Business Strategy of the Yogurt Industry - Essay Example

Business Strategy Underlining structure of the industry The structure of the yogurt industry is composed of the following industry players: major suppliers of raw materials, the producers, the distribution networks/channels and the consumers. The major suppliers in the sector are: the milk producers (since yogurt is a fermented semi-fluid milk product); the manufacturers of packaging materials such as cartons, cups, plastic and glass containers among others; and those that provide flavoring substances such as cereals and fruits. While the major producers undergo the following phases in production: preliminary preparation of the milk, preparation of the lactic acid bacteria cultures which are then injected into the milk, maturation, refrigeration, flavoring (if needed) and packaging. The distribution networks handle yogurt as one of the most interesting products in fresh food division. The consumers have also their own preferences where market and product development are also hinged on. An adult consumer is particularly interested in the health/nutrition component of the product thus she chooses yogurt with added probiotics, or natural yogurt. She consumes the product as a breakfast or a main meal of the day. While the young consumers eat yogurt mainly as a snack for self-indulgence though they still consider health and nutritional value. For the children consumers, they have mothers who choose the product, are considers self-gratification and at the same time the nutritional aspect. 1.1 Competitive challenges The dominant competitors in this sector which have a national scope are the incumbent players such as Sitia Yomo, Danone, and Parmalat; and the new entrant Muller. Other firms operating in the dairy industry (Nestle, Granarolo, Lactis, A.L.A., Milkon, Latteria Sociale Vipiteno) had also their share in the yogurt industry, including the importers (Ehrmann, Stuffer) which caters a multi-regional market. There were emerging challenges among competitors because of the entry of new players in the industry. This has reduced the amount of display space allocation to market leaders and brands. Also, the overcrowding of the sector has increased the discretional power of distribution. The growth in commercial brands and price brackets (from average to medium price) has reduced the linear shelf space available and thus has increased the referencing costs of the major companies. The emergence of modern distribution channels has also raised the level of competition among players with regard to the economic crisis and the development of distribution formulas, e.g., hard discount stores. This has caused major distributors to take actions aiming to improve price perception of the end consumers. They inserted commercial brands in the market and introduced premium prices. Development of new products was done by traditionally marketing oriented companies. On the part of product developers, there are also challenges that can be considered to better compete in the industry. These concerns the choices and evolving values of the end-consumers: the emerging culture of valuing low calorie and health aspects of foods; the fact that proper meals are becoming less popular; because of fast-paced life, there was less time spent for breakfast. 1.2 Changes and reasons Thus, the intense competition among major players in the industry, the not-so-fast paced growth rate, and highly price sensitive consumers have contributed in the structure change. On the part of Yomo, Danone, and Parmalat, they have opted to maintain substantial investments in advertising of their products as well as improving their trade investments. While Yomo has continued to give a high retail price positioning, Danone, Parmalat and Muller has opted to become aggressive in determining and enforcing their pricing policies. The creation of new refrigerated sections and reduction of linear shelf space given to other fresh products such as pre-packed salami, butter or margarine has expanded the display shelf space allotted to yogurt products in the market. This did not give impact to sector leaders but only to other operators. This resulted to the increase of new suppliers and product types being handled. Also, among major suppliers in the sector, there seems a lack in the bargaining power on diversification of materials since most of the packaging materials are made of PVC (polyvinyl chloride). Glass and tetra pack or foils are seldom used because of its high cost. While in product development of the sector, the positive change in the preference of end consumers brought about by the evolving culture of health consciousness and fast-paced way of life has contributed in developing new variety of products that can still be possibly offered to the yogurt consumers without jeopardizing the sector's profitability. 2. Key success factors in the industry Some of the key success factors adopted by major players in the yogurt industry to ensure survival and seek competitive advantage were concentrated mainly in the post-production area. No substantial differences among key competitors in the production phase. One, in the fresh food distribution network, a sustained total coverage of all territory is a must in order to be efficient in the movement of the products. Even small companies are able to sustain the investment of an efficient distribution channel since they concentrate at a local, regional or multi-regional level. Second, in the marketing arena, product innovativeness is a key factor while also considering distribution and advertising as traditional yet critical success factors to maintain and/or elevate position in the market. Distribution and advertising can only be effective given considerable investments, thus this is being utilized only by large companies. Advertising supports the consumption and trade and product promotions. Third, in the relationship with trade, operators in large distribution channels always give premium to the width of a