Strategic Evaluation of Post Holding Acquiring Weetabix

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Businesses globally face a lot of competition. Companies offer better customer service, a wider variety of products, lower prices and innovation in with an aim to overcome their competitors. In order for the companies to retain their competitiveness, they venture into new markets in order to increase their market share.

Post Holdings is a consumer-packaged goods company, which process, market and sell both private label and branded cereal products. Post Holding tried the smart strategy of entering the British market in 2017 through the acquisition of Weetabix Limited.

This acquisition process implied that there would be a change in both the internal and external stakeholders.

The synergy pressure improved the business focus and the growth drove the organizations to reevaluate and come up with better strategies and methods of realizing short and long-term objectives, gain a larger market share and gain advantage over competition in the market. Therefore, this study aims on the important strategic evaluation of Post Holding acquiring Weetabix and the application of strategic framework in a unified manner in order to come up with a clear understanding of the existing strategic change in this acquisition.

An evaluation of the relevant levels of strategy

According to Wickham (2001) strategic positioning is the means a company strive to distinguish itself from the competitors and how it allocates utility to the customer. Chew (2009) also defined strategic positioning as the means by which a business has a unique position in its market within its target market compared to its competition. Strategic positioning considers the position of a SBU in future without disregarding the dynamic environment. Bowman’s Strategy clock and Porter’s 5 forces Analysis are strategic frameworks that can be easily be used to understand how to be more competitive than the competitors in the market.

There are 3 generic strategies that can be useful to any business setting. In 1985, Porters developed these strategies which are differentiation, cost leadership and focus.

Cost leadership strategy involves achieving competitive advantage by reducing the cost associated with production hence increasing profitability of products while charging reasonable prices therefore increasing the market share.

Differentiation is producing goods/services differently and more quality than those of the competitors. Companies can differentiate their products by adds extra functionalities, effectives post and pre sales services.

According to Tanwar (2013), focus strategy entails an organization concentrating on a specific niche in the market. It involves understanding the unique needs of the customers in the market then develops either differentiated product or low cost products. This strategy can be either cost focus or differentiation focus. Whichever the sub division that is applied, it is best to ensure that extra values are added as a result of serving a specific segment or niche.

A research conducted by Vision one in 2017 shows that Weetabix used the differentiation focus strategy in the recent years by emphasizing on the brand management and supplied customers with goods that satisfied their unique needs.

Porter’s generic strategies

The Bowman’s Strategic Clock model is used to explain the possible options for strategic positioning. According to West et al (2015),Bowman’s Strategic Cloak is an extension of Porter’s generic strategy that seek to answer how a product or a service should be positioned in the market to give it the most competitive position in the market. Bowman’s strategic Clock is based on two dimensions that are price and perceived value.

Bowman’s Strategy clock

Post Holding is in the focused differentiation strategy on the Bowman’s strategy clock because it tries to offer customers the greatest level of perceived value at an average price.

Post Holding has been successful achieved the strategy focused differentiation strategy through the production of differentiated brands that serve many of customers in various market niches (Roger, 2017). If done well, this strategy leads to high profitability margin.

The main purpose of the focused differentiation strategy employed by Post Holding is to offer its customers with a greater level of perceived value by combining Research and Development in the core competencies. The Research and Development department provides the marketing department with insight market research and surveys, which is in turn employed when carrying out marketing campaign. In 2014, Post Holding launched Breakfast on the Go, after a thorough market research conducted on a competitor company Nestle. The research indicated that at least 6 out of 10 customers would have a “to go” breakfast and less than 3 out of 10 would spend more than 10 minutes cooking breakfast (Warc, 2017).

Through the research, Post Holding was able to acquire the target market by using branding and producing quality products thereby combining a healthy source and convenience.

Strategic Intent

A Strategic intent refers to the organization’s wishes of what to achieve in future. It shows the long-term market position which an organization strikes to develop or occupy and the opportunity for discovering new possibilities.

Strategic Intent Hierarchy

Post Holding transaction was anticipated to be financed by cash on hand and the borrowings under Post’s existing revolving credit facility, subject to the conditions in the market.

A new senior secured loan was expected closing in the 3rd calendar quarter, subject to the approval by the regulatory and the limited closing conditions

A critical evaluation of the key stakeholders

According to Freeman (1984), stakeholders are defined as any group of people who can affect or is affected by the operations of any business’s objective. These people have a role in the success of a company. There are various approaches to stakeholder management by different companies. Stakeholders can either be internal stakeholders as they control the internal activities of the organization, example are customers, employees, equity shareholders, suppliers, business partners, shareholders and investors or external stakeholders who have interest in the business but don’t have control of the internal operations of the organization, examples are the government, public, media, global society, trade bodies and the competitors.

During the acquisition of Weetabix by Post Holding, various stakeholders participated. The internal stakeholders consist of the shareholders of both Post Holdings and Weetabix who governed operations activities of both Post Holding and Weetabix.

The British government, which is an internal/primary stakeholder, plays the role of making sure the acquisition process followed the legal process and adhere to all corporate rules.

