Reasons for the Prosperity of the Meat Business in Ireland and the UK - Case Study Example

? Kapak Case study report Executive summary: Irish beef industry is currently facing harsh economic operating environment, but the social environment favourable for Kapak business strategy. Kapak has implemented advanced beef processing technologies and sells its own beef label through major retailers in Irish and UK markets. The company is experiencing competition from similar players like Irish Food Processors. Kapak has a diversified beef product portfolio and offers high quality and nutritional beef to its customers. The source of beef cattle is a vital resource for the success of Kapak. The beef rearing system is characterised by small farmers who mainly keep less that 10 beef cattle. Kapak should increase the number of retailers and expand own distribution network through Agra trading in order to reduce the bargaining power of the retailers. The company should also segment the market and build strategic partnerships with the farmers. The company can start beef cattle rearing in order to ensure a constant supply high quality beef cattle. In addition, Kapak must enter the emerging markets such as Middle East and South America in order to minimise competition in the saturated domestic and EU market. Table of contents page number 1.0. Introduction…………………………………………………………4 2.0. Business environment …………………………………………….4 2.1. Pestle analysis……………………………………………………….4 2.1.1. Political environment……………………………………………..4 2.1.2. Economic environment …………………………………………..4 2.1.3. Social environment ………………………………………………5 2.1.4. Technological environment ………………………………………5 2.1.5. Legal environment………………………………………………...5 2.1.6. Ecological environment …………………………………………. 5 3.0. Competition……………………………………………………….. 5 4.0. Kapak’s business strategy and value chain analysis…………….6 4.1. SWOT analysis……………………………………………………..6 5.0. Market positioning and segmentation……………………………7 6.0. Kapak’s Value chain………………………………………………7 6.1. Beef cattle maturation……………………………………………….7 6.2. Processing………………………………………………………….. 7 6.3. Distribution and marketing …………………………………………7 6.4. Customer base………………………………………………………8 7.0. Strategy appraisal and recommendations………………………. 8 8.0. Conclusion ……………………………………………………… 9 9.0. Bibliography …………………………………………………… . 10 Introduction Kepak history dates back mid-1960s when Noel Keating established a retailer butcher’s business. Keating continued supplying wholesale beef to the food service sector in to the larger market. The retailer was selling beef under the EU’s Common Agricultural Policy and utilized export credit refunds for large supplies to Middle East and North Africa. The company currently operates nine manufacturing units in Ireland and UK and has employed more than 1,700 employees. In 2010, the company netted about US $ 1 billion in revenues and principal revenue generating activities were animal slaughter and sell of processed meat through the meat division (Bell, McLoughlin and Shelman, 2011, p. 4). The paper will discuss the business environment of Kapak, the current strategy, the value chain, and provide strategic recommendations for long-term success and profitability of Kapak. Business environment PESTLE Analysis Political environment The manager of Kepak Convenience Foods has often cited food safety as a major political concern. A major food and mouth crisis in the market could lead the UK government to close its borders thus limiting access to the market. However, Ireland is committed to promoting the beef industry through Bord Bia which is a government agency for promotion of Irish food and horticulture. The agency facilitates information access and market development for the Irish beef industry (Bell, McLoughlin and Shelman, 2011, p. 7). Economic environment Abolishment of the EU export refunds in 2013 will also lead to lower beef production in UK. More than three-quarters of the 130,000 Irish farms produced some beef in 2009. However, the Irish farmers have increased the sale of live calves to the European market thus contributing since it offers more returns that maturing, slaughtering and processing thus leading to reduction in beef production in the industry. In addition, the expected removal of EU dairy quotas in 2015 will negatively impact on the size and profitability of beef industry in Ireland. The EU beef production is expected to stagnate due to changes in the EU subsidy payments also reduced Ireland’s beef production. The beef consumption in European market has been declined since consumers have shifted to low cost proteins such as mince and burgers due to effects of the recent economic and financial crisis. Ireland is committed to economic recovery and has secured an 85 billion pounds loan facility from EU and IMF in order to implement the ‘national recovery plan 2011-2014’. The economic environment may negatively affect the profitability of Kapak in Ireland and European markets (Bell, McLoughlin and Shelman, 2011, p. 9). Social environment The social environment is favorable for Kepak business model. For instance, the emergence of 16-to-24 year old male population across Europe offers viable market since this market is interested in partying and leisure and not eating cooked meals in their homes. The growth of career