product's range while the depth takes on an ambiguous role considering the decrease in display shelf space allotted to each brand. Thus, broadening the range of products and offering new flavors is essential and fundamental in the economics of yogurt, coupled with a continual search of new products. There was also product policies which have been historically successful based on the experiences of major companies. One of them is the targeting of niche markets which was undertaken by Nestle ( won discrete market share because of the development the niche of yogurt for the very young and exploiting its own distribution network for fresh dairy products) and Scaldasole (when it launched its "Teddy", a creamy fruit-flavored yogurt sweetened with aspartame targeting very young consumers). Another product policy is the development of highly differentiated characteristics of image or product quality which was adopted by Muller. The company had rapidly the fourth place in the sector when it concentrated in one product - the famous "Cream of Yogurt" which has a rich, smooth taste and low degree of tartness. This strategy was coupled with a very strong action in advertising with campaigns that depict high-impact pleasure orientation, e.g., coining the slogan "make love with flavor". Aside from a hard- hitting advertising, it also adopted an aggressive price positioning. 2. 1. Changes and reasons One of the changes in the key success factors from a decade ago was on the fresh food distribution network. It is because the outsourcing of logistical services is becoming popular nowadays which directs competition of main industry players from a local to national level. Because of the presence of these logistical services, many companies could opt to hire them and could change its traditional distribution methods and strategies to adopt a more competitive advantage in the distribution phase. Most of these logistical services are also competitive given that they really ensure a hassle fee movement of deliveries having well-maintained vehicles with communication gadgets. Price, in the past has been an essential weapon to attract consumers but today it is becoming less important. It is because price is not anymore the only aspect which a consumer could gauge the product. Some companies have maintained a high consumer price positioning and still up in the market. One example for this is Nestle which has survived the market even with a high price positioning because of other strategies being employed, i.e., push for strong advertising and development of market niche. Muller's experience in focusing on one quality product can also argue the key strategy of broadening product range although it is fundamental in the economics of yogurt. It is because a wide variety of products could pose challenge to producers especially in handling and sustaining them. While focusing on one product has greater possibilities of perfecting the image and quality, its promotion and market reach. 3. Emerging threats and opportunities One of the main threats to the yogurt industry is the greater concentration of modern distribution most significantly with the entrance of some French chain stores (Auchan and Carrefour) and the Iper and Super channels (Auchan in SMA/Rinascente, Carrefour in GS). This could shift the buying preferences at the central level. Related to this, the movement toward a concentration in buying associations formed by various trademarks can also be worth considering. Another threat that will have impact to players' competitive strategies is the rising competition among industry players. Aside from competing in the display space allotment but also in other aspects such as product quality, product range, advertising and promotion techniques, price positioning, among others. The development of premium commercial brands could also pose high-level impact threat to the companies. This development could contribute to the drop of average profitability of the sector because of the lower value added of the product and at the same time the increase in commercial costs such as in service/trade promotion. Still a threat is the development of new substitute products which are targeted for yogurt consumers. Among them are the enzyme-enriched milk, yogurt ice cream, a wide range of yogurt-based food products like yogurt cakes and others. On the product uses, the threats of substitute products could be posed by refrigerated snacks (such as products launched by Ferrero: Fetta al latte, Tortina Paradiso, among others) which for young children, could be ready substitutes for yogurt, including ice cream. Substitute products that are considered as threat here are not only those milk products and its derivatives but also other products which were preferred by consumers as "snacks" as an alternative to yogurt like sofdrinks, fruits, fruit juices. Although not a threat but an opportunity that can be considered related to this aspect is the complementary products such as cereal wherein the consumption of which has been seen to have contributed to the increased penetration of yogurt in the market. One threat in the yogurt sector is the internalization of competition. The entry of European-member states (where Italy is a member) in the World Trade Organizations had opened the door of liberalization of the agriculture sector in Italy where yogurt industry belongs. This opened the industry to the world market dismantling government barriers and restrictions. This competition in the international arena is both a threat and an opportunity to the yogurt industry given that the market scope will be widened and at the same time more influx of competitors. Another factor which might pose a threat to the industry is the drop in/aging of the population who represents the major bulk of yogurt consumers. Their old age will speak of their needs as consumers and at the same time their capacity to do shopping and or go to the grocery. The impact might be of low intensity but it is seen that might pose a long