Engro foods Limited Strategic Marketing project.

1

Summary

Engro Foods is subsidiary of Engro corporation which is currently workin

in 7 different industries with diversified skill and knowledge. Engro Foods

was recognized in 2006 and in short time it has market share of 51% in

dairy products and 38 % of packed milk market. it has made acquisition in

North America which shows that it planning to go globally.

In Pakistan it competed the big giants like Haleeb, Nestle and gave a very

tough time to them showing phenomenal growth rate. It introduced very

prominent brand as well. Now a day there is trend of shifting from

unpacked dairies products to packed dairy products due to health issues and

hygiene food awareness programs. To exploit the opportunity Engro Foods

is working hard to increase its market. The there is huge market in gulf

countries where it can be successful. In this report we have tried best to

analyze the company and than in accordance with the companies core

competencies recommend it what to do.

Major findings in the reports are that quality of raw dairy is not as well as it

should be especially goods collected from indirect sources. Plants are in

Sindh whereas most of the collection centers are in Punjab. Brand did not

own the color although in the success of Olpers’s milk there was a key

Engro Foods Limited Pakistan

2

factor of packaging color. Huge market dairy products is in gulf countries.

Madarba and Musharika can enable it to have more investment base with

low leverage.

To cope with these issues the Engro Foods should increase better control

over its supplier’s dairy farms this can be done through licensing and

franchising which it has already done still need to revise the policy. This

can be by offering financial services to these farms in order to gain control.

It should also invest into daisry farms to own atleast a margin of the farms.

Logistics system should also be improved to have cost effectiveness. Gulf

countries should also accessed whereas countries in South Asia can also be

good market of the Engro Foods. At last it should have a very effective MIs

and Quality assurance department which include the cross functional teams.


3

Introduction

Engro is one of Pakistan’s most modern, development focused

organizations. Engro Foods different variety of organizations signifies

Engro Foods healthy heritage of advancement and development. Engro

Foods is among the biggest and fastest growing conglomerates in Pakistan


4

with a vision to cater to local needs with products conforming to global

standards.

Highly passionate about providing millions of people across the length and

breadth of Pakistan and beyond with the ultimate brand experience, Engro

Foods product portfolio comprises some of the country's biggest and best

selling brands.

But whether it is Engro Foods thick, creamy all-purpose milk, scrumptious

ice-cream high on nutrition content or refreshing range of fruity beverages,

Engro Foods approach remains largely the same as it strive to keep product

innovation at the forefront of Engro Foods guiding philosophy and

consumer satisfaction at the heart of its operational strategy. Fueled by a

vision to bring to the fore innovative food products packed with quality,

value and nutrition, Engro Foods' made its foray into the consumer foods

business in 2006 with the launch of Olper's, Engro Foods flag-ship all-

purpose milk, which soon became a house-hold name widely known for its

rich, creamy freshness, high nutrition content and exciting, vibrant

packaging.

Since then, it has surpassed all expectations and given the foods business in

Pakistan a new direction and a different spin with brands that go beyond the


5

conventional and the ordinary by forging new standards in product

innovation.

Engro Foods, derives success from the combined expertise, knowledge and

skills of Engro Foods leadership representing a group of highly successful

and dynamic professionals, who bring in a italth of knowledge and

experience and steer the company to great ideas that pave the way for new

product innovations - and Engro Foods continued success. t Engro, it

support Engro Foods leadership culture through unique systems and

policies which ensure open communication, foster an environment of

employee and partner privacy, and guarantee the well being and safety of

Engro Foods employees.

Engro Foods core values form the basis of everything it do at Engro; from

formal decision making to how it conduct Engro Foods business to spot

awards and recognition. At Engro it never forget what it stand for.

Following are core values:


6

Ethics and integrity

It does care how results are achieved and will demonstrate honest and

ethical behavior in all Engro Foods activities. Choosing the c Engro

Foodsse of highest integrity is Engro Foods intent and it will establish and

maintain the highest professional and personal standards. A well-founded

reputation for scrupulous dealing is itself a priceless asset.

Health, safety and environment

It will manage and utilize resources Engro Foods and operations in such a

way that the safety and health of Engro Foods people, neighbors,

customers, and visitors is ensured. It believe Engro Foods safety, health

and environmental responsibilities extend beyond protection and

enhancement of Engro Foods own facilities.

Innovation and risk-taking

Success requires us to continually strive to produce breakthrough ideas that

result in improved solutions and services. It encounters challenges to the

status quo and seek organizational environments in which ideas are

generated, nurtured and developed. Engro appreciates employees for well

thought out risks taken in all realms of business, and for the results


7

achieved due to them, acknowledging the fact that not all risks will result in

success.

Engro Foods people

It strongly believes in the dignity and value of Engro Foods people. It

must consistently treat each other with respect and strive to create an

organizational environment in which individuals are fairly treated,

encouraged and empowered to contribute, grow and develop themselves

and help to develop each other. It does not tolerate any form of harassment

or discrimination.

Community and society

It believes that a successful business creates much bigger economic impact

and value in the community, which dwarfs any philanthropic contribution.

Hence, sustainable business development is to be anchored in commitment

to engage with key stakeholders in the community and society.

