Diversification at Hubbards Foods - Case Study Example

Section A Case Study Diversification at Hubbard’s Foods Introduction The Hubbard Foods is a producer and retailer of breakfast cereals and has a very strong presence in the FMCG market in New Zealand. The Company was established by Dick Hubbard in 1988 AS Winner Foods and was later rebranded as Hubbard Foods in 1990. Its main competitors are Sanatarium, Kellogg’s and Uncle Toby’s. Analysing the external environment The General environment: Demographic The population in New Zealand stands at slightly more than four million people. Population growth rate is 0.882%, 66.4% of the population falling between the ages of 15- 64 with 86% urban population. The population is multicultural with people with Asian, European, Maori, Pacific Islander and mixed descents. The average household income is relatively high which is approximately, US$45,500 dollars. Economic New Zealand has an economy that function under free market standards. By 2007, the economy grew by 3.5% annually with rising private utilization, annual inflation rate of 2.6% with current account deficit of 5.8% of GDP. Nevertheless, the country is prone to global financial downturns which are characterized by rising prices which influences negatively on consumer confidence and their spending, which impacts on FMCG products such as Hubbard Foods as seen in 2009. Be it as it may, the country has been registering gradual but steady recovery which is beneficial for businesses. The cost of living in New Zealand is comparable to majority of OECD countries with high levels of disposable income and high rates of financial literacy. The increasing economic growth and stability associated with the high levels of disposable income and high rates of financial literacy are fundamental for businesses operating in the country. Socio-cultural The social class in New Zealand is made of Maori and Western social structures which generates into a moderate class system. The social life in the country is similar to majority of Western nations with most people falling within the upper and middle classes. New Zealanders value friendships, equality and family culture. Any businesses that base its operations on these aspects are easily embraced in the country. Political New Zealand has a very stable political climate. The political risks are low which encourages business growth owing to the increased levels of safety of investments. The political systems encourage investments from both local and foreign companies due to its free trade policies and favorable laws and regulations for starting a business which offers ease in doing business. The regulations procedures takes minimal time and only few restrictions on owning and operating a business are imposed on firms. The government requirements are relatively low. Global Through its adoption of free trade principles which allows free inflow and outflow of capital, the country easily embraces international brands, systems and processes and welcomes international ways of doing business. Consumers in the country easily take up foreign products and services Technology New Zealand is among OECD countries that are driven by innovation and it excels considerably in information and communication technology. The country has a highly developed technology infrastructures which makes it easier for businesses to produce, market, supply and deliver quality products and services to its customers by limiting delays, increasing capacity of production, improving brand designs and product range and improving the quality of goods and services. Conclusion The general environment in New Zealand provides ample opportunities for businesses to only establish but also to operate in. The low economic and political risks prevalent in the country, the enhanced infrastructure systems and infrastructure and the friendly social nature of New Zealanders are beneficial for business investments. Conclusively, the general environment favours local organizations such as Hubbard Foods by having more growth and diversification opportunities and relatively moderate threats which can be effectively mitigated using the right marketing strategies. Industry Analysis The Fast Moving Consumer Goods (FMCG) industry in New Zealand is a highly unpredictable one particularly in the food and dairy products where breakfast cereal products, falls in. the FMCG industry is perceived to be the largest sector in New Zealand accounting for 5% of New Zealand’s Gross Domestic Product. The breakfast cereal market is characterized by stiff competition among local and foreign organization, low margins and high volumes processed in the supply networks. Globally, the FMCG is a mature industry and therefore innovation and diversification in processes, systems, products, services and structures is fundamental. The same case applies in New Zealand where the industry has been established for years with players such as Sanitarium operating for more than a hundred years. The demand for breakfast cereal products has a low seasonal variation with a 10% increase in consumption rates in summer months. There are multiple foreign and local suppliers of raw materials within the breakfast cereal market in New Zealand. Porter’s five forces model The barriers to entry; are relatively low due to existing government regulations and policies which are favorable for starting and operating an FMCG firm. The procedures for acquiring business certificates and licenses take a short duration and New Zealand is ranked second for ease in doing business. In addition, the existing competitors in the breakfast cereal sector are more than willing to offer fair competition