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United cerealsCase solutionInternational Finance related
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United Cereal:Lora Brill’s Eurobrand Challenge
About the Company
• Established in 1910 in Kalamazoo, Michigan by Jed Thomas• First Product: packaged mix of cracked wheat, rolled oats, and malt
flakes• Diversified into snack foods, dairy products, drinks and beverages,
frozen foods and baked goods• 2010 revenues: $9 billion – one-third contributed by breakfast cereals
Corporate Values
CommitmentDiligenceLoyalty
Policies and Practices• Managers promoted from within• Strong commitment to “The UC way”• “Listen to the customer” – pioneer in
the use of consumer research and focus groups
• “ Spot the trend, make the market”- extensive market testing prior to product launch
• Innovation and Brand Management
Breakfast Cereal Market Scenario
• Breakfast cereal was one of the great food commercialization successes of the 20th century
• Worldwide revenues: $21 billion in 2009
• Highly competitive industry• 10% of revenues spent on advertising and marketing • New-product introductions typically occurred every year• Brand extensions were less risky and less expensive compared to developing a new brand• Growth from expansion to offshore markets
Cere
als
Hot
Ready-to-Eat(accounted for 90% of sales in both the US
and Europe)80%
20%
US Sales ($12 billion)
Top 5 players
Remaining 25
UC’s European Operations UC entered European Market by acquiring and expanded by
introducing productsCompetitive StructureEuropean Industry
• $7 Billion breakfast cereal
market• Varies with countries tastes and
breakfast traditions• Channels also vary country-wise
•26% market share•High volume low cost modelKellogg
•20% market share•Europe accounts for 20% of UC’s sales
United Cereal
•17% market share•JV between General Mills and Nestle
Cereal Partners
Weetabix7% market shareStrong branding and promotions
UC’s Europe Strategy and Organization
• Follows national subsidiary model led by Country Manager(CM)
• CM works as entrepreneurs to maximize the subsidiary’s local profit
• Each subsidiaries built as mini UC’s- exact replica of parent organization
• CM’s were expected to respect the UC way• Differences in product profiles and market strategies became a
problem• Same product positioned differently across different markets
Increasing price and profit pressure
UC’s European Operations
• Total sales : stable
• Market growth : less than
1% annually
• Product mix: lower price
offerings
• Price and promotion
pressure: Kellogg and
cereal partners.
Areas of concern
• Focus on local products and
market
• Market & product development
teams outside US had 25% more
operating expenses
• Slow new product introduction
• Favor product extension
United Cereal ResponseArne Olsen, UC’s European VP invigorate product portfolio and reverse decline in profitability
UC’s European Operations
Year 20021. Re-organised R&D2. Created European Technical Team
(ETT)2.1 link scientists to subsidiary based technologists2.2 gain overall product development direction
Year 2004Expanded ETT to ‘European Initiative1. Aimed at product market strategies2. Disastrous ‘European Juice Nazi’
incident2.1 Standardize product across countries2.2 Challenged local autonomy
Year 20061. Olsen transferred to Kalamazoo2. Lora Brill took over as VP
Aftermath of 2008-09 recession 1. Growing pressure on margins2. Leverage the marketing
resources to control budgets3. focus on coordinated European
approach for product development
4. ‘Eurobrand' concept test- Healthy Berry Crunch
The Healthy Berry Crunch Project
The French Opportunity:• Market for organic fruit based cereal in France
Blueberry product
Organic blueberry based cereal as a product extension of Healthy Crunch Blueberries - antioxidant qualities
Implemented a full scale test market in Lyon - mixed results
Intention to repurchase - below UC target of 60%
Raspberry Product
Too expensive to manufacture
Sweeter Blueberry version
Taste tested in 6 French cities
64% intention to repurchase
Ready to launch
The European Debate
Before Launch• Brill started testing Healthy
Berry crunch European wide
• Finance team had estimated that coordinated European market strategy would reduce the staff and bring in more saving
• Estimated around 10 to 15% of over the three years
• Appropriate time to consider products for the local market
• As the consumer taste is converging, cultural habits are disappearing
• EU regulations on labeling, advertising and general marketing practices are eroding marketing differences
PodCafe Debacle• Podcafe was launched in
Germany in 2003 for home espresso machines
• French subsidiary launched this version in 2006
• But in 2006 the market was crowded by similar product which took their market share to third place
The Launch• Cost would was estimated
around $20 million in France- 10 times the approval level
• Problems to get the shelf space for specialty cereal
• The Spanish subsidiary is still under recession
• Reluctance for this launch as it without proper product, consumer and market research
The proposed UC European OrgLora Brill,
European VP
Director, R&D
Manufacturing Director
Director of Admin and
Finance
Engineering Manager
Director of Marketing Services
European Sales Manager.
