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Sri Lankan government and Care International (USA) to manufacture protein enriched biscuits for Sri Lankan school children as a mid day meal. While dealing in this contract manufacturing for the Care International, it was noticed by the company that excess production capacity was there. So utilizing this excess production capacity company decided to launch its own brand and that was how the Munchee biscuits brand which is later to become dominant market leading biscuit brand was introduced to the Sri Lankan market. Till late nineteen nineties Munchee was not the dominant biscuit brand in Sri Lanka. Till that time from the starting of the Ceylon Biscuits, the company was engaged in contract manufacturing for Huntley and Palmer of associated biscuits UK other than producing biscuits for Care International. From the beginning of new millennium, Munchee brand started aggressively invading the biscuits market of the Sri Lanka and now the company Ceylon Biscuits has become one of the largest privately owned group of companies of the Island. With the dawn of the new millennium, Ceylon Biscuits launched its diversification drive by setting up its wholly own subsidiary CBL Foods for chocolate, cake and jelly production and at the same time CBL took controlling share of Lanka Soy, Convenient Foods (Samaposha) and Cecil Foods so that the company has now in a position to offer diverse of products to the food market of the Sri Lanka. Vision of the Ceylon Biscuits Ltd is to become leader in confectionary in South Asia with a global presence and recognition. As a privately owned group of companies, CBL group has no clearly explicit mission. Instead what the company CBL does is adapting set of marketing objectives, like increasing market share of a certain brand by some percentage for achieving each year. Today CBL group’s core business is food manufacturing and initially it was limited to biscuits manufacturing. Then the company moved to manufacturing of chocolates under the brand name of Ritzbury, and also manufacturing of cakes under the brand name of Tiara and also wafer biscuits manufacturing under the same brand Munchee and recently company ventured into production of instant jelly under the brand name of Go Jelly. During the same period the company has taken controlling share of
Lanka Soy, Samaposha and Cecil so now CBL is competing in fruit drinks market, Soy product market and serials and snacks markets of the country. In term of market share the flagship brand Munchee is holding over 60% market share in the biscuit market of the country and cake brand Tiara is holding around 80% market share by almost whipping out other competitors in the market. At the same time other dominant brand Ritzbury is having 50% market share in the chocolate slab market and over 70% market share in chocolate coated product market. So it can be concluded that in areas of biscuits, cake and chocolate markets, CBL has been market leader in the Sri Lankan market for past few years and most likely the company would be able to maintain its dominance in the market.
Fig: 1 Munchee Biscuits market share in the market. (Source: AC Nielson retail audit)
10 15 50
Ritzbury Competitor-1 Competitor-2 Others
Fig: 2 Chocolate Slab market share of Ritzbury for year 2010 (Source: AC Neilson retail audit) When it comes to explain resources availability of CBL group, over 2000 work force is employed by the group in their, Pannipitiya, Ranala, Minuwangoda, Ratmalana and Kandy factories. Land area of Pannipitiya plant was fully filled with plant buildings and no further building expansion is possible there. In Ranala plant, which is nearly a 13 acre facility, only small land area is available for future expansion. In term of land area availability, situation of premises such as Kandy, Minuwangoda and Ratmalana are also more or less same as above. Therefore the group has invested in Seethawaka Industrial Park and where group is going to set up their new production facility solely for exports. As company vision says, CBL is targeting vast market opportunities in the sub continental Indian region, the group has already bought land in Bangladesh for its first overseas manufacturing facility. So far the group has been operating as a privet limited company which is now almost 12billon Rupees Company, is in the process of considering to become a public limited company as company has grown too big already and also huge investments are in demand in order to make sizable presence in the Indian/Bangladesh markets.
When the organizational culture in the group is considered, within the group hierarchical relationships are supposed to be maintained during decision making as well as daily operations. There is presence of trade union (Inter Company trade union) in CBL Pannipitiya of which employees are enjoying high bargaining power than other factories of the group where there is no unionized environment available.
Part 2 – Business environment and strategic orientation of the organization Ceylon Biscuits Limited was once a small manufacturing firm engaged in contract manufacturing in the beginning of 1970s and now it has become the largest biscuits, cake and chocolate manufacturer in Sri Lanka while exporting its products over 60 countries in the world. Throughout the journey of CBL from a small biscuits manufacturer to a diversified leading business group in the country, one of major remarkable major strength can be observed. That is strong corporate leadership of the chairman and the director board. Under the farsighted corporate leadership of the company, the company has aggressively expanded its operation, has achieved dominant market shares in its all major product categories and also has invested heavily in new plants, factories, technologies in order to sustain and improve current level of aggressive market performance of the company. During the recent history CBL, the group has won several awards giving testimony to excellence performance of the company. Some of which can be mentioned as follows.
