SUKKUR INSTITUTE OF BUSINESS ADMINISTRATION

Term Report on Engro Foods Limited

BBA-VI

Prepared by: Muhammad Ismail Taimur Zia Anjum Nadeem Fahad Zafar

2014

ENGRO FOODS LIMITED

Table of ContentsEXECUTIVE SUMMARY: ..........................................................................................3INTRODUCTION: .....................................................................................................3

Financial Postion: ....................................................................................................4Awards and Accreditations: .......................................................................................4Core Values:...........................................................................................................5

Models:.....................................................................................................................7

PESTLE MODEL....................................................................................................7SWOT ANALYSIS .................................................................................................7

PORTER’S FIVE FORCES MODEL ..........................................................................7

7P’S OF MARKETING: ............................................................................................11

PRODUCT:..........................................................................................................11

PRICE: ................................................................................................................12PROMOTION: .....................................................................................................12PLACEMENT: .....................................................................................................13

PROCESS: ...........................................................................................................13PEOPLE: .............................................................................................................13PHYSICAL EVIDENCE: .......................................................................................14

CONCLUSION AND RECOMMENDATION: ..............................................................14

EXECUTIVE SUMMARY:The report is an attempt to highlight the contribution of Engro Foods Limited in FMCG sector of Pakistan. This report also highlights the current position of EFL in Pakistan market, and opportunities available to EFL.We went through various reports about EFL in order to analyze the current position of EFL. This report analyzes EFL from the perspective of PESTLE Model,7ps of Marketing and Porter’s Five Force Model. The result indicates strong financial position of EFL, neglect of focus on consumer and product research, poorly designed marketing strategies in case of some products like Olfrute, Omung Lassi, and Omore, excessive focus on particular brands, operating below full capacity level, availability of various attractive investment opportunities to EFL.The report also chalks out some valuable suggestions for the betterment of EFL. The report concludes that EFL has a very bright future ahead provided that if focuses on its consumer and product research, changing demographics and trends, acquiring new and advanced technology, going for value addition, exploiting the export market and going for forward and backward linkages.

INTRODUCTION:Engro Foods Limited is subsidiary of Engro Corporation which is one of the most reputed enterprises in Pakistan with more than 40 years of diversified business operations in the areas of fertilizer and chemicals. Engro was formerly Exxon Chemical Pakistan Limited until 1991, when Exxon decided to divest their fertilizer business on a global basis and sold off its equity

of75% shares in existent company. The Employees of Engro, in partnership with leading international and local financial institutions bought out Exxon’s equity and the company was renamed as Engro Chemical Pakistan Limited. Engro Foods started its business operations

in2005-06. Top quality brands like Olper’s, Olper’s Lite, Tarang, Omore, Olfrute, Dairy Omung,Al Safa, Tarraka and Omung Lassi have been successfully launched. Engro Foods has already

set up two processing plants at Sukkur and Sahiwal and a Dairy Farm at Nara. Engro Foods is now venturing into North American market starting from Halal Foods category and acquired a company launched Meat products with name of AL SAFA.

FINANCIAL POSITON:EFL reported Rs. 30 billion of profits in 2011, and there are above 5 million consumers of their products. According to EFL website, the profit growth is 191%, revenue growth is 35% and gross profit for the year 2011 was 25.7%.

Source: Analysts Briefing 4th Quarter 2012

AWARDS AND ACCREDITIONS:

CORE VALUES:

Ethics and integrityHealth, safety and environment

Innovation and risk-takingOur people

Community and society

Models:

PESTLE MODEL

SWOT ANALYSIS

PORTER’S FIVE FORCES MODEL

PESTLE ANALYSIS:

Political

•Political instability•Law & order situation

Economical

•Low Purchasing power of customers•Unskilled labors•Globalization•Taxes

Socio Cultural

•Increasing growth rate•Urbanization•Health Conciousness•Chnaging Demographic trends•Chnanging Preferences of customers

Technological

•New technology•Innovation•Automation•R&D expenditure

Legal

•Heavy Taxation•Labor Laws•Lower implementaion on Environmental protection law•Higher Foreign trade regulations•Business friendly policy

Environmental

•Go green•Emphasis on environmental sustainability

SWOT ANALYSIS:

Strengths Weaknesses

•Efficient milk collection system.