term threat. Analyzing the major opportunities in this sector in the next five years, it can be figured out that the growth of occasions is a sign of opportunity for industry players. These occasions will trigger bulk orders for consumption and an opportunity for yogurt products to be displayed out of their shelves. The development of yogurt as a snack and the growth of healthy consumer habits are also seen as opportunities that the sector can possibly grab. These scenarios tend to attract consumers especially those that give premium to their health and proper nutrition. Related to this, people spend less time in sit-down meals especially breakfast so the increase of "meals to go" is also a good opportunity for the sector. Other opportunities that can be explored for the yogurt sector are: partial cannibalization of milk by yogurt, increase in older consumers, Europization of models of consumption, and the development of new channels and large distribution networks. If these opportunities are explored and handled well by the major players in the industry, these would translate into profitability and sustainability in the market. 3.1 impact on competitive strategies The adaptability of companies will be gauged as it copes with the stress and enthusiasm brought about by the emerging threats and opportunities. The threat of substitute products will enforce companies' strategy of broadening their product range thereby competing with the substitutes. Their traditional competitive strategy of covering a wide range of coverage from the local to the national level will be challenged by the threat of the internalization of competition since it will set the scope a global market. The threat that the aging would tend to shop less could be addressed by companies by improving their strategies in the product delivery and distribution points. Opportunities like the development of yogurt as a snack and the growing interest of consumers in "meals to go" or the great tendency people eating out could also challenged companies' strategies in product innovativeness, diversification and in packaging. 4. Attractiveness to new entrants Based on the analysis of the major threats of the sector, it seems that new entrants could hardly be attracted in putting their investments given that the bulk of the threat is more on competitiveness because of the entry of commercial brands and the substitute products while also considering the competition in the international market. And in terms of logistics, one of the main barriers in entering the sector is the need for a refrigerated distribution network. Unless you intend to hire logistical services to do the distribution, setting up an efficient distribution structure in a national scale is even more problematic especially when you tend to serve specialized retail stores. In the early 1990s, the entrance of new players in Italy were thought to have a good story but this conviction among other factors was based on the failure of the 1992 attack on sector leaders by Yoplait. It is a French company who entered the Italian market with major advertising and promotional investments that contributed in the rapid insertion of their product in principal distribution centers at a national level but did not proposed significant product innovations and leave significant and consolidated image in the minds of Italian customers. Thus, Yoplait did not succeed in getting a competitive advantage over other major players in the market. But this conviction was redeemed by Muller when it entered the market using unique strategy which is the product policy of developing highly differentiated characteristics of image or product quality. The opportunities in the market could still be explored by new entrants as benchmark data in developing their niche in the market. New actors could concentrate on developing innovative yogurt products coupled with appropriate packaging for "meals to go" or those that go eating out always. 4.1 recommended strategies for market entry If companies would tend to enter the yogurt industry, they should need to consider strategies intended to focus on the product, the pricing positioning, promotions and the placement. 1000ventures.com provided good strategies which could be adopted. On the strategies for the product development, one needs to reposition or re-launch existing ones and doing away with the old ones. There is also a need to add new features and benefits on the product so as consumers could see its added value compared to existing ones. Offering new design and packaging could be a one way of attracting the consumers also. On the pricing strategies, there should be a pricing for different segments of the market. The company should also decide how to meet competitive pricing (one that consumers can afford and at the same time maintain company profits). On the promotional strategies, the entry player should also consider advertising platform and media projection that can be easily captured by the market in all segments. For the strategies in the distribution, the new entrant should choose what channels would be pursued and decide on what level of customer service it want to achieve(http://www.1000ventures.com/business_ guide/marketing_strategy.html#4P). On a general level, one needs to analyze and understand the characteristics of its customers, the market, the competitors, develop the marketing mix, evaluate the economics of the product and review the distribution channel, before developing the product and go into a full blown investment. Most often, the companies that give utmost importance to its customers are the ones that have sustained its high positioning in the market. Advertising, promotions, price positioning and capturing messages are also essential weapons but combining them all along with other factors would complete the puzzle in effective marketing strategy. Sometimes uniqueness in the product presentation like the one did by Muller could be a good strategy. Reference: Marketing Strategy. Read More