Logistics and Purchase
James MilnerDivision VP UK
and Scandinavian; Frozen Foods
Jorge SanchezDivision VPSouthern Europe
Beverages, Juices and
DairyKurt JaegarDivision VPNorthern Europe;Cereals,
Snacks and Baked Goods
The “Eurobrand” team
• Brand managers from every country subsidiary
• Delegates from each functional group such as logistics, engineering, R&D and so on
• One appropriate Vice President who is in charge of specific regional divisions
• Chaired by brand manager of an assigned “lead country”
• Apart from their current role of supervising subsidiary by region, they were offered an advisory role.
• They were tasked with cross-market coordination and communication of certain products
How effective will the Eurobrand team be?
• No dilution of CM role; VPs role only as an advisor
• Since the team consists of resources from R&D, purchasing & logistics, increased cost pressures can now be addressed for Europe as whole and not country specific
• Generic strategy allowed CM to make his own market decision and was responsible for P&L and therefore, current structure lacked consistency
• Original strategy was differentiation, but current strategy made them cost focus as SG&A cost was 25% higher than counterparts in US
• Structure should allow efficient horizontal and vertical communication lines
• Hierarchy of UC will become more complex, which will result in a longer information chain; hence hierarchical structure is clear and efficient and that every
• Employee feel they are evolved in the decision-making process.
How can the team be more efficient?
The Dilemma – Launch Healthy Berry Crunch?
• Panel results in Germany suggests trend is to move to more healthy food
• EU has loosened its regulations of labelling, marketing practicing, which also indicate an opportunity to UC
Industry moving towards healthy food
• Kellogg’s special K with strawberries is the only competitive product in the French market
• Rumours about launch of Berry Burst Cheerios
• PodCafe debacle
Competition
• Savings of 10-15% in the overall costs of all Europe, the launch of Healthy Berries Crunch seems to meet the company’s long-term strategy of streamlining the operations and product matrix of Europe
• “Spot the market, make the market” - the innovation in the products had been at the core of UC’s history and the launch of Healthy Berry Crunch will be in line with this core value
Strategic Advantage to UC
Hence, Lora should authorize the launch of Healthy Berry Crunch in France as UC’s first
Eurobrand product
SWOT analysis of UC in Europe
THREATS OPPORTUNITIES
STRENGTHS WEAKNESSES
• Global competitor in a multi-billion dollar industry
• Built on three core values - “The UC Way”, “Listen to the customer” and “Spot the trend, make the market”
• Willingness to put people with fresh ideas in leadership positions
• Lack of agreement on a managerial level• Everyone has a differing opinion on
which direction the company should be moving
In
• Kellogg, the toughest competitor, has already introduced Special K
• The competition is growing dramatically in European market
• The market growth of cereal industry has slowed to less than 1% annually
• Trend of customers’ preference to lower-priced products after the global recession
• Tastes and habits of breakfast converging
• Natural and less sugar in cereal products has become a key trend in the cereal industry
• EU has loosen its regulation oflabelling, advertising, and general marketing practices
Porter’s Five Forces of UC’s in Europe
Porter’s Five Forces for UC
in Europe
Threat of new
entrants
Bargaining power
of customers
Bargaining of Supplier
Competition in the Industry
Threat of substitute products
Low
High
High
High
High
The Healthy Berry Crunch Project
• The European Debate: Monil
• The Organizational Challenge: Shirazi• Decision/case Summary and problem: Shirazi
Exhibits
• Shirazi, Monil, Kirti, Ashish, Nidhi