Saudi Dairy & Foodstuff Company - Case Study Example

?Company Analysis Saudi Dairy & Foodstuff Company Insert Table of Contents Table of Contents 2 Executive Summary 4Saudi Dairy & Foodstuff Company 5 Introduction 5 External Environment 6 General Environment 6 SADAFCO Product Lines 6 Ice Cream 6 Milk 8 Tomato Products 9 Industry Environment 11 Porter’s Five Forces 11 Barrier of Entry 11 Rivalry 11 Substitute 11 Supplier Power 12 Customer Power 12 Financial Statement for 2011 12 Internal Environment 14 Vision 14 Mission 15 Goals 15 SADAFCO’s Key Strategies, Relevant Resources and Capabilities 15 SWOT Analysis 17 Strengths 17 Weaknesses 18 Opportunities 18 Threats 19 Recommendations 20 Conclusion 20 Bibliography 21 Executive Summary SADAFCO is a Saudi Arabia Company headquartered in Jeddah, Kingdom of Saudi Arabia (KSA). It was established in 1976 as a Danish Saudi Dairy Company Ltd. the company majorly deals with production of dairy products particularly white milk and tinned tomato products. The company has been very successful in its operations because it employed the best strategies ever especially merging with Tetra Park, which led it to introduce more products to its normal production. This paper provides a clear picture of how the company was established, how it began operations, how it came to merge with Tetra Park the best strategies it employed in order to become the best in Saudi Arabia and how it is performing so far. The paper also describes the companies SWOT Analysis where it provides the company’s Strengths and Opportunities and Threats and Weakness. The company’s major threats include stiff competition from competitors, instability of economy, importation of similar products, unstable management, and incompetent staff. This paper mentions two main recommendations for these challenges. These are ensuring proper management, which leads to quality production, and proper marketing techniques, which include media advertisement. Therefore, it is able to give the viewer a clear depiction of the entire analysis of SADAFCO Company. Company Analysis Saudi Dairy & Foodstuff Company Introduction Saudi Dairy and Foodstuff Company (SADAFCO) was developed in 1746, with it’s headquarter centered in Jeddah, Kingdom of Saudi Arabia (KSA). The company’s production began in a year later with main concentration being on dairy products. Several other attainments were put in place in following years. As from 1991, on top of milk-associated products engrossing ice cream, the firm has enlarged the product variety with the introduction of tomato paste, cheese (via the combination venture with Saudi New Zealand Milk Products (SNZMP) Saudi Arabia, snacks and hummus (through the attainment of Sara Snack Foods Factory in 1995). 1SADAFCO Company went public in 2005 and is recorded on the Stock Exchange of Saudi Arabia (Arnold 2009). The company has more than 100, 000 shareholders and is one of the top companies in production of foodstuff and milk products in Saudi Arabia. Despite going through a number of challenges, SADAFCO has never taken the content easy with having conquered the technical challenges of the dairy industry in the Asian continent. Despite the fact that they have been substantial, they have also long been one of the top thinkers in local marketing firms, because they are familiar with the significance of band building (Al Fawzan & Al Sadhan 19). The ultimate aim of this context is to give a clear outline of SADAFCO Company in Saudi Arabia beginning with its external environment and general environment and winding up with the internal environment as well as issuing recommendations and conclusion. The external environment entails PEST-NED tools which are the functional units of SADAFCO. The internal environment entails vision, mission and objectives of the Company as well as strategies and tactics employed by the company in the market field. It also contains SWOT analysis which summarizes the operation of the company. External Environment General Environment This part discusses the different tools majorly products produced by SADAFCO Company. These refers to the PEST-NED tools which include, ice cream, milk, snacks, water, and tomato paste. These are analyzed below. SADAFCO Product Lines Developing on the fresh products initiated by the dairy companies from where it was established, SADAFCO had performed some fresh product instigations to diversify its product assortment around the central milk business (Al Fawzan & Al Sadhan 42). Ice Cream SADAFCO Company initiated the business of producing ice cream in the 1970s and by 1998, it had laid strong assortment of its own brands in addition to the Movenpick Swiss Premium ice cream, which took part as the regional license. The SADAFCO assortment of ice cream products involved eight brands, which are UFO, Choco, Sandwich, More, Primo, Saudi Premium, Chew-Top, Baboo and Saudi Take-Home Tubs (Arnold 44). Of all these, Baboo was the largest brand, with SR20 million Sales, whereas all the rest were in the SR3 million to SR5 million range. All ice cream generation had been concentrated in the Riyadh plant in 1996. Despite the fact that ice cream was a present and culturally novel product