Products

At Engro Foods, enhancing customer lifestyles continues to be Engro

Foods main concentrate, first and major. All attempts are designed towards

developing food stuffs that can effect customer lifestyles in a significant


8

way, guaranteeing their health, pleasure and well-being day after day...and

that is accurately what makes Engro Foods manufacturers a

Olpers milk

Sheer indulgence in every sip comes only with the rich creamy thickness of

Olper's. Give Engro Foods day a fresh start with Olper's!


9

Olper’s lite

Embrace the lighter side of milk and feel years lighter with Engro Foods

low-fat milk Olper's lite, for a guilt-free existence!

Olper’s badam

Savor the flavor of tradition and enjoy the rich, aromatic flavors of badam,

zafran and rose in every sip of milk with Olpers' flavored milk!


10

Olper’s cream

Enhance the culinary experience with Olper's Cream - a rich celebration of

life at its creamy best.

Olper’s tarang

Experience sheer bliss in a tea-cup with Tarang, Engro Foods special tea

creamer for that perfect cup of tea.


11

Omung dobala

Get nutrition and the best value for money with omung dobala


12

Olfrute

Enjoy Engro Foods heavenly nectars extracted from pure fruits to

revitalize you with a much-needed boost, anytime anywhere. Only with

Olfrute.

Dairy Omung

Rise up to a better life with Engro Foods all purpose dairy brand Omung

available at the ultimate price and in the best quality.


13

Olper’s tarraka

A dash of Tarrka in your favorite cuisine is all it takes to bring out the

flavor of you food and leave you craving for more.


14

Omor’e

With its rich, creamy taste, high nutrition content and wide-range of chunky

flavors get more from your ice-cream with Omore!

Omung LASSI

Enjoy home-made Lassi in the convenience of a Tetra Pak. Refresh your

day with Engro Foods two delicious flavors.


15

Omung LASSI

Enjoy home-made Lassi in the convenience of a Tetra Pak. Refresh your

day with Engro Foods two delicious flavors.

Vision

" Engro Foods vision is to become a fast expanding mega foods company.

To achieve our vision, the company will initially focus on dairy by


16

investing a substantial amount in plant, milk collection capability and

marketing. We are making concrete efforts to expand in and beyond

Pakistan; through strategic international alliances, to eventually become

global."

Most Critical Strategic Issues affecting the Organization

Marketing analysis is an important phase when a new item is to be released

into the industry. There are many threats associated with that new item and

especially when a company chooses to broaden into an absolutely new

industry that it was not formerly serving. Thus to be able to decrease the

scale of the threats and to be effective, huge organizations with a analysis

and growth division performs the marketing analysis. Even those

organizations that do not have a R&D division can perform marketing

analysis through other organizations that are offering the service of selling

analysis.

One such company is A.C Nielson that performed the promotion research

for ENGRO foods when the idea of expanding into a new market was


17

presented. Marketing research is the methodical style, selection, research

and confirming of information to the appropriate events. ENGRO desired to

create a new fertilizing place but due to certain restrictions from the govt.

was not able to do so. Therefore, the company made the decision to shift

into a new market. They came up with several choices such as telecoms and

pour place but they discovered out that the food market organized the

biggest guarantee. It was an exploratory research that is the primary

objective was to highlight the real characteristics of the problem in this

case, variation into a new market, and to choose possible new alternatives

and concepts such as the food market. They also went though the list of at

least 1,200 titles before they made the decision to present Olper’s. Olper’s

is marketed as the dairy for all-purposes. The reason for this is that while

performing research, they discovered out that people want dairy that could

be used for all reasons such as consuming, tea whitening etc.

Once the item was presented the company desired to add more items to it.

Therefore they performed another promotion analysis to discover out the

achievements of Olper’s. The researchers began off with extra information

that was available. They tried to locate the stage of complexness engaged in

such a choice and the scale of achievements. But that was not enough so

they began to gather main information through the use of different methods.

The first began with study analysis to comprehend the individuals' values,


18

choices and main needs that can be pleased by presenting extra items. The

researchers also performed observational analysis to notice the individuals

in different configurations. They used it to discover out which item the

individuals really purchased, where did they take more time in buy

procedure and where did they look when they were shopping for grocery.

This assisted them to see the shelf-space that can be used. They used the

technique of following their every move that is they noticed individuals

while using the item. They also performed unfocused categories where they

questioned a different set of individuals to discover concepts about the item

and what more they want in the food industry to be available to people.

The researchers performed surveys to discover the reactions of clients about

Olper’s. They got a beneficial reviews from the clients who also motivated

them to get further and to create a new place in Sahiwal. Through different

analysis techniques the company was also able to discover out the number

of faithful of competitors’ brand.

Once all the information has been gathered, it is further examined to draw

out results from the information. The researchers used all kinds of

mathematical techniques such as regularity submission to now the number

of individuals purchasing the product, regular and actions of dispersions for

significant factors. They also used some choice designs for additional

findings


19

After the research of information researchers existing the results to the

choice creators who successfully pass the ultimate judgment. Due to the

beneficial reactions of customers, the Decision makers decided to go

forward with the idea of presenting more items to the food Olper’s product.

It can be said that effective marketing research allows the promoters to

comprehend the costumers’ needs that are still unsatisfied. The two new

items of Olper’s in the market are Olwell diet milk items and Olper’s

cream. The company has further programs to flourish more in this industry

and existing more items relevant to milk items.

