STRATEGIC ANALYSIS OF POST-HOLDING’s ACQUISTION OF WEETABIX
by Onwuasor Obianuju R1511D1136036
Strategic Analysis: Analysis: Tools & Techniques Techniques (ST4S38-V1) Tutor: Apostolos Pistolas University of South Wales
8 JULY 2018
Table of Contents 1.0 Introduction ............................................................................................... 3 2.0 Strategic positioning of the company..................................................... 3 2.1 Stakeholders involved ................................................................................. 7 3.0 External forces driving the strategy ....................................................... 9 3.1 PEST ANALYSIS ........................................................................................9 3.1.1 Political Analysis ...................................................................................... 9 3.1.2 Economical Analysis .............................................................................. 10 3.1.3 Social Analysis ....................................................................................... 11 3.1.4 Technological Analysis .................... ...................................................... 11 4.0 Industry Analysis .................................................................................... 12 4.1 Supplier power ..........................................................................................12 4.2 Buyer power .............................................................................................. 12 4.3 Competitive Rivalry ................................................................................... 13 4.4 Threat of Substitution ................................................................................ 13 4.4 Threat of new entry ................................................................................... 13 5.0 Conclusion/Recommendation ............................................................... 14 REFRENCE ................................................................................................... 15
1.0 Introduction Organizations worldwide are faced with a variety of competition. Organizations may offer lower prices, better customer service, a wider/narrower variety of products, faster technological adaptation etc. in attempt to overthrow their competitors. In order for these organizations to remain competitive, there is a need to venture into new markets to increase its market share. Lieberman et al (2009) asserts that acquisition strategy amongst other things is a typical method employed by organizations who want to easily enter a new market, gaining market share and remaining competitive. Post Holdings Inc. is a consumer-packaged goods holding organization, which manufactures, markets and sells both branded and private label cereal products. They came up with a smart strategy of entering the British market in 2017 by acquiring Weetabix Limited, also a breakfast cereal company. This acquisition means that there would be a change in stakeholder both internally and externally. There would also be a need to analysis and set clear roles and objectives for competitive advantage in order to gel the new team together to avoid hiccups along the way. There is a need for continuous interaction and integration between organizations, people and governments during M&A. The pressure for synergy, sharpened business focus and growth drives organizations to reappraise and create better strategies and methods of achieving short/long-term objectives, gain advantage over competition and gain a larger market share in its product market. Therefore, this study will focus on the critical strategic appraisal of Post Holding acquisition of Weetabix applying strategic framework in a cohesive manner in order to develop a clear understanding of the current strategic change in this acquisition. 2.0 Strategic positioning of the company A vital step in defining the strategy of a business is by ascertaining its strategic positioning – the actuality of how it compares to its rival company and serves customers in its product markets (http://www.dean.com/deltamodel/strategic-positioning.html, no date)
Wickham (2001) defines strategic positioning as the way an organization seeks to differentiate itself from it competitors and how it allots utility to the customer segment. Chew (2009) also refers to strategic positioning as the way in which an organization has a unique position in its product market with the target market comprehending where its organizations position in respect to its competition. Strategic position takes into account the position of a SBU in the future without ignoring the constantly evolving environment and the methodologies required to achieve that position. Galal (2013) asserts that positioning is important because it enables organisation select a peculiar niche. This reflects the company’s choices about the value it intends to create and how these values differs from that its competitor. Porter's 5 forces Analysis and Bowman’s Strategy clock are strategic frameworks that can be easily adopted to understand how to gain advantage over rival companies. Porter (2008) states, “that being able to understand the competitive forces and its causes helps reveal the roots of an industry’s current-profitability while providing a framework for anticipating and influencing competition and profitability over time” There are three generic strategy approaches that can be applied to any industry or organization. Michael Porters in 1985 set out these generic strategies to include cost leadership, differentiation, and focus in the figure below (Mindtools,2012) . He argues that an organization that employs cost leadership as a way of gaining competitive advantage focuses on creating an “edge” that’s pulls in sale and also takes away sale from its competition. He also asserts that cost leadership can be achieved by reducing the cost thereby increasing profit while charging average prices f or products/services or by increasing market share. Cost leadership is focused on reducing the cost incurred to the organization for delivering products and service and not the actual cost of the products it self.
