Cadbury plc UK division- Global Strategy analyses - Case Study Example

Running Head: CADBURY PLC UK DIVISION- GLOBAL STRATEGY ANALYSES Cadbury plc UK division- Global Strategy analyses Name: Course: Tutor: University: Date: 300565 Table of Contents Table of Contents 2 Cadbury plc UK division- Global Strategy analyses 3 Company Overview 3 Market share and Main competitors 3 Situation Analysis 3 4 SWOT Analysis 5 PEST Analysis 7 Porter's Five Forces Analysis 10 GE/Mckinsey matrix 18 BCG Matrix: 20 Conclusion 22 References 24 Cadbury plc UK division- Global Strategy analyses Company Overview Cadbury UK Division is a branch of Cadbury Plc concerned with manufacturing, distribution and marketing of confectionery and non alcoholic beverages. It runs in parallel with its sister firms in US, central and southern America, Australia and other Asian Pacific countries. Its major confectionery products include chocolate, gum and sugar. It has portfolio products comprising of Dairy Milk, Halls, Trident, Dentyne and Clorets, Cadbury also has markets range of refreshment beverages that comprise of fruit juices, carbonated drinks, diet beverages, water and iced teas. Cadbury UK division has diversified chocolate products including Cadbury's drinking chocolate, Bournvita and Cadbury's clairs Flake, Crunchine, sweets, clairs, Creamy White Buttons and Chocolate bars. Market share and Main competitors In the market share of the chocolate market, Cadbury takes up 26.7% of the total share in the UK. Its main rival competitor; Mars, Inc accounts for 20.1% of the sectors revenues. Nestle SA takes up 13.7% while the other firms' accounts for 39.5% of the total share in the market. Its competitor; Nestle has chocolate brands that include Milo, Nesquik and Nescau which are equally diversified. Mars chocolate products comprise of M&Ms, the Mars bar and Milky Way. Situation Analysis In UK, Cadbury UK division holds a significant share in the chocolate market, which is relatively fragmentated. The company chocolates' segment in-depth-business and current situation analysis comprises a compressive evaluation of its performance and position in the UK chocolate market, its operations as well as its major rival competitors in the same market. This involves looking at its strengths, weakness, threats as well as the opportunities available for the company to leverage in its current position as well achieve dominance in the market. The present opportunities for Cadburry UK Division chocolate sector and its possible growth are considered and evaluated with the competitors'. This also examines the competitive and technological advancement threats the company receives from its rival competitors. SWOT Analysis Using the SWOT analysis and the SFAS matrix, the subsequent TOWS Matrix relating to the company's strategies in significant internal and external factors that poses effects to its performance and position in the chocolate market are as indicated below. This also includes the strategies the firm should adapt to leverage in order to achieve current and future growth and get a better position over its rivals. Internal Factors Strengths Weaknesses Strategies for Strength Opportunities Strategies for Weakness Opportunities Opportunities Maximize production to optimize on the benefits of the raising market. Integrate company brand for expansion and growth in emerging markets. Achieve growth through new acquisitions and mergers with other companies. Optimize the benefit of increasing market and increase sales by reducing prices of best selling products. Increase profits through new and up coming markets Target on research and development to reduce cost and increase profits Increase profit margin via Innovations and fresh products Threats Strategies for Strength Threats Leverage to differentiate Brand Venture into innovations to target higher profit margin Invest in research and innovations to produce new products attractive to customers. Optimize production in high selling products while reducing production of law market products. Strategies for Weakness Threat Avoid commoditization through differentiation Change stagnant markets to fresh ones. Make use of loyalty of customers to the brand to increase Reduce market prices of less selling products According to the SWOT analysis and the SFAS matrix above that looks, Cadbury UK Division stands in a good position to achieve growth and keep its significant position in the UK market of the chocolate market. It needs to achieve via doing aggressive marketing of its products, diversifying to avoid threat during hard economic times and maintaining customer loyalty to the brand. Cadbury can also create merger with rival firms to make more challenges to its rival competitors. This would make it to be in a better position than other confectionary firms and command the product market share. PEST Analysis This is used to review the company's business environment in the UK. It looks at the ways in which Cadbury can make advantage of the possible opportunities and at the same time minimize threats within the four factors which comprise of: Political, Economical, social and Technological factors. OPPORTUNITIES THREATS POLITICAL Maximize profits via benefit of Low taxation and political stability Ensure high quality standards to meet government regulations on health matters. ECONOMIC Utilize the high buying power to maximize profit Aggressive Marketing of products Overcome currency fluctuation via Vision into Action program Increase profit margin through