Awards

Eman won Pakistan’s InfoComm Technology (ICT) Award (Karachi, Oct

2011)

Eman won Merit Award in the regional Asia Pacific InfoComm

Technology Award (APICTA)(Thailand,Nov 2011)

Engro Corporation being named “The most preferred graduate employers in

Pakistam, 2011” by engage consulting

Engro Vopak tops the list at the Vopak Asia Awards 2010


20

Engro Rupiya Certificates declared the best transaction award of 2010 by

CFA Association of Pakistan

Engro Corp awarded the KSE top 10 companies award for the year 2008-

2009

Engro Zarkhez won the coveted title of “Brands of the Year” award

Engro Corp won the Investor Relations Award by CFA Association of

Pakistan

Corporate offices of Engro Corporation & Engro Fertilizers received

“Green Office” Certifications- becoming one of the only three companies in

Pakistan to receive Green Office Diploma

Engro Polymer & Chemicals won Best Annual Report- 2nd in chemical

sector by ICAP

Engro Corp and Engro Polymer & Chemicals won “living the global

compact” Responsible business award 2010-11 by Global Compact

Engro Corp won the Best Sustainability Report Award 2010 followed by

Merit Certificates for reporting under GRI framework by ICAP


21

RAW MATERIAL PROCUREMENTS

Raw material procurement performs the most important part in the success

of any supply sequence. The reason being, that it is the primary level action

and if there are faults in it, the efficiency focus on the high company's raw

materials acquired and at the same time developing and keeping long

lasting connection with their providers. This way Engro Foods is playing a

significant part to generate and industry a range of top high quality milk in

a country where a huge variety of this product is lost each year due to

ineffective farm-to-market facilities.

Raw material

The various types of raw components required for the dairy and cream

manufacturing at Engro foods include

Raw Milk

Other ingredients like SNF and fats

Packaging material


22

RAW MILK

The raw milk items which are further prepared in the production plant at

Sahiwal and Sukkur is the primary raw content at Engro foods because their

item profile involves all milk centered items. The raw milk items which is

mainly the buffalo grass milk items is acquired from the various milk farms

across the nation with most of these milk vegetation being situated in Sindh

and Punjab region

Other Ingredients

There are several other components that are included at the various levels

of the development procedure at Engro Foods and their specific amounts

rely on the dishes of the products being produced. These include SNF that

are shades not body fat and body fat which are modified to get the preferred

levels. For example, the Olpers milk products includes 3.5% fat whereas,

Tarang milk products which is the tea whitener and more frothy in

characteristics has 7% fat, therefore, during the development procedure,

more fat is included to the milk products to generate Tarang.

Furthermore, SNF in dairy is to be maintained at 8.9% which is also

adjusted during the procedure depending on the quality of dairy. Another

product of Engro Foods, Olwell dairy which is great calcium mineral and


23

low fat dairy targeting the health-conscious section, requires great calcium

mineral level that is modified during the procedure.

Packaging Material

The packaging material used by Engro Foods is provided from Tetra Pak

Ltd. It is in the form of combined linens of aseptic appearance coming at

the manufacturing facility directly from the provider. The aseptic offers are

sterilized prior to filling of UHT (Ultra Heat Treated) dairy, leading to a 6-

layered Tetra Pak Stone Aseptic appearance, with a 3 months shelf-life.

Sources of milk supply

At Engro Foods provide of raw dairy material is supplied through two

main sources

Direct sources

Contractor base collection

Direct sources

The method of milk selection through direct sources can be defined as milk

selection done through various milk farm owners residing in different

towns. A villager called “Dhoti” is responsible for collecting milk from his

specific area and delivers milk every morning and evening to the Milk


24

Collection Centre. The volume of milk supplied by the milk farm owners

varies hugely depending on both the size of the are covered by the milk

cultivator and the availability of milk and at times could be as low as two

liters a day.

The technique of milk collection from direct source is the most

recommended one by Engro Foods mainly because of the low probability of

adulteration of the milk by milk farm owners. The reason bookkeeping for

this is that it is easier to recognize adulteration in low amounts of milk in

contrast to high volume provided by the other technique. However the

overall quantity of milk gathered through this technique is very limited.

Milk Collection Center

Engro Foods preserves a full fledged Dairy Selection Department to

manage milk collection through direct sources. It started off with hundreds

of Dairy Selection Centers in March 2006 and now in 2008 has over five

hundreds of and fifty Dairy Selection Centers operating across the nation.

Today, Engro Foods can be regarded as having one of the largest milk

collection networks in the nation which is unrivaled in size, productivity

and performance to meet the self-imposed dedication to top quality. The

vast network consists of town milk centers which are equipped with chillers


25

to preserve the top quality prior to long stretches to the industries provided

by specially designed tankers.

Primary of Dairy Selection Center is to deal with small amounts of milk

provided by the town dairy farm owners. On one hand, it has proved regular

earnings for farm owners through an assured and growing earnings as a

result of the sale of their milk, and on the other, it has allowed Engro Foods

to gather better top quality milk in the amounts it needs. At the Dairy

Selection Center a trained milk collection agent who tests and records every

supply for top quality and fat content gathers the milk and denies the milk

that does not comply with their top quality requirements or is adulterated.

