, Tesco, and Asda among other retailers along with Burger King, in food service category (Bell & et. al., 2011). Bargaining Power of Suppliers The suppliers bargaining power in fast casual food industry i.e. the meat industry depends on the prices and demands of the materials. The bargaining power of supplier is generally observed to be weak in this industry, as the products received by the management of the companies are from various farmers, butchers and packaging companies. These products are not manufactured on their own (Ohio Domican University, 2011). There are various challenges that exist in the marketing aspects in beef industry. Most of the farmers are used to sell their cattle for the purpose of processing through local agents (Bell & et. al., 2011). Threat of New Entrants The threat of new entrants is extremely high in fast casual segments which entail meat industry. This is owing to the existence of chains in the casual segment and the prevalence of a few barriers for entry. In this context, it can be stated that most of the protein companies in Brazil provides considerable impact on Kepak as well as Irish beef industry (Ohio Domican University, 2011). The protein firms in South America consist of much bigger and stronger base for serving meat products around the world and are a threat to European countries producing meat products. In the current market scenario, if South American countries sell 50% of the cost of European beef, it would be very difficult to compete with the countries of South America (Bell & et. al., 2011). Threat of Substitute Products In terms of threat of substitute products, it is observed that for companies such as Kepak, the threat of substitute products were moderate. This is because consumers were observed to have shifted their products choice to steaks or roasts to save prices of buying beef. However, in the UK there were certain semblances of growth in beef purchase, so there were still considerable demands of beef amid consumers (Bell & et. al., 2011). Rivalry among Existing Firms The rivalry among existing firms is quite high in this sector. It has been observed that one of the rivals of Kepak is Irish Food Processors. However, Kepak provided declaration of maintaining cooperation with Irish Food Processors for dealing with the challenges in terms of shrinking nature of beef herd in national context (Ohio Domican University, 2011). In this regard, the most leading rivals could be identified as various protein companies in Brazil. Therefore, it is necessary for companies such as Kepak to maintain cooperation with local rivals like Irish Food Processor to tackle the looming global competitive threat especially from South American market for sustaining greater competitive advantage by maintaining effective price dimensions (Bell & et. al., 2011). Kepak’s Current Strategy During 2010, the overall turnover of Kepak was around €750 million, having an employee base of around 1,700 and 300,000 processed cattle along with 1.5 million lambs per year. The emerging strategies that were applied by Kepak were to reduce the cost of the products and increase the margin of sales by a considerable level. However, following the death of Keating during 1993, the company had to face numerous challenges that include devaluation of Sterling and bovine spongiform encephalopathy (BSE), which acted as a critical dimension for the shattered confidence of the consumers towards the safety of the produced beef products. Moreover, the other strategies that were operated by Kepak were to open a convenience food store, named Kepak Convenience Foods and agricultural trading commodity business, named Agra Trading. The beef products that were processed by Kepak came from Bord Bia Beef Quality Assurance Scheme (BQAS). These plants operated by Kepak offered high level of food products with quality assurance. In the aspect of conventional foods strategies, it adopted a strategy to build a European chilling snacking brand in the country as well as worldwide. One of the imperative strategies, which was used by Bord Bia was to switch from the focus of sales in bulk quantity of products to selected and high quality of beefs to leading retailers of Europe. The second strategy was to establish an Irish brand of beef which is based on differentiation and premiumization. The focus of the company was to provide high quality of products to valuable customers and to enhance the growth of sales by around 12% by 2013. It has been observed that the company had listed in accounts of 70 retail outlets along with making considerable increase in retail customers in the period of recession. The volume of outlets had grown by around 16,200 tons in 2010. In the context of Agra Trading, it can be stated that it was the trading arm of the Kepak Group internationally. It was the department that used to sell products that include lamb, poultry, pork and seafood along with other processed foods such as fruits and vegetables in the global market context (Bell & et. al., 2011). With regard to value chain analysis of Kepak, it can be stated that the company’s inbound logistics comprised of raw materials gathered from farmers, packaging companies along with butchers. Moreover, for maintaining product quality in its operations, Kepak adopted the strategies offered by Coop Italia to increase its sales. The company adopted ‘Agra Trading’, a commodities business for supplying its products in terms of outbound logistics. For marketing its products, Kepak used Bord Bia, a marketing agency (Bell & et. al., 2011). In the context of SWOT analysis, it can be stated that the meat and beef products that are offered by both Kepak and Irish Food Processors provided nutritional value for consumers consuming the products that were enriched with protein and could provide greater values to customers in the global market context. This can be considered as one of the strengths for the companies. A key weakness that can be identified is the lower margin of production of beef by the farmers or ‘Beef Barons’, which provided benefits for retailers to maintain greater advantages in overall global market. The other weakness that can be identified was the vulnerability of movements in Euro-Sterling exchange rates for Irish exporters, resulting in lesser competitiveness for Irish exporters as well as Kepak for maintaining greater competitive advantage in the global market context (Bell & et. al., 