• • •
Food Award of Excellence in Confectionary Product Brand of the Year for four consecutive years Brand of the Year for two consecutive years (Awarded by Sri Lanka Institute of Marketing) Winner of Gold for Innovative Brand of the Year (Awarded by Sri Lanka Institute of Marketing) Innovative Brand of the Year (Awarded by Sri Lanka Institute of Marketing) Winner of Gold for Industrial Excellence in the Extra Large category at the Annual National Chamber of Industries Achievers (CNCI) Awards Gold Award in the Extra Large Category Exporter – Agriculture Value Added Products (Awarded by National Chamber of Exporters) National Award for Export Excellence (Awarded by Ministry of Trade and Commerce)
With those awards together with excellent marketing efforts of the company, Munchee the flagship brand of the CBL group has become the strongest food brand currently in Sri Lanka. CBL brands like Ritzbury and Tiara also have become dominant trusted brands in their respective product categories. Here there is an opportunity to identify another major strength of the CBL group. That is strong brand images of CBL products. The group name CBL itself is becoming a trusted brand for quality in the Sri Lankan market providing definite strength for the group to achieve its ‘crowning success’. Well established sales and distribution network of CBL also can be considered as strength of the company. CBL distributes its products through 60 agencies and 400 dealers located island wide and products are available in over 80000 sales outlets island wide. Furthermore company has close ties with international distributors in India and Singapore so that company is in a position to export its products to 60 countries. During recent past CBL group has been able to widen market share of its product portfolio year after year and efficient and well organized sales and distribution network of the group can be observed as a major contributor of recent success of the company. For some of products like Samaposha, Nutriline Rice Pops, Nutriline Serial Bars, Cecil Fruit Drinks, company purchased raw materials such as grams, green grams, crown, rice, peanuts etc locally. In order to source these agricultural raw materials in required quality and quantity, company has set up farmers’ network in Ampara and Wellawaya area. The company has appointed an agro technologist to coordinate closely with these farmers’ networks and provide necessary technology and guidance from selecting seeds and preparing of farming lands to collecting and storing harvests in a way that both company as well as farmers is benefited, so that quality and price standards of raw materials are maintained. This farmer network also can be considered as strength of the CBL group. In early days of the company, most of production machineries were reconditioned machineries imported from the Europe. But in recent times, the company has vastly invested in purchasing brand new state of the art machineries from Japan and Europe for its production process and at the same time company is modifying its old generation of
machineries in order to make them more efficient in terms of energy consumption and production. This modernization of machinery and equipments and technological innovation are also can be observed as strengths of the CBL group. The company has established well organized product and process quality management system for which company has received ISO 9001 certification. And further CBL Pannipitiya factory has met ISO 14000 environmental quality standards and also CBL Ranala factory is also working towards obtaining ISO 14000 environmental quality management system. Cecil, Samaposha and Lanka Soy factories are also having ISO 9001 certified quality management systems and also their products come with SLS certification. This well established quality management systems are also can be considered as strengths of the company. CBL group is highly engaged in research and development activities related to biscuits and chocolate manufacturing. CBL is in a process of offering local low cost and same quality equivalents of international market products coming under brand names such as Cadbury and Nestle etc. Some of international products formulas are protected under patents and high royalties are to be made for getting them for local use. So CBL is investing in R&D related to developing those product formulas locally and these R&D activities can be mentioned as strengths of the company. As a summary, following things can be observed as strengths of CBL group. • • • • • • • • Strong corporate leadership Well established sales and distribution network Strong brand images and “excellent sales force” Well organized farmers networks Technological innovations Well established quality/environmental management systems R&D capabilities Setting up of a management information system
Although CBL group is performing well in the Sri Lankan market in its all most all product categories, still there are observable weaknesses in internal environment of the company. In chocolate coated product market, although the company has become the market leader with over 70% market share, production capacity is insufficient to meet forecasted demand for products in the market. In recent times, attempts for increasing chocolate coated product production are being made with new investments for machineries and still there are available sales losses due to this insufficient production capacity. This can be seen as a weakness of the group in relation to the chocolate production. Due to a court order of Indian trade court, two biscuits plants were operating in CBL Ranala factory, have to be sent back to India and now dismantling of plants are being done. Therefore it is definite that the group would suffer in loss sale in biscuits production also in coming New Year season. So it is another weakness of the company. Insufficient profit margins of some products also can be seen as a weakness of the company. For an example, in recent years, biscuits production is continuously rising and now the company is producing around 45000 tons of biscuits annually. Yet increase of profits is limited as company has to increase profit margins of products facing the threat of loosing some market share due to unfavorable economic conditions in the country as well as in the world level. Furthermore the company is depending on single wheat flour supplier and this can be considered as a weakness of the company. Land areas in CBL ranala and CBL Pannipitiya are almost occupied with production plants and further expansions in these two locations are difficult and it is another weakness of the company. Attention for efficient energy consumption and cost saving is low as in the present context the company is continuously operating profitably. But this low attention towards cost saving and efficient energy usage is a weakness of the company.