and have low obstacles for new and existing firms as illustrated by the friendly relationship between Sanatarium and Hubbard Foods who supply each other with ingredients when one runs out of what they need. The buyer bargaining power; is relatively high as illustrated by the increased demand for fast moving consumer products such as breakfast cereal products which means consumers demands more quality, variety and efficient delivery of their products. There are no switching costs for customers substituting between competing brands. The supplier bargaining power; is relatively moderate. Although there are multiple suppliers of raw materials for FMCG in New Zealand who are both local and international, establishment of stable, reliable and sustainable relationship with major suppliers is critical to developing high quality FMCG such as breakfast cereals. Substitute products; The threat of substitute products in the breakfast cereal sector is high. In the FMCG where breakfast cereal market falls in, there are varied substitute products which threatens the sector’s market shares. This includes breakfast foods and drinks such as cookies, cakes, bread, organic foods such as arrow roots, cassava and sweet potatoes, fruits, porridge, milk, tea and coffee among others. Competitor rivalry; is high within the breakfast cereal sector in New Zealand. Despite the fact that competitors such as Sanatarium and Hubbard help each other with ingredients when either has run out, the competition is still high in relation to product range and competition with foreign brands such as Australian based Uncle Toby’s and international brand Kellogg’s who not only have a large global market share, diverse product range and global brand image but also they have access to a stronger financial base. The profit fool The industry environment is a lucrative one, which offers varied opportunities for diversification and growth of F MCG organizations. The prospects for high profits are substantial with implementation of effective business and market strategies and owing to the growing population growth rates which translates to an increased market base, increasing demand for fast moving consumer goods and low financial and investment risks. Conclusion The industry environment is characterized by relatively high competition and threats of substitute products with relatively moderate buyer bargaining power which influence pricing and low supplier bargaining power. The industry environment is conducive for business particularly due to low barriers to entry and the low financial and economic risks. Nevertheless, the pricing strategy needs to be effective to counter the threats of competition and substitute products. Competitor analysis: The breakfast cereal sector within the FMCG industry is a highly established and competitive one with three main players competing directly with Hubbard Foods include Sanitarium which is New Zealand owned and Australian- based Uncle Toby’s and an international brand Kellogg’s. Sanitarium mainly produces Weet Bix and cornflakes. The company has ventured in not only breakfast cereals but also in cereal bar market and breakfast in-a-drink market. Its main marketing positioning and business strategy is to be reputed as a company that produces healthy foods that enhance healthy living and using sponsorships and charities to create brand awareness and to enhance its market share. On the other hand, Uncle Toby’s specializes in breakfast cereals and relies on its strong brand presence in the cereal bar market to boost sales and retain its competitiveness while Kellogg’s supplies a range of cereal –related brands. Kellogg’s brand relies on its global brand image, strong brand influence and its extensive workforce to remain competitive. Hubbard Foods offer higher prices for its high end market compared to its competitors. Competitors pose a great threat to Hubbard but through production of high quality and innovative products, strong employee relations, and an effective organizational culture that fosters family culture, Hubbard is better placed to counter the existing challenges. Analyzing the Internal Environment: The analysis of the Hubbard Food’s internal environment entails assessing its strengths, weaknesses, opportunities and threats in order to help develop effective strategies to help capitalize on the brand’s strong points, ameliorate its weak points, take advantage of available gaps and mitigate and manage potential threats. Hubbard Food’s tangible resources Hubbard Foods is not only a popular brand in New Zealand but also, it is reputed for producing and retailing high quality, innovative and creatively produced and packaged breakfast cereals which enhance customer recognition at the point of purchase. The company has a distinct hands-on management approach and business philosophy that fosters honesty, transparency and engagement between relevant organizational stakeholders. Through strong employee relations systems, the company recognizes and appreciates its workforce through profit sharing schemes such as business trips and meetings for workers which enhances employee commitment. The finances although limited, it is adequate to effectively manage current operations There are strong and stable fiscal systems to ensure a balance between the firm’s social goals and the financial viability/ success It has a broad range of product lines from mueslis, bran flakes and oat-based cereals to special product lines like Free From that produces gluten-free cereals Intangible resource The brand has a strong brand presence in breakfast cereals market Has excellent relationships with its workforce and other relevant