Business Environment of Burns Pet Nutrition Ltd - Case Study Example

Business Environment Contents Burns Pet Nutrition Ltd 3 PESTLE Analysis 3 Political 3 Economic 3 Social 4 Technological 4 Legal 4 Environmental 4 PORTER’s FIVE FORCE MODEL 5 Competitive Rivalry 5 Threat of Substitute 5 Buyer Power 5 Supplier Power 5 Threat of new entry 6 Porter’s Value Chain 6 Reference List 10 Burns Pet Nutrition Ltd The company was formed in the 1993 by John Burns with a view to introduce pet food that had a nutritional content. The food is made using high quality animal proteins and whole grains. Burns refrains from using any pharmacologically active supplements. The PESTLE analysis of the company is presented below. PESTLE Analysis Political Pet food enjoys the benefit of several political policies. The industry is highly regulated. There are also many industry codes and guidance that the manufacturers have to abide by during the manufacture of pet food. Due to similarity in the manufacturing process of the human food and the pet food industry, there are a number of common legislations that govern the same. In the UK, the pet food industry is subject to strict legislations and monitoring. There are almost 50 legislative pieces governing the industry. Most of the legislative regulations applicable to the industry are determined by the European Union, which are then implemented by the UK government (PFMA, 2014). Economic Strong economic growth drove surge in dog and cat populations in some markets. Dog is among the dominant pets in the percentage of pet ownership in the UK. However, cat ownership is also on the rise owing to increasing disposable incomes of the people therein. Cat population have witnessed a steady rise of about 4% between 2004 and 2008. Then again, post the real estate crisis, the growth rate had declined. In the later part of 2008, the effects of residential property values showed clearly in GDP of the country as the economy plunged deeper down. As recession in the economy set in, several people found that they were unable to pay off the mortgages on their homes. As a result, many financial services claimed bankruptcy. The steadily declining economy witnessed a steep rise in the unemployment rates. The number of homeless people also rose consequently. Such economic crisis led to the problem of pet abandonment in the UK. The reports published by the Royal Society for the Prevention of Cruelty to Animals (RSPCA) showed that in 2008, the number of animals that were abandoned rose by 57%. Thus, it inadvertently affected the pet food industry in form of immense losses. Burns Pet Nutrition Ltd, along with other companies that were engaged in the manufacturing of pet food, suffered huge drop in the sales volume. Single serve pouches were popular during that point of time as it eased the problem of storage and serving food to the pets (Kotz, 2009; Erkens, Hung and Matos, 2012). Social The rise in the number of nuclear families has been on the rise since 2003. Such an event has affected the pet food industry in both positive and negative manner. There have been families who had previously owned pets, who had to be abandoned due to the changed family structure. In a two member family where both individuals work, it becomes difficult to look after the pets. Hence, there had been a rising trend among nuclear families to get rid of pets. Nonetheless, further disintegration of the family structure had led to one person family as well. In order to deal with the feeling of loneliness, these people have started owning pets treating them as family members (Hall, Hutchinson and Michaelas, 2004). Technological The economy has been driven by major technological innovations, which have also led the pet industry to adopt the same. Pet owners are trying to humanize pet foods and following this trend, the manufacturers have also started adding human meal ingredients in the same. Moreover, manufacturing process has changed to include organic ingredients and maintain nutritional need of the pet. Burns has also included organic farming procedures to keep up with the competition. Legal The animal welfare act of 2007 was the first of its kind that ensured pet welfare and reflected the increasing concern among pet owners regarding health of their pets. The act had set penalty for cruelty against animals. Thus, the food manufacturers had to be vigilant about the ingredients used. The act reinforced the idea of humanisation of the pets and ensured their safety. Environmental The pet food industry needs maintaining regulated temperature as multiple complex methods are involved. So, environmental stability is required in order to grow the products efficiently. Natural disasters hamper the growth of food products and hence, the industry. Organic farming, which is a present growing trend in the pet food industry, depends on environmental stability (Spence and Schmidpeter, 2003). PORTER’s FIVE FORCE MODEL Competitive Rivalry The pet food industry is dominated by four major players such as, Mars, Nestle, Colgate-Palmolive and Proctor & Gamble. However, the products are not always of superior quality and consumers are found to increasingly seek substitutes. Thus, there is a high potential for Burns Pet Nutrition Ltd to break into the market by providing good quality products to the consumers. Threat of Substitute With decline in the disposable income, consumers were unable to buy pet food from the big retailers and had substituted it with home cooked food. This change had lowered sales volume of the companies. The pet food market is quite developed in the UK. Hence, shifting of brands is a potential threat to the pet food manufacturers. The Unique Selling Proposal (USP) of Burns Pet Nutrition is that they do not use any artificial supplements in the products offered and follow the natural procedure of manufacturing, thereby retaining the product quality. By way of upholding the