Weetabix Acquisition by Post Holdings: Strategic Analysis and Differentiation, Essays (university) of Strategic Management

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UNIVERSITY OF SOUTH WALES

Assessment 1

Strategic Analysis; Tools and Techniques

Module Code:

ST4S38-V1-

Module Lecturer:

Christodoulos Kakouris

Date of Submission: 13/10/

Student Number: 74108567

Contents

• Introduction.................................................................................................................................................
• Strategy Exploration....................................................................................................................................
  • Generic position.......................................................................................................................................
    • Differentiation Strategy.......................................................................................................................
    • Cost Strategy........................................................................................................................................
    • Focus Strategy.....................................................................................................................................
  • Bowman’s Strategy Clock.........................................................................................................................
• Stakeholders Analysis..................................................................................................................................
• External factors driving the strategy............................................................................................................
  • Political factors........................................................................................................................................
  • Economic factors.....................................................................................................................................
  • Sociocultural forces.................................................................................................................................
  • Technological factors...............................................................................................................................
  • Environmental forces...............................................................................................................................
  • Legal and regulatory factors....................................................................................................................
• Internal factors driving the strategy............................................................................................................
  • Rivalry among Competing Sellers............................................................................................................
  • Competitive Pressures from Potential Entrants.......................................................................................
  • Competition from Substitute Products....................................................................................................
  • Bargaining Power of Suppliers...............................................................................................................
  • Bargaining Power of Buyers...................................................................................................................
• Conclusion.................................................................................................................................................
• References.................................................................................................................................................

Porter said that strategy is to make choices and trading off and it is concerned with how to be different (McGraw-Hill Education; Unicaf, 2017). In order to understand the strategy making and choice process, we have to explore the external and internal factor affecting the strategy making and the company’s overall strategy. Four levels of strategy should be considered when addressing the strategic analysis of a company. These levels are used as a unit of analysis to the strategy content. Levels are network, corporate, business and functional (UNICAF, 2019).

Strategy Exploration

Generic position

First we will discover the generic position of the company is research. Porter has put The Five Generic Competitive Strategies in order to help in understanding the strategic position of a company, these five strategies are: Low-Cost Provider Strategies, Broad Differentiation Strategy, Focused Low-Cost Strategy, Focused Differentiation Strategy and Best-Cost Provider Strategy (McGraw-Hill Education; Unicaf, 2017). Differentiation Strategy Companies need to be differentiated between competitors, producing products or services which are tailored for more customer satisfaction and loyalty. Differentiation in products allows the company to put a good price for products, gaining more customers thus increasing unit sales and raising customer loyalty (McGraw-Hill Education; Unicaf, 2017). Weetabix has broad line of products, which are highly differentiated. They offer series of cereal products, refrigerated side dishes, farm products, energy shakes and nut butter (Post Holdings, 2018). This strategy in products differentiation helped the company gaining more market share and competes for strong market position. Cost Strategy Companies are trying to lower the production costs in order to gain more market shares by introducing cheaper competitive products. Companies adopting low cost strategy have to pay attention to the many factors driving the cost. The merge of the two companies in research, this raises the opportunity to implement economies of scale, utilize capacity more efficiently and increase supply chain efficiency. Also, it can have a high influence on the inputs cost and could use the learning and experience advantage to lower costs.

The company in discussion is aiming for more differentiation with proper production costs, in which it is not aiming for cost leadership as to maintain the differentiation advantage (McGraw- Hill Education; Unicaf, 2017). Focus Strategy According to Porter, focus strategy can either by utilized in two directions, Focused Low-Cost or Focused Differentiation. Companies implementing focus strategy are concerned with a niche or narrow market segment, in which they are providing highly differentiated products or low cost products (McGraw-Hill Education; Unicaf, 2017). Post Holdings is offering its customers a wide range of differentiated products such as nutrition bars and other snacks and butters beside the wide range of cereal products and refrigerated food (Post Holdings, 2018). Post Holding should be aiming for more products differentiation, as the healthy eating trends are expanding, a lot of customers especially in UK are looking at the sugar intake and looking for a healthy diet (Martinne Geller, Adam Jourdan, 2017).

Bowman’s Strategy Clock

According to Bowman, he introduced the Bowman’s Strategy Clock which helps in visualizing the strategic position of a company, putting the product specific value to customers on an axis and product price on the other axis. We can get a range of eight categories a company can fall in demonstrating the generic strategic position (UNICAF, 2017b). Post Holding company operating with Weetabix in hand, we found that Weetabix in UK market is not offering the cheapest price in market and also may be offering products at a high average price (Good Housekeeping, 2017). While when it comes to offering products, as mentioned earlier, Weetabix is offering a wide range of products that is targeting a specific market segment, in which increased differentiation of products can be noticed. Post Holding also is approaching targeted market segments by expanding in the geographical presence in international markets and providing products with special concern on healthy and organic ingredients (Post Holdings Inc., 2017). Utilizing Bowman’s strategy clock, we can conclude that the company in research can be positioned in the Focus Differentiation position.

shareholders. Subjects who have little power on the business but interested in it as employees and there are the context setters who are with little interest but high power to the business as governmental and regulatory entities. The last category is the crowd which has little power and interest, which can be other customers whom are using another products in the market (Bryson, 2003). Due to the acquisition, many employees can find themselves having to work abroad or even leave their jobs, while others may have been promoted or working in a better location which will certainly affect the business. Suppliers also can be affected by this acquisition, new plant and geographic expansion can lead to loss of work for some of the suppliers and giving this work to another suitable ones. Transfer of products can be affected, as vendors and service price vary from one country to another. Porter has introduced the Forces Model as an analytical tool to discover market competitiveness factors and forces both internally and externally.