•Keeping high quality standards.•Successful diversification.•Product Innovation•Strong Financial Position•Huge Capacity for Production.•Growing Sales•Worldwide fame of Engro.•Market Share•Better Integrated distribution and warehousing

facilities.•Engro food has the third-generation.•UHT milk plants in thecountry.

•Engro Foods is having only one its own dairy farms.

•Centralize Decisions•Less Promotion Activities•Weak Segmenting, Targeting, Positioning analysis•The competitors like Nestle and Haleeb Foods have a much diversified line of dairy products than Engro Foods•Unable to fulfill the demand of local powder milk

market.•Low R&D as compared to Nestle•Ineffective Communication in ads•Products not readily available in rural areas except few

items•Weak Cold chain facilities

Opportunities Threats•Flexible government policies for food industry.

•Expansion of Food Business•Awareness of Packed Milk•Availability of Raw Material•Market Capitalization•Diversification•Export Opportunities•May merge with other global businesses to eliminate

competitors.•Having Capable of expanding into other markets of the world•Has the potential to innovate and differentiate the company's

products to•sustain a Competitive advantage•Changing perception of consumers about generic brand.•Halal Meat Market•Frozen Food Industry•Value addition in agricultural commodities and leveraging on

brand•Backward and forward integration•Expanding number of outlets•Export Market potential of agricultural products

•Competition with Nestle, Haleeb, Walls. and the newentrants,

•Mature Market•High inflation rate.•International Marketing Standards•Change in prices might create certain barriers in terms

of the•profit margins•Low purchasing power.•Recessionary period in business cycle.•High Taxes•Seasonal Factors•Economic Condition•Price Consciousness of consumers

*Entrance barrier:

Economies of Scale Product Differentiation Capital Requirements Switching Costs

Access to DistributionChannels

Cost DisadvantagesIndependent of Scale

Government Policy

7P’S OF MARKETING:Following is the discussion of EFL from the perspective of 7p’s of marketing.

PRODUCT:Engro Foods offers 12 different brands. The product portfolio is well diversified and innovative in nature. Some of the brands of Engro Foods are performing tremendously like olpers which is becoming a generic name for milk. Olpers have snatched huge market share of milkpack. Olpers is now a leading brand in the milk industry. Tarang is also performing well. Apart from these success stories, Engro Foods also face Product issues in various offerings. Some of the important Product issues that we found in our research are listed as under:

Olfrute offering six different variants fails to differentiate itself on the basis oftaste from its competitors such Nestle, Sheezan etc. Moreover consumers complaint about its taste as well. The packaging is also not as attractive as of Nestle. Nestle is offering Prisma Packaging, but Olfrute is going with traditional packaging. Moreover they are not including new tastes as fastly as Nestle is doing. Olfrute has been almost wiped out of the market by Fruita Vitals. There were some others issues as well with Olfrute, but these are discussed in next portions.Omung lassi has been also a complete failure. The shelf life of Lassi was also not enough. It offered a taste which was different from traditional Lassi. They also failed in effectively segmenting and targeting the market.Dairy Omung is an innovative idea that offered milk substitute Rs. 75/kg. The color was not natural. It is not healthy as well as it used some artificial ingredients.

From the above three examples, it is evident that the STP analysis of Engro foods is veryweak. Although they offer different variants, but fails to differentiate themselves from the competition. The Packaging lacks attractiveness and there are some quality problems in their products.