Contractor Based Collection

It specialist centered dairy selection involves collecting dairy from

approved providers who are aware of the quality requirements implemented

by the firm. The companies are responsible for dairy selection from a large

area and can bring about ten thousand liters of dairy a day from dairy farm

owners. This method of specialist centered selection leads to the most to the

overall quantity of dairy selection. However, the company worries

adulteration on part of companies because it is harder to investigate when

the volume is high.


26

Once this dairy is tested for the protein, lactose and butterfat content it is

sent to the chiller containers which protect dairy from air, light and heat.

This dairy is then transferred to the plant. These refrigerator bins are

aseptically cleaned before dairy is stored in them.

Transportations of raw milk

The raw dairy is transferred from the dairy selection center to the

production plants via protected tankers. The protected tankers maintain the

heat range of dairy around f Engro Foods levels Celsius. The reason why

the tankers are protected is to prevent the dairy from getting hot in the

summer or lock up in the winter. The showing surface of the vehicles also

provides protection against infra-red radiation and decreases the degree of

heat on the tank. Also the cool heat range prevents the production of viruses

while the dairy is transferred over long stretches to the production site.

Normally the capacity of the regular tankers used for the transport of dairy

from the dairy selection center to the plant differs between 10,000 and

35,000 ltrs.

The transport fleet at Engro foods is partially possessed and partially

shortened that is they make use of third party logistics . Moreover, the


27

transport tracks from dairy selection centers to the manufacturing sites at

Sahiwal and Sukkur are developed in a way to prevent the actual of tracks

which otherwise would add up to the improved cost of transport. The raw

dairy is normally transferred between four to six hours to prevent loss of

quality.

External Analysis:

Political factors:

Engro foods is operating in an environment which is politically very

unstable. Strikes and road blocks happen frequently. This creates on time

delivery problems. Government policies about pour supplies change very

frequently. Government conditions are very uncertain. No one is obvious

whether this government will complete its tenure or midterm election will

be held. It has been seen that due to change in government, policies of

previous government are also changed. So political risk is seems to be high.

Pakistan’s business relation with other countries are not strong as it have

India and Afghanistan are Engro Foods neighbors with whom either

Pakistan’s relations are not good or there is not high demand of Pakistani

products. In European countries there other big players who are operating

and competing with them is not easy as well as export quota of Pakistan is

also small. Trade unions in Pakistan are not much strong so there impact on


28

the organization is very minor. As Pakistan supports privatization and

upcoming time there would be no threat of nationalization, so with this

regard this is safe.

Economic/demographic:

Inflation rate is in double figure in Pakistan which is being very

problematic. Purchasing pour of target customers is decreasing day by day

due to high inflation. Unemployment rate is very high in Pakistan, this

creates problem in terms of lower purchasing pour of target customers and

opportunity in terms of availability of competent human resource.

Availability of credit is high but cost of debt is comparatively high due to

high interest rate because credit rating of companies is also very good.

Growth rate of GDP was 3.59 percent in 2013 and it is expected to grow 3.6

percent in 2014 according to The Express Tribune. Per capita income in

Pakistan has grown marginally up by $783.3042 to $802.4507. It means

that income of households is also increasing but not in accordance with

inflation.

Rural of urban migration is very high due to lack of facilities like education

health and other services in rural areas. Population of Pakistan is

193,238,868 estimated in 2013. And it is growing at 1.52 percent. Urban

population is 36.2 percent and rate of urbanization is 2.68 % annual rate of


29

change. Where as rural population is 63.8 percent. There is 44.68%

Punjabi, 15.42% Pathan, 14.1% sindhi, 8.38% saraiki, 7.57% muhajir,

3.57% Balochi and 6.28% others.

Packed milk companies are facing rigorous direct and indirect competition,

there are many domestic players in the dairy and food sector and there are

many who are planning to invest in this sector e.g. Nirala, Good milk.

Pakola.

Socio-cultural Factors:

Pakistani milk users are now shifting towards packed milk due to awareness

programs and advertisements of Tetra Pak, Nestle and Haleeb. Literacy

level in Pakistan is growing day by day which increases awareness of

population, now people are becoming more health conscious and they avoid

to use unpack milk, hence there is chance of success of packed milk

companies.

There is myth in Pakistan of supremacy of fresh milk. These packed milk

companies are trying to break that myth due to which most of milk used is

unpacked. Another factor is the pricing, unpacked milk is comparatively

less expensive i.e. average Rs.70/kg whereas packed milk is Rs. 92/kg.


30

Whereas inflation has increased the operation cost of packed milk

companies.

Over the years, Nestle and Haleeb, as well as Tetra Pak have been making

active efforts to convince loose milk users to switch to processed milk. In

the last six years, Tetra Pak has launched three major campaigns aimed at

changing consumer perceptions to address the misconception that processed

and packaged milk has preservatives. These campaigns talked about the

benefits of Tetra Pak’s six-layered packaging material and innovative

technology that keeps milk safe for a long time. It takes time to change

attitudes, especially in a culture where the concept of fresh milk is healthier

option.

