Strategic Analysis of Greek Pastry Industry: Alfa Pastry SA

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Strategic Analysis of Alfa Pastry SA Page. 1 M.Sc in Marketing Management Strategy & Leadership in Marketing Stategic Analysis of Alfa Pastries S.A SPYROS LANGKOS ID: 100285557 Tutor: Mr. Nikolaos Kitonakis Athens, May 2014

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This report aims at providing a strategic management analysis of Alfa Pastry S. A., one of the most important players, operating in the Greek frozen processed food industry. As it happens with most of Greek companies, Alfa operates in a turbulent economic and political environment. At the same time, Greek consumers emphasize on low prices and high quality of food products. Thanks to its quality and innovativeness, Alfa has managed to significantly improve its growth sales since 1998. This case study starts by briefly presenting the company profile of Alfa Pastry.

Transcript of Strategic Analysis of Greek Pastry Industry: Alfa Pastry SA

Page 1: Strategic Analysis of Greek Pastry Industry: Alfa Pastry SA

Strategic Analysis of Alfa Pastry SA Page. 1

M.Sc in Marketing Management

Strategy & Leadership in Marketing

Stategic Analysis of Alfa Pastries S.A

SPYROS LANGKOS

ID: 100285557

Tutor: Mr. Nikolaos Kitonakis

Athens, May 2014

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“Pastry is different from cooking because you have to

consider the chemistry, beauty and flavor. It's not just sugar

and eggs thrown together.

I tell my pastry chefs to be in tune for all of this. You have to

be challenged by using secret or unusual ingredients.”

Ron Ben-Israel

Famous Israeli pastry chef

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TABLE OF CONTENTS

1] INTRODUCTION ........................................................ 4

2] COMPANY PROFILE .................................................... 5

3] EXTERNAL ENVIRONMENT ANALYSIS .............................. 6

4] PORTER’S 5 FORCES ANALYSIS ..................................... 9

5] COMPETITION ......................................................... 11

6] MARKET ANALYSIS .................................................... 12

7] INTERNAL ENVIRONMENT ANALYSIS .............................. 13

8] FUTURE GROWTH RECOMMENDATIONS .......................... 16

9] REFERENCES ........................................................... 19

10] APPENDICES .......................................................... 20

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1. INTRODUCTION

This report aims at providing a strategic management analysis of Alfa Pastry

S. A., one of the most important players, operating in the Greek frozen

processed food industry. As it happens with most of Greek companies, Alfa

operates in a turbulent economic and political environment. At the same

time, Greek consumers emphasize on low prices and high quality of food

products. Thanks to its quality and innovativeness, Alfa has managed to

significantly improve its growth sales since 1998.

However, its uncompetitive position in the associated industry ranking, as

well as the threats it has to face, imply that the company needs to make

steps towards improving its current position. Market development, effective

promotion, development of online sales, product differentiation, and

excessive internal financial control are only some of the ways in which Alfa

could enhance and maintain its future growth and competitiveness.

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2. COMPANY PROFILE

The aim of this project is to provide a detailed report regarding Alfa Pastry

from a strategic management and marketing’s perspective.

This case study starts by briefly presenting the company profile of Alfa

Pastry. Then, an analysis of the external and internal environment

surrounding the company’s business takes place, paying particular attention

to the company’s sources of competitive advantage, its strengths and

weaknesses, as well as the dynamics of its external environment that have

an impact on Alfa’s strategy. After the analysis, the project summarizes the

key points and recommends ways in which the company could confront

competition and ensure its future growth.

Alfa Pastry

Alfa is one of the most important producers of pastry-related products in

Greece. The company was founded in 1965 in Kozani in Northern Greece by

Mr. Athanasios Koukoutaris. It offers a wide range of retail and catering

products, namely traditional pies, various types of pastry sheets, pizzas, and

a wide variety of bakery products, such as traditional Greek bougatsa,

brioche, and croissants. Specifically, Alfa operates in three sectors, namely

retail (92 different products), food service (135 different products), and

both retail and food service sectors in foreign markets, reporting significant

sales growth since 1998). Nowadays, Alfa operates four production plants in

Greece, Romania, Serbia, and the United States, while its sales network

consists of 50 distributors and around 11.000 points of sales across the world

(Alfa Pastry, 2013).