USP, the company can effectively promote their products to gain a better market position (Burns, n.d). Buyer Power The economic slowdown has caused a decline in disposable income of the individuals, thereby restricting their purchasing power. The consumers have become more price-sensitive and hence, the key to gain market share is to cut down on the product prices so as to entice customers into buying the same. In such a situation, the big companies can take advantage of the economies of scale in their production process and offer products at a cheaper price. Entrenched brand loyalty is a characteristic of this industry. As a result, the big brands are in an advantageous position compared to the small players ((Simpson and Docherty, 2004). Supplier Power The price rise in the last decade has severely affected the industry. The big firms have the capability to sustain the higher prices as against the smaller companies, which have limited resources. Consumers are cutting back on their purchases, which have also affected profit margins of the manufacturers. There have been three price hikes in 2007, which had caused the product prices to rise. However, Burns Pet Nutrition Ltd has a vertically integrated system, which facilitates sourcing of the ingredients at a cheaper cost. The company’s farms provide high quality produce, which enable delivering good quality pet food to its customers. Threat of new entry The pet food industry has high barriers to entry. The market is mostly saturated. Many companies had in the past diversified the product line to gain access to higher market shares. Previously, companies that were primarily dog food manufacturers have ventured into the production of cat food. The differentiation of pet food also entails the production of economy and premium food. So, technological innovation and low prices can ease entry into the market. There are efficient distribution channels and the supermarkets contribute a large proportion to sales in the pet food industry. Big companies also have cost advantages in the form of economies of scale, which is why new entrants will face stiff competition. Burns Pet Nutrition Ltd has developed the products with the help of recipes that are exclusive to the company. Thus, the company is offering the customers value addition in the products, which has worked in its favour (Ormanidhi and Stringa, 2008). Porter’s Value Chain The above analysis has laid emphasis on the fact that in the face of competition, the small and medium sized enterprises (SMEs) have to develop innovative strategies so as to gain market share. The multinational companies have a cost advantage by way of economies of scale and better marketing strategies. Consequently, such companies can offer lower prices to the customers, thereby increasing the market domination. Porter’s Value Chain is based on the idea of treating the manufacturing (or service) organisation as a system. The organisation is again subdivided into subsystems comprising inputs and transformation processes, which convert the former into outputs or end products. The entire procedure of inputs, transformation processes and end products involve the consumption of resources such as, labour, buildings, money, equipments, materials, land, administration and management. The efficient implementation and integration of the value chain activities determine the level of costs incurred and profits earned by the organisation (Porter, 1987). The value chain is explained below: Inbound logistics – The processes that involve the reception, storage and distribution of inputs internally comprise the inbound logistics. In order to ensure smooth functioning of the inbound logistics, the firm needs to have good supplier relationships. Operations – The creation of value in this case depends on efficiency in the transformation of inputs into the end products, which are finally sold to the customers. Hence, the manufacturing unit of a firm should be efficient and cost effective so as to generate adequate profits. Along with cost efficiency, the SMEs also need to offer some unique characteristics in the products so that customers are enticed to buy from these companies and not from the big brands (Arend and Wisner, 2005). Customers are often attracted to the idea of receiving any unique facility from a smaller, independently owned business. Thus, the advertising strategies should be effectively formed such that uniqueness of the product is highlighted. Outbound logistics – Such activities involve collection, storage and distribution of the products. Delivering the product or service to consumers is an essential part of value creation. So, the distribution system of a firm must be developed. The big firms already possess efficient distribution systems. Therefore, to compete against such firms, the SMEs should focus on developing their distribution channels. Marketing and sales – The ways of using techniques for persuading clients in order to purchase from the firm and not from the competitors are known as marketing. Good marketing techniques need to be developed so that customers can be successfully attracted. The sources of value in this case are benefits that are offered exclusively by the firm and the methods adopted to communicate the same to customers. The multinational corporations (MNCs) develop innovative marketing strategies and allocate huge budgets for the same. It is difficult for the SMEs to compete against such economic power; however, the SMEs can consider developing good marketing techniques at low cost, such as, offering two products for the cost of one and introducing a particular day of the week when huge discounts would be given (Kaplinsky, 2000). Service – The activities include maintaining the value of a product or service to the firm’s customers, post the purchase. After sales eservice is an important factor that determines consumer satisfaction. After the sale is made, in