Post Holdings buying Weetabix-Critical Strategic Analysis of the current strategic change, Assignments of Strategic Management

Download Post Holdings buying Weetabix-Critical Strategic Analysis of the current strategic change and more Assignments Strategic Management in PDF only on Docsity! 1 Hafsatu Serry (R1703D2514328) University of South Wales Module Name : Strategic Analysis; Tools and Techniques (ST4S38-V1- 16618) Lecturer: Dr. Bali Topic: Post Holdings buying Weetabix: critical strategic analysis of the current Strategic Change. Date of Submission: 11 May 2020 2 Introduction: Post Holdings is a diverse packaged goods (foods) holding company that began trading in 2012 as a symbol ‘Post’ that is based in America. It consists of many successful brand businesses that it has acquired over the years such as MOM brands and Attune foods (cereals, snacks and quality granola) and Dakota Growers (producing and manufacturing pasta), Michael Foods (produces dairy based products) to name a few (U S Securities and Exchange Commission, 2017). In 2017, Post holdings bought Weetabix (a UK food company manufacturing cereal and cereal related products along with breakfast drinks) from the Chinese Bright Food company. Despite Bright Food owning a 60% stake in Weetabix, it struggled to gain market share in China as there was a consumer preference of hot rice based breakfast (which is tied closely to Chinese culture or habits) than easy to eat cold cereal (Junqian, 2017). This acquisition of Weetabix (being one of UK’s largest cereal company) was a strategic move on Post Holdings to enter the UK market thus adding more brand product services to its existing diverse product services in food goods and to gain more market share outside the US. In this analysis, we will be examining (with suggestions) on the effect the purchase of Weetabix had on the strategies and market share of Post Holdings. We will also be creating an understanding of its (Post holdings) strategies used (and factors that will affect the strategies) to gain more market share in the food industry globally. Strategic Position of the Post Holdings: The relative position of a company based on performance, within its industry category is termed as strategic positioning (www.isc.hbs.edu/strategy/business-strategy/pages/strategic- positioning.aspx). This also shows what decisions companies take or make to create better kind of value (of its product) that’s different than their rivals, thus achieving superior performance within the industry. This usually translates into a company’s competitive advantage. There are two basic types of competitive advantage a firm can have: low cost or differentiation, and to explain that we will look at Bowman’s strategy clock and Porters generic strategies. Porter describes the two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus. A sub division of focus was created into differentiation focus and cost focus. 1. Differentiation: companies focus on producing unique services or products within the industry, that are more attractive to consumers. This strategy type is used among 5 Holdings shareholder’s interests would be in the shares purchase price at a desired low cost. While Weetabix shareholders interests would be the shares sales price at a desired high cost. Both companies management interests would be the profitability in both sale (Weetabix) and acquisition (Post Holdings). The UK government would have a high influence due to the transaction legalities (law) as their interest would be the commission along with the state of Weetabix employee jobs in the UK. Other less key primary are employees, investors and customers which still have high power but less interest. Post holding employees interests would be in transfers, leasing to career opportunities. While the employees at Weetabix concerns would be for their job availability. Concerns for Weetabix investors is the risk factor of the acquisition as they’d want to avoid opportunities that would bring in a loss. However the acquisition of Post Holdings would lead an opportunity to invest. For the customers their main interests would be product quality and entrance of new products. The secondary ones (low power with high interest) are their sale/acquisition handlers, suppliers, competitors, and public with low power and less interest. Sale/acquisition handlers interest would be in the commissions while competitors would be more concerned with market shares. Post Holdings suppliers would have a positive impact as they would be expanding their services while Weetabix suppliers would be worried about loss of existing contracts/services. For competitors and public their interest and powers would very minimal in terms of market share (competitors) and general information (public). External Factors Analysis on Strategy Companies need to assess paramount external factors that influence their operations in order to be more competitive in the market. This assessment is in the form of a method called PEST (Political, Economic, Social and Technological). PEST gives an overview and determines the different macro-environmental factors companies need to take into consideration. Changes in the macro-environment factors will result in a huge impact on Post Holdings, thus impacting it’s Porter Five Forces. By using the PEST analysis, this will highlight the operating challenges (in detail) that will be faced from the acquisition. Political: By acquiring Weetabix, Post Holdings has to abide by UK regulations and law. But UK’s 2017 Brexit decision leaves an unsure fate of the country’s political situation. Factors such as foreign trade regulations, employment laws, environmental