in KSA, the market probable was observed as significant because of the young people of the population and the hot climate. By around 1997, the market of ice cream had augmented to 37 million litres, which is $106 million at retail, with persisting growth forecast at 5 percent for the following five years on the ground that per capita utilization remained low as observed in the following graph. Figure 3: Ice Cream Market Size in Saudi (Million Litres) Nevertheless, a number of factors made generation of profit in ice cream difficult especially the high capital costs of the freezers usually installed in retail outlets, and the high distribution and producing costs resulting from the huge distance between urban regions and the harsh climate. Moreover, SAAFCO was still performing the reorganization costs incurred by the reallocation of its production to the Riyadh plant (Arnold 44). Milk Initially, milk was the main product of SADAFCO Company and in 1990s, it underwent its initial declines in sales volume due to the increased competition. The Saudi milk market had three mainsectors. Powdered milk, the form in which milk was traditionally sold in the Middle East, was employed expansively in cooking as well as to make drinks. Nevertheless, its use as drinking milk had reduced from 60 percent of Saudi households in 1995 to 40 percent in 1998 (Arnold 49). The second product was Laban, which is a buttermilk form, was mainly drunk by Saudi men. The present growth in the liquid milk department, in which the Saudi brand for SADAFCO recombined product contested was the appearance of a number of fresh milk producers. A number of dairy farms had been developed in Saudi Arabia from 1970s onwards with the tactical goal of farm. Even though they were situated in the less parched areas of the country, these dairy farms went on to content with the difficult sorroundings (Saudi Dairy & Food Staff f Company pp1). In fact, according to the statement issued by one of the members of BOD, there is an entrance hall in the kingdom, which the company obviously supports simply because the economic and environmental cost of the farms overshadows their strategic significance. For instance, when a irrigating the land and keeping cows hydrated, these farms consume more than 1000 litres of water to generate 1 litre of milk, in comparison to the company’s 5 litres of water in the recombination plant in Jeddah (Arnold 49). There is no doubt that the politics of this concept are complicated, nevertheless, while these discussions continue, the market share of SADAFCO company comes under pressure. This implies that despite the fact that the company persists in its production of milk, it is facing lots of challenges from all directions. Tomato Products This is SADAFCO’s second biggest product line, the bulk of which was the Saudi brand of tomato paste, which had been the success story of the group right from its unusual instigation in Tetra Park cartons in 1989 (SADAFCO). Centered upon restrained experience in other nations, Tetra Park had worked with SADAFCO in establishing the production procedure for this novelty product form, which it asserted to have generated a product with an excellent taste and better quality preservation after opening. The accordance of the Tetra Park paste in KSA was enhanced by the influx of Kuwaitis during the 1991 -1992 Gulf War, since the Kuwaiti Danish Dairy Company had prior manufactured the product in this style in Kuwait. By 1997, Saudi tomato paste had augmented to $21 million in sales revenues in comparison to $9.5 million in 1993, and a market leadership share of 24.7 percent as compared to 16 percent in 1993. At that time, the market share was 85 percent with only one competitor in the Tetra Park department. This growth mirrored both enlargements of the market share gains over tinned goods. After a few years, Saudi was termed as ‘the best tomato paste consumers can purchase’, supported by its bright red color and the fresher and more natural taste. Tomato paste was purchased on the spot market and initiated mainly from Portugal, Turkey, or California. The Tetra Park cartons needed lower levels of the heat treatment, which sometimes generated darkened product in tins, and promised pleasant “tin taste” of which clients complained. The Saudi brand was also accepted as a local brand, which meant the paste was fresher than the imported tinned product from Portugal and the other countries (Arnold 50). That is a fact because SADAFCO Company was within Saudi Arabia meaning that the customers obtained first hand fresh tinned products than those who purchased the imported ones. In 1997, export sales credited for 12.5 percent of sales revenues and 29.6 percent of tonnage, reflecting an infiltration strategy in markets where the brand acquired little promotion support. This clearly implies that the product promoted themselves in the market field where they received favor from the customers who chose to purchase them and neglect the imported ones (Saudi Dairy & Food Staff f Company pp1). Other products that are produced by the company include hummus, which was launched in 1998 in Tetra Park, snacks and water, which were also introduced in 