INTRODUCTION

Engro Foods (Pvt) Limited (EFL) was established in 2005 as part of a diversification process at the Engro Group. The plant located at Sukkur (Sindh) on 23 acre land, has the raw milk reception capability of 300,000 litres per day and UHT milk capacity of 200,000 litres per day. The project cost was of $ 16 million and it provides direct employment to 750 people.

Engro Foods has entered the Food business through milk processing and sale with the company‟s vision to pursue growth opportunities based on country fundamentals and own strength. It also positions the company to leverage its corporate social responsibility initiatives and work closely with rural communities to promote integrated farming and livestock development. This effort is expected to play an essential role in poverty alleviation and improving livelihoods of the poor in the milk collection areas. Olpers Milk, company‟s first brand was launched in March 2006 in 20 cities of the country simultaneously. Since then two other brands Olpers cream and Olwell have been successfully launched and have established Engro Foods Limited as a major player in the foods business already. Their goal is to be one of the biggest players in the food business and their aim is to dominate the food business. To achieve this they will settle for nothing less than the cream!

The vision statement of Engro Foods Limited is

“To become a fast expanding mega foods company.”

SWOT ANALYSIS
STRENGTHS:
 Brand of Engro Foods: Olpers is a brand of Engro foods. Engro is a well-established brand name in fertilizer, IT and infrastructure. The brand is well known so customers will automatically have a brand association to Olpers and see it as a premium quality product. It can easily afford research and development. It can also promote its brand through better channel.

 Public Relationship with farmers: Engro foods have a strong bond and long term relationship with the farmers who are willing to supply milk to the company.

 Strong Consumer and Product Research: Olpers have done a strong consumer and product research before and after launching its product. EFL has hired various global research partners like AC Nielsen, Mindshare, JWT Asiatic and MARS advertising and marketing agencies.

 Third Generation Plant: Only EFL has a third generation UHT milk plant in the country. It is the only company using Bactofuge technology to virtually eliminate bacteria and ensure premium quality and hygiene.

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WEAKNESSES:
 Milk collection and Distribution costs: EFL‟s 34 out of 40 milk collection centres are located in Punjab, whereas its milk processing facility is situated near Sukkur. It increases the chance of milk collection and distribution costs.  Owning Red Colour: EFL has not owned the red colour like Nestle has owned green colour for Milkpak, Haleeb has a blue carton etc. Consumers might have problems in recalling the brand because there is no colour association attached to Olpers.

OPPURTUNITIES:

 Awareness: Growing dissatisfaction with loose milk and growing awareness about health issues have led to increased processed milk consumption.

 Fourth largest producer of milk: Pakistan is the fourth largest producer of milk in the country. Milk is the largest commodity from the livestock sector accounting for 51 percent of the total value of the sector. There is an opportunity for Engro foods to grow in this part of the sector.

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THREATS:

 Competition: Olpers have a threat of competition from its competitors such as Haleeb and Nestle. These brands have been in the market for a long time even before Olpers so they have created a mark in the minds of consumers in terms of quality.

 Price Differentials: Price differentials can also cause a threat to Olpers because price might create barriers in terms of the profit margins. For example, loose milk is much cheaper than packed milk and people might shift from packed milk to loose milk due to difference in prices.

 Inflation: A serious threat can be caused by inflation because due to inflation people could no longer afford to pay higher prices for processed milk and could switch from processed milk to loose milk. So there can be a shift in demand from companies providing packed milk to milkmen who provide unprocessed milk.

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INDUSTRIA L ANALYSIS

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Pakistan Milk Market/Industrial Analysis
 Pakistan‟s economy is predominantly agrarian in nature.  Agriculture accounts for 20.9 percent of the GDP.  43.4 percent of the total work force is from agriculture

sector and it is the main source of livelihood for 66 percent of the country‟s population living in rural areas.
 Growth in the agriculture sector registered a sharp

recovery in 2006-07 and grew by 5%.
 Pakistan is the 4rth largest milk producing country in the

world.
 An estimated 33.25 billion liters of annual milk is

produced.
 Approximately 50 million animals managed by 8 million

farming households.
 Contribution of the livestock sector to Pakistan‟s GDP is

at 11% while the processed milk sector contributes about 0.43 percent.
 The milk economy represents 27.7%2 of the total value

of the Agriculture sector.

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 The graphical representation of forecast of milk industry

in the previous years is such that the demand for milk would be more than its supply. Reason being that people would become more health conscious and would consume more milk. The consumption of milk would exceed its production.

PRODUCTION vs CONSUMPTION

38500 38000 37500 37000 36500 36000 35500 35000 34500 34000 2008-2009 2009-2010 Production Consumption

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MARKET TRENDS:
Market trends for milk industry are changing. The following trends are occurring:  The growth of processed milk is increasing by 20% annually.  People are getting more quality and health conscious with the passage of time.  Due to impurities of loose milk, people are attracting towards processed milk.