Porter’s generic strategies
An organization that uses differentiation focuses on making their products/services different and more attractive than those of rival companies. Companies products that use differentiation approach to strategy typically adds extra values like better functionality, effective pre and post purchase support and normally has a brand name that customers value. Tanwar (2013) argues that the focus strategy centres on organizations that concentrate on a particular niche in the industry market by understanding the unique dynamics of the market and its customer’s needs by either developing low cost products or well-specified product. Focus based strategy can sub divided into either cost focus or differentiation focus. Whichever subdivision that is chosen it is best to ensure that extra values is added as a result of serving a particular niche. A research carried out by Visionone in 2017 stated that Weetabix has employed the differentiation focus strategy in recent years by placing importance on brand management and providing consumers with products that serves their unique needs. Weetabix has a variety of brands each specially made with consumers need in mind. Bowman’s strategy clock traverses the choices for strategic positioning. This typically means how products should be placed to guarantee it competitive position in the market. According to West et al (2015), Bowman’s strategic clock (Tutor2u, 2016) an extension to Porter's generic strategy seeks to elucidate that businesses would possesses variety of options of how to
position a product based on perceived value the customer derives from the product and price a customer will comfortably agree to pay for that product. Weetabix falls under the differentiation strategy on the Bowman’s strategy clock because Weetabix seeks to offer customers the highest level of perceived value at an averagely suitable price. This means that there has to be continuous evolution of strategies that helps them stand out from rival companies in spite of them selling the same product. Weetabix has successfully been able to achieve said strategy through the creation of different brands that service a wider range of customers in various market segments (Roger, 2017).
Bowman’s Strategy clock
The aim of the differentiation strategy employed by Weetabix is to provide its customers with a higher level of perceived value by incorporating RndD into its core purposes. The Research and Development team provides t he marketing team with insightful market surveys and research, which is in turn employed when carrying out marketing campaign. In 2014, Weetabix introduced Breakfast on the Go, after thoroughly building from a market research carried out on its rival company Nestle. The research showed that at
least six out of 10 people usually would have a “to go” breakfast and less than 30% would spend more than 10 minutes preparing breakfast (Warc, 2017). From this research, Weetabix was able to capture target market by using branding and product quality where the combined convenience and a healthy source. This research helped them fast track the development of the product by more than 10 months (Happen, 2017). Weetabix has successfully been able to capture 70% of cereal sales in Kenya by adapting the differentiation strategy (Marketingweek, 2017). They have been able to break in because they have found a distribution strategy that suits the method of consumption. In Kenya, consumers prefer small-value transactions, which are a completely opposite strategy employed in Mexico where consumers prefer to buy in larger quantity. In Britain, most campaigns are carried out based on insight and emotional positioning because it would be easier to sell the idea that their products can help busy families with healthier breakfast cereals. Over the years, Weetabix has been able to successfully adapted to the peculiar market conditions where their products are being sold. In 2015, Weetabix started a campaign called “Weetabuddies” was able to increase its sales by 14% percentage simply by being able to capture the minds of health conscious parents who are of the opinion that kids should eat healthy (Talking Retail, 2016). 2.1 Stakeholders involved Freeman (1984) defined stakeholders as,” any group or individual who can affect or is affected by the achievement of an organization’ objective. These individuals or groups of individuals, have a stake in the success of the company. Various businesses have varying approaches to stakeholder management. Stakeholders may either be primary stakeholders as they control the internal activities of the organization e.g. Equity shareholders, customer, suppliers, employees, business partners, shareholders, investors etc. or secondary stakeholders whom have interest in the organization but have no control over the internal operations of the organization e.g. the public, government, global society, media, trade bodies, competitors etc. In the acquisition of Weetabix by Post Holding, various stakeholders were involved. The primary stakeholders consist of the shareholders of both Post
Holdings and Weetabix; they govern the activities and operations of both organizations. They have a high level of power and interest in the companies. They must at all points be satisfied. The Post Holding shareholders are acquiring Weetabix while Weetabix Shareholders have the selling stake. Investors, employees and the British government are also primary stakeholders. The British government plays an important r ole in making sure the sale/acquisition process is done legally and following all stipulated corporate rules. Employee might be affected either negatively that is a few of these employees would lose their jobs and incentives while some positively; increased pay or new job roles. On the other hand, investor returns maybe affected. The other secondary shareholders include the public, global society etc would have an effect or be affected indirectly on the organization and vice versa
Power Interest
Individuals or groups that posses high power and are highly interested should be managed closely. There is a need to engage these individuals fully and make an effort to satisfy them. Also, the “key satisfied” group on t he matrix are the individuals/groups are the individuals you have to put in work to keep them satisfied but not bore them with the message. Whereas, the “key
informed” group are the group with low power but are highly interested. People in this category are helpful in providing needed information for your project. The “monitor” category is people with low power and lessly to be interested.