costs reductions SOCIAL Utilize the advantage of chocolate preference by customers by quality addition and marketing Changing tastes & preferences for different emerging products TECHNOLOGICAL Quick response to customer needs High level of quality control Political Factors The UK has provided a stable and encouraging political stability for creation and development of the Confectionary business which has been a level playing ground for all the players in the business. The government has in the past intervened to control the industry in matters where public health is concerned. It has set high standards for the confectionary products in terms of ingredients and hygienic matters. Economic Factors UK experienced a high economic growth rate over the years, which increased the buying power of the consumers for confectionary products. The market for chocolate products is expected to steadily rise in the near future. All the major competitors have been trying to utilize this advantage by producing the highest quality brand to maintain its customers and attract more in the growing market. The sales of chocolate, for instance have been experiencing a lucrative growth in the country taking about 67.8% of the whole market share (Independent.ie, 2009). The major producer for this has been Cadbury who is leading in the country. Nestle has taken a smaller share of the product in the market than Cadbury. Most of its brand confectionary product is produced to perfection and satisfactory to customers as compared to others' products (Cadbury Schweppes plc financial and strategic analysis review: PDF format, 2009). The UK's Sterling Pound has been weakening against the dollar in recent months. This has affected almost all the stake holders in this business positively by increasing sales. Mars, Inc and Nestle, major competitors of Cadbury have not done much to counteract this issue. Social Factors In the UK, there has been rising rate of consumption and preference for chocolate products among other confectionary products. This increase has meant robust growth in the major producers who include Mars, Nestle and Cadbury. With the deteriorating economic conditions in the market, demand for chocolate is likely to experience downturn resulting in lower growth rate Further due to increased health concerns such as obesity and changing eating habits of the British public there is expected to be a decrease in retail stocking. Technological Factors Cadbury has installed control techniques of avoiding wastage and poor quality. Responding to customers needs has been a major priority of the three main competitors to enhance the market performance through customer satisfaction and information regarding the company and their satisfaction. All the companies have achieved this by investing in robust IT infrastructure. They have created large customer database and customer care bases that have information about customers, their preferences, fresh technological tools and market trends. In order to keep a step ahead of the other rival competitors, Cadbury has to come up with business intelligence system that understands in a more appropriate approach and engage in developing the loyalty of the brand. These factors would be essential in constructing the firms' legendary gains and base for future growth more than the others. Porter's Five Forces Analysis This is an analysis of the industry and the external factors that can affect the operations of the business. Internal Rivalry The chocolate market in UK experiences stiff competition. The automation, high volume production coupled with increased capacity which have been implemented easily and the high fixed costs are the major factors of the much rivalry in the industry. Private labels of chocolate products have been offering their products at relatively lower prices during the period of economic weaknesses thus posing another major threat to the major players. Mars and Nestle, Cadbury's major competitors in this field, have differentiated most of their products and diversified to fresh markets to avoid low profit margins during this times when consumers become more price conscious than brand quality conscious. This situation has caused a great threat to Cadbury in these harsh economic times. To counteract this, the company has also differentiated most of its chocolate products, diversified into fresh markets, but this has not been sufficient to create a better position. Cadbury went further and revived its former product line; Cadbury Wispa that has seen much success to get customers attention (Cadbury reports, 2009). Most of its competitors have not ventured so much on research and development needed to find approaches of better production and cost reduction. Cadbury should target this advantage and venture into more aggressive research on better production ways that reduce costs of production during. Threat of New entrants Private labels, as mentioned earlier, have been entering the confectionary market as big super markets or as business companies who have diversified to this business with their brands and infrastructure to offer the same chocolate products but at much less prices than the current ones. They produce on much smaller scale of high-value and low volume in a craft process instead of the mechanized process adopted by the Cadbury and the other established brands. Although their products are of much less quality as compared to the ones provided by the established brands, most of the customers have been rushing to them during