The employees might be have been affected either negatively; for a few of the employees who lose their jobs or incentives and some positively; due to increase in payment or the new job roles.

Investor returns might have been affected too. Through the acquisition, the shares value of Post Holding might have risen.

The external/secondary shareholders include the global society and the public. This would have been affected or affected indirectly on the company and the vice versa is might be true.

Power Interest

Stakeholders who are highly interested and possess high power should be managed closely. There is a need to involve these stakeholders fully and make an effort to satisfy them. Also, the most satisfied stakeholders on the matrix are the individuals whom one has to put in work to make them satisfied but not bore them with the message.

External Analysis – using PESTEL to identify and explore key trends

The Post Holdings, Inc. PESTEL is a strategic tool use for the analysis of the macro environment of the organization. PESTEL stands for - Political, Economic, Social, Technological, Environmental and Legal macro environment factors that impact on the Post Holdings, Inc.

Political Analysis

Post Holding’s, Inc. main operations is in Food in more than a dozen countries and it exposes itself to a variety of political environment. Post Holdings, Inc. can closely analyze the following political trends before entering or investing in a certain market.

The Post Holdings acquisition of Weetabix was that Post Holding would have to adhere to all the laws enforced by the British government. They would have to operate in agreement with business operating legislative laws, employment laws and the foreign trade regulations. In 2017, the British government raised the minimum wage per for employees from 7.2 pounds to 7.5 pounds in an effort to promote their welfare (Minimum Wage Uk, 2017).

Because the production factory of Weetabix is situated in the United Kingdom; Post Holdings will be affected by an increased salary wage. In the United Kingdom, the working hours guideline 1998 stats that employees to be allowed 28 paid leave days. Also the employment rights act 1996 authorizations employees the right to flex working hours for such issues as child care (Wikipedia, 2018).

Economic Analysis

The economic factors such as savings rate, inflation rate, foreign exchange rate, interest rate, and economic cycle define the collective investment and collective demand in an economy.

The Economies of the UK and US would be affected by the acquisition of Weetabix by Post Holdings. Since the two economies are growing at different rates and are unlike, the organization has to rethink on dealing and coping with these new experiences. Chu (2017) stated that the US grew by2.7% in the second quarter of 2017 while the UK only showed a small growth of about 0.4 % in the 3rd quarter because of the inflation rate, which escalated in September to around 3%. The increase in the inflation rate affected the prices of Weetabix products in the UK, hence affecting the demand and supply in the economy. This illustration shows that both Post Holding and Weetabix have to generate a strategic to deal with the various economic issues.

Social Analysis

Society’s culture and way of doing things influence the organization’s culture. The shared attitudes and beliefs people play an important role in how marketers at Post Holdings, Inc. will understand the customers of a given market and how they design the marketing message for Food - Major Diversified industry consumers.

For instance, the Customers in the UK and US would pick a breakfast cereal as opposed to Customers in China whom have an inclination to go with a hot breakfast (Monaghan, 2017).Therefore, the probability of buying Weetabix in China would be lower as compared to the US or UK.

Technological

Post Holding Company needs to catch up with the dynamic needs of its customers. Recently, consumers prefer eating the cereal on the go, so post holding had to leverage the technology necessary to constantly be involving and changing. They need to provide breakfast cereals that match the needs of their consumers. There are machines available in the cereal industry which can chop cereals into several shapes and forms like bars, tubes or rings (Maskan, 2016). If Post Holding considers this technologies, it will grow and success.

Environmental Factors

Different markets have different customs which affect the success of an organization in the markets. For instance, United States – Texas and Florida have different liability clauses for environmental disaster. Similarly a lot of European countries give healthy tax breaks to companies that operate in the renewable sector.

Prior entering a new market or starting a new business in the existing market the company should appraise the environmental principles that are essential to maneuver in those markets. Some of the environmental factors to consider are –Weather and Climate change; Laws on regulation of environment pollution; Recycling and Waste management.

Legal Factors

In some countries the legal institutions and framework and are not strong enough to guard the intellectual property rights of any Company. A business entity should cautiously assess before entering such markets. Lack of prior evaluation can lead to the theft of organization’s secret sauce thus the overall competitive edge. Some of the legal factors that Post Holdings, Inc. leaders need to consider when entering a new market are -Anti-trust law in Food; Discrimination law and Copyright, patents / Intellectual property law

Industry Analysis

How the PEST and 5 Forces are are linked

PESTLE and Porter's Five Forces tools are two types of business techniques used for analyzing business situations and aiding companies to develop their competitive positions. The Porter's Five Forces focuses at where the power lays in a competitive situation. Buyers and Suppliers have a few options available, and hence, weak bargaining power. PESTLE, on the other hand, ascertains how various external environmental factors can affect an organization and its competitive position.

Apart from the identification of external environmental forces, Porter's 5 Forces analysis is aimed at creating means of taking advantage of strength, overcome a situation of weakness, and avoid committing errors which would provide a competitive advantage.

