About the Company Established in 1910 in Kalamazoo, Michigan by Jed Thomas First Product: packaged mix of cracked wheat, rolled oats, and malt flakes Diversified into snack foods, dairy products, drinks and beverages, frozen foods and baked goods 2010 revenues: $9 billion one-third contributed by breakfast cereals
Corporate Values Policies and Practices
Managers promoted from within Commitment Strong commitment to The UC way Diligence Listen to the customer pioneer in the Loyalty use of consumer research and focus groups Spot the trend, make the market- extensive market testing prior to product launch Innovation and Brand Management Breakfast Cereal Market Scenario Breakfast cereal was one of the great food commercialization successes of the 20th century Worldwide revenues: $21 billion in 2009 US Sales ($12 billion) Hot Cereals
20% Top 5 Ready-to-Eat players
(accounted for 90% of Remaining
sales in both the US and 80% 25 Europe) Highly competitive industry 10% of revenues spent on advertising and marketing New-product introductions typically occurred every year Brand extensions were less risky and less expensive compared to developing a new brand Growth from expansion to offshore markets UCs European Operations UC entered European Market by acquiring and expanded by introducing products European Industry Competitive Structure $7 Billion breakfast cereal market 26% market share Varies with countries tastes and Kellogg High volume low cost model breakfast traditions 20% market share Channels also vary country-wise United Cereal Europe accounts for 20% of UCs sales
17% market share
Cereal Partners JV between General Mills and Nestle UCs Europe Strategy and Organization Weetabix 7% market share Strong branding and promotions Follows national subsidiary model led by Country Manager(CM) CM works as entrepreneurs to maximize the subsidiarys local profit Each subsidiaries built as mini UCs- exact replica of parent organization CMs were expected to respect the UC way Differences in product profiles and market strategies became a problem Same product positioned differently across different markets UCs European Operations Increasing price and profit pressure
Total sales : stable Areas of concern
Market growth : less than 1% Focus on local products and market annually Market & product development teams Product mix: lower price outside US had 25% more operating offerings expenses Price and promotion Slow new product introduction pressure: Kellogg and cereal Favor product extension partners. UCs European Operations United Cereal Response Arne Olsen, UCs European VP invigorate product portfolio and reverse decline in profitability Year 2002 Year 2006 1. Re-organised R&D 1. Olsen transferred to Kalamazoo 2. Created European Technical Team (ETT) 2. Lora Brill took over as VP 2.1 link scientists to subsidiary based technologists 2.2 gain overall product development Aftermath of 2008-09 recession direction 1. Growing pressure on margins Year 2004 2. Leverage the marketing resources to Expanded ETT to European Initiative control budgets 1. Aimed at product market strategies 3. focus on coordinated European 2. Disastrous European Juice Nazi approach for product development incident 4. Eurobrand' concept test- Healthy 2.1 Standardize product across Berry Crunch countries 2.2 Challenged local autonomy The Healthy Berry Crunch Project The French Opportunity: Market for organic fruit based cereal in France
Blueberry Organic blueberry based cereal as a product extension of Healthy Crunch
product Blueberries - antioxidant qualities
Implemented a full scale test market in Lyon - mixed results Intention to repurchase - below UC target of 60%
Raspberry Too expensive to manufacture
Product
Sweeter Taste tested in 6 French cities
Blueberry 64% intention to repurchase version Ready to launch The European Debate PodCafe Debacle Before Launch Podcafe was launched in Germany in Brill started testing Healthy Berry 2003 for home espresso machines crunch European wide French subsidiary launched this version in 2006 Finance team had estimated that But in 2006 the market was crowded coordinated European market strategy by similar product which took their would reduce the staff and bring in market share to third place more saving
Estimated around 10 to 15% of over the
three years The Launch Cost would was estimated around Appropriate time to consider products $20 million in France- 10 times the for the local market approval level Problems to get the shelf space for As the consumer taste is converging, specialty cereal cultural habits are disappearing The Spanish subsidiary is still under recession EU regulations on labeling, advertising Reluctance for this launch as it and general marketing practices are without proper product, consumer eroding marketing differences and market research The proposed UC European Org Lora Brill, European VP
Director of European Sales
Director, Manufacturing Director of Admin Engineering Marketing Manager. Logistics R&D Director and Finance Manager Services and Purchase
James Milner Division VP UK and Scandinavian; Frozen Foods
Jorge Sanchez Division VP Southern Europe Beverages, Juices and Dairy
Kurt Jaegar Division VP Northern Europe; Cereals, Snacks and Baked Goods The Eurobrand team Apart from their current role of supervising subsidiary by region, they were offered an advisory role. They were tasked with cross-market coordination and communication of certain products
Brand managers from every country
subsidiary Delegates from each functional group such as logistics, engineering, R&D and so on One appropriate Vice President who is in charge of specific regional divisions Chaired by brand manager of an assigned lead country How effective will the Eurobrand team be? No dilution of CM role; VPs role only as an advisor
Since the team consists of resources from R&D, purchasing & logistics, increased cost pressures can now be addressed for Europe as whole and not country specific
Generic strategy allowed CM to make his own market decision and was responsible for P&L and therefore, current structure lacked consistency
Original strategy was differentiation, but current strategy made them cost focus as SG&A cost was 25% higher than counterparts in US
How can the team be more efficient?
Structure should allow efficient horizontal and vertical communication lines Hierarchy of UC will become more complex, which will result in a longer information chain; hence hierarchical structure is clear and efficient and that every Employee feel they are evolved in the decision-making process. The Dilemma Launch Healthy Berry Crunch? Industry moving towards Competition healthy food Kelloggs special K with strawberries is Panel results in Germany suggests the only competitive product in the trend is to move to more healthy food French market EU has loosened its regulations of Rumours about launch of Berry Burst labelling, marketing practicing, which Cheerios also indicate an opportunity to UC PodCafe debacle
Strategic Advantage to UC
Savings of 10-15% in the overall costs of all Europe, the launch of Healthy Berries Crunch seems to meet the companys long-term strategy of streamlining the operations and product matrix of Europe Spot the market, make the market - the innovation in the products had been at the core of UCs history and the launch of Healthy Berry Crunch will be in line with this core value
Hence, Lora should authorize the launch of Healthy
Berry Crunch in France as UCs first Eurobrand product SWOT analysis of UC in Europe STRENGTHS WEAKNESSES
Global competitor in a multi-billion Lack of agreement on a managerial level
dollar industry Everyone has a differing opinion on Built on three core values - The UC which direction the company should be Way, Listen to the customer and moving Spot the trend, make the market In Willingness to put people with fresh ideas in leadership positions OPPORTUNITIES THREATS
Tastes and habits of breakfast Kellogg, the toughest competitor, has
converging already introduced Special K Natural and less sugar in cereal The competition is growing dramatically products has become a key trend in the in European market cereal industry The market growth of cereal industry EU has loosen its regulation of has slowed to less than 1% annually labelling, advertising, and general Trend of customers preference to marketing practices lower-priced products after the global recession Porters Five Forces of UCs in Europe Low Threat of new High entrants
Bargaining Threat of substitute power High products of customers
Porters Five Forces for UC in Europe
High Competition Bargaining High in the Industry of Supplier The Healthy Berry Crunch Project The European Debate: Monil