2011). With better quality of products, there would be possible outcomes in terms of enhancement in the lifestyle for women as well as families. There would be significant growth in the Asian markets that could be valuable for Kepak to focus on different ranges of products and to produce them in adequate quantities in order to meet the demands of the customers. Each of the markets differs in terms of preferences for consumer products as well as challenges provided to Kepak and Irish beef firms from the global market scenario. However, Agra Trading also focuses on exploiting opportunities along with other processors in leading regions of meat production (Bell & et. al., 2011). Threats can be identified in this context for Kepak as well as Irish Food Processors which could be provided by South American protein companies producing similar type of beef products. The threat can be generated by these companies owing to rendering nutritional value to customers along with creating a threat to Kepak and other meat and beef producing companies in the global market context (Bell & et. al., 2011). Critical Appraisal of the Strategy It can be stated that the consumption of beef in the European Union had lowered due to the reason of cash-trapped consumers who preferred to reduce their meat purchase and search for alternative options. The United Kingdom, had increasingly became attracted towards the consumption of beef as retail based sales of mince increased which accounted for about 49% in 2010, from 45% in 2007. There has been considerable increase in the consumption of beef during 2010, which is considered as one of the expensive products that contained protein and was purchased cheaply by various customers in the market of the UK. The strategies adopted by Kepak in rendering high quality products to the customers in the global market were meant for the development of the company. However, it cannot be denied that Ireland is a small country; in this respect it would probably be difficult for Ireland as a beef producer to maintain its growth and sustain competitive advantage in the global market context. In order to maintain such issues, a good platform is requited for the company to stabilise its position in the global market context. However, there are certain issues such as overcapacity, which is considered as one of the significant issues that needed to be rectified by the organisation in order to maintain a greater sustainability. It can be stated that Brazil based protein companies affected the Irish beef industry to a potential extent. Thus, there was a need for better cooperation from Bord Bia to provide support to faltering economy of Ireland along with other agricultural products along with increasing the demands of products in the global market context. This would assist the company to sustain competitive advantage globally (Bell & et. al., 2011). In order to appraise the strategies of enacted by Kepak, VRIN analysis tool is utilised. With reference to this tool, in the context of valuable, it can be stated that the valuable aspects are the customers for the company, who are provided with valuable nutritional products that could be beneficial for them in having their food related to beef and meet products. Bord Bia and Irish Food Processors provide valuable food products to customers belonging to various regions of the country. The strategies developed by Kepak such as Agricultural trade community i.e. Agra Trading and convenience foods offerings can be termed as valuable (Bell & et. al., 2011). In the context of rare, it can be stated that in order to maintain greater sustainability in the global market context, the carrying out of production activities with good reputation is needed along with better and unique customer offerings. Morever, for maintaining a premium position in the global market context, Kepak also requires developing a consistent, top quality product and a good platform for marketing for sustaining its growth in the global market context. This could be rarity in this situation as it is relatively a smaller country to maintain greater sustainability along with profitability. It can be mentioned that greater cooperation in the process of supply chain could enhance the performance of the Kepak by improving the quality of products through Bord Bia. Another rare aspect in terms of strategic dimension was the ambition of Kepak to build a snacking brand which would transcend entire European region. This would help in decreasing the manufacturing cost of the products and delivering meat products to larger customer base in the global markets. With reference to in-imitable, a sustainable source of competitive advantage for Kepak regarding its strategies is co-opetition. This would enable the company to deal with growing market competition through mutual support. In relation to Non-substitutable dimension, it can be observed that Kepak’s Agra Trading business certainly possessed such features (Bell & et. al., 2011). Conclusion From the above observation, it can be stated that Kepak, commenced its operations initially as a retail business for butchers during the mid-1960s. The industry for beef in European Union and Ireland during 1970s and 1980s was considered as commodity business for the country. The company started to maintain its operations of business through the product line operated by Coop Italia as well as Bord Bia along with the supportive competition of Irish Food Processors which enabled the company to maintain greater sustainability by incorporating sustainable business line. Kepak’s offerings aimed to render greater nutritional value along with providing effective revenue for the organization. With the changing dimensions of Irish and global market trends, the company adopted certain imperative strategic options that rendered it with unique advantages. However, in order to ensure a stable future the company needs to address problems such as overcapacity. These aspects will ensure long-term stability of the company. References Bell, D. E. & et. al., 2011. Keepak and the Future of the Irish beef Industry. Harvard Business School, pp. 1-23. Ohio Domican University, 2011. Application of Porter’s Five Forces Model Paper. Fast Casual Industry [Online] Available at: http://www.ohiodominican.edu/uploadedFiles/Library/CoursePages/Courses/Bus/Bus498/Application-PortersFiveForcesModelPaperExample.pdf [Accessed April 10, 2013]. Read More