![3 headquarters, 1 for each segment Seville, Spain [Rice Headquarter] Lyon, France [Pasta Headquarter] Granada, Spain [Dairy Headquarter]1 CEO and 1 CFO for each country which report to both the headquarters of pasta and rice respectively in France and Spain (exception for US: 2 CEOs for pasta and rice)](https://image.slidesharecdn.com/epcasegmstrategicmgmt-12760125644478-phpapp01/85/EBROPuleva-corporate-strategy-21-320.jpg)
EBROPuleva corporate strategy
- 1. EBRO PULEVAGLOBAL LEADER IN VALUE ADDED MEAL SOLUTIONSstrategic managementcase studyV.Belcastro, U.deFeo, V.Ferratini, P.Martella, E.Sighinolfi
- 2. worldwide
- 3. key strengthsConsumer UnderstandingBrand Acquisition & DevelopmentInnovationGlobal Localization Strategy
- 4. financials EP EVA vs. INDEXES 2008
- 6. Functional pasta:proteins, fibre, organic,whole wheat, multi-grainDry pasta
- 7. Fresh pasta
- 9. Sauce
- 10. Basics:long grain, brown, indianBasmati, thai JasmineValueadded: Parboiled, Istantrice,Boil-in-bag, Rice Mixes Functional nutrition:Natural products with health benefits and for prevention of diseases Traditional milkCost AdvantageLactimilk: convenienceFunctional dairy productsDifferentiation strategy Puleva: high quality and price premium + vitamins A,D,E
- 11. dairyBuyers: HIGHNumber of buyers relative to sellers: MEDIUM/HIGHProduct differentiation: MEDIUMSwitching costs: LOWBuyers threat of backward integration: LOWThreats of new entrants: LOWRivalry: HIGHSubstitutes: HIGHConcentration: VERY HIGHDiversity of competitors: HIGH Exit Barriers: HIGH (capital intensive industry)Products differentiation : HIGH (both on product breadth and on segments)Cost conditions: HIGH (low possibility to reach competitors cost efficiency, high difference in volumes)Industry growth: LOW (in existing market)Buyers propensity to substitute: HIGHSwitching Costs: VERYLOWPotential substitutes:Milk, Tea, Infusions, Soft drinks, Dietary Supplement, Smoothies, Ice Cream, Yogurt, Food Supplements (DanoneActivia, Inn辿ov, Alixir)Barriers to entry: HIGH- Capital requirements: HIGH- Eco of scale: HIGH- Product differentiation: HIGH- Cost advantage: HIGH-Access to distribution channels: HIGHExpected retaliation by incumbents: HIGHCompetitorsPrivate LabelsSuppliers: LOWSensitivity to price variation: HIGHAvailability of substitute inputs: LOWSuppliers product differentiation: LOW Suppliers threat of forward integration: LOWImportance of industry to suppliers: VERY HIGH
- 12. dairys salesApproximately 18% of the group turnover with sales of 500 million and 10% of operating margin. It accounted for the 8% of the whole dairy market in Spain.HoweverStrong misalignment with EPs global localization strategy: EP products were sold only in Spain and limited prospects to expand the business internationally as the category was dominated by powerful competitors such as:Nestl竪 70bn sales
- 13. Danone 15bn salesThreat caused by of the 2003 Luxemburg Agreement about milk prices liberalization. As a consequence: European milk production expected increase12%, expected decrease of prices 40% were signals of decline in profitability
- 14. dairys salesPricing the businessGiven the previous motivations, we consider the hypothesis of selling the business.EvaluationBloombergT-bill 10yHist.Geom.Avg. Mkt PremiumAccording to our analysis the most credible value of EPs dairy business is 500mn.On march 2010 the dairy business was sold to Lactalis for 630 mn.
- 15. pastaBuyers: HIGHNumber of buyers relative to sellers: MEDIUM/HIGHProduct differentiation: MEDIUMSwitching costs: LOWBuyers threat of backward integration: LOWThreats of new entrants: LOWSubstitutes:HIGHRivalry: HIGHBuyers propensity to substitute: HIGHSwitching Costs:LOWPotential substitutes:Rice, Side dishes (potatoes, bread...)Pasta as main course:- Eating at home: meat, vegetables, pizza...-Eating outsideBarriers to entry: HIGH- Capital requirements: HIGH- Eco of scale: HIGH- Product differentiation: HIGH- Cost advantage: HIGH- Access to distribution channels: HIGHExpected retaliation by incumbents: HIGHConcentration: MEDIUM/HIGHDiversity of competitors: HIGH (EP far from tradition)Exit Barriers: HIGH (capital intensive industry)Products differentiation : HIGHCost conditions: HIGH Economies of scaleIndustry growth: LOW (in existing markets)CompetitorsFresh PastaFrozen PastaDry PastaPrivate labelsSuppliers: MEDIUM/HIGHSensitivity to price variation: HIGH(high durum wheat price volatility)Availability of substitute inputs: LOWSuppliers pdt differentiation: LOW (commodity)Suppliers threat of forward integration: LOWImportance of ind to suppliers: HIGH
- 16. pastaIs pasta business attractive? YESIt is the business in which EP needs to invest more in order to keep and improve its position as 2nd world pasta manufacturer, the first not Italian.EP shall keep on investing in its globally recognized brands, in product differentiation and shall exploit its resources and capabilities to seize the opportunity from emergent markets.