Technological factor:

Now a day’s technology is changing and improving day by day. This has

impact on not only companies as well as the behavior of consumers. The

technology brings competitive advantage to any organization. By using

technology the milk yield per animal can be increased. Engro is using

modern technology for storage and processing of milk which keeps it from

losing its quality. They are also educating its human recourse with is

associated with dairy sector to increase the yield of milk and to maintain the

high quality of milk. Before getting milk from the farmers the Engro


31

representative checks the quality of milk before getting it into the further

processing, which insures the quality of milk for the company. Engro is

also taking energy saving schemes which can enhance its plants capacity

and which lead to increased yield of their milk.

Qualified food technologists at Engro ensure that highest quality parameters

occur through all steps of production and that the product reaches the

consumers as per promise of high quality and nutritious milk. As it

discussed earlier the loose milk might replace the packed milk if the

customer believe that packed milk contain preserves or is unhealthy to

drink. As it all know that Engro is the well-known company which is

famous for its innovative food products packed with quality, value and

nutrition. Engro has achieved this by using superior technology in all steps

to ensure its product is of high quality and serve its customers better and to

avoid them to switch to other substitute products.

Enological:

Being a developing country in Pakistan ecological and environmental

aspects needs special concentration. Engro is playing its role by internally

implementing the environmental favorable laws, regulations and standards

like safety, workplace health, risk assessment, hygienic conditions to work,

and building plants away from populated areas to avoid pollution problems.


32

Engro also building hospitals, schools and colleges for their employees and

their families which is not very expensive, just to support health friendly

environment.

As we knows the current status of pour supply in Pakistan is very unstable.

Many companies are affecting badly due to short fall of energy which

includes supply of electricity and gas. Cutting off of pour supply results in

low yield, less working hours, high operating cost, this results in difficult

for companies to minimize its cost of production. Many companies are also

afraid of expanding their capacity of production through new plants

because they afraid they might not get the pour supply from the government

and their huge investment may return into only losses nothing else. Engro is

making deals and negotiating with government, to ensure the consistent

pour supply. Engro is also making contracts with different farmers for the

supply of milk to ensure the availability of sufficient milk which is needed.

Legal:

Recently business legislations have helped the country to be suitable for

international investments. A 13% decline in finance cost to Rs586 million

and 38% decline in tax expenses to Rs502 million provided support to the

falling profit. The finance cost fell due to low interest rates while ongoing


33

capital expenditures resulted in a decline in effective tax rate to 29%

compared to 33% in nine months of 2012.

In case of Engro, Lowered interest rates brought finance costs down to

Rs397 million for the half year period, down from Rs440 million

previously while a reduced effective tax rate lowered tax costs to Rs454

million from Rs518 million.

Corporate Tax Rate: 0 upto 35% depending on company size and net tax

profit. In case of loss(Section 113): 0.5% of Turnover (specific exemptions

may be available.)

The Nawaz Sharif government wants an increase of between 22 and 25

percent in tax collections at any cost and the budget being announced

proposes a variety of new taxes, an increased sales tax, more withholding

tax on many items and many changes in excise duties.

The 35 percent corporate income tax would remain unchanged in Budget

(2013-14) to avoid any revenue shortfall. The further reduction in the

corporate income tax is not possible in current situation.

To rationalize the taxation of the companies, the rate of initial

depreciation to be reduced from 50% to 25% for Plant and

Machinery.


34

During 1992-93, banking, public, and private companies were taxed at the

rate of 66 percent, 44 percent, and 55 percent, respectively. These rates

have been reduced significantly over time. Currently, there is one uniform

corporate tax rate of 35 percent for all three types of companies except for

"small" companies that are taxed at a lower rate of 25 percent.

Market:

Due to the recent problem arises due to the distribution of Engro, net sales

fell to Rs18.9 billion for the half year period, down 4% from Rs19.7 billion

for the corresponding period last year, due to problems in the distribution

network. The company is currently in the process of constructing a

powdered milk plant to further expand its product line. The plant is

expected to come online in 2014. However Engro Foods was able to raise

profit margins by 3.5 percentage points to 28% due to higher prices in the

dairy and ice-cream segment.

The people in rural areas still prefers using loose milk as they have their

own animals which provides them with sufficient milk. They don’t need

extra milk in the shape of tetra pack milk. As they think loose milk is fresh

and good for health. As urban population is 36.2% so the Engro have to

focus on that percentage. Where availability of loose milk is not pure,

people prefer using tetra packed milk. The perception of people is changing


35

day by day towards tetra pack milk. And the need of tetra pack milk is

increasing day by day. So Engro might be thinking of establishing new

plants to grab the market share, and serving other segments of the market

where Engro food’s products are not available. Milk is a kind of product

which is used by rich as well as poor people, in every season. So there is a

huge market in dairy product industry.

Competitors:

Haleeb and Nestle are the main competitors of Engro foods. There are only

these big players in the market. But there are still other companies who are

in the diary product industry but they are not a threat for Engro. But there

might be chances of new entrant in the market as Milk industry has a huge

market and customers of this industry are increasing day by day. The

difference between products is not much, hence companies try to compete

in terms of low cost, customer satisfaction and good quality.

Strenghts and weaknesses of competitors:

Nestle:

Objectives: Nestle’s objective is to be the leading health, wellness, and

nutrition company in the world


36

Strategy: this leadership can only be achieved by the trust and behavior of

customers to Engro Foods product. And this trust and behavior can be

achieved by consistent delivery of Engro Foods promises.