PRICE:Engro foods mainly charge competition based prices. Determining right prices is quite a difficult task in case of rising inflation. The decreasing purchasing power of the customer is causing problems in setting Prices. However Older is maintaining right set of prices, and hence earning handsome profits. Some of the Price related issues are as under:

EFL maintains different pricing strategies for different brands. Olfrute is a highpriced, low quality product in comparison with Fruit vitals. EFL maintains LowQuality, Low Price strategy for Dairy Omung.EFL doesn’t offer price cuts to customers in order to boost sales of lagging behind brands such as Olfrute, and Omore.They often go with competition based pricing rather than value based pricing, or penetration pricing.

PROMOTION:Promotion plays a vital role in success of any business venture. It has also contributed towards the success of Engro Foods. They extensively promote Olpers and Tarang. But there are some pitfalls in their promotional strategies. These are:

First and foremost, they are unclear in conveying the product informationthrough advertisements, such as they promoted Tarang as milk for almost a year. Moreover they are also criticized for promoting Dairy Omung as Milk, which is actually not milk. And because of the promotional activates of Dairy Omung, itssales were banned by Punjab Government. They also failed initially to convey information about Omore ice creams in their first ads which lacked product information.The Target market is unclear in their advertisements. Such as in case of Olfrute, Target market is unclear. Initially they highlighted a typical house wife (Nadia Jameel) busy in daily routine, and failed to make proper connection with Olfrute. Then during relaunch, they shifted their focus towards youngster by casting a Brazilian model, which was again lacking proper connection with Olfrute. Omung Lassi, a big flop from EFL was also due to poor promotional activities, which failed to identify target market. Model was dancing and drinking Omung Lassi, but actually there is no connection in between dance and lassi.The frequency of ads is also very low, excluding Olpers and Tarang. Such as till today, they have only made two advertisements of Olfrute. Similarly Omore was also not frequently promoting its brand initially.EFL is not active on social media as well.The taglines are also confusing most of the times. Such “Guru hoja Shru” tagline of Omung lassi was somewhat targeted towards “Gurus”. Olfrute’s first tagline “Idher Udhar, Idhar Udhar” also communicated sense of urgency rather than a sense of integration with brand.EFL is being over trendy as the names that lack proper spelling like Owsum (Awesome), Olwell (All well), Olfrute (Ol fruit) etc. As their target market also includes children which learn false spellings, so how can they justify these spellings?

Questionable association with letter “O”, as most of brands starts with O.The negligible promotion of other brands is also the cause of concern for EFL. Leveraging the brand equity of Olpers (Dairy item) to other non dairy brands like Olfrute.

PLACEMENT:EFL has a strong and integrated distribution network throughout Pakistan. Tarang, Dairy Omung and Olpers are readily available at retail stores. However there are certain issues related to placement as well. Some of these are:

Olfrute, Omore, Olper’s lite, Tarka, and olper’s cream are not readily available inmarket. Their presence is restricted to superstores of metropolitan cities.Although EFL has strong distribution network for Olpers, but they are not using it for other brands.Retailers are not willing to have these new brands of EFL in shelves because of lesser awareness of these brands in general public, such as Olfrute, Omore, Olper’s lite, Tarka, and olper’s cream. Moreover these brands are not placed appropriately against the competing brands.

PROCESS:EFL has well defined processes, such as the milk collection system is one of the best in Pakistan. The Quality Checks to ensure quality standards are also worth praising. However some of the drawbacks that we came across in their processes are listed as under:

Decision making process is heavily centralized that hurts their responsivenesstowards market changes. This results in loss of many potential opportunities.The storage process for cold items is also not efficient, that ultimately results in poor placement.Relationship marketing processes are also lacking in EFL. Such as they don’tinvest in customer relationship management.Feedback process is also not up to the mark. They go with push strategy thatdoesn’t focus customer feedback/wants.

PEOPLE:As compared to local firms, EFL has a good quality workforce. But on the larger end, the workforce of EFL is not as productive as compared to Nestle (main competitor).