External factors driving the strategy

Porter has defined six components for the external factors affecting the strategy in a company, these components are the political, sociocultural, technological, environmental, economic and legal factors, as known as PESTEL (McGraw-Hill Education; Unicaf, 2017). We are going to explore the main components affecting the strategy formation for the company in research.

Political factors

These are the factors involved with the governmental laws and regulations, political environment and regulatory entities. The UK is facing instability due to the Brexit, the global financial issues and also the slow growth rate Weetabix is facing (Martinne Geller, Adam Jourdan, 2017). All of these direct the company to adopt more low cost strategy to increase the profit margins and raise the employees’ wages.

Economic factors

These are the factors forming the economic environment as banking and financial rates and economic growth. Exploring the UK economic climate, we will find that GDP (purchasing power parity) by 2017 was $2.88 trillion in UK while $19.36 trillion in US and GDP - per capita was $43,600 for UK and $59,500 in US by 2017 (CIA Factbook, 2019). The GDP growth also is declining in UK. These readings tell that in UK Weetabix should decrease the cost of production without risking the products differentiation in order to maintain customers’ loyalty and retention. (O’Leary, 2018)

Sociocultural forces

These are the forces including the social values, culture, attitudes and individuals’ lifestyles. Analyzing the buying of Chinese Bright Food of Weetabix by 60% in 2012, we can find that the breakfast norm in China is rice based hot meals, in which the Chinese culture did not embrace much the new cold cereals in market. While in the same time Weetabix has doubles its sales in China, but UK market still makes the big share (BBC News, 2017). Another cultural factor is affecting Weetabix, the growth of other competitive breakfast items as bars and Greek yogurt. Also, many customers nowadays are watching their sugar intake and searching for alternative healthy breakfast choices (Martinne Geller, Adam Jourdan, 2017). The social factor is playing an

Internal factors driving the strategy

Porter has developed also a model consists of the main five forces affecting competitiveness in various markets and industries. He divided the competition forces into competition with market’s new entrants, rival sellers, substitute products and the bargaining power of the suppliers and customers (McGraw-Hill Education; Unicaf, 2017). We will discuss the effect of these forces on the competition of Post Holdings Company in different markets.

Rivalry among Competing Sellers

It is the competition rising from other companies in the industry; these companies are producing competing products which have to be analyzed in order to assess its competiveness. The cereal market competitiveness is high, in US for example, 94% of US adults are having cereals either hot or cold on their breakfast (Topper, 2015). The customers also bear low cost for changing their products with a noticed slow growth in buyers demand (Attractive Consulting Group, 2015) and can find alternative products, thus, the competitiveness and rivalry of sellers is considered high in his industry. In fact these rivalry conditions can cause the company to squeeze its profits to accommodate the high market competiveness.

Competitive Pressures from Potential Entrants

The competition from introducing new products to the market is considered to be low in the case of Post Holdings (Attractive Consulting Group, 2015). The high entry barrier for other companies is weakening the new rivals’ competiveness. A new entrant will have to face the high costs of competing in such market, searching for proper distribution channels which are not occupied by the market’s incumbents. The high capital needed for entering the market, manufacturing, distribution and marketing activities, strong branding and customers loyalty for other products together with the other factors affect the new entrants chance in the market, therefore weakening the competitiveness of potential entrants.

Competition from Substitute Products

The competition rising from substitute products in the cereal market is considered high. There are various products that are offering competitive products, quality and pricing. Customers do not have high cost for changing their products and substitutes are widely available. The high competiveness forces the companies to properly put the selling price and adjust production costs.

Customers in cereal industry have a wide range of preferable products, according to the age group, culture and other factors (Topper, 2015). Weetabix is trying to vary the products to maintain high competiveness with other rivals and products. Products with low sugar, non-GMO, gluten free and organic products are being introduced by Weetabix in markets (Post Holdings Inc., 2017).

Bargaining Power of Suppliers

The suppliers in any industry would have a strong bargaining power when there is shortage in supply, suppliers are providing highly differentiated products or there is a lack of other suitable substitutes. This is not the case in Weetabix operations; Weetabix is not facing a high bargaining power of suppliers because the above situations are not applicable. The raw materials and production materials are widely available in UK and US and there are no huge differences between suppliers. The suppliers in cereals market are put in a position where they have no influence on the product availability or price.

Bargaining Power of Buyers

Buyers in any industry are having a range of influences on the competitiveness of a product. Competitive pressure increases with buyers’ strong bargaining power. This power is strong when customers are price sensitive and the market is full of similar products with low cost of switching between them. Also, the power of buyers would be strong when they are concerned with the quality and cultural norms; this is also found as an external sociocultural competitive force. Combined forces can be demonstrated as found in China after Bright Food bought 60% of Weetabix, Chinese where not attracted by cold cereal breakfasts while they preferred hot rice based breakfasts (BBC News, 2017). The bargaining power of buyers in this situation is assessed as moderate. Weetabix is producing a wide range of healthy, organic and balanced products to accommodate the buyers’ needs and selection criteria. Weetabix also has launched The Weetabuddies campaign in 2015, which has a great success in attracting customers and building customer loyalty (Talking Retail, 2016). The company is implementing the technological advancements in transporting and packaging its products to achieve more customer loyalty. Buyer also, are reflecting the external economic competitive forces, as the buying power of customers and products’ selection criteria can be altered by the changing global and regional economics, as in case of UK and Brexit.

References

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