MARKET POTENTIAL:
The market potential of milk industry is that  At an average, a Pakistani consumer spends 42 % of income on food.  Consumer often prefers branded food items for both quality and status reasons.  Per capita real GDP has increased at an average of 5.6 % per annum during the last three years.  This increase has led to a rise in average income of people and an increase in consumer spending.

MILK INDUSTRY SEGMENTATION
Fresh Milk Packed Milk

96%

4%
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INDUSTRIAL SWOT ANALYSIS
STRENGTHS:
 Pakistan dairy industry is the World‟s fourth largest industry.  Pakistan Dairy Industry is Cheaper than Austria, America and other developed countries.  Farmers are engaged in agriculture and dairy at the same time.  By-product of Agriculture is used in Dairy.

WEAKNESSES:
        Poor profitability for farmers. Lack of contact for farmers to the market mechanism. Poor dairy infrastructure in rural areas. Lack of education among the farmers is making it difficult to change farm and dairy management systems. Lack of knowledge about optimal feed. Lack of a cold chain to protect milk quality. Lack of access to well trained support service staff such as Veterinarians. Despite the huge volume of milk produced in Pakistan, processors find it hard to obtain sufficient milk to meet future consumer demand. Increasing demand for imported products. The product range offered to consumers is not well developed. Production of milk falls to 55% of peak production at its lowest point in mid-June. The demand increases 60% during June compared to December when the milk supply is ample.
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   

OPPURTUNITIES:
 There is an opportunity for companies to introduce value-added products like ice creams, flavored milk, dairy sweets, etc.  There is a phenomenal scope for innovations in product development, packaging and presentation.

THREATS:
 Very low quality milk is provided by the milkmen to dairy farms which is a very big threat for the entire market.  The shortage of milk providing animals is also a threat for entire milk industry.

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Michael Porter’s Competitive Strategy Model

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A company can survive and succeed in the long run only if it successfully develops strategies to confront five competitive forces that shape the structure of competition in its industry. Michael Porter‟s classic model of competition has given analytical method which tells about two dynamic factors, Competitive forces and Competitive strategies. This model helps to evaluate the competitive position of the business. In Michael Porter‟s model, any business that wants to survive and succeed must develop and implement strategies to effectively counter five competitive forces shown in the diagram above.
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COMPETITIVE FORCES
RIVALRY OF COMPETITORS (HIGH)  Diverse Competitors: In milk industry, many business giants like Nestle, Haleeb Foods, Good milk, etc. are having an immense competition and the magnitude of rivalry is very high.  Industry growth is high: The industry has a way large potential of growth. The prospective growth can be estimated in a way that UHT milk is serving only a small chunk of total milk consumption body. So, further growth can be pursued.  Exit barriers are high: If a firm tries to exit Milk industry, it would have to bear a High Exit Cost. The plants set up to treat milk with Ultra High Temperature have no significance use in another industry. Hence firms avoid to exit and the rivalry goes on.

THREAT OF NEW ENTRANTS (LOW)  Strong Customer Loyalty: The already established UHT milk companies have Brand loyal customers and it would be very difficult for a new venture to make those customers switch to the newly launched product.  Large capital is required: To build up a UHT treatment setup for milk requires a huge capital to be initially invested, hence escalating the barrier to entry.  High marketing expenditure: To compete in the current industrial scenario, a new product would have to be marketed and promoted immensely, which requires a large promotional budget.

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THREAT OF SUBSTITUTES (HIGH)  Loose products in the market are the major substitutes: If a company in the milk industry goes on increasing its prices then there is a fair chance for it to loose certain income group consumers as the customers would shift to loose milk consumption.

BARGAINING POWER OF CUSTOMERS (HIGH)  Switching costs is low: It costs virtually nothing in monetary terms for a customer to switch from one brand of milk to the other. This gives rise to high bargaining power of customers.  Switching options are more: There are many firms in the market which offer milk for virtually the same price. Hence consumers have many switching options.

BARGAINING POWER OF SUPPLIERS (LOW)  High number of suppliers: There are a large number of milkmen supplying milk to the UHT milk companies. So the bargaining power of suppliers is low.  Importance of volume to suppliers: The suppliers of milk are interested to supply all the volume of milk to the companies as milk is a perishable good and withholding a quantity of milk could cost them for nothing.
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COMPETITIVE STRATEGIES
COST LEADERSHIP:
Engro Foods is currently not following Cost leadership strategy as there is hardly difference of a rupee or two as compared to that of its competitors. The only way that Cost Leadership strategy could be implemented is through Economies of Scale but contemporarily, in the presence of Business giants like Nestle and Haleeb Foods, being the cost leader through Economies of Scale is like building castle in the sky.