1998. This clearly shows that the association of SADAFCO with Tetra Park marked the beginning of massive triumph for the company (SADAFCO). The company itself feels proud of the strength of its brand that it has come up with, and continues to innovate in all its product line (Arnold 21). In fact, in flagship brand, SADAFCO is one of the powerful brands in Saudi Arabia. The ultimate aim of this context is to examine the SADAFCO Company in terms of its financial performance, its marketing strategy, product productions and general performance of the company. It begins by highlighting the financial statement of the company and looks at the company’s products. Industry Environment Porter’s Five Forces Barrier of Entry Despite the fact that SADAFCO Company has been progressing well, it has a number of threats that make it not to operate efficiently. The first and most important is the competitive nature of the market field. Besides, the economy of Saudi as well as that of the world is rising and that means products have to be sold at a slightly higher price in order to generate profit. However, that is not a good strategy because customers normally complain a lot. Rivalry This is observed in the market field where SADAFCO receives pressure from all sides. The dairy farmers are producing a lot of milk and selling them at cheap price, thus, spoiling market for SAFACO. The same is observed on tomato paste products where countries like Portugal and Denmark have established their markets in Saudi Arabia and they also contain quality products. Therefore, rivalry is very high. Substitute This refers to the production of other products that do the same work as the product produced by a particular company. SADAFCO Company mainly deals with dairy products especially white milk, which they call UHT and ice cream. It is definite that farmers and other people in Saudi who produce pure milk can simply substitute the UHT. The same happens with water where people can acquire water locally and do away with SADAFCO’s pure water. Supplier Power SADAFCO is a company with a strong supplier power because it is joined with Tetra Park. The company is able to supply its products to the entire Saudi Arabia and sometimes, outside the country. However, SADAFCO also receives pressure from other major companies like the tinned paste companies from Portugal, Denmark and other nations which exports their tinned products to Saudi Arabia. Customer Power Customer power refers to the bargaining power offered by customers in the market field. The best way to go about this is to have a fixed price for the products because some customers are very good at bargaining and can really cost the company if given the opportunity to bargain. Note that there is also a sixth force, which is applicable to many other types of businesses, but in this case, it does not apply to SADAFCO operation and therefore, there is no need of mentioning it. Financial Statement for 2011 According to the Audit financial statement for 2011, the company’s total net operating incomes augmented with 10.94 percent, from SAR 1,022,527 thousands in 2010 to SAR 1,134,413 thousands in 2011. Operating outcome augmented from SAR -3, 724 thousands in 2010 to SAR -2,488 thousands in 2011, which is approximately 33.19 percent. The outcomes of the period diminished -36.01 percent reaching SAR 122,913 thousands at the end of the phase against SAR 203, 018 thousands last year (Arnold 33). Return on equity (Net income/Total equity) moved from 30.46 percent in 2010 to 17.77 percent in 2011. At the same time, the Return on Asset (Net income/Total Asset) declined from 21.06 percent to 12.09 percent while the Net Profit Margin (Net Income/Net Sales) declined from 19.85 percent to 11.45 percent (Al Fawzan & Al Sadhan 23). This is evident on the graph below. Figure 1: Total Income Analysis 2002 – 2011 There is no doubt that SADAFCO Company’s income and profits were marvelous in 2010 than in 2011. This is evident on the graph above, which clearly implies that 2011 had the highest investment income in the period of 9 years (from 2002 to 2011). However, despite the fact that the performance was very good in 2010 than 2011, the 2011 results are better than 2009 as well as 2008 downwards in terms of investment income. According to the graph, it is evident that the investment income for 2011 was approximately SAR 18 million while in 2009 downwards to 2002, the investment income was below SAR 17 millions (Arnold 37). Besides, the debt to Equity Ratio (Total Liabilities/Equity) was 46. 