Nestle invests huge amount of money on worker’s training, that is lacking in EFL.Hence productivity level of workers is low as compared to Nestle. Fails to focus on internal employees, as potential customers.Low level of involvement in decision making.

PHYSICAL EVIDENCE:The ambiance of production facilities is not up to the mark as compared to that of Nestle. Hygienic environment in food processing facilities is also lacking.

CONCLUSION AND RECOMMENDATION:Engro Foods Limited is a Pakistani brand that has recently gone international within a short span of time. And nowadays, EFL has become a strong brand name. EFL has given tough time to a giant competitor i.e. Nestle Pakistan. Some of the products of EFL are performing like a charm such as Olpers and Tarang. Olpers have snatched the market share of Nestle and Haleeb. But apart from these brands, other brands of EFL are lagging behind in Market. Some of suggestions that would help EFL overcome these obstacles and explore new markets are listed as under:

EFL is a national brand, so it should cash this blessing. It should play on being thenational brand. Such as Gala did with tagline of “Mere des ka Biscuit Gala”. Recently they have tried this tactic in relaunch of Olfrute with tagline of “Ye green Hamara he”. And they should continue this practice.EFL has only one dairy farm and they should expand this number as nestle is doing with an investment of $70 million for opening up new dairy farm.EFL should streamline its processes, and should go decentralization in order to be more competitive and more responsive by removing bottlenecks.Promotional activities should be aligned with the nature of product. EFL lacks in customer and product research. Their weak STP analysis has been exposed many times. So EFL needs to improve its marketing strategies, including proper tagline, properly conveying product information, and proper target market.EFL should specialize in certain successful products, rather than quickly going for new products without any prior research and market test.EFL should focus on cash cows as Olpers and Tarang and backup Dog items such as Omung lassi and Olfrute, and support them from the earnings of cash cows. Instead of limiting itself to metropolitan cities, it should its operations to rural areas as well because the demand for processed food items is also there. Moreover the consumer preferences are also changing in rural areas.The concept of nuclear and DISK family is a potential sign for frozen food industry. So EFL should go for frozen foods. No doubt, they are in this market, but the cold chain facilities affects placement of these items. They need to make sure effective cold chains for being successful in this market.There is a huge potential for Halal Foods market locally as well as internationally. Specifically the demand for Halal Foods is great in Muslim countries. EFL is operating with name of Alsafa in Canada, but they need to open their outlets in Pakistan and other countries as well.There is huge opportunity for export of value added items. EFL should leverage the brand equity of Engro on various commodities and export them as products

rather than just commodities in international market i.e. Engro Fruits, Engro Rice,etc.EFL should go for forward and backward linkages in the industry as Nestle Pak is doing.And as playing CSR role it should empower the farmers by introducing them to new and advanced agricultural methods that would benefit agricultural sector on large.EFL should open up its outlets in order to reduce power of middle men(Distributor).EFL lags far behind in R&D as compared to Nestle. Increased focus on R&D will solve many of its problems. One way to improve this through Industry-Academia linkages.EFL should provide quality products, because if it fails to do so, then market share will be captured by Nestle and other competitors as the switching cost for buyer is low.As mentioned earlier, EFL is very poor in marketing strategies. So it needs to overcome these mistakes.The level of training for workers needs to be increased in order to raise productivity.Most of the brands focus on Tier 1, and lacks focus on BOP. This opportunity canbe very beneficial. “Lower prices and lower quantity”.EFL should go for international standards if it wants to exploit the untapped export market.Ensure compliance with rules and regulation of FDA and other regulatory institutes of Pakistan.The element of deception in their promotion also needs to removed because it hurts their brand image.EFL needs to be proactive and adaptive to ever changing preferences of customers, but it should be based upon proper research and pull strategy. Ambiguous codes should not be used on the package of Dairy Omung.EFL should also adopt new and advanced food processing technology in order to lower down the production costs.

Thanks