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3. EXTERNAL ENVIRONMENT ANALYSIS

PEST Analysis

Political conditions

The political conditions of Greece are mainly characterized by the

implementation of the two packages of austerity measures by the Greek

governments after 2009. These measures implied the cut in wages and

pensions, as well as cutting several employment rights and benefits of

Greeks, thereby causing an overall political instability over the last three

years. As far as the food industry as a whole is concerned, very strict

legislation rules Greek food manufacturers, not only in terms of their

products and packaging, but also in terms of their production processes,

especially as far as environmental protection issues are concerned. EFET is

the main governmental authority occupied with regulating food

manufacturers, and those that are not certified with ISO:2001 quality

certification are subject to serious financial penalties and even closure

(Euromonitor International, 2014).

Economic conditions

The Greek economy is expected to suffer the seventh year of recession,

with the country’s GDP being expected to decline by 0.8% in the end of

2014. It is estimated that, in order for the country’s debt to become

affordable, Greece needs to report an average growth of 3% from 2014 to

2021. As far as unemployment is concerned, this is expected to reach 27.1

in the end of 2014, slightly improved than the 27.4% of 2013. As a result of

the turbulent economic conditions in Greece over the last three years,

Greek consumers have seen their disposable incomes diminishing by 35%,

while the country ranked last in the World Bank’s Ease of Doing Business

2013 report (Euromonitor International, 2014).

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This has been a very important indicator of the difficult and risky business

environment that Greece has formed due to the economic crisis it faces, as

well as lack of competitiveness and corruption (Euromonitor International,

2013).

Social conditions

The numerous consecutive years of crisis have led Greek consumers

becoming very price-sensitive, as well as cutting down on their spending,

making their household budgets even tighter, and seeking for offers and

discounts. As far as food products are concerned, Greeks are highly sensitive

in health issues, their preference for fresh and qualitative food being at the

forefront, especially when it comes to purchase food products for their

children. Despite the fact that private label products are still perceived as

of inferior quality to branded ones, a switch towards private-label food

products has been observed in Greece, mainly due to their lower price.

At the same time, Greek consumers have become very sensitive with the

origin of the food products they purchase. They have switched towards

purchasing products made by Greek food manufacturers, as a means of

supporting Greek economy and Greek employment (Euromonitor

International, 2014).

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Technological conditions

The information and communications technology in Greece is quite

developed. The Greek government has employed its Digital Strategy 2006-

2013, aiming at giving the incentives to Greek enterprises to develop ICT

infrastructure, in order to meet European standards. Mobile phone

processions and Internet connectivity have also been improved in Greece

households, compared with 2007, but there are still below the European

averages, major reasons for that being the lack of Internet connections in

many Greek islands, as well as lack of computer skills from an important

part of the Greek population.

As it is clear, the development of the Internet has been the most important

technological development in Greece during the last decade, which has

given companies the opportunity to create new online sales and marketing

platforms. At the same time, the Internet has given Greek consumers the

ability to quickly identify what is offered in international markets, thereby

having become more demanding. (Euromonitor International, 2013)

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4. PORTER’S 5 FORCES ANALYSIS

Bargaining power of buyers

The bargaining power of buyers is high in the Greek frozen processed food

industry. Indeed, consumers have the opportunity to select the particular

food products from a number of different manufacturers, and switch to

alternative ones, if they are satisfied with their current suppliers for any

reason.

Bargaining power of suppliers

The bargaining power of suppliers is low in the particular sector.