It are seeking to achieve leadership and earn that trust by satisfying the

expectations of consumers, whose daily choices drive Engro Foods

performance, of shareholders, of the communities in which it operate and of

society as a whole. It believe that it is only possible to create long- term

sustainable value for Engro Foods shareholders if Engro Foods behavi

Engro Foods, strategies and operations are also creating value for the

communities where it operate, for Engro Foods business partners and, of

course, for Engro Foods consumers. It calls this “Creating shared values”.

It is investing for the future to ensure the financial and environmental

sustainability of Engro Foods actions and operations: in capacity, in

technologies, in capabilities, in people, in brands, in R&D. Engro Foods

aim is to meet today’s needs without compromising the ability of future

generations to meet their needs, and to do so in a way which will ensure

profitable growth year after year and a high level of returns for Engro

Foods shareholders and society at large over the long-term.

Earning after tax is Rs4,668 millions in 2011 and Rs5,865millions in 2012.


37

Strenghts:

1) Unmatched product and brand portfolio

2) R&D capabilities

3) Distribution channels and geographic presence

4) Competency in mergers and acquisitions

5) Brand reputation valued at $7 billion.

6) Brand image

7) Marketing strategies are innovative

8) Ability of acquiring weaker firm and throw them out of the

competition

9) Skilled labor

10)Educated staff

weaknesses:

1) Inability to provide consistent quality in food products

2) Weak implementation of CSR

3) Because of low marketing and advertising Milk pak is position in the

minds of customers in decision making process.


38

Haleeb:

Objectives: to improve the quality of life by offering tasty, affordable and

highly nutritional products to its customers while maximizing stakeholders’

value

Strategy:

Build branded food business to improve quality of life by offering tasty,

sage, hygienically processed, affordable, highly nutritional food products

through environment friendly processes to Engro Foods customers while

maximizing stake holders' value.

· Meet the requirement of all relevant legislation and regulation related to

consumer satisfaction & safety, environment and other applicable laws etc.

· To prevent pollution through controlling levels of harmful emission,

effluents and other wastes.

· Contribute to safe and healthy environment for Engro Foods country.

· Promote mutual trust with customers, suppliers, employees, shareholders

and community.

· Provide all the necessary resources for the continual improvement in

quality, safety of Engro Foods products, processes and environment.

In order to provide best quality products to its consumers, HFL has a well-

developed supply chain infrastructure. It has heavily invested in a vast


39

network of company operated milk collection centers across the country.

HFL has a strict and stringent quality policy regarding intake of raw milk. It

is the only company that conducts 21 rigorous quality tests to ensure that

only fresh milk of the highest quality is accepted at the plant premises.

Strenghts:

1) The thickest milk

2) Taste

3) Nutritious

4) Hygeinic

5) Strong brand loyalty of customers of Haleeb compnay.

6) Haleeb boods have best distribution channel in all ove the pakistan

7) Management team of Haleeb company is very strong and educated

8) Strong positioning in customer mind

9) Focus on research and develpment

Weaknesses:

1) Focus shifted from main product to other products

2) Less product awareness in customer mind

3) Low promotional activities

4) Dependence on 3rd party for supply of milk


40

Porter’s five forces:

Threat of new entrants:

Capital requirement is high, requires huge investment of financial, human,

technical and marketing Resources. its difficult for new companies to

achieve economies of scale. So threat of new entrants is low

Bargaining pour of suppliers:

There are large number of suppliers for the Engro foods, as large volume of

milk is bought from large number of milkmen. Company can buy it from

any suppliers, if someone refuses to sell. Also company is purchasing the

large volume of milk from them so suppliers don’t have much option to

negotiate on price or sell to others, so bargaining pour of suppliers is less.

Bargaining pour of buyers:

An individual buyer can’t affect the company while large number of buyers

has more power with the company. As there are large number of

distributors for Engro foods who is distributing Engro’s food products and

non of them have enough Resources to start its own backward integration,

so bargaining pour of buyers is less here.


41

Availability of substitutes:

There are many substitute products available in the market. Loose milk is

also a substitute, other’s competitor’s products for instance. There is more

competition in the food industry so threat of substitute product is more.

Competitive rivalry:

The dairy food industry is highly competitive. Companies try to compete

with low cost, quality and customer satisfaction.

Nestle have other products like, mineral water, yougurd, cream, cereals,

noodles, polo, and juices.

Haleeb have flav Engro Foodsed milk, juices, desi ghee, tea max, cream.

Engro should also consider these products to launch their own new brands

and grab their market share too.

Internal Analysis:

Engro is a well established brand name in Fertilizer, IT and infrastructure

business and pour sector doing business in 7 industries. The brand is well

known so customers will automatically have a brand association with Engro

food’s and see as premium quality products. ENGRO is world renowned so


42

it can easily attract foreign investors in backing it against other competitors

such as Nestle.

Engro foods can easily afford research and development costs for in order

to introduce new products as it has sound financial background.

Engro Foods is reported to be the one of the fewest companies doing

interest free business using Madarba, Musharka which can attract the

Muslims investors who don’t want to invest in companies where interest is

used.