the hard economic times without much consideration for quality. This has posed a great threat to the businesses of the established brands including Cadbury. However, these brands have a lot of weaknesses; they do not command a big enough share in the market since they are only limited to their own supply chains. Further they do not have innovations and sufficient resources to advance in terms of production capacity and most of their brands have not been fully recognized. The labels have not done much over the time to make significant changes that can make them recognizable in the confectionary market. Cadbury, when compared to other brands is stronger and the products it has been offering to its customers thus ensuring high levels of customer loyalty. But in order to improve its position, Cadbury needs to strategize by increasing product promotions and diversification in addition to carrying out increased advertising for their newly created products. Threat of Entry of Substitutes to the market The confectionary market in the UK has been saturated with substitutes for chocolate products including; fresh fruits, savoury snacks and potato chips. Most of the UK customers purchase their goods as snacks for individual consumption instead of luxury or gift products like exclusive chocolates. These lower end products pose immense threat to the established brands in the market. This is not to say that the lower end brands are not without their own weaknesses, like perishability, lack of storage space and public health challenges and the increased concerns for obesity and other health problems. Increased concern for their health has made many former loyal customers of Cadbury and its competitors (whether high end or low end) to move to a more health conscious diet. And Cadbury has not done much to overcome the above challenge. The company however has maintained high quality and packaging standards for its products ensure hygiene and taste. But to be in a better position than most of the substitute products offered in the market, it needs to increase customer loyalty for its brand and aggressive advertisement and promotion of the products. The buyers' power The UK market for chocolate products is the highest in Europe consisting about 22% of total sales. Chocolate takes up 67.7% of UK confectionary sales. Producers and distributors in this business are in diversified businesses, thus there is less possibility of vertical integration blocking the differences between them and the chocolate business, which takes a huge potion of the total confectionary business and thus there is increased power for the buyers in this sector. The retailers for chocolate products are highly concentrated. Convenience store and supermarkets are the most conspicuous distributors of the products. With this quick distribution of chocolate products, the main brands have got great opportunity that stands out from the rest. All the major players: Cadbury, Nestle and Mars are in an equal playing field as far as the buyer is concerned. They have diversified their products through such strategies as addition of artificial colors, lower alternatives for sugar and inclusion of vitamins as additives. In cases of weakening buyer powers, Cadbury dairy milk is the leading chocolate seller of chocolate having high cream and flavor with use of traditional recipe. It has higher quality ingredients than its major competitors with addition of vitamins c, calcium and iron and more calories. However Chocolate is likely to experience downturn resulting in lower growth rate and retail destocking due to economic down turn and eating habits changes Cadbury should aim at maintaining the product nutrition information. It needs to respond quickly to consumer demands by creating rapid response customer care centers and improving brand loyalty for the differentiated products. There is a need to address these issues to markets that are experiencing significant low buying powers of the consumers and provide brand products that can move faster as well as increase brand loyalty to its customers. Supplier Power Confectionary and chocolate firms do not exercise much control over the prices of their supplies. The raw materials have been supplied from farmers and other raw material producers. The materials are differentiated and thus sold in different grades. Other material prices like sugar are maintained and controlled by the European Union or regional governments using quotas. This has weakened supplier power to all major producers of chocolate products in the UK. Companies including Cadbury, Mars and Nestle have adopted the strategy of purchasing based on future contracts to reduce the detrimental effect of fluctuating prices globally, especially in America and Africa. There has been the ethical issue of exploitation of farmers for cocoa products thus the producer has adopted the policy of 'fair trade' to give farmers fair prices and reducing the power of the big companies. Cadbury has gone a step further to adopt the financial technique of hedging to lower the possible effect of prices on their margins, which has given them a competitive edge over their competitors. Ansoff's Matrix PRESENT PRODUCTS NEW PRODUCTS PRESENT MARKETS MARKET PENETRATION This is the best strategy to be used of Eggs, Chocolate Boxes, Toffees and Dairy Milk Chocolate Bars as there is no risk of losing market share. This strategy can be used till Cadbury reaches market saturation levels. PRODUCT DEVELOPMENT Most of Cadbury's products are very