As a summary following weaknesses can be mentioned. • • • • • • • Dependence on single suppliers for critical raw material (eg: wheat flour) Insufficient production capacity of some product ranges. Dismantling and sending back two biscuits plants to India. Low profit margins of some products. Limited land availability in Ranala and Pannipitiya plants Unavailability of cost saving approaches Unavailability of energy saving approaches.
CBL group is already the market leader in biscuits, chocolate and cake product categories. With the end of terrorism in north and east of the island, new market is opening up for the company. So there is an opportunity to widen dealer network of the company to north and east of the country and make use of market opportunities for further production expansion. Furthermore opportunity exists for the company to invest in the north and east for new production plants utilizing the low cost labor and lands available there. Indo Lanka free trade agreement also can be considered as an opportunity for the CBL group. As the company vision says what CBL long term plan is to become the largest confectionary manufacturer in the South Asian region. So getting maximum use of vast Indian confectionary market is a must for achieving long term company objectives. In current context CBL is not in position to compete with Indian manufacturers in low price category. Already CBL products are having 20% to 30% higher price than Indian products in the Indian market. Yet in terms of product quality CBL products are much better than competitive Indian products. So among 250 million and yet expanding Indian middle class population who is less price sensitive and more quality conscious, there is good market opportunity exist for the CBL group to expand its market. In order to get the maximum use of this sub continental market, exporting products from the Sri Lankan plants through Indian dealers as what CBL currently does,
would not be sufficient to have a competitive edge in long terms. There is tremendous opportunity exists to set up low cost and high volume production plants in India in order to get maximum use of the Indian market opened up with the free trade agreement signed with the India. In recent past prior to the FTA signing, Munchee tried to start its first overseas manufacturing plant by acquisitioning an Indian biscuits manufacturing company and attempt was failed due to unfavorable Indian regulations regarding FDI in India at that time. Now with the FTA these regulatory hassles are relaxed so the opportunity can be utilized. When CBL Natural Foods (Cecil) is considered, it is a company mainly engaged in production of bottled fruit drinks mainly for the Sri Lankan market. Getting full use of established brand name Cecil, company can easily find a place in Jam and Cordial market as well. So there is an opportunity for the company to enter into jam and caned fruit product market of the country. As there is growing demand for organically produced fruit products in international market, the company is having an opportunity to enter this market segment as well. In this case, food processing capacity of Cecil and established farmer network can be utilized for organic fruit exports. As a summary, following can be seen as opportunities existing for the company. • • • • • • Opening of north and east market after the war Free Trade Agreement with India. Relaxing of Indian regulation related to direct foreign investments. Growth in Sri Lankan economy Unexplored market opportunities in Jam and cordial markets in the country. Growing demand for organic fruit products in international market.