3. External Factors Driving the Strategy 3.1 PEST Analysis PEST Analysis allows for effective evaluation of an organization's external environment. It is a strategic tool used in the analysis of the macro environment of the organization. Companies employ this notion as a tool used to track the environment an organization plans to kick-starts a new project, product or service. This analysis examines the political, economical, social, technological, environmental and legal environment. It gives a clear view of the operating environment from varying angles listed above.
3.1.1 Political Analysis Post Holdings acquiring of Weetabix entails that it would have to follow all laws imposed by the British government whether directly or indirectly. They would have to act in accordance with employment laws, business operating legislative laws, foreign trade regulations and the government stability has to be put into account. The British government in 2017, increased the minimum hourly wage for employees 25 and above from 7.2 pounds to 7.5 pounds in an attempt to improve their welfare (Minimum Wage Uk, 2017). The table below illustrates the minimum hourly rates across various age groups over the past four years
YEAR
25 AND
21-24
18-20
OVER 2017
7.5
7.05
5.6
UNDER APPRENTI 18
CE
4.1
3.5
2016
7.2
6.95
5.55
4.0
3.4
2015
6.7
6.7
5.3
3.87
3.3
2014
6.5
6.5
5.13
3.79
2.73
(Minimum Wage UK,2017) The table above shows the rates as they have increased yearly across all employees age range. Being that the production company of Weetabix is located in the United Kingdom; Post Holdings will face an increased salary wage as opposed to what its pays in America. In the United Kingdom, The Work Time Regulation 1998 allows employees to get 28 days paid leave days. Also the employment rights act 1996 permits employees the right to request for flexible working hours for child care etc. (Wikipedia, 2018). If the organizations opt to not abide by the new laws, they would have issues with the government. In order to cut the cost incurred from wage increases and other miscellaneous, Post Holdings will need to source for other methods of cutting cost. 3.1.2 Economic The Economy of the United Kingdom and US would be affected by the acquisition of Weetabix by Post Holdings. Since these economies are different and are growing at different rates, the organization has to figure out of tackling and coping with new experiences. Chu (2017) asserted that the US grew by 2.7% by the second quarter of 2017 while the UK only noticed a slight growth of about 0.4 % in the third quarter due to its inflation rate, which rose in september to about 3%. This rise in inflation rate would affect t he prices of Weetabix products in the United Kingdom and would possibly change the demand and supply model of the economy (http://pestleanalysis.com/what-ispestle-analysis/, no date) An illustration like this proves that both organizations have to create a strategic to deal with the various economic trends. To cushion these varying trends, the company can choose to product new products and sell to new markets across the world. This simple initiative would help distribute the risk
of retarded growth that may occur when economies experience slow growth rate. 3.1.3 Social Social factors examine carefully the markets social environment and models cultural trends, demographics, consumerism, population analytics. It takes into account present and future consumers taste and proclivities. For example, Consumers in the United Kingdom and US would pick a breakfast cereal as opposed to consumers in China whom have an inclination to go with a hot breakfast (Monaghan, 2017). On that account, the likelihood of purchasing Weetabix would be lower in China as compared to the UK or US. Due to the higher chance of purchase of breakfast cereal in the Uk and US, there is a stronger probability of success as Post Holdings bought into a receptive market. Williams (2015) propounds that in 2014, when Weetabix sold to bright food a Chinese company, there was a decline of 4% of total turnover and 7% of pre tax profit. This turnover was as a decline in the consumption of cereal. In order to increase sales, it would be advisable for the company to diversify and start selling other products that are in line with customers taste and proclivities. 3.1.4 Technological Post holding needs to be in tune with the constantly change needs of its consumers. In recent times, consumers prefer to eat there cereal on the go, so post holding as to put in place the technology needed to continuously be involving and changing. They need to provide breakfast cereals that match the needs of their consumers. In the cereal industry, there are available machines which can cut cereals into various shapes and forms like the shapes of tubes, bars, rings etc. (Maskan, 2016). This is also something that Post holding should consider for growth and success