Thanks to globalization and the diminishing trade barriers, food

manufacturers have the option to select the suppliers of their raw materials

and ingredients from any part of the world. Domestic suppliers have higher

negotiating power, due to the manufacturers’ emphasis on selecting

ingredients that are locally produced, in order to keep up with the

associated consumer trend.

Threat of substitutes

The threat of substitutes is really high in the frozen processed food industry

in Greece. The most important and direct substitute is identical, though

fresh, food, which consumers can purchase on a regular basis, but just

cannot store in big quantities and for long time periods. Except for that, any

other food product could be considered as an indirect substitute of pasty

and other forms of frozen foods. Last but not least, eating out or ordering

food could also be perceived as indirect substitutes, in cases whereby Greek

consumers decide not to cook at home.

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Threat of new entrants

The threat of new entrants in the market is moderate. One on the one hand,

the increasing interest of Greek consumers towards frozen processed food,

as well as their increasing preference in private label products, have

constituted the Greek frozen processed food industry as rather attractive

for new companies to invest in. However, the large investments required for

establishing such a business, together with strict legislation and the already

established brand awareness and loyalty of existing brands form some

important entry barriers that may prevent new players from entering the

market.

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5. COMPETITION

Barba Stathis S.A. is the leader in the Greek frozen processed food industry,

holding a market share of approximately 30% in 2013, with its growth mainly

been driven by its two flagship brands, Uncle Stathis and Chrisi Zimi, the

latter referring to frozen bakery products similar to those offered by Alfa.

Lidl Hellas holds the second place in the sector with its private-label

products and a market share of 10.4%, followed by Kallimanis S. A. and its

market share of approximately 9% in the same year (Euromonitor

International, 2014).

Marketing and overall promotional activities that emphasize on price

benefits form a very critical success factor in the Greek frozen processed

food industry, with companies operating in the sector striving to switch

consumers’ attention from the more expensive fresh foods. Those

companies that have used celebrities to promote their products have

identified the most significant sales volume increases. New product

development and innovation are also important success factors in the

particular industry, together with price offers and discounts, in order to

attract sales from the very price-sensitive Greek consumers. Within the

context of frozen bakery products, latest innovation trends have been

mainly driven by Evoiki Zymi SA and its traditional country style fyllo, as

well as Alfa and its soft fyllo sold under the Afrata brand. Together with the

above, emphasis on the Greek origin of products, as well as offering small

packaging and higher product diversity are expected to play a very crucial

role in the years to come (Euromonitor International, 2014).

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6. MARKET ANALYSIS

The market

Sales in the sector dropped by 55% within 2013, reaching €281 million.

Frozen vegetables and bakery products were the best performers in the

market, reporting growth rate of 1% in the end of the same year. Unit prices

in the sector as a whole dropped, mainly driven by Greek consumers’

demand for cheaper products. As far as private label products are

concerned, they share was increased to 33% in 2013, indicating the high

importance of price for Greek consumers.

Supermarkets form the most important distribution channel for frozen food

products, mainly because of the rich presentation they offer for this product

category and in contrast to small retailers, which, being unable to invest in

big freezer areas, try to compete using special offers and discounts. As a

whole, the industry is expected to meet a report a downturn in sales of

about 1% until 2018, while value will be negatively affected by the

continuous manufacturers’ emphasis on discounts (Euromonitor

International, 2014).

The consumers

Greek consumers have gradually improved their perceptions towards frozen

processed foods’ quality, mainly driven by their low price compared with

fresh ones, as well as marketing campaigns mentioning that frozen food

keeps the same nutritional characteristics as when the same food is fresh.

At the same time, Greek consumers have become increasingly keen on

cooking at home rather than going out or ordering food, and this has been

another main reason for the growth in frozen vegetables and bakery

products (Euromonitor International, 2014).