When it comes to consider threats facing the CBL group, major threat is coming with Indian free trade agreement. With this FTA, there is a threat of entering of Indian big biscuits manufactures into the Sri Lankan market. Actually this threat is substantial as Sri Lankan per capita biscuits consumption is as high as 2.5kg, one of the highest in Asian region. One recent attempt was made by strong Indian biscuits brand Britania and was failed. For some product categories like wafer biscuits, chocolate slabs, company has engaged in a price competition with competitors in the Sri Lankan market. So in despite with the fact that production volume of those categories continuously rising, it can not be observed that significant growth in profits. Therefore this price competition can be observed as another threat. CBL group is mainly focusing on a demographic segment which is young crowd under age 35. CBL marketing and advertising is paying their major attention in this particular segment. So there is a possibility for another company to come to market as a new entrant focusing on another market segment where CBL is not paying much attention currently. So it is another threat existing in current context. Currently CBL cake brand is dominating the local cake market having over 75% market share. This share has been achieved due to superior hygienic condition, 6 month long product expiry date and importantly efficient sales and distribution which make sure availability of the product everywhere in the country. But the taste of the product made according to an Italian formula is not matching with the local customer taste. As there is no other equivalent alternative the CBL cake is dominating the market. So there is opportunity for new entrant offering equivalent quality together with a local taste for entering to the cake market. So it is another threat appearing in the path of CBL. Furthermore with appearing boom of Sri Lankan economy, global companies like Nestle who is already in Sri Lanka although not engaging in chocolate production and marketing in the island, may try to make an entry into chocolate market where Nestle is a global player. It would be a threat for CBL’s chocolate barnd – Ritzbury.
As a summary CBL is facing following threats.
• • • • •
Free Trade Agreement with India. (possibility of Indian big players entering to the local market) Price competition for some product categories in the local market. Space for new entrants to invade market focusing particular market segments. Taste of Tiara cake is not going well with the local taste. Big global players like Nestle currently in the country may venture into chocolate market.
Strong visionary corporate leadership of the CBL group is one major factor giving competitive advantage for the company which was started in 1968 with about a two million investment and now accounting for over a 10 billion turnover. Selection of strategies, making investment wisely and building up of the efficient sales and distribution network, island wide by the corporate management are definite causes for achieving competitive advantage by the company. Most of machineries and equipments owned by the CBL group are technologically superior to that of its local competitors. With the dawn of new millennium CBL started its drive towards, technological upgrade of its plant and machineries and in the context of Sri Lanka, now the company is having more efficient and modern machineries than its rivals reducing its production costs thus giving important competitive advantage for the CBL to enjoy over industry average profit margins. Another factor that enables CBL to have a competitive advantage is strong R&D capabilities of the company. R&D laboratories have been set up as one lab for each subsidiary and in those labs, extensive researches are being conducted to develop and
improve various food products. Specially developing formulas locally, for products available in international market are done in CBL laboratories. Strong marketing team referring internally as ‘excellent force’, which has been able to build the strongest brand name in Sri Lanka for four consecutive years, is another strength that gives competitive advantage for the company. And also the strong brand names they built are strengths giving the company a competitive advantage. Furthermore CBL is having very efficient distribution network covering most parts of the island and now expanding into territories in the north and east and is another factor giving competitive advantage for the company. Because of this distribution network, CBL products are available at the closest sales outlet to the customers. When it is summarized following factors are leading the company to have competitive advantages • • • • • Strong brand images in the market and superior marketing capabilities Strong corporate leadership Technological superiority Strong R&D team .Island wide distribution system.
CBL is currently producing 45000tons of biscuits annually and daily production of cake is over 10tons and daily production of chocolate is around 10tons as well. Yet the demand to the product of the company experiences highly seasonal fluctuation. So there are times where the company is unable to supply the demand. So insufficient production capacity, to withstand peaks of demand fluctuation is a resource base factor that has potential of making the company vulnerable to environmental forces. Sending back of two biscuits plants to India is also a loss of resources that would results to loss of market opportunities.
Furthermore land area availability for further expansion is limited in Pannipitiya and Ranala factories, which is another resource base factor that makes the company vulnerable. Currently the company is making huge capital investments for new plants and buildings targeting further expansions of the production. Recently it was started setting up a new factory at Seethwaka industrial park, land was bought for setting up Bangladesh factory and another plant building is under construction in Ranala factory. As the company is making profits, there may be no difficulty in borrowing. But recently the company experienced cash for problems in first time in the new millennium. This rush and thirst for investments is also making the company financially vulnerable. Organizational structure of the group is pyramidal and the relationships within the organization are hierarchical. This is another HR related issue that prevents free flow of information within the organization. Especially in industries like food manufacturing, tacit knowledge of floor level employees is vital and this organizational structure doesn’t permit ways for tapping the tacit knowledge related to production processes.
PESTEL ANALYSIS: POLITICAL: With the ending of the war in north and east territories, new market opportunities are arising in the north and east. So there can be optimistic about future possible growth due to this expansion of market opportunities. Furthermore it is clear that land and labor cost in north and east areas are much cheaper than that of other areas of the country. So there is an opportunity for moving production facilities into these areas for a low cost production in the future.