4. Industry Analysis The breakfast cereal industry is high concentrated and there is a need for organizations to understand what factors can easily affect its profitability. This also provides organization with a platform to envisage and influence competition by fine-tuning their strategies. Porter (2008) propounded five forces as a tool for analyzing competition of a business, the competitive intensity and its attractiveness in terms of profit. (https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis, no date) These five forces include supplier power, buyer power, competitive rivalry, threat of substitution and threat of new entry. 4.1 Supplier power This force is also called the market of input. Suppliers of raw materials, labor and expertise have power over organization if there are fewer substitutes. These suppliers are normally aware of the uniqueness of their product and know that switching from one supplier to another wouldn’t be an easy feat. In the breakfast cereal industry suppliers of grains and wheat needed for production are relatively low (Newswire, 2017). Weetabix prefers to get their raw materials from a 50-mile radius of their factory in order to be able to check quality easily (Weetabix, 2017). 4.2 Buyer power This force also called the market of outputs. This measures the buyers ability to change/drive down prices of commodities. Supermarkets and grocery outlets serve as the main distribution channel for the breakfast and cereal industry. The number of cereal brands available in this stores makes buyers power relatively high. It is easy for a consumer to switch to an alternate brand if prices increase or the quality reduces (Schultz, 2012). To help increase sale, Weetabix works closely with this distribution channels (Drakakis, 2017).
4.3 Competitive Rivalry In the breakfast cereal industry, the intensity of industry rivalry is the primary determinant of the competitively. In order for an organization to successfully sell a product there was be a clear understanding of industry rival. How the public sees your product and differentiates it from competition. In the US, the cereal industry is highly concentrated with leading players like Kellogg, Post, Quacker holding 85% of the market share while Nestle, Weetabix etc. hold 78% of the global market share. Weetabix must continuously be aware of its rivals strategies and pricing and be more proactive in order to increase or hold its current market share (Newswire, 2017). 4.4 Threat of substitution. The force seeks to look into the possibility of finding a replacement for fulfilling ones need without having to purchase organisation product. A substitute product uses a different technology to try to solve the same economic need. There are a wide variety of breakfast meals available so the threat of substitution is high. For example, in china where consumers prefer hot breakfast to cold breakfast Weetabix wasn’t able to successfully break into the Chinese market (Wade, 2017).
4.5 Threat of new entry. This force dives into the number of restraints that a new organisation will experience when trying to enter into a particular industry. Profitable industries that yield high returns will attract new firms. These threats are influenced by ease of access to labour, expertise, raw material, government policies etc. In the breakfast cereal industry, the entry of new organisations is low because leading players hold a large portion of the market share. These lead players also understand customer’s need and have been able to create a brand that customers are loyal to.
5.0 Conclusions and Recommendation. In 2017, Post Holdings acquired Weetabix for 1.4 billion pounds. Weetabix is a breakfast cereal industry, which employed differentiation strategy as a means of getting competitive advantage over their competition. They produced different products and different marketing strategies to suit different markets. External environments, which the countries cannot control, include the political stability of the country, a change in consumers taste and frivolities. Due to uncontrollable situations as the ones listed above, there is a need to come up with strategies and adapt to changing technology in order not to lose market share. Innovation and continuous evolution is required to maintain competitive advantage. The breakfast cereal industry has at least 78 lead players; in other for Post Holdings to remain competitive to must continue to remain averagely priced with a strong perceived value. Due to the fact that suppliers of raw materials have a low bargaining, it affords the company with advantages because negotiate for lower prices of high-quality inputs. Thus, it could reduce or neutralize the effect of increased wage bills that are a result of the new minimum wages in the United Kingdom. -
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