It can also distribute its products through better channels because of its long

term relationship with distributors because it has a old relation with the

distributers in agriculture sector.

Engro has been interacting with the farmers for fertilizers and has gained

quite a good reputation over the years. It has led to a strong bond and long

term relationship with the farmers who are willing to supply milk to the

company. This is an added advantage and strength for the company because

it will never be short of milk production. The farmers also won’t have to

look elsewhere to sell their milk.


43

In first year, Engro Foods crossed 1.4 billion sales figure which shows

customers’ satisfaction upon products. 4. Its taste, quality proposition and

world-class quality proposition system which shows its potential.

Engro Foods did a strong consumer & product research before and after

launching the product. This has provided them the perfect launching pad to

eventually emerge as a global player in the food industry. To develop its

future portfolios, it has hired various global research partners like AC

Nielsen, Mindshare, JWT Asiatic and MARS marketing and advertising

agencies.

Engro Foods has the third-generation UHT milk plant. Engro Foods plant

uses Bactofuge technology to virtually eliminate bacteria and ensure

premium quality and hygiene. Moreover, it is also setting up another milk

processing plant in Central Punjab (Sahiwal) with an investment of Rs. 2

billion (US $ 33 million). According to company no other competitor has

3G plant.

Engro Foods has produced very strong brands discussed earlier, which

depict they have ability to introduce new strong brands especially Olper’s

Packaging and color of packaging remained very successful and it is

updated continuously before the competitors can do any breakthrough in

the packaging. Branding is also a core competency of the company.


44

Engro Foods has very effective advertising marketing campaigns which

also give it upper edge over the competitors.

The company has not owned the color red like Nestle has a green Milk

pack; Haleeb has a blue carton etc. This may create problems because when

a consumer enters a grocery shop, then he/she might have problems in

recalling the brand because there is no color association attached to Olper’s.

The company may need to find a suitable color in which to focus its

upcoming marketing strategies.

Engro Food is not having its own dairy farms; it largely collects loose milk

from farmers & gwalas through its 40 milk collection centers, which

sometimes is of low quality and impure because they add vegetable oil to

milk to get higher prices.

Engro Foods is not having its own dairy farms; it largely collects loose milk

from farmers & gwalas through its 40 milk collection centers, which

sometimes is of low quality and impure because they add vegetable oil to

milk to get higher prices. It should have its build a system so that companay

has more control over the dairy farms either by financing the farms or by

backward integration.

Engro Foods is dependent upon Tetra Pak for the packaging of its entire

dairy products. Tetra Pak is the only option available to Olper’s for


45

packaging because it is having monopoly in the packaging sector in

Pakistan. Due to this reason, Tetra Pak can charge them higher and it could

increase the production costs. The company must have to resolve the issue

to have its own packaging system so that extra costs must be avoided.

Engro Foods have most of the milk-collection centers located in Punjab,

whereas its only milk processing facility is situated near Sukkhur (Sindh). It

increases the milk collection &

distribution costs; and also increases the chances of milk getting spoiled

because of increased travelling time. Company should have to resolve that

issue.

Engro Foods has a not very wide product line whereas its competitors like

Nestle and Haleeb Foods have a much diversified line of dairy products.

Company has been successful while introducing the new products so the

company should broaden the product line.

Strategic Goals and recommendations:

As current market share of Engro foods is 51 %, they should work on

grabbing more market share. They are expecting 55 % in the near future.


46

As there is increased competition in food industry, as new entrants are

emerging into the market.

Meanwhile, the company’s administrative expenses for the nine-month

period rose 24 per cent to around Rs739.8 million, from Rs595.6 million in

2013. They should try to minimize those administrative expenses. It should

work to strengthen its distribution structure.

They should focus on volumetric growth rather than margins. Gross margin

was highest 28.1 % in the history of the company in the final quarter of

2012. They should try to maintain that figure in future years also.

The Debt to equity ratio in 2011 was 43 %, there goal was to achieve 50

percent in 2013, and they achieved it in 2013. I believe that that ratio of

capital structure is optimal. And they shouldn’t be go for more dept

financing.

They should lower there dept-financed capital expenditure spending. That

would return in lower financial expenses.

They should focus on the strong product mix along with diversification. It

would contribute to a positive performance of the company.


47

They should also plan to expand internationally and introduce new products

to them.

They should focus on new products/ brands to expand its portfolio in the

dairy industry, after completing consumer and product research.

They should expand in and beyond Pakistan through strategic international

alliances.

In order to become the fastest expanding food company they should invest

a substantial amount in plant, milk collection capability, technology, and

marketing.

Engro has not its own dairy farms. It collects milk from farmers, which

sometimes is of low quality and impure. Engro foods need to have their

own dairy farms so that they can meet the increasing demand of the market.

If they made their own tetra packaging, it could help them reduce unit cost

of their milk. And have competitive edge over pricing. Need to invest for

having own packaging system.

They should also launch new brands which their competitors already have.

And try to cut off their market share.


48

Should also focus on other brands not only milk, by promoting other brands

they could get extra cash inflows from that brands too.

They should made deals and negotiations with the government in order to

have uninterrupted pour supply,

They should make strong positive relationship with other neighbor

countries, which can help them introducing their brands to other markets

also.