ECONOMIC: For the last five years Sri Lankan economy is in a growth trend and over 6% annual economic growth was recorded. For the current year (2011) 8% economic growth is forecasted. It is expected that with the ending of the war in the country growth would be accelerated. This growth in national economy is highly favorable for food manufacturing industry and biscuit market alone would be expected to expand by 10% annually for coming years. Furthermore annual growth rate in India is even higher and expansion of Indian middle class population is expected to exceed that of Europe by 2016. So with the free trade agreement with the India, CBL is having tremendous growth opportunities locally as well as regionally.
SOCIAL: With dedication for excellent quality control and food hygiene CBL has established in the market as trusted brand for quality. CBL products coming under brand names such as Munchee, Ritzbury and Tiara are widely accepted in the market and also are recognized as brands of the year for few consecutive years. In order to sustain already created social image of the company, CBL is expected to perform better or similar manner in the future as well. In the local society also there is a growing concern over natural or organically processed food products. Therefore in the future, this social tendency should be considered. Currently target market of the CBL is young crowd in the market. Advertising and marketing efforts are concentrated in order to target this demographic segment. Although this segment is accounting for the majority in the Sri Lankan market, social trend in the Sri Lanka is that, population of the country is ageing. Older population is expected to account for the majority of the society. So company should be conscious to address requirement of this emerging market segment as well.
TECHNOLOGICAL: CBL is in a process of upgrading the level of technology of its production machineries. Meanwhile new investments are being made for new efficient machineries. Currently CBL is enjoying technological superiority over its fellow competitors in the local market. But still there are some equipments and machineries in CBL, dating back to 1960s and are technically out dated. So in order to supply future demands of growing market, further technological upgrade is desirable for the company. Now company has set up an ERP system in Ranala factory and its operation being monitored. Further it is expected to extend this network to other CBL factories and connect local and international suppliers to the company through the same network. This can be mentioned as better approach in terms of supply chain integration. ENVIORONMENTAL: Food manufacturing business is not an environmentally hazardous industry. Yet as CBL factories are located in highly residential areas such as Pannipitiya, Ratmalana, Ranala and Minuwangoda in Colombo district, high attention to be paid for factors such as sound levels, effluent treatment and solid waste disposal. Recently CBL Ranala factory experienced some issues with its neighborhood regarding night time sound level and effluent water disposal. Obtaining ISO 14000 environmental management system certification by CBL Pannipitiya factory is a vital step towards conducting the factory operation in an environmentally friendly manner. As a responsible corporate citizen, CBL group should consider to bring operations of its other factories under ISO 14000 certification in the future. LEGAL: The group is conducting its business according to government regulations and always following proper legal procedures of the country in the event of doing its businesses.
Part 3 – Industry Analysis: Direct customers of the CBL group are 60 agencies and about 400 dealers appointed by the company and CBL is not directly selling its products to the general public. Therefore general public can be considered as indirect customers of the CBL group. Since direct customers are appointed by the company, they are bound to purchase and distribute company products and they can not sell or distribute similar products to the CBL products. So direct customers appointed by the company do not enjoy any bargaining power. But the general public who can be considered as indirect customers of the company is having very high level of bargaining power as there are another 50 small scale manufacturers dealing in biscuits manufacturing alone. Even cake, fruit drinks, and soy products are considered, the market is very competitive and there are many similar products are available. Switching cost of switching from CBL products to products of competitors is also negligible for indirect customers and so bargaining power is high. On the other hand price sensitivity of the general public is also high. Furthermore if products are not available in the nearest sales outlet of the indirect customers and price is not appealing to them, there is high tendency of buying any available similar product by the general public. Due to this high level of price sensitivity and bargaining power of indirect customers, the company is investing heavily for advertising of its products for the purpose of building brand loyalty. Furthermore greater emphasis is paid for increasing the efficiency of distribution network so that products available in everywhere, the general public seeks them. As a company engaged in the confectionary business, the company is consuming wheat flour, sugar, fat, palm oil and milk powder in bulk quantities. Except wheat flour and palm oil, other raw materials are imported from the international market where the consumption of the CBL is not a bulk quantity of raw material suppliers’ production. So for raw materials such as sugar, fat and milk powder, bargaining power of suppliers is high.