- 17. riceBuyers: HIGHNumber of buyers relative to sellers: MEDIUM/HIGHProduct differentiation: MEDIUMSwitching costs: LOWBuyers threat of backward integration: LOWThreats of new entrants: LOWRivalry: HIGHSubstitutes: LOWBuyers propensity to substitute: LOWSwitching Costs:HIGHPotential substitutes:Potatoes and breadLow threat of substitutes because its the main component of feeding for 1/3 of the world populationBarriers to entry: HIGH- Capital requirements: MEDIUM- Eco of scale: HIGH- Product differentiation: HIGH- Cost advantage: HIGH-Access to distribution channels: HIGHExpected retaliation by incumbents: MEDIUM/HIGHConcentration: MEDIUMDiversity of competitors: HIGH Exit Barriers: HIGH (capital intensive industry)Products differentiation : HIGHCost conditions: HIGH Economies of scaleIndustry growth: LOW (in existing markets)CompetitorsFrozen MealPrivate LabelsSuppliers: MEDIUM/HIGHSensitivity to price variation: HIGH(high rice price volatility)Availability of substitute inputs: LOWSuppliers pdt differentiation: LOW (commodity)Suppliers threat of forward integration: LOWImportance of industry to suppliers: HIGH
- 18. riceIs rice business still attractive? YESDespite high rivalry, EP is global leader in the rice business, with high brands awareness and recognition, wide differentiated product range with instant rice, parboiled rice, used in soup and frozen meals. Rice is the primary food staple for more than half of the world population: EP needs to keep on investing in its successful rice business Rice is the EPs cash cow business
- 19. structureHerba-SevilleRicePanzani-LyonPastaPuleva-GranadaDairyBIOTECHPASTASPAINRICESPAINDAIRY SPAINCEO SpainIT, Legal, HRRICEUSPASTAUS2 CEOsUSRICEFRACEO FrancePASTAFRARICEGERCEO GermanyPASTA GERCEO RepCzechRICECZECHPASTACZECH
- 20. structure1 central headquarter in Madrid
- 21. 3 headquarters, 1 for each segment Seville, Spain [Rice Headquarter] Lyon, France [Pasta Headquarter] Granada, Spain [Dairy Headquarter]1 CEO and 1 CFO for each country which report to both the headquarters of pasta and rice respectively in France and Spain (exception for US: 2 CEOs for pasta and rice)
- 22. In each country the only combined function for rice and pasta is Sales & Distribution (source of economies of scope).DECENTRATED ORGANIZATIONAL STRUCTURE WITH INDEPENDENT DIVISIONS(they collaborate only on projects)
- 23. food industry KSFAnalysis of Demand:Analysis of Competition:Who are our customers?All segments:- Families- Singles- Business men- Infants- Health conscious consumersWhat are theirneeds?- Frozen and precooked meals- Single service pots- Convenient products- Healthy meals What are thedrivers of competition?quality, price, pdt breadth, shelf presence, cost efficiency, reputationHow intense is competition? HIGH
- 24. How to obtain a superior position?a) Improving efficiency:- Cost efficiency- Reducing time to marketb) EXPLOITING DIFFERENTIATION:Investing in R&D for innovative new products developmentAcquisition of new brands in unexploited markets
- 26. Well defined organizational culture
- 27. Skills/Know-how: mgmt of acquisition and management of integration
- 28. Communication, coordination and motivation
- 29. Strong financial performance:
- 30. Plants equipmentsOnly brands reputationand mgmt of acquisition and integrationare sources of organizational capabilities.The other resources are necessary to compete, but not sufficient to win.
- 31. capabilitiesAcquisition management, International management, Multidivisional coordination, Financial control, Management developmentCorporate functionsSource of CAEfficiency in volume manufacturing, Continuous improvements in operations, FlexibilityOperationsMktg and customers understandingBrand management, Responsiveness to local market trends, Separate mktg and P&L for pasta and riceSource of CASales and distributionEconomy of scope from unique sale force both for rice and pasta and from dedicated sale force for big retailersSource of CAResearch, Innovative new product developmentR&D
- 32. competitive advantageSources of core competencesReputational assets: brandsCulture: mgmt of acquisition and integration processOrganizational capabilitiesCorporate functions: Acquisition mgmt, International mgmt, Multidivisional coordinationMarketing and customers understanding:Brand mgmt, Responsiveness to local market trendsR&D: Research, Innovative new pdt developmentDIFFERENTIATION ADVANTAGEGlobal Localization StrategyStandardized pdtfeatures and companys activities where scale economies are substantial and differentiating adapting pdts to national preferences
- 34. Branded-food company and leader brands in all the countries served: Panzani in France, NPW in US...