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7. INTERNAL ENVIRONMENT ANALYSIS

Vision and mission

The vision of Alfa is to offer the best piece of Greece. Under this vision

statement, the company highlights its mission, which is to take advantage of

Greek gastronomic characteristics and together with the astonishing taste

and quality of its products to offer the best pies Greek consumers have ever

tasted (Alfa Pastry, 2013).

Competitive advantage

The business success and the competitive advantage that Alfa pastry has

gained in the markets in which it operates form the outcome of a number of

core competencies and capabilities that the company has developed since

the beginning of its operation. To start with, innovation is at the heart of

Alfa’s business. More specifically, Alfa was the first company in the Greek

market to introduce the authentic fyllo, the so-called “kihi” pies, which are

strongly related with the history of Kozani, as well as paper baking tray for

pies to be directly placed in ovens, in contrast to competitors’ aluminum

trays.

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Moreover, Alfa places high emphasis on quality, looking for ingredients and

making food products of superior quality, which is acknowledged by 98.5% of

its customers. Indeed, the company operates under the strict European IFS

and BRC quality standards, while also testing every single food product it

makes in the company’s certified internal laboratory. Further, Alfa is highly

customer-oriented, basing its product development on the Mediterranean

dietary habits and traditions. Furthermore, Alfa’s business is based on four

core values that also enhance their competitive advantage, namely taste,

ethos, quality, and creativity.

Additionally, the company’s workforce forms another important source of

competitive advantage, mainly reflected in organizational members’ passion

for what they do and emphasis on business excellence at all levels. Under no

doubt, strict quality controls have also contributed to the very high quality

of Alfa’s products, together with the very wide variety of pastry and bakery

products the company offers. Alfa’s expansion to foreign markets has also

significantly contributed to Alfa’s sales growth over the last decade, while

at the same time giving it the financial capacity to further invest in the

innovation and overall development of its business.

Marketing and promotional activities are also at the forefront of Alfa’s

operations, with the company advertising its products through various

media, the Internet also been included, both in the domestic market and

abroad. Last but not least, Alfa has established a very sophisticated

information system, giving the company the ability to enhance and maintain

its operating efficiency (Alfa Pastry, 2013).

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SWOT Analysis

Strengths

Wide range of retail and catering products

Sales network of 50 distributors & 11.000 PoS across the world

Significant sales growth

Innovativeness

High product quality

Committed employees

Intense quality controls

Greek origin of products

String marketing and promotional activities

Sophisticated information system

Weaknesses

Low competitiveness in the Greek market

Operation in the frozen bakery segment only, compared with

competition

Opportunities

Greek consumers have switched towards purchasing products made by

Greek food manufacturers

Information and communications technology in Greece quite

developed

Low bargaining power of suppliers

Frozen bakery products’ sales expected to grow in the next 5 years

Improved their perceptions towards frozen processed foods’ qualit

Threats

Overall political instability in Greece

Very strict legislation for Greek food manufacturers

Diminishing Greek consumers’ income

High bargaining power of buyers

High threat of substitutes

Intense competition

Increasing private label products penetration

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8. FUTURE GROWTH RECOMMENDATIONS

In order for Alfa to ensure its growth for the next years, it needs to take

into consideration the analysis so far, as this was summarized in the SWOT

analysis presented in the previous section.

In other words, the company needs to take advantage of its strengths, in

order to deal with its internal weaknesses, explore external opportunities,

and avoid external threats.

One way in which Alfa could enhance its future growth would be to explore

new market segments, and mainly the frozen beans market, which is also

another promising segment in the Greek frozen processed food industry.

Doing so will help the company in further increasing its sales volumes, as

well as acquiring market shares in other segments as well, thereby further

diversifying its product portfolio, which is already a critical success factor in

the market.

Opening new markets is also consistent with the above. Alfa shall follow the

strategy of market diversification, according to which companies explore

new markets with new products (Farris et al., 2010). Developing countries,

which are expected to drive global economic growth in the years to come,

provide excellent business opportunities.

Promotion is another means of Alfa’s enhancement of future growth.