Palm oil and wheat flour are purchased locally. Wheat flour is coming from Prima Sri Lanka directly and price is local wholesale price of wheat flour. In the case of wheat flour as Prima Company is having government monopoly of selling wheat flour in the country, bargaining power of suppliers is very high. Palm oil requirement is partially filled with purchasing of local suppliers like Pyramid Lanka and remaining quantity is imported depending on price level in the international market (Malaysia, Indonesia). So in the case of palm oil bargaining power of local suppliers is limited. If the price level of local palm oil suppliers is high then company is having option of importing from the international market. Other raw materials like peanuts, green grams, grams etc are sourced through farmer network set up in Ampara and Wellawaya areas. Here price level is mutually agreed in a way that both parties are benefited. In areas like printed packaging and corrugated cartoons, the company is purchasing bulk quantities from local packaging companies like Expack, Modernpack and Star packaging etc. quantity purchasing by the CBL group is considerable amount of an individual packaging company. So, bargaining power of packaging suppliers is not high. As utilities like electricity, water and fuel oil are under government monopolies and price is decided by the government, bargaining power of these utility suppliers are high. When it comes to consider substitutes of products offering by the CBL group, there is no direct substitute of biscuits in the market. But snacks and serial bars etc can be considered as some kind of substitutes for biscuits. Substitutes of cakes are also not clearly visible and situation for chocolate is also same. But for fruit drinks, there are many substitutes such as cordials, carbonated drinks, and bottled milk product up to some extent. But the competition created by these substitutes is almost negligible for products such as cakes, biscuits and chocolates. But for fruit drinks, carbonated beverages act as a strong substitute.
Problem here is instead of direct substitute products of biscuits, cakes, chocolates and fruit drinks, there are direct substitute brands are available. So customers are having the option of choosing some other biscuits brand instead of Munchee, some other cake brand instead of Tiara, or similarly some other chocolate brand instead of Ritzbury. As Sri Lankan customers are highly price sensitive presence of these substitute brands is a threat for CBL brands, and this is leading to a price competition in the market. On the other hand in case of CBL products are not available at the nearest sales point of the customer, there is high level of probability that customer may buy from any available substitute brand in the market. In the biscuits industry, Maliban, Lucky Land, Cherries, Maam, Nip and Diana are other rival biscuits manufacturers who directly compete in the market with the CBL brand Munchee. Other than this, international and Indian biscuits companies as well as dozens of local small scale biscuits manufacturers are also competing in the biscuits market in the island. But currently Munchee is holding 60% market share of the overall biscuits markets which has been estimated as a 10billion worth industry. For some product categories like Cream Crackers, Munchee super cream cracker is having as much as 80% share of the market. Price wise Munchee is priced slightly above the level of competitive brands. But with efficient distribution network and extensive brand building investments, Munchee has been able to dominate the biscuits market in the island. Current trend in the biscuits market in Sri Lanka is that Munchee is continuing its expansion of the market share while Maliban is still loosing the ground. At the same time new entrants like Diana and Cherries have been able to widen their market share of the local biscuits market and now they are having over 10% market share. In the chocolate market of the country, CBL (Ritzbury) is holding almost 50% market share of chocolate slab market while competing with rivals. Local chocolate manufactures like Edna, Kandos and Diana are major competitors in the local market and furthermore imported chocolate brands like Nestle and Cadbury are also competing in the market. In chocolate coated product market Ritzbury is having over 70% market share of the local market. Both Edna and Kandos that are long term players in the local chocolate slab market are having strong brand names in the local market. Both Diana and Ritzbury 19
are new entrants to the chocolate market. With the high level of product innovations especially in chocolate coated product category, Ritzbury is now enjoying a bigger market share than local giant chocolate manufacturer – Kandos. Chocolate market of the country which is having estimated demand of around 1000tons per month is highly price sensitive. Furthermore major players of the market are having excess production capacities also. So there is a price competition in the industry. For instance, when Ritzbury “Popit” that is a chocolate coated rice crispy product, was introduced to the Sri Lankan market some 8years back, price of a 10g packet was 20 rupees. After some 8years, still the same packet goes to 20rupees. Originally the profit margin was 250% and now it is around 17%. Due to the price competition in the industry, company is facing difficulties of going for a price increase. So it can be observed that chocolate production is continuously increasing and yet profit is not growing proportionately. Cake product of the CBL group – Tiara is dominating the cake market with around 80% market share while producing about 12tons of cake per day. As Tiara is the only cake which can be kept as long as 6month period even without a refrigerator, in