Competition in the UK Ice Market - Coursework Example

Case Study: Competition in the UK Ice Market Part-1 INTRODUCTION The Ice Cream industry in UK market is so competitive in nature by the last decades. It is seen that a scale monopoly situation exists in favour of Birds Eye Wall's Ltd (BEW), a subsidiary of Unilever, which accounts for around two-thirds of the wrapped impulse market and over half of the total impulse market as defined in our terms of reference. We also found that a complex monopoly situation exists in favour of BEW, Nestle UK Ltd and Mars UK Ltd, which between them accounted in 1992 for 88 per cent of sales of wrapped impulse products and a lesser but still very large share of the market for all reference products. Ice cream sales in the UK were worth about £785 million at retail prices, £275 million of which comprised reference products. These were mostly wrapped impulse products, the market for which is characterized by a high level of branding, and of associated advertising expenditure. Unlike other impulse products such as confectionery, impulse ice cream needs refrigerated storage and transport and a freezer cabinet at the point of sale, not merely as a display device but as an essential piece of equipment which has limited capacity and without which the product cannot be stocked at all. Effective distribution is a key aspect of competition, particularly because demand is not only seasonal but subject to extreme short-term fluctuations as the weather changes. Importance was attached also, by both companies; to the assurance exclusivity gave of economic drop sizes, effective display and quality control. (Victorian London - Publications - Social Investigation/Journalism - London Labour and the London Poor; 1851, 1861-2; Henry Mayhew, The Victorian Dictionary, compiled by Lee Jackson, http://www.victorianlondon.org, an internet web site.) The market has changed significantly since 1990. Earlier, Wall's and Lyons Maid shared between them all but a small part of the market. Thereafter the market share of Lyons Maid significantly declined notwithstanding its insistence on freezer exclusivity whilst that of Wall's increased. Mars entered the market in 1989 with a new product relying on quality and an established confectionery reputation. In four years, Mars ice cream achieved representation in about 50 per cent of outlets and a market share of about 16 per cent in wrapped impulse products in which at least 20 per cent in the chocolate bar sector. Mars, like Treats Ice Cream Ltd (Treats), the next largest supplier, drew attention to the effects on the market of the degree of vertical integration achieved by BEW as a result of freezer exclusivity operating in conjunction with its distribution system through concession. Part 2- THE SWOPT ANALYSIS By the time, during the years of operations, BEW, Nestle and Mars seem to have achieved a great deal. However, it appears that much more can be achieved with the kind of resources. Based on performance, SWOPT (Strength, Weakness, Opportunities, Problems and Threats) analysis as well as comments are as under: Strengths A very competent team with professionals. The very name signifies the impersonality attached to any single individual's name. Scope, thus, exists to work for the company rather than to glorify the name of a family. A manufacturing base for ice cream production and physical facilities in terms of office space, equipment and machinery, Good contacts of Channel partners with business world. Self generated competitive business and hence first hand knowledge of the buyers and the markets. A very close and harmonious social relationship between channel partners indicative of a similar social status of all the partners. Each distribution network operators are capable of managing the business of their own and each one of them very strong in some specific areas. Thus a positive synergistic effect possible for the entire group. Presence of both domestic and export markets in ice cream market mix enables knowledge of both the markets. ".'■"- Availability of a pool of experience and information through its associates. Product line, at least the one associated with various brands of ice creams has a tremendous growth potential, both in international and domestic markets. Capacity to raise more funds, both in emergency as well as in normal circumstances i.e., during expansion or diversification. Honesty and boldness among channel partners to criticism and accept criticism. Weaknesses 1. Size: To my mind this appears to be a major weakness is the size.. Unlike other small scale organisations, where only one entrepreneur manages the show, It has to grow big and utilise fully the entrepreneurial talents available to it. The present size is not optimum and this is leading to under-utilisation of the time of the directors. The whole working of these firms has to be reorganized to utilise the 'human resources available. 