strong and therefore do not need product development as such. Chocolate drinks have more strengths related to customers rather than the product and therefore can be developed further to reduce threat of competitors and substitutes. NEW MARKETS MARKET DEVELOPMENT More risks involved in this strategy when compared to the market penetration strategy. New markets segments and target markets can be explored for products such as dairy milk chocolates, that has been around for long and has stable market share. DIVERSIFICATION This is the most risky of all the strategies that have been named here. The returns from this strategy are much higher than all of the rest and may give the organization first mover advantage in different areas. Cadbury should look at moving into the Granola Bar, Power Bar and Cereal Markets before its competitors. In spite of the competition in UK, Cadbury has got strong bargaining power to penetrate the market in the United Kingdom further. Even though the current economic situation is not very favourable, Cadbury and can continue to look for new markets that can be explored and new customer segments for its established and stable product lines, like the dairy milk chocolate bars. In the case of Eggs, toffees and chocolate boxes, which have the highest market share it is best for the organisation to focus on penetrating the market as this is less riskier than developing new markets. In the case of the Chocolate drinks there is room for product development as the organisation is closer to the needs of customer and not as strong in the product area. And therefore profitability can be increased for the product by developing it further. Another key area that needs to be looked at is diversification, Cadbury should seriously consider entering the Granola Bar and the Power Bar markets that are currently being monopolized companies like Kellogs. In order to do this acquisition of smaller organizations would be a very good strategy that can be used. This would give Cadbury a foothold in the market while helping it to diversify its product line. Given below is the summarized version of the strategies that have to be undertaken by Cadbury. Market penetration should be first undertaken and cash generated from it should be then used to develop new markets for the dairy chocolate bars Aggressive marketing, advertising and promotion can be used to increase customer loyalty and that would then increase demand that would increase production and economies of scale. Intense market research should be undertaken by Cadbury, before diversifying as this is the riskiest of all the strategies that are mentioned. The high risks of the strategy should not prevent Cadbury from looking at different avenues to diversify. Diversification and Market development can both be obtained by acquiring different types of businesses and Cadbury should seriously consider this option for both strategies. Based on the strategies that have been recommended above, Cadbury's can undertake different strategies for different lines of its business and achieve different benefits that will all ultimately have a positive impact on the profitability and the bottom line of the business. GE/Mckinsey matrix Market attractiveness ATTRACTIVE CRITERIA WEIGHT RATING WEIGHTED SCORE MARKET SIZE 0.16 4 0.64 GROWTH RATE 0.12 3 0.36 PRICING TRENDS 0.10 2 0.20 RIVALRY 0.16 4 0.64 OVERALL RISKS 0.12 3 0.36 TECHNOLOGY ADVANCEMENT 0.14 4 0.56 CONSUMER FINANCIALS 0.08 3 0.24 COMPETITIVE STRUCTURE 0.12 3 0.36 Total 1.00 3.36 Business Unit Strength KEY SUCCESS FACTORS WEIGHT RATING WEIGHTED SCORE MARKET SHARE 0.16 4 0.64 BRAND STRENGTH 0.14 4 0.56 CUSTOMER LOYALTY 0.12 4 0.48 RELATIVE COST POSITION 0.08 3 0.24 PROFIT MARGIN 0.16 4 0.64 DISTRIBUTION STRENGTH 0.12 3 0.36 QUALITY 0.14 4 0.56 FINANCIAL ACCESS 0.10 3 0.30 Total 1.00 3.88 BUSINESS UNIT STRENGTH HIGH MEDIUM LOW MARKET ATTRACTIVENESS LOW MEDIUM HIGH (Source: Cadbury Schweppes plc, 2009) According to the GE/Mckinsey matrix above the chocolate segment of Dairy Milk Chocolate Bar is at its mature stage of development but continues to have good potential. If market share is not protected through market development activities it runs the risk of pre maturely facing the same fate as the Chocolate bars with Peanuts. However in the present circumstances market attractiveness and business unit strength are at a medium level. The Chocolate Bar with Peanuts has low market attractiveness and business unit strength and therefore needs to be eliminated from the portfolio. In its current position it is draining resources that can be used elsewhere, for instance funds generated from eliminating the Chocolate Bar with Peanuts can then be used for market research for new product lines and even to acquire competitors in an attempt to develop new markets for existing products like the dairy milk chocolate bar. With more funding and market penetration products the market attractiveness and business unit strength for chocolate drinks can be increased. Likewise if sufficient investments are not made Eggs, Chocolate Boxes and toffees may become less attractive and even lose business unit strength. BCG Matrix: It is a portfolio model for planning that assists the firm in identifying the segments of the business into four classes including stars, cash cows, question marks and dogs. It helps in product management, brand marketing and strategic management, all of which are essential in decision making pertaining a product RELATIVE MARKET GROWTH (Cash Usage) RELATIVE MARKET