case of any difficulty, the firm should take responsibility for the damaged product. This responsibility includes repairing of the product or even replacing the same if required. SMEs do not have the luxury of losing clients and thus, they should provide superior level service to all clients and individual attention. Client dissatisfaction can be disastrous for the business as such negative service reviews spread and lead to further client loss (Kaplinsky and Morris, 2001). In order for the above mentioned activities to function smoothly, there are few support services. The support activities are mentioned below. Procurement (purchasing) – This action is carried out by an organization in order to acquire resources that are needed in the production process. Negotiating best prices and finding vendors form part of the process. Vertical integration often involves heavy investment on part of the SMEs; hence, it is not always possible for the companies to achieve the same. It is necessary for the SME owners to develop healthy working relationships with the suppliers and persuade them to provide attractive discounts on bulk purchases, so that the same benefit can be forwarded to the customers. The big companies can offer discounts to customers by way of leveraging the economies of scale as against the SMEs that have to adopt other measures (Duhan, Levy and Powell, 2001). Human resource management – This refers to the ability of a company to hire, train, retain, motivate and reward a worker associated. Good HR practices are essential to create value as people form an important part of any organisation. Competent staff is greatly vital to a business. Hence, treating them right as a part of good HR policies is the key to success for an SME. The big businesses often try to hire away efficient employees from the SMEs by offering greater pay packages, thereby causing high attrition rate in the latter. Technological development – An important part of creating value within an organisation is protection of the companys knowledge base, management and processing of information. The minimisation of the information technology costs, up-gradations as per the technological advancements and maintenance of technical excellence are the sources of creating value. The employees who are privy to exclusive technological information are an asset to the company (McLarty, 2000; Porter, 2008). The big firms have complex policies that govern the protection of exclusive information. SMEs need to develop stricter rules for the same so as to hold its ground against the big firms. Moreover, the companies should consider greater use of technological innovations, which is the only levelling ground between the SMEs and the big firms. Infrastructure – The operations that facilitate smooth functioning of the daily business activities are accounting, administration, legal and the overall management. Infrastructural developments help create value for the company. Good management practices consequently attract more customers. In order for a SME to compete, proper business administration and management is essential (Barclay and Porter, 2005). Apart from the above mentioned measures, the SMEs can also form cartel or small cluster with similar companies, which in form of a combined alliance can help to gain greater market share, cut down on marketing costs and that of holding inventory and gain technological expertise. SMEs contribute to a major portion of the UK’s Gross Domestic Product (GDP); however the economic and market position of the same could be jeopardised if proper measures are not adopted by the government in order to protect the SMEs against the multinational corporations. Reference List Arend, R. J. and Wisner, J. D., 2005. Small business and supply chain management: is there a fit? Journal of Business Venturing, 20(3), pp. 403-436. Barclay, I. and Porter, K., 2005. Facilitating innovation across SME networks. International Journal of Entrepreneurship and Innovation Management, 5(1), pp. 20-38. Burns, No Date. About Burns Pet Nutrition. [online] Available at: [Accessed 13 August 2014]. Duhan, S., Levy, M. and Powell, P., 2001. Information systems strategies in knowledge-based SMEs: the role of core competencies. European Journal of Information Systems, 10(1), pp. 25-40. Erkens, D. H., Hung, M. and Matos, P., 2012. Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide. Journal of Corporate Finance, 18(2), pp. 389-411. Hall, G. C., Hutchinson, P. J. and Michaelas, N., 2004. Determinants of the capital structures of European SMEs. Journal of Business Finance & Accounting, 31(5‐6), pp. 711-728. Kaplinsky, R. and Morris, M., 2001. A handbook for value chain research. Ottawa: IDRC. Kaplinsky, R., 2000. Globalisation and unequalisation: What can be learned from value chain analysis? Journal of development studies, 37(2), pp. 117-146. Kotz, D. M., 2009. The financial and economic crisis of 2008: A systemic crisis of neoliberal capitalism. Review of Radical Political Economics. McLarty, R., 2000. Evaluating graduate skills in SMEs: The value chain impact. Journal of Management Development, 19(7), pp. 615-628. Ormanidhi, O. and Stringa, O., 2008. Porter’s model of generic competitive strategies. Business Economics, 43(3), pp. 55-64. PFMA, 2014. Annual Report 2014. [pdf] PFMA. Available at: [Accessed 12 August 2014]. Porter, M. E., 1987. From competitive advantage to corporate strategy Cambridge. Harvard Business Review. 59. Porter, M. E., 2008. Competitive advantage: Creating and sustaining superior performance. New York: Simon and Schuster. Simpson, M. and Docherty, A. J., 2004. E-commerce adoption support and advice for UK SMEs. Journal of Small Business and Enterprise Development, 11(3), pp. 315-328. Spence, L. J. and Schmidpeter, R., 2003. SMEs, social capital and the common good. Journal of Business Ethics, 45(1-2), pp. 93-108. 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