Contrary, PESTLE aims at finding out how an organization is affected by these 6 macro environmental factors: political, economic, sociocultural, technological, legal and environmental.

The results from the PESTLE analysis make it possible for the company to make particular selections in planning for the future of the company.

The breakfast cereal industry is high competitive and there is need for organizations to comprehend the aspects can easily impact its profitability. Industry Analysis also provides organization with a basis to foresee and guidance competition by planning on their strategies. In 2008, Porter proposed 5 forces as tools for analyzing competitiveness of a business and its attractiveness in terms of profit

These five forces include supplier power, buyer power, competitive rivalry, threat of substitution and threat of new entry.

Bargaining Power of Suppliers

Almost all the food –major diversified industry companies buy their raw material from various suppliers. The suppliers in the sector can use their negotiation power to charge higher prices from the company dealing in Food - Major Diversified field. This lowers the overall profitability of Food - Major Diversified Company.

In the case suppliers of wheat and grains for production purposes are quite low (Newswire, 2017). Weetabix prefers getting these raw within a 50-mile radius from their factory in order to be checking on quality easily (Weetabix, 2017).

Bargaining Power of Buyers

Buyers often demand a lot. They want to get the best qualify available while paying the minimum price as possible. This can put pressure on Post Holdings, Inc. profit level in the long run. The lesser and more powerful the customer base is, the greater the bargaining power of the buyer and greater their ability to seek an increased discounts and offers.

The large the number of cereal products available in the stores makes buyers power higher. It is easier for a buyer to shift to an alternate brand if the quality reduces or prices increase (Schultz, 2012). To increase sale, Weetabix has worked closely with the distribution channels (Drakakis, 2017).

Competitive Rivalry

When the rivalry among the existing competitors in an industry is extreme, then there will be a drive down prices therefore decreasing the overall profitability in the industry. Post Holdings, Inc. is run in a very competitive Food - Major Diversified industry. This competition reduces the overall long term profitability of Post Holding.

The cereal industry in US is highly competitive with leading players like Post, Kellogg and Quacker holding 85% of the market share whereas Nestle, Weetabix and others cover 78% of the overall market share. Weetabix has to constantly be aware of its competitors’ prices and strategies and to be more active in order to improve or retain its market share (Newswire, 2017).

Threat of the substitution

When a new substitute product or service satisfies a customer needs in different ways, industry profitability suffers.

A substitute product can use a different technology to satisfy the same customer needs. There are a wide range of breakfast meals hence the threat of substitution is high. For instance, in china where customers prefer hot breakfast to cold breakfast Weetabix was not able to successfully break into the Chinese market (Wade, 2017).

Threat of new entry

The new entries to the Food - Major Diversified causes new ways of doing things, innovation and put pressure on Post Holdings through reducing costs, lower pricing strategy and providing new value propositions to the consumers.

In the breakfast cereal industry, the probability of entry of new businesses is low because the leading companies hold a big portion of the market share.

Porter Five Forces is a holistic strategy framework that took strategic decision away from just analyzing the present competition. Porter Five Forces focuses on - how Post Holdings, Inc. can build a sustainable competitive advantage in Food - Major Diversified industry. Managers at Post Holdings, Inc. can not only use Porter Five Forces to develop a strategic position with in Food - Major Diversified industry but also can explore profitable opportunities in whole Consumer Goods sector.

The competitive characteristics that illustrate the nature of the competitive position are feature like quality, speed, timeliness, innovation and other in the production processes that make a product gain a competitive advantage in the market. They are discussed below.

It is clear that over 100 years, the Michael Foods family of businesses (which was acquired by Post Holding) has been utilizing innovative and quality ingredients practices to provide the finest products and solutions to its consumers and customers. Today, Michael Foods family of businesses is the state’s largest producer of eggs with value-additions.

Post Holding refrigerated retail are assembled with great-tasting, high-quality, quick-to-table food, carefully made to meet the needs of today’s busy families.

Conclusion and Recommendation

Post Holdings acquired Weetabix in 2017 for 1.4 billion pounds. Weetabix Company produces breakfast cereal, and applies the differentiation strategy as a method of gaining competitive advantage over its competition. Both Post Holding and Weetabix produce diverse products and use different marketing strategies to reach different markets. The external environmental factors which the companies cannot control are political instability, a change in consumers taste and preference. Because of these uncontainable situations, there is a need to adapt to changing technology and come up with strategies in order not to lose the market share. Continuous evolution and Innovation are required in order to maintain competitive advantage. The breakfast cereal industry has more than 78 hence the leading players in the market. For Post Holdings to remain competitive; it must continue to retain its average prices with a strong perceived value.

Post Holding enjoyed low bargaining power of the suppliers of raw materials. The company benefited from the low bargaining power of suppliers because they negotiate for lower prices of high-quality raw materials. Hence this could reduce or eliminate the impact of increased wage bills that are a result of the new minimum wages in the United Kingdom.

References

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January 19, 2024
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