2. Product Portfolio: Though so far has been able to generate sales from only a few lines, but the lines have ample product-market scope and could prove vulnerable in the long term, A balanced portfolio could be one which would enable to generate sufficient funds to achieve its growth and the present objectives. Lack of 'systems' appears to be another weakness of these firms. Thus, the most important aspects of 'systems' to aid in decision making- advance alarming, forecasting, control, etc., are missing. This would require development of attitude, skills and a way of working. The entire organisation and not the directors alone, have to be reoriented to develop a culture for systematic working. Creation of this culture at this stage is very important as only this would enable a better growth. If not introduced today, corrective actions would prove very expensive at a later date when gaps would start surfacing between the 'operations' and 'work attitude'. Important is to arrive at as balance between 'persons based operations' and 'systems based operations' and the time to act is 'now'. For example, there is a need for periodic review, and hence the generation of monthly concept reports. There is a need to develop budgets and monthly cash flow statements. There is a need to develop reports, which would consider the various lines as different profit centres. There is a need to develop corporate plans and hence to develop strong market and marketing information systems. There is a need to develop corporate plans and hence to develop strong market and marketing information systems. 3. Another weakness appears to be a wide gap between the skills and competence of permanent staff. To my mind, work may stop the day the partners are away. As mentioned earlier, these firms cannot be allowed to continue as a small scale organisation. It has to grow and it has to have a proper team to manage its operations. Whereas Directors have to devote more and more time on strategic and external issues, the people employed have to be developed, such that they can be delegated with more authority and responsibility to manage internal operations competently. Problems Problems could be both due to internal weaknesses of the organisations as well as due to exogenous factors beyond the control of the organisations. Whatever may be the cause, they need to be known in the first place and then solutions have to be found to solve them. To my mind, the following appear to be the major problems of the ice cream sellers: Uncertainty of its future, especially of its relationship with other ice cream sellers and its associates. This uncertainty has to be removed at the earliest, as otherwise it might lead to a strange paradox. Low motivation of executives because of the incongruous relationship. j Low profitability and inability to generate surpluses to create a sound equity base. ] Low productivity reflected in the decline of sales/assets ratio than the previous year. Increasing costs and inability to pass the higher costs to the buyers. Labour problems for want of raw material at times. Except for one firm, no other firm seems to have a specific area of responsibility. Lack of competitive advantage as market share is low. Under-utilisation of time and competencies in other words, lack of work for all the employees and channel partners. Lack of motivation to expand seems to have set in that in spite of producing more would continue to incur losses as compared to its Selling Agents. Threats Raw material subject to constant price rises. Demand may rise or fall without any explicable trends. Poor and erratic availability of raw material. Changing government policies and export restrictions by 'importing ' countries. Product substitution possible. Constant labour trouble. Only high volume can sustain the business as profitability is low. Irregular supplies of the material. Opportunities For ice cream, tremendous opportunities exist in both domestic and international markets. In case regular supplies are available the firms can generate much needed surpluses. Assuming a net profit of 10% can each year generate a good business. The main problem was the fluctuating market conditions, affecting the price and hence the profitability. It can enter into trading of another line. They would need to develop some strength at least in terms of market knowledge and marketing practices of trade etc. By utilising the present channels and contracts, they can also try to add some more profitable line, which can be marketed. Freezer exclusivity debate' In 1995, Birds Eye Wall's remained the market leader by a large margin. However, the decline of the Lyons Maid brand meant that Mars had risen from third to second in the market. Birds Eye Wall's retains its leadership position as a result of a fairly solid one-third share of the take-home market, and nearly two thirds share of the impulse market. Mars is only a small player in the take-home ice cream market, but had seen its share of the impulse market grow to 15 per cent by the mid-1990s. It was in the impulse market that Lyons Maid/Nestle had suffered most. Having lost market share to Birds Eye Wall's and Mars throughout the early 1990s, the Lyons Maid/Nestle share of the impulse ice cream market had more or less halved from 20 per cent in 1990 to 11 per cent in 1995. Major rivals claimed that Birds Eye Wall's had an important advantage - which they