women with limited time to attend to cooking will increase the sales of roasted beef. The social environment will foster the profitability of Kapak (Warner, 2010, p. 67). Technological environment Ireland beef industry has embraced genetic advances in beef production. Since 1990, the industry has invested in modern beef processing strategies that aim at increasing the beef value and meeting the international standards. The 31 export-approved meat processors have excess capacity to increase the rate of slaughtering since they process 1.6 million cattle annually against a capacity of 3.5 million cattle annually (Bell, McLoughlin and Shelman, 2011, p. 11). The advances in meat processing technology will enhance the quality of beef and reduce the operating costs (Bell, McLoughlin and Shelman, 2011, p. 14). Legal environment The Irish beef producers are expected to meet Bord Bia beef quality assurance scheme standards that entail both meat and farm traceability. The farmers will also be required to adhere with the carbon footprint. Kapak must adhere with the legal environment in order to survive in the industry. Ecological environment The Irish beef industry is experiencing high climatic change concerns since cattle have largely contributed to greenhouse gases emissions. For instance, the World Wildlife Fund (WWF) suggested that the British government should minimise the meat consumption in the country in order to protect the environment. Beef production also puts pressure on water resources and grass thus leading to wastage of natural resources. The ecological concerns may limit the ability to Kapak to access huge volumes of beef cattle (Bell, McLoughlin and Shelman, 2011, p. 14). Competition Kapak faces stiff competition in the Irish markets from companies of similar operation scale such as Irish Food processors and Anglo Irish Beef Processors. However, the three companies account for about 65 percent of the market share thus leaving room for more market penetration and growth. However, the three firms are privately owned and owners are willing to accept lower margins in order to maintain the market share. The competition will lead to reduced margins across all firms in the industry (Bell, McLoughlin and Shelman, 2011, p. 17). Kapak’s business strategy and value chain analysis Kepak offers diversified beef product portfolio. In 1996, the company launched chicken pieces and two beef burger product that has enhanced the market position of the company. The success of the Big AI’s is attributed to high quality beef. Another cash cow for the company is Rustlers product category that entails Innocent Smoothies. Another major product is the Speedy Snacks that are targeted to mothers and are listed in Tesco and Somerfield’s supermarkets. In addition, Kapak has also innovated Rustlers to Ugo’s product that include toasted Italian style sandwiches that are common with 24-to-45 year women (Bell, McLoughlin and Shelman, 2011, p. 9). Kapak’s SWOT analysis Some of the strengths of Kapak include diversified product portfolio, minimal transportation costs due to the establishment of manufacturing facilities in UK and modern processing facilities. Kapak has also controlled the beef cattle maturation process in order to ensure the quality standards to its customers. The company rewards farmers who command better prices in the market. Kapak sources from Bord Bia beef quality assurance scheme, Farm Assured British Beef or Lamb scheme in order to maintain its high customer beef offerings in the market. Experienced and committed management of Kapak that will contribute to long-term success of the company (Bell, McLoughlin and Shelman, 2011, p. 11). Kapak suffers weaknesses since it has not controlled the purchasing power of customers. Ten customers that include Tesco and Coop Italia account for 80 percent of fresh meet business. Although Kapak has supported the major retailers in improving the sales volumes, the retailers have the power to bargain for lower prices thus negatively affecting Kapak’s margins. Kapak can exploit several opportunities in order to attain market leadership position in the industry. For instance, the company should target the families and women willing to purchase roasted beef instead of cooking at the end of a busy working day. The company should also expand to South American markets and increase the market presence in emerging markets such as Middle East market that is currently underserved. Kapak suffers certain threats such as high competition from Irish Food Processors and stringent beef quality standards. In addition, the sales may be negatively affected by the outbreak of foot and mouth diseases that will limit the exports (Bell, McLoughlin and Shelman, 2011, p. 17). Market positioning and segmentation Kapak has positioned itself as the leading supplier of high quality and naturally bred beef products in Ireland and UK markets. The company has segmented the market depending on the changing consumer tastes and purchasing behaviours. For instance, the company has targeted the women and family market who mainly demand roasted beef due to lack of time to prepare the beef products. The company has also introduced burgers, sandwiches and other chicken products in order to cater for the different needs of customers. Kapak’s