96 percent in 2010 and declined to 44.65 percent in 2011. Finally, the present Ratio (Current Assets/Current Liabilities) went from 2.88 to 2.97 when compared to prior year. Nevertheless, there has been an increase in financial income performance of the Company from 2011 to 2012 because the investment income has been rising from September 2011 where they were very low to March 2012, where they are high as observed on the graph below. Internal Environment Vision SADAFCO Company commits to making food safe and available, everywhere in the world. Mission The company works for and with its clients to issue preferred processing and packaging solutions for food and water. The company employs its commitment to novelty, its comprehension of customer requirements and its relationships with suppliers to deliver these solutions. Goals SADAFCO Company believes in liable industry leadership, generating profitable growth in harmony with environmental sustainability and suitable corporate citizenship. Therefore, the company aims at: Becoming the main customer focus and the best company ever Producing quality products Attaining the most lengthy strong competitive advantage Improving its relationships with partners and customers Leading in terms of novelty and expansion SADAFCO’s Key Strategies, Relevant Resources and Capabilities The fact that SADAFCO was able to collaborate with Tetra Park made it employ the cost reduction method for its product. Tetra Park came up with a cost reduction program, which extensively boosted SADAFCO’s marketing strategy. Moreover, Tetra Park invited SADAFCO Company to participate in its Operational Cost Reduction (OCR) program. Through this program, SADAFCO was able to increase its competitive advantage because the program was able to impose a number of benefits to SADAFCO Company (Arnold 68). First, it was able to educate and influence the employees of SADAFCO with skills in production that enable the company to reduce CIP cycles by 25 percent and cut the set up time by about 23 percent. Moreover, the program enhanced the development of a team culture where the employees are able to work as a team and have high production to meet the high market demand. OCR program also created a foundation for Continuous Improvement (CI), which meant that production, and quality of production was never going to go down and the foundation succeeded because SADAFCO is still powerful in the market field in Saudi Arabia (Elly 87). Therefore, SADAFCO has a very powerful marketing strategy that makes it soar high above its competitors. With its products selling at slightly cheaper price than others do, the products received massive market that made it become the country’s top company in terms of performance (Arnold 72). While the farmers complained of drought and lack of water for hydrating their cows, SADAFCO enjoyed its production because it had sufficient funds to enable it employ all possible means to produce a lot of milk. Presently, SADAFCO is the leading Saudi Arabia producer of tomato paste and white milk. In fact, its milk products such as UHT were also exported and received massive acceptance. Besides, SADAFCO was able to foresee the future where it knew that if it remained at its initial position, it was not going to expand and have a strong competitive advantage (Arnold 77). Therefore, it decided to shift to Jeddah, where it was at least able to acquire water to enhance its production of white milk since the cows require a lot of water for hydration. In fact, that shift made SADAFCO be able to initiate production of snacks, tinned products and selling of pure water (Saudi Dairy & Food Staff f Company pp1). Therefore, that was very good marketing strategy that came out successful. Lastly, SADAFCO Company is one of the leading companies in Saudi Arabia known for production of quality products. SWOT Analysis Just like other major companies, the SADAFCO firm contains strengths, weaknesses, opportunities and threats. Therefore, the following is the SWOT Analysis of SADAFCO Company. Strengths To begin with, there is no doubt that SADAFCO is the leading dairy product producing organization in the Saudi Arabia. Since it is the largest firm and one of the triumphant brands in the Saudi Arabia, the company possesses high income and revenues. Secondly, the company has massive popularity of its products (Arnold 98). From the fact that the company’s products are very popular in the Saudi Arabia, it is right to conclude that this is one of the major reasons that contribute to its spot among the dairy and tinned product giants. Besides, this makes the company to have a strong competitive advantage over the others especially the individual producers of fresh milk (farmers). However, SADAFCOM is able to outshine these other companies and individual farmers in the manner that sometimes drought persists in Saudi Arabia but since SADAFCO relocated to Jeddah, it is able to overcome these challenges. Lastly, the company is well known to have a reputation of quality. This means that its products are of high quality and that make it be the best selling company in terms of dairy products and tinned tomato products as well as hummus, water, snacks and ice cream (Arnold 98). Its products are original and sealed with product and company description as well as brand on the product. In fact, with the support from Tetra Park, SADAFCO has a strong competitive advantage due to its originality and product quality. Therefore, it has a strong competitive advantage because it has high quality products. Weaknesses Since SADAFCO is the largest or well-known company in the Saudi Arabia in terms of production of its famous products, it may contain too many distribution centers and several of which may not be as supervised as other companies (Arnold 98). In other words, the more the company expands and opens