regulations and business operating legislative laws could see a change and could cause exorbitant costs for Post Holdings. For instance in 2017 (in an attempt to improve welfare) the UK increased the minimum wage and is still increasing according to the (https://www.gov.uk/national- minimum-wage-rates ). This will result in an increase in labour cost than what was analysed by Post Holdings. Economic: In 2017 (the year Weetabix was bought over) the UK was undergoing Brexit which caused the pound to weaken but the dollar to gain (The Balance, 2020) thus adding 6 advantage for Post Holdings purchasing. Before Brexit, US companies used the UK as a gateway for free trade with other EU nations (The Balance, 2020). However, Brexit could terminate the UK’s free tariff trade with EU nations. Post Holdings (with existing economic factors such as exchange rate fluctuation and interest rates affecting their international trade) would have to strategize on how to combat that as their exported products could become more expensive to EU nations and other countries. Since Weetabix exports to over 80 countries (BBC, 2017) this could lead to a reduction in sales. Therefore Post Holdings would need to understand the business cycle and the UK’s economic system. Social: An organization (depending on the environment) is impacted by societies culture. Weetabix can be deemed as a UK pride for food brand, the acquisition could be seen as a loss to a foreign company and lose its UK brand and quality. Post Holdings has to understand and do more research on customers demography, attitudes, preferences, society hierarchy, culture aspects, population skill. Lessons can be learnt from the struggles Weetabix had (in the Chinese market) due to Chinese culture preference of hot, rice based breakfast than cold breakfast (BBC, 2017). Technology: Since cereal is becoming one the most popular breakfast food globally, there is a constant need to increase its production due to the growing demand (as the world’s population grows). Having access to better technology (and innovation) can enable Post Holdings to dive into researching for ways to improve on its products/services and outsmart its rivals. Access to better technology could pose as an issue for Post Holdings since Brexit would mean the UK losing grants to the EU’s state of the art technology (The Balance, 2020). Industry Analysis In addition to the PEST analysis, Post Holdings needs knowledge of where the power lies in regards to the competitive conditions. This can be done by using the 5 Forces by Porter which is a framework helping to explore a company’s options for competitive advantage to maximizing profit. The 5 forces are: 1. Suppliers power: Suppliers provide raw materials for food companies thus having the bargaining power at their advantage by charging higher prices, impacting the company’s overall profits (lowering it). For Post Holdings though suppliers power isn’t much as Weetabix’s raw source are only 50 miles away from its productions 7 plant (Atherton, 2017). But with Brexit and the fall of the pound, cost could increase in raw sources. 2. Buyer power: Buyers always want the best products but at the lowest cost thereby effecting company profits, thus having higher power. Buyers powers exists when there is a smaller and more powerful customer base. Post Holdings faces high buyer power (for Weetabix) as the supermarkets (buyers) stock up and sell all types of cereal brands, some even sell their own examples are Aldi and Tesco (Robinson, 2015) . Producing new products would help Post Holdings reduce buyer power to switching to purchase from the competition as there would be a demand (of the new products) from the customers. 3. Threat of substitute products: Despite the high consumption of cereal, health concerns is impacting consumer choice. Alternatives (e.g. fruit and yoghurt) are seen healthier and cheaper thus increasing the threat of substitutes in the cereal industry. Thus Weetabix needs to critical research into customer needs and lifestyle to produce new and better products to gain market share. 4. New Entry Threat: Due to cereal’s high consumption, there will always be availability of new companies entering the market. However the existence of major brands (such as Kelloggs) poses threats to new entries as they (the entries) lack the experience, supply along with distribution channels to compete with the major brands. But with the impact Brexit on the UK economy, the UK would be looking for new businesses to invest into its economy. Thus posing a threat of foreign major food brands deciding to enter the UK markets. 5. Competitive rivalry: There is high competition in the cereal industry with the likes of Nestle, Kelloggs , Quaker Oats leading, each creating new and different products for customers (Bizvibe, 2018). For instance, to gain more global market share (by entering the Indian market) Kellogs produced new cereals with ‘ethnic’ flavours and hired an Indian chef who made special recipes (Nair, 2020). Conclusion and Recommendations With other major brands trying to get more global market share in the cereal industry. Post Holdings acquisition of Weetabix was an excellent strategic move, given that Weetabix was already an established UK brand with products exported to 80 countries. It meant, there was an opportunity for the Weetabix brand to easily grow in the US and China-places where Post Holdings already has a large market. However there is need for innovation, extensive research, different marketing strategies and new products to compete with rival brands. Therefore Post Holdings should continue with Weetabix’s differentiation strategy bringing in