stakeholders such as the Work and Income New Zealand offices and the New Zealand Business Council for Sustainable Development, The management philosophy is coupled with commitment to social responsibility and an organizational culture that cultivates a family culture that is significant for the populations working and consuming the Hubbard brand. Innovation in product packaging and contents Excellent understanding of the surrounding community through establishment of a family culture of working Value chain analysis the value chain is as follows Skilled farmers- high quality raw materials- efficient and reliable suppliers- production of high quality breakfast cereals- transportation and distribution- urban and rural locations (supermarkets, wholesalers and retailers)- marketing – customers This is coupled with excellent employee relations, hands-on management approach, effective and limited advertising and commitment to social responsibilities. This value chain ensures that the company does not only get the best raw materials from its suppliers whom they have established long standing relationships but also ensures efficiency in delivery of high quality products to the customers. Capabilities Hubbard Foods has varied set of capabilities which includes Innovative breakfast cereals and creatively packaged breakfast cereal products Excellent employee relationships fostered through hands- on management approach, integration of family culture and use of profit sharing systems Commitment in social responsibility as a mechanisms to create brand awareness and increase brand loyalty and image which translates to increased customer loyalty and profitability Diverse product lines to suit different consumer needs, expectations , tastes and preferences Effective relationships with suppliers, employment agencies and the community Core competencies among the identified Hubbard capabilities are core competencies. The innovative breakfast cereals, creatively packaged cereals, diverse product lines and commitment to social responsibility are not only difficult to substitute and valuable to meeting the needs of the target market, but they are costly to imitate and are distinct to the Hubbard Foods in comparison to its competitors. The exceptionality in exercising limited advertising and instead relying on engagement with wider community and word of mouth to create brand awareness is a core competence as the company is better placed to identify the needs of its customers and enhance its customer relationships. Weaknesses the main weakness of Hubbard Foods include Lack of diversification into cereal bar and breakfast in-a-drink markets High costs since products are intended for high end customers Lack of competitive advertising Limited use of technology Current strategies the current strategy is focused differentiation in terms of product lines and product type in order to give value to customers. The firm does not only produce innovative products but it ensures its management and marketing systems and approaches are community and customer focused which is made possible through its commitment to social responsibilities. Using different product lines they are able to meet the needs, expectations, demands, tastes and preferences of various market segments. Future Strategy There are two most effective future strategies for Hubbard Foods to develop an implement which includes to enter into a strategic alliance with a major international player in the breakfast cereal market in order to not only penetrate new global markets and broaden its market shares, but also to access assets such as capital and technology that it presently does not have. Through a strategic alliance, the brand will be able to effectively compete with three current competitors and it will increase its asset volume which will help it invest in diversifying its product types and enter into cereal bar and breakfast in-a-drink markets. The brand will capitalize on the global brand awareness, presence, influence and image of its partner to enhance its volume of sales, attract and retain loyal customers on a global scale. The other future strategy is market differentiation. As highlighted in the case study analysis, Hubbard Foods is the only company dealing with breakfast cereals in New Zealand that has not yet diversified its market not only abroad but in other markets. Therefore, Hubbard Foods needs to invest in research and development to identify whether to establish a new market within or across the industry. Presently, it can adequately and efficiently diversify into cereal bar and breakfast in-a-drink markets since they already have the market, distribution and knowledge on these breakfast cereals related markets. By so doing, it will not only generate new market shares, but also meet additional needs, demands and expectations of its current and prospective consumers. Conclusion Hubbard Foods is a popular and among the leading producer and retailer of breakfast cereals in New Zealand and it has a very strong presence in the FMCG market in New Zealand. The company reputes itself in offering innovative and high quality products and it relies on engagement with wider community to enhance its brand awareness and presence. To counter its present weaknesses and to counter market competition, Hubbard Foods need to enter into a strategic alliance and diversify its market. The general and industrial environment generates relatively low risks which forms a favourable climate for the company to do business in New Zealand. Section B Question 3 Assess the central thesis of Reich’s Supercapitalism. Introduction Life as we know it politically, socially, economically, financially, legally, technologically