SHARE (Cash Generation) HIGH LOW HIGH STAR Chocolate Boxes, Toffees and Eggs Profits that are generated from the product are very high Market share is very high and still growing Competitors have not been able to steal too much of the customers Cash consumption is as great as Cash generation PROBLEM CHILD Chocolate Drinks Low market share with great potential to grow Consumes much cash Not many competitors in the market With increased research and development can become a star and cash cow. LOW CASH COW Dairy Milk Chocolate Bars Mature phase of product life cycle Many competitors in the market Market share reducing Profits can be made through Volume Discounts Market is stable and therefore profits are high even with entry of competitors Lower costs due to lesser R&D expenditure. DOG Chocolate Bars Containing Peanuts Final stage of the product life cycle Market share is non-existent due to the changing needs in the market place Profits dwindling and increased marketing and advertising will not help revive or increase profits or market share, only strategy left is divestiture. (Source: Cadbury Schweppes plc, 2009) The chocolate segment has been the driving force to Cadbury's growth in 2008 of 7% and a relative market share of 34.1 % (Cadbury Schweppes plc, 2009). Following the economic recession and expected rising prices of raw materials, Cadbury's chocolate segment is expected to have growth rate of 4-6% by end of 2009. According to the BCG matrix above, different segments of the portfolio are in different stages of the product life cycle and therefore are either Stars, Cash Cows, Problem Children or Dogs. The Dairy Milk Chocolate bars are Cash Cows, while the chocolate bars with peanuts in them are Dogs, Chocolate drinks are Problem Child and the Eggs, Toffees and Chocolate boxes are Stars. Therefore in conclusion based on the information that has been gathered from the secondary sources and information that is presented in the BCG matrix the following strategies should be adopted by the Cadbury to ensure that profitability is at its highest. Use funds from Dairy Milk Chocolate Bars to fund the research and development Chocolate Drinks, so it can move to being a Star. Sell off the chocolate bars with Peanuts business or reuse the machinery and plant and other assets through divestiture and generate more cash. The funds generated from the dairy milk chocolate bars can be further used to promote the Eggs, Toffees and Chocolate boxes as well as Chocolate drinks. Some of the funds should be retained to maintain market share for the dairy milk chocolate bar, line as lack of investment will push it to the Dog status too fast. Use the balance funds generated to protect the Star and the Problem Child from increased competition and to help them go into the next stage. By doing all of the above the organization will be able to strategically increase the product lifecycle and the span of each of the product lines in the different stages. Thus increasing market share as well as profitability for the future and generating enough funds to introduce newer products to the market and divest the portfolio. Conclusion Looking at everything that has been stated above the company has a very strong portfolio of products. And each of the products and the product lines is in a different stage of the product life cycle, thus making it extremely necessary for the business to understand each of the different products, their markets and their potential thoroughly. This is necessary because the unique nature of the portfolio calls for different strategies to be adopted for the different products in the portfolio. As seen in the BCG matrix, the Ansoff and GE/McKinsey Matrix, the organization can undertake a host of different strategies to increase the profits that are reaped from the product lines and also to reinvest and in different activities such as research and development activities that will help the organisation to develop newer products to replace others that are now spent and in the decline stage and also to ensure that the present products that are bringing in the profits will increase their market share, or defend their market share in a manner that would only increase the future profits of the organisation. In summary the outlook for Cadbury's internal and external environment is very good. The strengths of the organisation are very good when compared to the weaknesses and likewise the macro environmental conditions that are prevalent are very conducive to the company even in these difficult economic times. Therefore based on the findings of this analysis it is the author's opinion that different strategies should be undertaken as stated in previously for different areas of the business and used in synergy to increase market share, customer loyalty, market demand, economies of scale, market penetration, product development, market development and even diversification. Acquisition of competitor and smaller organisations for market development and diversification purposes should be seriously considered by Cadbury, in the near future. References 1. Independent.ie. (2009).Cadbury Schweppes plc, retrieved on 27 May 2009 from http://www.independent.ie/topics/Cadbury+Schweppes+plc 2. RapidBI. (2008). 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Explaining Cadbury's markets 2009, Cadbury Annual Reports & accounts 2008, retrieved on 27 May 2009 from http://cadburyar2008.production.investis.com./strategic-review/world-confectionery/cadbury-markets.aspx Read More