Value chain Beef cattle maturation In the beef cattle production, the Irish beef cattle are mainly grazed in open pasture for the most part of the year. Ireland has abundant rainfall that sustains the beef cattle for most part of the maturing cycle. In addition, feedlot-fattened beef animals are also available. However, grass-fed beef cattle provide high quality beef that has a unique taste and texture. The grass-fed beef cattle take longer to mature compared with the cereal-fed beef cattle thus lengthening the value chain. Irish beef cattle farmers suffer from low economies of scale since only small number of beef cattle are kept in the small farms (Bell, McLoughlin and Shelman, 2011, p. 12). Processing The Irish beef producers have invested heavily in modern beef processing facilities in order to comply with the internationally recognised animal welfare and beef standards. The producers have changed from frozen beef to fresh meet that is supplied through retailers to the final consumers. There are enough approved meat processors in Ireland and extra processing capacity (Houston and Stonehouse, 2012, p. 45). Distribution and marketing The average producer beef prices are currently 3.05 pounds per kilogram. Bord Bia supports the marketing efforts of Kapak especially in retail outlets and foreign markets such as Brazil. Agra Trading acts as the international marketing and distribution arm of Kapak and especially in Africa, Middle East and European markets (Warner, 2010, p. 56). Customer base The consumers are willing to pay a premium price for the grass-fed beef since it is considered more nutritional. The company sells only 3.5 percent of beef to non-EU markets while 90 percent of the customers are high value retailers in food service industries. Kapak beef is preferred by large retailers due to high quality and traceability systems (Bell, McLoughlin and Shelman, 2011, p. 15). Strategy appraisal and recommendations Kapak has the capability of aligning the business strategy with the firm’s resources in order to attain a competitive advantage in the market. According to the resource-based view of the firm, Kapak unique resources access to grass-fed beef cattle, the technology and attributes of the firm. Grass-fed beef cattle have VRIN characteristics such as valuable, rare, inimitable and non-substitutable in order for Kapak to attain a competitive edge over competitors like Irish Food Processors (Houston and Stonehouse, 2012, p. 110). Although Irish agricultural system is characterised by small farms, Kapak should partner with the farmers in order to ensure the quality of beef standards. Kapak experienced management is able to identify changes in beef consumption trends and develop new innovative products that cater for the changing demand (Aaker, 2001, p. 65). Kapak has also maintained smooth working relationships with the main distributors and retailers of its beef products in UK market. The grass-fed beef cattle are a rare and non-substitutable resource thus Kapak should continuously partner with farmers throughout the beef cattle maturation stages and offer better prices in order to control the bargaining power of the suppliers. In addition, Kapak can consolidate the supply chain and purchase its owns for its own beef cattle rearing and supplier its products through Agra Trading arm instead of relying on retailers like Tesco and other leading chain stores (Aaker, 2001, p. 15). Kapak should invest in building larger protein processing firms in order to counter competition from South American firms in the European market. The company should also value to its products in order to differentiate them from those offered by competitors in the industry (Warner, 2010, p. 35). Kapak will have to segment the market depending on the customer demographics such as women who prefer roasted beef on weekends and young men who prefer eating from restaurants due to the nature of their lifestyles. The company should also fully penetrate in emerging markets as Middle East countries like China and African countries like South Africa since there are no major competitors (Aaker, 2001, p.99). Conclusion Kapak provides its customers with high quality and a wide variety of beef products. The company has modern processing facilities and experienced management. Although the firm is a family owned business, it has experienced intense completion in Ireland market. The firm should partner and cooperate with farmers in ensuring grass-fed beef cattle are well nurtured in order to maintain the taste and standards of the beef products. The company should also diversify in emerging markets like Middle East and South American markets since it has grass-fed beef cattle as a unique resource in the South American markets. The company should also segment its market in order to meet the changing needs of different consumer groups. Bibliography: Aaker, D.A. (2001). Developing business strategies. 2nd Ed. New Jersey: John Wiley. Bell, D.E., McLoughlin, D.P and Shelman, M. (2011). ‘Kepak and the future of the Irish beef industry’, 1(1), pp.1-23. Houston, B and Stonehouse, G. (2012). Business strategy. 1st ed. London: Routledge. Warner, A.G. (2010). Strategic analysis and choice: a structured approach. 1st ed. New York: Business Expert Press. Read More