- 35. Acquisition expertise (low integration process)
- 36. Flexibility in organizational management
- 37. Value-added pdts = Differentiation Advantage
- 38. Leader in innovation: i.g. functional nutrition; microwavable and frozen products
- 40. Rice and pasta synergies (i.g. unique sales force)
- 42. Serving both B2B and B2C (Horeca)
- 43. Slow recipe development, different in eachcountry (also a strength because adaptation to local preferences)-> Long time to marketNo vertical integration backward -> High rice/durum wheat price sensitivity Lack of corporate identity: focus only on brandsTHREATSOPPORTUNITIESOperating in mature marketsandprice sensitivity:-> Vertical integration in rice business-> Possibilities in emerging markets:South America:penetration strategy in pasta and rice segments through acquisitionsAsia: partnership with local companies -> Innovation challenges: Health & Nutrition Open innovation: customers and retailers leading product developmentStrong competitorsPasta -> Barilla: present in Italy and Europe; barriers to entry in Italian marketDairy -> Nestl辿,Danone = no chances to go beyond Spanish boundariesNo tradition
- 44. High threat of substitutes for all pdts(but EPs solution is differentiation)
- 45. Operating in mature markets
- 46. Price sensitivityconsumptionPasta consumption per country in kg/per capitaRice consumption per country in thousand metric tons
- 47. financial crisisData on pasta and rice consumption during the financial crisis and the positive effect on results show that EP produce goods that cope during periods of crisis (Giffen goods).Because of that we decided to arrange a meeting with Mr.PaoloAntinori Operations Manager of the Associations of Pasta Manufacturers of the European Union (UN.A.F.P.A).
- 48. financial crisisWhat Mr. Antinori pointed out is that durum wheat prices went up in 2008 and manufacturers raised prices of pasta.Then durum wheat prices decreased in early 2009, but manufacturers could decrease the price of pasta only later because of long-term supply contracts.Despite this, dry pasta consumption increasedduring the crisis because there had been a change in consumers behavior:from 2000s low-carbohydrates product demand (Atkins diet) to inexpensive meal demand. Greater price sensitivity and eat at home attitude boosted the dry pasta consumption.
- 49. vertical integrationRiceTwo reasons why Ebro shall vertically integrate in the rice business:Strategic Reason: increase differentiation advantage entering into the inbound logistics Efficiency and access to factor mkt reason: we believe there will be high instability in financial mkts on rice pricesEvidences on Future Rice Price Instability:FAO studies on the Global climate changes and rice food security show that, because of global warming, floods, increasing weather variability and sea level rising, the productivity of rice and other tropical crops will decrease as global temperature increases. International Rice Research Institute 2010 data:Rice production will decrease by 10% for every 1 degree increase in growing season minimum temperatureInternational Food Policy Research Institute 2010 data: Expected fall of rice production and expected rise in rice price
- 50. vertical integrationRicethere is no need to acquire additional capabilities and skills: we just need to acquire established rice fields (we assume to do not have to sustain a too high price for this)Possibility to obtain anadvantagefrom certain access to factor mktPastaNo vertical integration in pasta business because this would require to acquire or replicate capabilities that Ebro does not have now and it shall integrate in too many phases of the vertical chain: grain field management and production of durum wheat semolina.EP can cope with grain price instability improving the management of long term contracts with producers, like Italian competitors did(ex. Barillas regional agricultural food chain agreements accordifilieraregionale)
- 51. ChallengesBoth rice and pasta are mature sectors How to re-launch the EP business?Internationalization: Italy, Asia (China and India),South America Innovation:Health&Nutrition BioTechthrough Open Innovation strategy
- 52. ItalyPastaevery 4 pasta dishes in the world, 1 is eaten in ItalyIs it possible for EP to enter in this market? too high barriers to the entry: not given by capital requirements, economies of scale, product differentiation or legal barriers (Ebro had sufficient resources and capabilities + liberalized market in EU)but to
- 53. cultural barriers (no Italian would buy a not Italian pasta)
- 54. no access to distribution channels and high retaliation by incumbentsRiceCan Ebro enter the Italian market with rice pasta (see Lexus-Toyota strategy in US)? UN.A.F.P.A. told us that there is no market for it in Italy (failure for Scotti) BrandsMundi Risofor the rice business. It is mainly used for production (located in Vercelli, the heart of Italian rice district)
- 55. Arotz for its delicacies business but not high brand awarenessItalyNo chances to enter the pasta businessEP has only the possibility to expand its rice and delicacies businesses