more distribution branches, the more it becomes hard for it to supervise and manage its branches. This proves that forms of corruption and stealing may be involved in other branches of the same company. Secondly, it may give up the quality of its products because of the high demand. Higher demands leads to quicker and swift production of products and the more swift products are produced from the normal speed, the more their quality diminishes. Therefore, it may resort to cost cutting and thus, may lose the original quality of its popular products. In fact, in case of low quality of its products, the other white milk companies and individuals who are many in Saudi Arabia may take advantage and pin it down. Once the quality is lost, the high demand also goes down and the customers reduce thus spoiling business. Opportunities One of the main opportunities SADAFCO Company has is that it has the ability to expand and increase the number of items it produces (SADAFCO). This has been happening for a while and the opportunity is still there. For example, it only began with production of dairy products such as ice cream and white milk particularly the UHT. However, with time it, SADAFCO has expanded and initiated other new products and presently, it produces dairy products such as white milk and ice cream, tinned products, snacks and pure water (Arnold 119). Therefore, if it was able to introduce all these products, it is still able to introduce even more related products and still be successful (Elly 87). Moreover, from the fact that it is the leading company in the Saudi Arabia in terms of production of drugs, gives it high opportunity to work with many countries in the Saudi Arabia. It is very difficult for a small company to expand massively by developing in many countries because it is infamous, law quality products and has no massive customers (Saudi Dairy & Food Staff f Company pp1). Lastly, SADAFCO is in a very good position to outshine production of other competitors and invest more on media advertisement. The fact that it has a good market makes SADAFCO to have the capabilities of doing anything that can be done in this Saudi Arabia. It has a very stable financial status meaning that it is able to employ all means of marketing their products that other companies may fail to achieve. Threats Just like any other company, SADAFCO firm has the threat of strong and powerful competitors who have strong competitive advantage. This means that the products may have minimal chances of having excellent reception because the more the number of competitors, the more the product lessens its chances (Arnold 121). Besides, the company has problem with instability of economy. The economy of Saudi Arabia is not very stable as compared to other developed countries. In fact, the economy only relies on exportation of crude oil and petroleum products, which are its backbone source of revenue. Nevertheless, there are a number of nations producing curding oil, which means that there is high competition. This has lead to instability of Saudi’s economy and once the country’s economy is affected, all the other business activities in the country are also affected. Therefore, in as much as SADAFCO seems to be stable with a strong competitive advantage, it also contains a number of threats, which obstructs its efficiency of performance in the market field. Recommendations Since the competition is too stiff in the market field, SADAFCO has to employ good and effective tactics and strategies in order to have a strong competitive advantage. These tactics and strategies are as follows. First, it has to make sure it produces high quality products that are better than those produced by competitors. Secondly, it has to employ media advertisement for its products in order to capture the attention of the people and lure them to purchase the company’s products. Lastly, it has to employ the method of selling its products at a slightly cheaper cost than the competitors sell in order to have a strong competitive advantage that can see it through. Once these strategies are employed, SADAFCO Company will be able to maintain its good reputation. However, the Company must also have specific policies, which govern its operation. This may include having rules and regulation that guide the employees in their operations, and policies that control production of quality products. Conclusion SADAFCO Company was initiated in 1976 and was mainly producing dairy products such as white mil and ice cream. However, it joined with Tetra Park, which employed the OCR program that made it augment its production power and expand its production line. It began producing pure water, snacks and tomato paste. This made it to acquire a strong competitive advantage over the major producers and exporters of tinned products such as Portugal. Despite the fact that SADAFCO contains several competitors, it has maintained its good reputation because it produces quality products and employs the OCR technique, which ensures team work and effective productions. Therefore, SAADAFCO is one of the most popular companies in the market field in Saudi Arabia. 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