As inflation is rising, cost of raw material is also rising, so if Engro wants

to be competitive, it needs to be cost effective in every field of their

operations.

As population of Pakistan is also growing at 1.52% they should invest more

in plants and farms in order to meets the needs of the growing population.

There should be consistency in the promotional campaign which gives the

message promoting packed milk and preferring packed milk over loose

milk.

To get tax shield, Engro should focus on debt financing.

Stock repurchases can help Engro to get away from Dividend obligations.


49

They have to increase the switching cost of the customer to move to buy

products of the competitors. To focus on hygiene of their food products

compare to the sellers who sell unpacked Lassi, Cream and milk. They

improve their bargaining pour from supplier because the product is

available from many suppliers so they can purchase in huge quantity at the

reasonable prices. Bargaining pour should increase they can thread their

supplier to switch to other suppliers if suppliers are not supplying the

quality product at attractive prices. The organization can create barriers for

new entrants by developing the image that business is highly capital

intensive or high legal requirements and it is not easy to enter in this

Industry. Organization should tie up the complementary products and

services with the sales targets higher the sales higher the reward in the form

of complementary services for dealers and distributors.

Engro foods is subsidiary of Engro Corp. and it is currently operating in 7

industries which are fertilizer, polymer and chemical, food, pour and other

which shows that company have diversified knowledge and experience of

the business. It might go into other industries as well because it got the

potential.

Engro Foods is strongly recommended to do backward integration because

especially in summer when the animals are fed heavily green food their

milk quality got effected and milk get very thin as well as in summer


50

season the animals give less milk. Another big reason of low production of

milk in summer is that animal sow rate in summer decreases. To increase

the quantity of milk the supplier use to add water into milk hence the

quality of milk decreases. Engro Foods need to more control over the dairy

farms where milk is collected. This can be done by franchising as buying or

making so huge quality of dairy farms need a very high cost. So a

franchising can be good option for the company to have more control over

the operation of the dairy farms and maintain the quality of the dairy raw

products.

Engro Foods should own a color which increase brand recognition of the

company.

Engro Foods has shown rapid growth since its inception and is growing

continuously due to its quality products which are competing with

international company’s brands and it has been successful. It would be not

unfair to say that it has snatched their market share and now it has about

38% market share of packed milk which is 40% with Milk pack of Nestle

and 22% with other market players which shows that being a very new

company it has beaten the Haleeb and the Milk pack’s market share is also

grabbed by the Olper’s same situation cane be seen in other dairy products,

while in ice-cream business its brand is growing ery fast.


51

Encouraged by phenomenal success in the local market, Engro Foods

recently made big leap into the 632 billion dollar global foods business with

the acquisition of Al-Safa, a leading halal meat brand of North America.

A newly formed global venture Engro Foods Canada Ltd and its subsidiary

Engro Foods USA, LLC give it the distinct advantage of being Pakistan's

first local conglomerate to explore the world's fastest growing consumer

segment and acquire a top quality international meat brand.

These facts suggest that Engro Foods should enter the international markets

especially in Arab countries it would be very successful where Nestle is

market leader in dairy products and Engro Foods has once proved itself a

very strong competitor. Another strong point that favors the Engro foods is

that a lot of Pakistanis are there in these countries for them the brand isn’t

new and these customers knew the quality of the products by the Engro

Foods. These customers can deliver strong word of mouth to their fellows

in the market that contains a lot of foreigners of South Asian countries. So

the brand will not be totally new and will be seen in usage and acceptance

will increase. Nature of business here will be exporting the product from

Pakistan because these countries do not have the supporting environment or

the supplies for the raw material and they use to export from other countries

among which New Zealand, Australia, America and Switzerland etc.


52

Bangladesh, Sri Lanka, Bhutan, and other south Asian countries can also be

approached but in these countries the business will be localized type of

business. Exports to Afghanistan and other states like Uzbekistan,

Azerbaijan, and Tajikistan etc is also a good option because these areas are

not very mature markets and have potential to grow.

Iran is also a good market it should test the market by exporting if

successful than it might also go to that market.

The above suggestions and recommendations, if implemented are the most

productive ways to leverage the organization’s core competencies are.

Organization has Resources and capability as it has a very sound financial

background as well as diversity of knowledge and experience so company

can easily workout the recommendations.

Company need to develop the quality of its dairy raw material supplied. It

might be very difficult to manage this because as mentioned earlier the

huge investment is needed. So this can be eliminated by franchising. While

entering into other markets can be through acquisition as it did in North

America. Because it has the experience as well as financial Resources so it

can easily acquire local setups.


53

To implement the recommendations its marketing department should gather

market data and best practices which are done all over the world. Free flow

of information should be encouraged. Logistics should be improved as

plants are away from the raw material collection centers where as the

distributions are also done allover the Pakistan so their should be a very

good logistics system fully equipped with the latest technology that can

give superiority over the competitor. Research and development department

of the company is very effective its productivity should be sustained. There

should be cross functional information sharing which can be done by

improved management information system (MIS) and cross functional

teams which can assure the quality management of all the processes so that

the quality assurance can be checked.


Date post:	09-May-2017
Category:	Documents
Upload:	syed-asim-sajjad
View:	228 times
Download:	0 times

Engro foods Limited Strategic Marketing project.

Documents