argued was an unfair advantage - in the key impulse sector of the market, owing to its privileged access to distribution channels. This was the 'freezer exclusivity debate'. Part-3. STRATEGIC DECISION CONTEMPORARY STRATEGIC MARKETING It is true that the UK ice cream market is far from being limited. The take-home of the market continued to grow rapidly, with the premium ice cream sold in relatively small volume 'bulk' packs. On the other hand, market for complete ice cream desserts was seen as mature, with little prospect of rapid growth. The growing in premium dairy ice products meant that the value of the ice cream market would continue to grow than volume. The volume of sales of economy of quality bulk ice cream typically sold in large containers of 2 litres or more can be expected to decline. A promotional activity, stimulated by the of Mars, would continue high level New product development, innovative packaging and design, and promotion by substantial mass media advertising expenditure were to become key feature of the UK ice cream market.(Tamra Andrews: Nectar and Ambrosia:An Encyclopedia of Food in World Mythology, ABC-CLIO:Santa Barbara, 2000 (p. 121)) By 1990, it was clear that the entry of Mars into the UK ice cream market been initially successful, and that the rivalry between2nd the older establishment ice cream companies would shape competition. well at the time was the important role that legal and regulatory would play in the competitive battle. As expected, Mars brought all the strengths of a major American, fast-moving consumer goods marketing operation to the formerly rather staid UK ice cream market. Expected, Mars brought with it a peculiarly American form of competitive strategy namely, trying to demonstrate that a rival's dominant place in the market is sustained through unfavourable competitive practices. The scene was set for a lengthy war of attrition, which is described in a later section. MARKET SIZE AND CONSUMER TASTE TRENDS Consumer taste trends that emerged in the 1980s continued into the 1990s. Ice cream was no longer solely a kids' product. Ice cream could be a snack, a dessert, a trot of an indulgence. However it was presented, one clear characteristic was consumers were demanding better quality and better ingredients. This was equity clear in both the take-home and impulse sectors. A growing number of consumers are less interested in cheaper, everyday producer more interested in higher quality ice cream as an indulgence. Consequently, use of four litre packs has decreased in favour of one litre or even smaller tubs, which consumers to buy different varieties in smaller amounts. Luxury products are sold on real dairy ingredients, exotic flavours and the 'total indulgence' factor. (Olver, Lynne (2005). The Food Timeline- history notes: ice cream & ice. /www.foodtimeline.org. Retrieved on 2006-04-07. quoting History of Food, Maguelonne Toussaint-Samat, translated by Anthea Bell [Barnes & Noble Books: 1992.) It is fair to say that if the 1980s was the decade during which British consulate discovered good ice cream, then the 1990s and 2000s was the decade in which good ice became an established part of the British lifestyle .As a result, many new opportunity had opened up for ice cream manufacturers, who had responded with new product new brands and even new concepts. The killer ice cream concept of the decade the ice cream chocolate bar, which started with the Mars ice cream and spread to about every established brand of chocolate confectionery rather hastily. UK ice cream market Overall, the UK ice cream market grew in volume terms by 5.6 per cent, while sales value over the same period increased by only 3.3 per cent. The market is conventionally subdivided into the impulse sector and the take-home sector. Impulse ice creams are usually bought from kiosks and small grocery shops for immediate consumption, while take-home ice cream is bought from grocery shops for home consumption. Although the take-home sector is much the larger of the two in terms of volume (that is, litres of ice cream sold), the much higher unit value of impulse products means that the impulse market is worth roughly twice as much as the take-home market. The impulse market is dominated by major brands, whereas the take-home market sees a much greater penetration by private retailer brands. One of the major objectives of manufacturers has been to reduce the seasonality of demand for ice cream, that is, to reduce reliance on summer sales. They have had some success by promoting ice cream as a year-round treat and dessert. However, ice cream sales still show marked seasonality and rise sharply when the sun shines. BEW owns a large number of household ice cream brand names, among them Wall's Ice Cream, Carte D'Or, Cornetto, Magnum, Solero, Viennetta, plus a range of products targeted at children, such as Mini Juice, Twister and Sparkles. Magnum was the UK's biggest-selling ice cream brand, with a 7.5 per cent share of the market by value. Advertising, particularly TV advertising, has been the main medium for developing these brands. Birds Eye Wall's spent £31.8 million on advertising, up from £28.6 million, and