Advertising and promotional activities shall heavily emphasize on the Greek

origin of Alfa’s products, while at the same time highlighting the nutritional

benefits of frozen bakery products the company offers and the fact that

frozen foods maintain the beneficial nutritional characteristics that fresh

foods also have.

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At the same time, Alfa could also offer smaller packages of its products in

the Greek market. As such, instead of lowering its prices and being involved

in a price war, Alfa should offer smaller, thus more economic, packages, so

that Greek consumers experiencing financial difficulties prefer to purchase

smaller quantities of a branded and trusted product offered by Alfa, rather

than purchasing a private label one.

Taking into consideration the high levels of its innovativeness, it will not be

difficult for Alfa to also invent new pie tastes, so as to further differentiate

itself from competition. In short, the company shall follow the strategy of

differentiation, offering products or product features that are perceived as

unique in the market (Kiechel, 2010).

Given that the business and overall economic conditions are rather

turbulent in Greece and the future is unknown, Alfa must be very careful

regarding its financial performance and the management of its financial

resources. For this reason, tight internal financial control shall take place on

a regular basis, so that the company constantly monitors its financial

condition and take measure before certain financial issues cause severe

problems to its business. Of course, it is also important that all other

departments need to go in line with the financial strategy of the company as

well. It follows that internal control shall not concentrate on product

quality only, but also on overall operating efficiency.

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It is important for Alfa to create an online sales platform for wholesalers.

First of all, this will help the company in being consistent with the Internet

development characterizing Greece and the global market as a whole.

Next to that, operating an online sales platform will help the company in

reducing its operating costs by occupying less employees in customer service

schemes.

As a last point, it may be very beneficial for the company to pursue a

vertical integration strategy.

According to this strategy, a company is actively involved in and owns many

parts of its supply chain, either backward (suppliers) or forward (distributors

and buyers). By following such a strategy, a company controls its supply

chain in a more efficient way, thereby enhancing and maintaining the

quality and control of its products and overall supply chain processes (Hill &

Jones, 2012).

In the case of Alfa, except for maintaining the above, the company would

also have the opportunity to control its supply chain costs as well, thereby

being able to offer lower prices to end buyers and complying with the

diminishing incomes of Greek consumers. Vertical integration shall also be

accompanied with an intensive distribution strategy, based on which Alfa

shall strive to distribute its products through the maximum points of sales

available in the market.

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9. REFERENCES

Alfa Pastry (2013), “The company”, available at

<http://www.alfapastry.com/el>, accessed on 03-05-2014.

Euromonitor International (2013), “Business environment: Greece”,

available at <www.portal.euromonitor.com>, accessed on 05-05-2014.

Euromonitor International (2014), “Frozen processed food in Greece”,

available at <www.portal.euromonitor.com>, accessed on 05-05-2014.

Euromonitor International (2014), “Greece: Country factfile”, available at

<www.portal.euromonitor.com>, accessed on 04-05-2014.

Farris, P., W., Bendle, N. T., Pfeifer, P., & Reibstein, D. J. (2010),

Marketing Metrics: The Definitive Guide to Measuring Marketing

Performance, Upper Saddle River, New Jersey: Pearson Education Ltd.

Hill, C. W. L., & Jones, G. R. (2012), Strategic Management Theory:

An Integrated Approach, 10th edition, Cengage Learning.

Kiechel, W. (2010), The Lords of Strategy, Harvard Business Press.

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10. APPENDICES

A] Greece- Country and business profile

Business indicators in Greece

(Euromonitor International, 2014)

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Disposable income in Greece

(Euromonitor International, 2014)

R&D spending in Greece

(Euromonitor International, 2013)

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B] The Greek frozen processed industry

Sales in the Greek frozen processed food industry

(Euromonitor International, 2014)

Competition by company

(Euromonitor International, 2014)

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Major distribution channels

(Euromonitor International, 2014)

Sales forecast

(Euromonitor International, 2014)