and environmentally has significantly changed which is characterized by increased exchange of information, enhanced movement of goods, services, people, processes and systems across the globe and advancement in technology, increased market volatility, enhanced social and economic risks and enhancement of free trade. It is from this basis that Robert Reich argues that super-capitalism which illustrates the significant changes in commerce and politics has overtaken and overpowered democracy. This essay seeks to assess the central thesis of Reich’s Supercapitalism. Central Thesis The concept of super-capitalism was founded by Robert Reich in his book, “Supercapitalism: The Transformation of Business, Democracy, and Everyday Life.” Reich is a political economist in America, an author, political commentator and he is presently the Chancellor’s professor of public policy at the University of California in Berkeley. Reich has served in three US administrations namely Gerald Ford’s, Jimmy Carter’s and Bill Clinton’s administrations. The central thesis of Reich’s Supercapitalism is that enhanced dependence and advancement in technology in a bid to enhance competitive advantage has transformed democratic capitalism into a new system which is characterized by social challenges and issues where the common man is voiceless (declining democracy) as firms and institutions operate without limits and with unbridled power (Reich, 2008). Social challenges caused by supercapitalism are growing inequalities, rising global security issues, environmental dilapidation and dysfunctional health care systems. According to Reich, increasing competitive environments and globalization generated by advancement in technology has negative outcomes on ordinary citizens, consumers and investors. Before establishment of technological systems, corporate organizations focused on economic of scale through mass production at low costs of production, they were protected against foreign competition and there were effective engagement with trade unions which translated to relatively accessible and affordable quality products for consumers, low costs for investors and favorable employment terms and conditions for the workers (Reich, 2008). Reich refers to this duration as the "Not Quite Golden Age." Nevertheless, due to technological changes by early 1970s, the rate of competition increased causing corporations to indulge in management and operational practices such as significant job cuts that impacted on critical socio economic structures and practices such as global outsourcing (Reich, 2008). In addition, advancement in technology saw investors amass their investments in large mutual funds and seek high returns on their investments. As indicated by (Emma 2002), eradication of trade regulations which accompanied globalization of world economies saw corporations exposed to foreign competition which therefore, enhanced the investor and buyer bargaining and purchasing power which Reich states ‘ supercapitalism replaced democratic capitalism’(Reich, 2008). According to (Reich, 2008), as market environments become more competitive and corporations take on social responsibilities that the government should be carrying out such developing good social and economic policies, this allows governments to get away and remain unaccountable to its people and encourages corporations to advance systems that help minimize their costs and maximize their costs in the expense of consumers and citizens. This is illustrated by more valuable workers obtaining salaries that do not effectively meet their needs, stagnated incomes, low influence of labor unions, increased market volatility and increased risks particularly in health and employment. In addition, politics are saturated by financing corporations which influences formation of policies and bills that favor corporations instead of the citizens causing an imbalance between capitalism and democracy (Reich, 2008). As a cure to supercapitalism, Reich proposes for the governments and corporate firms to take social responsibility to enhance the living standards of its citizens and the labor forces respectively (Reich, 2008). He argues that there is need to set limits and safeguard against everyone doing what they want as supported by (Emma 2002). In addition, corporations should not be held responsible for carrying out social roles for the citizens (Reich, 2008). Conclusion The central thesis to Reich’s supercapitalism is that technological changes are to blame for declining democracy. Prior to technological changes, Reich asserts that there existed a social contract among corporations, the workforce , citizens and the government where each ensured every one of them had equal share of social and economic resources. It was a period characterized by citizen empowerment and there was high levels trust and low skepticism on the government. These were all to change owing to rising levels of competition, innovation, and international integration geared by technological changes (supercapitalism), as corporations sought to enhance their competitive advantage, investors sought high rates on their investments and consumers sought to obtain quality products and services at relatively low prices. This has resulted in lack of democracy for the citizens. References Emma R. (2002). Economic Sentiments: Adam Smith, Condorcet and the Enlightenment . Harvard: Harvard University Press. Reich, R.B. (2008). Supercapitalism: The Transformation of Business, Democracy, and Everyday Life. New York: Scribe Publications. Question 2 Account for the takeover of Arcelor by Mittel using strategy theory. Introduction