it employs three advertising agencies to handle its ice cream brands. Three out of the top five ice cream brand names in the UK are owned by Birds Eye Wall's. Parent company Unilever sees ice cream as a key growth product category, and is prepared to invest in the UK and elsewhere to defend its market position and grow the market. Throughout the 1990s, Birds Eye Wall's has recognized the importance of maintaining a grip on its distribution channels, and has worked hard to defend itself against the attack on freezer exclusivity by Mars. One of the strategies that Unilever employs to build its position in key target markets is corporate acquisition. In April 2000, on the same day that it acquired Slim- Fast Foods, a manufacturer of slimming aids, Unilever also bought the luxury ice cream company Ben & Jerry's Homemade. The acquisition of Ben & Jerry's confirmed Unilever's determination to invest in the ice cream market globally. Ben & Jerry's is a super-premium ice cream brand with which Unilever will hope to challenge the Haagen-Dazs brand, owned by Grand Metropolitan .One of the issues with most acquisitions is whether or not the buyer will find it possible to merge the acquired company into its own corporate culture. When Unilever, one of the world’s largest and reputedly most aggressive consumer goods marketers, acquired Ben & Jerry's, this aspect of corporate integration was uppermost in the minds of commentators. Ben & Jerry's is famous for donating 7.5 per cent of profits to charity, banning synthetic hormones from its milk, and campaigning for environmental causes. Just as it will be interesting to see what Unilever do with the Ben & Jerry's brand, so it will be interesting to watch it integrate such an unorthodox company into the ultimate establishment multinational. Part 4 - Update information - What is happening at present We considered, the recent developments may present too optimistic a view of the market and whether freezer exclusivity could not inhibit competition in the longer term by raising entry costs. The extent of competition currently owes much to Mars' own efforts to install freezers, at considerable expense, as well as to its marketing and product innovation. Its success in establishing its current market share shows that freezer exclusivity is less a barrier to entry than a cost of entry, no different in its effects to other costs such as advertising. Mars is still incurring losses, but there is no evidence that it is reconsidering its presence in the market, and it is too soon in our view to suggest that its financial position shows any fundamental weakness as a result of freezer exclusivity. In view, therefore, there is insufficient evidence to demonstrate that the imposition by BEW, Nestle or Mars of freezer exclusivity as applied in the UK market as it is currently developing inhibits competition or consumer choice. Moreover, there is no evidence that it is adversely affecting the level of prices paid by retailers or consumers, as is also indicated by the limited profitability in the UK market. Similarly, given recent market developments, we find it difficult to argue that freezer exclusivity diminishes incentives to innovation or efficiency, or otherwise adversely affects consumers or the public interest. It is received no evidence that BEW was in any sense inefficient: its distribution arrangements in particular, indeed, were regarded as highly efficient, hence the desire of some of its competitors that BEW concessionaires should be allowed to distribute their products. Therefore, the imposition of freezer exclusivity in the UK market as it is currently developing does not operate against the public interest. This conclusion applies equally to freezer exclusivity considered as a practice of BEW as the scale monopolist, and more widely to freezer exclusivity considered as a practice of BEW, Nestle and Mars as members of a complex monopoly group. Part-5- References 1. Victorian London - Publications - Social Investigation/Journalism - London Labour and the London Poor; 1851, 1861-2; Henry Mayhew, The Victorian Dictionary, compiled by Lee Jackson, http://www.victorianlondon.org, an internet web site. 2. Tamra Andrews: Nectar and Ambrosia:An Encyclopedia of Food in World Mythology, ABC-CLIO:Santa Barbara, 2000 (p. 121) 3. Early Abbasid era, Ahmed Fawzi Alexandria University 2002 (p. 89) 4. Olver, Lynne (2005). The Food Timeline- history notes: ice cream & ice. /www.foodtimeline.org. Retrieved on 2006-04-07. quoting History of Food, Maguelonne Toussaint-Samat, translated by Anthea Bell [Barnes & Noble Books: 1992. 5. Tannahill, Reay (1995). Food in History, revised edition, Three Rivers Press. 6. Goff, Professor H. Douglas. Ice Cream History and Folklore. Dairy Science and Technology. University of Guelph. Retrieved on 2008-03-19. 7. Harvest of the Cold Months - The Social History of Ice and Ices, by Elizabeth David, Viking - The Penguin Group, 1995. 8. ReadWriteThink. Commercial ice cream is first sold in 1786. 9. The International Reading Association (IRA), the National Council of Teachers of English (NCTE), and the Verizon Foundation (2006). Retrieved on 2008-03-19. Read More