- 56. ChinaRicetwo main established producers:Yiahi Kerry (brand Jinlongyu)
- 57. China National Cereals, Oils and Foodstuffs Corporation COFCO (brand Fulinmen)Rice mkt in China is saturated,strong presence of private labelsmost of the pdt are sold unbranded in very large packages EP is moving instead from big to small and is selling value-added pdtshigh barriers to the entry no chances to enter China mkt with rice businessPastapotential increasing mkt because of expected drop in rice productionFrom UN.A.F.P.A.: with Shanghai EXPO Chinese people are coming across western culture, strong opportunity to promote pasta as a complete and convenient substitute of rice.Better to introduce fast pasta: shorter time to get into the habit of Chinese people
- 58. ChinaHow to enter the Chinese mkt?InfeasibilityInvestment in options- Antitrust-SovereignrulesPartnership is better if there is high uncertainty because it leaves more time to acquire infoIndigestibilityInformation Asymmetry- target (mkt) too big - asset hard to disentangle- target country unfamiliar- cultural incompatibilityHighEP can enter the Chinese mktonly with a partnership or JV with a Chinese companyin order to avoid government restrictions and to become familiar with Chinese mkt EP aims at getting shelf presence not in separated imported food department but in the ordinary food one
- 59. Another opportunity is the one of setting up a partnership with western distribution channelsthat are now entering the Chinese mkt(ex. Wal-Mart and Carrefour)IndiaIndia is still an immature market characterized especially by highly fragmented distributionstill one-to-one distribution No chances to expand in the Indian rice and pasta businesses
- 60. South AmericaRicetoo low consumption of rice in South America to invest inMain Latin American consumer is Brazil with 2% of rice global consumptionPasta South American countries are the second pasta consumers after ItalyFrom UN.A.F.P.A.: in 5 countries of Latin America (Brazil, Uruguay, Paraguay, Venezuela, Chile) there is a special legislation that provides for the introduction of vitamins and folic acid inside pasta. This is the main reason why Italian producers are not so focused on the South American mkt that, because of the Italian purity law that provides for Italian pasta to be made only with durum wheat and water, would need for special ministerial authorization to produce pasta in a different way.(l. 580/1967 and D.P.R. 187/2001 known also as leggedipurezza)EP strategy for pasta business in South America:deliver pasta enriched with vitamins and folic acid in the whole pasta pdt breadth (dry, fresh, pre-cooked microwavable and frozen pasta)thanks to Puleva Biotech R&D team
- 61. South AmericaHow to enter the South American mkt? ACQUISITION of an existing strong local brand is feasible because there are no legal barriers as in China, lower uncertainty, lower info asymmetry, familiar cultureInfeasibilityInvestment in options- Antitrust-SovereignrulesAcquisition or Joint VentureInformation AsymmetryIndigestibility Another opportunity may be aPARTNERSHIP or JOINT VENTUREwith local distributors to ensure shelf presence- target (mkt) too big - asset hard to disentangle- target country unfamiliar- cultural incompatibilityLowin line withglobal localization strategy
- 62. InnovationThe food market is characterized by:揃 Slow growth rate揃 Presence of numerous low-budget and white-label products揃 A concentrated group of buyers with power to negotiate揃 Highly-similar products揃 The brand is in most cases the principal differentiationTrends in our society:揃 Growing healthcare costs揃 Increasing lifespan揃 Aging of the population揃 Desire for better quality of life揃 Increasing scientific knowledge about nutrition and health
- 63. InnovationExploiting through EP s established strengths:pdts based on natural ingredients with health benefits and for prevention of diseases
- 64. pdt concept design, pdt co-development, ingredients marketing, scientific support by peer-reviewed publications and tailor-made human volunteer trials, complete and customer-oriented service:pdt devote to FUNCTIONAL NUTRITION:nutrition throughout the whole life (newborn, childhood, adolescence, pregnancy, lactation, senior) intestinal health
- 66. osteoporosis
- 67. cardiovascular disease prevention
- 68. obesity
- 69. 糸庄温恢艶岳艶壊β
- 70. Future challengesOpen InnovationPuleva Biotech is already orienting its efforts to work closely with and for the customers to define their needs and provide solutions.Future challenge is to transfer Puleva Biotech capability on new pdt development to all EP businesses: HOW?through the collaboration between a connect and development department (like an external R&D) with the internal R&D In this way customers can express their preferences and needs, they can give advices on new desired pdts in order to avoid dissatisfaction and to deliver much more suitable value added pdts: full consumers understanding
- 72. Video Spot
- 73. THANK YOUstrategic managementcase studyV.Belcastro, U.deFeo, V.Ferratini, P.Martella, E.Sighinolfi