DIFFERENTIATION:
Engro Foods is following Differentiation strategy through which it has introduced a range of different kinds of products in milk industry.  Olpers is wholesome milk which is serving major part of target market.  Olwell, the low fat milk, serves that niche of consumers who are diet and calorie conscious.  Owsum is flavoured milk for kids. It is available in three flavours i.e. chocolate, strawberry and mango.  Tarang is a kind of milk that serves the tea-whitening purpose.

Hence, with slight product differentiation, Engro Foods is serving all the milkbased purposes and this strategy helps it minimize the competitive forces in industry.

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Effect on Competitive Forces:
 Rivalry of Competitors: By diversifying its product line in milk industry, Engro Foods lessens the magnitude of rivalry in the industry to some extent; as not every food company which operates in milk industry provides different kinds of milk.  Threat of New Entrants: When certain company (Engro Foods) is serving milk consumers in every manner, it‟s difficult for a nascent business to step into the grounds and start serving the market in the same fashion.  Threat of Substitutes: By offering a complete product range in Milk, Engro Foods creates a Brand Loyalty in its customers, binding them psychologically to pick up its products from the shelf instead of the substitutes.  Bargaining Power of Customers: Not every company serves milk consumers in a similar manner as that of Engro Foods. So when a few companies bring about diverse product range for a large number of customers, this reduces the bargaining power of customers.  Bargaining Power of Suppliers: For a diverse product range, Engro Foods collects more volume of milk. Hence bargaining power of suppliers is shrunk.

INNOVATION:
Engro Foods is not following Innovation strategy as it‟s really hard to innovate in the milk sector.

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GROWTH:
Engro Foods has emerged and is growing its roots like anything. The company has employed „Push marketing style‟ to enlarge its volume. If we see the graph of Engro Foods given below, the way this company has grown is commendable.

Effect on Competitive Forces:
 Rivalry of Competitors: As Engro Foods is growing by leaps and bounds, it is in a sense minimizing its rivalry. Instead of competition with every little company in the market, it now has to compete with giant establishments only; hence minimizing the degree of competition.  Threat of New Entrants: By pursuing Growth strategy, Engro Foods is making it hard for new firms to jump in. In the presence of briskly progressing company in the

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industry, it would be bit hard for a baby boomer to offer the same scale of competition.

 Threat of Substitutes: Intense growth, push marketing strategy, markets flooded with Engro Foods milk, massive advertisement, everyone humming the ad jingles, make it less probable for the consumers to switch to substitutes.

 Bargaining Power of Customers: Being one amongst the few leading growing companies in industry, Engro Foods enjoys less bargaining power of customers.

 Bargaining Power of Suppliers: Growing implies more volume. Since Engro Foods collects milk from suppliers in large volume, it trims down the bargaining power of suppliers.

ALLIANCE:
Engro Foods is producing milk with no alliance with any other group or company till date.

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COMPETITIVE POSITION
Statistics show that Engro Foods stand at the „THIRD’ competitive position, Nestle Milkpak and Haleeb being at first and second respectively. Here we compare different companies in milk industry using the measure of MARKET SHARE.

MARKET SHARE

45% Good Milk 9% Milk Pak Dairy Queen Haleeb 1% 2% 4% 22%

Olpers
Nur Pur Others

17%

The graph shows that three or four companies are dominating the UHT milk industry. Engro Foods has attained a significant market share in a short span of time making the mat slip from under Haleeb‟s feet. The pursuit of Growth Strategy is still making them progress very fast and the present predicts a bright future of Engro Foods. Engro Foods hopes to escalate its market share in the coming years.

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TYPE OF COMPETITION
A „MODERATE’ competition prevails in UHT milk industry as evident from the above figure. Number of competing companies is not large. Few companies such as Nestle, Haleeb, Olpers (Engro Foods) and Dairy Queen dominate the market and have a fierce rivalry among them. The marketing campaigns, the advertisements all indicate the strong “Choose Me” approach of the competing companies.

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ANALYTICAL CONCLUSION

For Engro Foods:
After analyzing the industry conditions, the competitive position of Engro Foods in the industry, their employed strategies, we come to the conclusion that Engro Foods should REMAIN in the industry. The company is currently holding a substantial fraction of market share and the company is pursuing Growth strategy which is a positive sign in itself. We suggest Engro Foods to keep going with the same strategies i.e. Growth and Differentiation as it is doing well. Thumbs up!

For the New Entrants:
Milk industry has a great potential for new businesses to jump in. UHT milk companies are serving only 4% of the total milk consumers. The remaining 96% are consuming loose milk. With the increasing awareness of health consciousness and the hygiene issues with loose milk, people are shifting towards packed milk. Though entering in milk business is not easy. Large investment is required and milk being perishable good offers a great challenge to be catered. But for a Group which can afford to enter, there is prospective chance to make profits in this industry just like Engro Foods did couple of years ago.

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