the market there is no other cake brand capable of same level of value to the customers. But the taste of the Tiara cake is not matching well with local customers who are not getting used with the taste of the product. Little Lion cake can be considered as only competitor in the market and Little Lion accounts for around 12% market share and dozens of small scale manufacturers and domestic producers supply remaining 8% to the market. Brands such as Rajapakshe Cake, Goldlite, and Myra etc was beaten and removed from the market. So the competition for the Tiara cake is not high as there is no other brand giving same value to the customers. Cecil fruit drinks was came under CBL control recently and it is still not a wide spread product around the country. It is considered to have 10% share of the fruit drink market of the island. Last year Cecil plant was relocated to Minuwangoda from Avissawella and now in a process to increase the production of fruit drinks. Dominant player in the local fruit drink market is Smak. Although the Name of the brand Smak has
become a synonym for fruit drinks in the Sri Lankan market, they are only having 34% market share in the fruit drink market. Insufficient production capacities and insufficient distributions have limited possible success of strong brand name of Smak. The gap of the market is filled by dozens of regional small scale fruit drinks manufactures. Furthermore the giant global player Coca-Cola is also trying to enter Sri Lankan fruit drinks market with its brand name called Minute Maid. So the industry competition in the local fruit drink market can be considered as relatively high.Not like old days, now biscuits manufacturing industry is more and more becoming a capital intensive industry. Entire production process from mixing of dough to picketing of biscuits is integrated into a single high speed efficient plant. Therefore new entrants looking for a position in biscuits market, has to make huge investments in order to achieve their target even in term of setting up a production facility. Tiara cake plant of the CBL, is located inside a bacteria free specially air conditioned room having very high level of air quality, is state of the art high tech production plant capable of producing 14tons of cake per day. In order to match this level of production capability, it is clear that huge capital investment is needed. For the chocolate industry is also the situation is more or less is same to that of biscuits and cake industries. Therefore in terms of capital investment required, barriers for new entrants for entering into the market are high. Next barrier is present in terms of distribution network. If somebody is investing heavily for a mass production biscuits or a cake plant, efficient and large distribution network covering the entire island is also needed. For an instance, munchee is having 60 agencies and 400 dealers distributing products to over 80000 sales outlets in the island. Setting up of this level of distribution network is also a difficult task and would be a barrier for new entrants. Obtaining product formulas necessary for biscuits, cake or chocolate production is also a barrier for new entrants. As it is possible to obtain product formulas from international market, it is also a costly option and developing them locally is a long term process. But for fruit drink industry which is not a capital intensive industry, barriers for new entrants is relatively low and further it can be seen that many small scale players are operating regionally in the fruit drinks market. 21
Part 4 – Strategic Analysis: It is clear that although CBL products are dominating the market, CBL product are in a price competition with rivals in the market. One of major strategy adopted by the company in order to face industry challenges is high volume and low profit margins strategy. So the company is mass producing its products through capturing the biggest market share and continuously pressing harder to increase its market share while keeping prices of products in line or slightly higher to the competitors and thus CBL has been able to achieve high sales volumes while continuously capturing market share of competitors. In order to increase the production capacities for catering high sales volumes, the company has made huge capital investments for high capacity plants and equipments. The company has relied heavily on advertising for positioning in target market segments and widening the market share of products. Seeking opportunities in new market segments is also being done. Furthermore value innovation is playing crucial role in CBL strategy. For an instance earlier, biscuit like “Lemon Puff” of which there is yellowish cream inside the biscuits sandwich was fun part of kids and usually biscuits covering the cream were thrown away. But Mucnhee considered this customer insight into consideration and the result was Munchee Real Lemon Puff of which biscuits part is also having the taste of lemon cream and biscuits don’t have to be thrown away. Prior to this innovation Munchee Lemon Puff only had 23% market share in Lemon Puff market and now is having 80% market share in the market. In chocolate market in the country also earlier perception was chocolate means chocolate slabs. But Ritzbury introduced chocolate coated product such as chocolate coated wafer (Chit Chat), chocolate coated peanut (Go Nut), chocolate coated biscuits (Chunky Choc) etc in to the Sri Lankan market. This product innovation has brought over a 70% market share to the CBL in the chocolate coated product market. Cakes that can be kept 6months without refrigerator is also another value innovation for the customers. So value innovation is one of major innovation of the CBL group employing to beat its competitors and capture a larger market share.