Business takeovers are fundamental aspect for modern corporations. Takeovers are strategic ways and techniques that firms and institutions use as they seek to either enhance their competitive advantage, access assets, systems and processes they do not have or cannot afford, penetrate new geographical markets and or when countering stiff market environments. This essay seeks to account for the takeover of Arcelor by Mittel using strategy theory. Account The $32.9 billion takeover of Arcelor Steel by Mittal Steel resulted in establishment of Arcelor-Mittal which is currently the largest global steel maker. Prior to the takeover, Mittal Steel was the largest steel producer by volume while Arcelor was a firm made from a 2002 merger of Aceralia, Usinor and Arbed steel companies and the largest steel producer by turn over and second in ranking in terms of output (Kulkarni, et al.,). The two were major competition for each other. The takeover did not only enhance the Arcelor-Mittal’s global presence and accrue 10 percent global market share but also enhanced the Arcelor-Mittal’s bargaining power over its suppliers and buyers. This resulted in a three times capacity in production of steel over its closest rival Nippon Stee (Kulkarni, et al.,)l. Initial bids for the takeover was characterized by outright refusal by Arcelor’s management board and political elites in France, Luxemburg and Spain and later on imposition of tough terms and conditions by Arcelor over the payout terms, management control, job securities and family voting rights (Kulkarni, et al.,). The takeover can be seen to have capitalized on bid resistance strategy where the resistance was used as a gaming strategy to compel Mittal to increase the value of terms they had initially stated which worked since Mittal agreed to pay forty Euros per share for Arcelor shares almost double the share value the Arcelor was trading at during Mittal’s initial offer and the rise from €18.6 billion initial takeover offer to the agreed takeover offer of $32.9 billion (Hirshleifer & Titman, 1990). Arcelor Company went to great lengths to refuse the takeover from taking place such as contemplating to enter into another 13 billion merger with Russian company Serverstal to make it hard for Mittal Steel to make a takeover. In addition, implemting an 85% increase in the firm’s share dividends (Kulkarni, et al.,). The takeover represented unique situations where not only were major direct competitors were merging but also, it represented an integration of two different cultures. Based on the strategy theory, the two companies represented the best of either side as a competitor and as a partner and the bid would strategically enhance the global strategic positions and competitiveness of the two companies (Kulkarni, et al.,). The takeover strategically generated a steel production power house which incorporated the brand success, broad operation and extensive Pan-European economic co-operation enjoyed by Arcelor with rapid growth, enhanced production capacity, strong capital base and expanding Asian markets such as Trinidad enjoyed by Mittal. This meant the partners would benefit from what they lacked in terms of amassing essential assets, systems, supply and distribution networks, technology, infrastructures, markets, human resources and processes (Kulkarni, et al.,). Based on strategic theory, effective takeovers should generate the least number of interference to routine operations of the merging companies to ensure the human resources and the customers are not unnecessarily inconvenienced (Moeller, 2005). The takeover was done based on shareholder confidence and pressure (Moeller, 2005). In addition, the systems, processes and structures implemented by the partnering firms should highly compliment each other. This is important in enhancing shareholder and public confidence on the effectiveness of the takeover deal and limiting inconsistencies respectively. The takeover of Arcelor by Mittel demonstrated no significant overlap in relations to operations. In addition, majority of attributes associated with Arcelor were greatly corresponding with Mittal where the broad distribution networks and extensive service center operations belonging to Arcelor were befitting in distributing the substantial volumes of raw materials like iron ore owned by Mittal Steel (Kulkarni, et al.,). The costs of eliminating duplicate operations were greatly reduced owing to the complimentary nature of the deal. According to (Kulkarni, et al.,), to ensure Mittal preserved its strength and influence as a steel producer, the takeover was the only way out which alig ns to strategic theory Conclusion As highlighted in the essay, the takeover of Arcelor Steel by Mittal Steel resulted in Arcelor-Mittal, which is currently the largest global steel maker. Based on strategic theory, both companies were able to effectively capitalize on what they did not have to make the takeover profitable for both sides. Arcelor benefited from the rapid growth, enhanced production capacity, strong capital base and expanding Asian markets such as Trinidad enjoyed by Mittal while Mittal benefited from the brand success, broad operation and extensive Pan-European economic co-operation enjoyed by Arcelor. References Hirshleifer, D. & S. Titman, 1990. Share tendering strategies and the success of hostile takeover bids. Journal of Political Economy, vol. 98, pp. 295-324. Kulkarni, J.A., Pachpande, A., & Pachpande, S. Case Studies in Management. New Delhi: Pearson Education India. Moeller, T., 2005. Let’s make a deal! How shareholder control impacts merger payoffs. Journal of Financial Economics, vol. 76, pp. 167-190. Read More