It can be observed that company is well aware about its value chain. Company is doing some backward integration of its value chain. Earlier agro products were purchased from wholesalers and now the company has set up a farmer network and products are directly purchased from farmers. As a company which consumes big amount of flexible packing materials, the CBL has set up close ties with plastic and flexible packaging manufacturers like Modernpack. The company has completely outsourced distribution of its products. Distributors and agencies are doing distribution of CBL products in the island. Export distribution is also done through export distributors in India and Singapore. So the company has not engaged in non core operations. For an instance, the company does not have its own vehicle fleet or intermediate warehouses. Entire transport of finished products is carried out by distributors. Furthermore the company is in the process of value chain integration and already an ERP system has set up in the Ranala factory and further expansion of the ERP system covering the entire group of companies is in progress. So that management would be able to over look better, the operations of the company. Generally it can be observed that the CBL group is following two generic strategies explained in the literature. One is the company trying to achieve cost leadership in the industry. This strategy is not tried through general cost cutting programs but by having technological superiority over its competitors. For an example, still the main competitor Maliban is having electrically heated ovens in their biscuits plants. Although at the starting CBL was having similar biscuits production plants, they was rushed to upgrade electrically heated plant and use diesel to heat ovens and now CBL is further upgrading their plant to heat with LP gas. Switching to diesel or LP gas mean cost saving is tremendous. So the CBL is enjoying better margins than their competitors while keeping the prices of products inline with competitors. Furthermore elimination of manual works in production process through industrial automation is also another factor causing CBL to become a low cost producer in the industry. Setting up a farmer network
and making direct purchases from farmers are decisions further strengthen CBL position as a low cost producer. Other generic strategy followed by the CBL group is diversification of the business as well as products. Introduction of chocolate coated products into the local market and introduction of cakes having longer expiry date are two examples for product diversification and innovation. CBL group is in the process of business diversification also. Originally CBL was a local biscuits producer. Then they entered in to chocolate manufacturing. And cake manufacturing was started next. After that jelly production was started. Later controlling share of Samaposha and Lanka Soy was taken. Then entry into fruit drink market was made by acquiring the fruit drink company – Cecil. This shows how the business diversification went on. And also CBL has expressed its intension of entering into the real state market in the county also. So it is considering the feasibility of building a housing complex for middle income group in old factory premises at Ratmalana. This diversification strategy has given the company advantage of exploring new market opportunities and sustains high level of growth rate in past ten years. As company has been able to grow continuously and make profits, business reengineering approaches are not in consideration at the moment. Balance Score Cards are only employed to monitor sales progress and BSC has not been implemented into manufacturing and operations areas. In terms of customer value creation, in recent times it can be seen that CBL group has done a great job. CBL is striving to maintain an international level of product quality while keeping the cost attractive to the local customers. Case of Tiara cake can be shown as a best example for better customer value creation. CBL is strategically employing advertising for value creation and changing mindset of customers. For an example, earlier Cream Cracker was a product associated with ‘get well soon’ perception in the society and mostly consumed by over 35years population. But now Cream Cracker is used for ‘small hunger’ and widely consuming by age less than 35years segment as well. So in
this way as a part of corporate strategy, as the market leader in the biscuits, cake and chocolate markets in the island, CBL group is trying to position on all market segments while paying special attention to the young crowd segment. Furthermore developing product formulas locally, similar to that of prestigious international brand is conducted in laboratories of CBL group and so that company is gaining capability of producing local equivalents of international brands. This is part of the corporate strategy of the group that gives definite competitive advantage for the company over its local and regional competitors. As the vision of the company targets, becoming the leader of confectionary manufacturing would be a long journey for the company. One prerequisite for achieving the target is huge capital investments in sub continental India. As a privately owned company this would be a really difficult task and so the company now has correctly identified and expressed openly its intention of going public in the near future. This can be mentioned as a farsighted alignment of corporate strategy with long term company objectives. Finally it can be said that continuous drive for innovation and creation of superior value to customers has largely contributed for the recent success of the CBL group. Another important factor notable in the success story of CBL is, correctly understanding the power of advertising in the event of building a brand. Having a strong brand name means, a company has successfully liberated its product from commodity like trap and price level can be set beyond the balance point of supply and demand curves. CBL is heading to that direction.
Reference: 1. www.muncheelk.com 2. AC Neilson Retail Audit, 2010