Cadbury Experience in Israel_Avner Barnea

8/9/2019 Cadbury Experience in Israel_Avner Barnea

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Avner Barnea

Graduate School of Business Administration,Ono Academic College,

Israel

19 January 2010 1
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The presentation is divided into 3 main parts:

General notes related to competition law and its

enforcement in Israel.

Definitions related to Competitive Intelligence.

Cadbury experience in Israel- an analysis of a case

study- presentation and discussion.

And also- about the sources of information.

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The Supreme Court of Israel ruled that "freedom of competition is a clearpublic interest; it promises efficient allocation of resources, freedom ofconsumer choice, and increasing incentives optimization, development,economic and social innovation.

Competition serves as a lever for economic growth and improve living

standards Quality of life: free competition is also a necessary condition tothe existence of an efficient and healthy economy, and economic growth.

Fair competition The prevention of competition-distorting practices, whichcan lead to the reduction of competition in the supply of goods or services inthe supply or provision of which the parties to the arrangement are engaged,from the perspective of a person who is not a party to the arrangement.

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Source: http://www.antitrust.gov.il/eng


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The goal of competition law is to prohibit anti-competitivebehavior, conduct and transactions.Competition laws come to protect competition and are designedto encourage competition in the marketplace.

Creation or strengthening of market power is done in three ways:1. Excluding competitors or exploiting customers by a dominant firm

(what is referred to as abuse of dominance, monopolisation or attempting tomonopolise).

2. An arrangement between competitors (horizontal practices) or non-competitors (vertical restraints), the purpose or effect of which is toharm competition or competitors and consumers

3. Merger operations: especially horizontal mergers, i.e. mergers between

competitors.

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A dominant firm that wants to increase its profit, may try to hinder the ability of itscompetitors, whether actual or potential.

Create and sustain a position of market power (especially a monopoly) may involve aseries of losses to the public, making members of the public vulnerable:

1. First, this situation may help perpetuate market power by the disruption of market forces.Market power restricts the ability of those competitors trying to increase their marketshare.

2.

Secondly, this situation may lead to below optimum allocation of resources.3. Thirdly, this situation may limit the ability of rivals to invest

A dominant firm is therefore forbidden from abusing it market power

Where such abuse occurs, a competition law offence will occur.

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CI is a systematic procedure of collection, analyses anddissemination of business information mainly oncompetitors and on the business environment.

CI is one of the capabilities of the firm and supports itsbusiness strategy process.

Unlike data or information, intelligence gives usinsights into what can happen based on informationand past behavior.

It is not Information Expertise, nor Business

Intelligence (BI) and not Marketing Research (MR).

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Growing number of players in the scene.

Number and complexity of Key IntelligenceTopics- KITs.

Huge number of resources and informationexplosion.

Dynamic environment while many changes areunexpected.

Decision-makers need better tools to improve

their assessments and decisions.

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Cadbury had an attempt to enter to the Israeli

chocolate market in December 2002. It was blocked by

Elite Ltd., the local market leader in mid 2003 and

finally decided to withdraw. Since then, Cadburychocolates are not sold in Israeli market.

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Cadbury, a global company with revenues of 6 billion

(2001) and no existence in Israel, set up a strategic

alliance with the Israeli company Carmit Ltd.

According to the agreement, Cadbury will manufacture

the goods while Carmit will be responsible forpromoting these products through its marketing and

sales channels in Israel.

Cadbury agreed to support Carmit with its global

marketing experience and also allocated 2 million forpromoting the entrance to the Israeli market.

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Cadbury considerations were based mainly on theinformation received from the local distributor, Carmit.

The Israeli market was ready for quality chocolateproducts.

Cadbury was affected by the information supplied byCarmit about the potential of the market as Carmit had anextensive and prosperous experience in the local marketand was proving financially strong.

Carmit designed a penetration strategy based on refrainingto threaten Elite.

Cadburys strong confidence relied also on taste tests heldin Israel showing that the Israeli customers enjoyed itsproducts.

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Carmit was a medium size Israeli public company mainlyin sugar confectionary with a limited experience in

marketing chocolate and actually was never in direct

competition with the local leader Elite.

Carmit was very successful in its niche market and also

had strong logistical capabilities.

Carmit had decided that to extend its revenues it had to

collaborate with a global company and to sell it goods in

the local market.

According to a market research presented to Carmit,the size of the local Chocolate market is approximately

250 million, while Elite held 70% of this market.

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200m annual revenues in the chocolate market inIsrael (70% market share). Also leading the localcoffee market. Officially monopoly since 1989.

One of the strongest brands in the market and very

liked by the customers. Operating in the market for70 years.

Prior to the arrival of Cadbury, Elite announced thatit will spend 1.5m to meet the incoming threat.

Elite is recognized for its aggressive strategy when

facing threats to its core business.

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Agreement- signed between Cadbury and the local partner Carmit 2002. It was published by the Tel Aviv Stock Exchange newsletter.

Strategy A local strategic consulting firm presented a proposal forintroducing Cadbury into the Israeli market. The outline of the planwas:

1. Target market share 15% in 3 years.

2. To enter the large food chains simultaneously with manyproducts(18).

3. To sign agreements with independent food distributors.

4. To favor a Loud Launch on a national scale.

5. To Expand and upgrade the management of Carmit, marketing, salesand logistics.

The strategic plan was presented and approved by Carmit andCadbury.

Carmit had initiated the first order of goods, total value - $10m.

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A few years ago Elite was successful in slowingdown the attempt by Nestle (through its localpartner )to establish itself in the Israeli chocolatemarket.

Elite launched an attractive sales campaign(blockade campaign/ preventive campaign) twomonths before Cadburys Launch.

Elite is noted in Israel for being aggressive towardscompetitors that are threatening its market lead by

carrying out a strategy of market share.

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The launch of Cadbury was postponed fromOctober to December 2002 as the productsarrived late.

The products were delivered to the foodchains and other stores as planned.

The marketing campaign was launchedsimultaneously to the entering to the shops.

The sales results in the first week werepromising.

Later reports showed reduction in demand.

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The aggressive campaign by Elite was expandingand it offered attractive deals to the customers.

First complaints received from stores anddistributors about pressures by rival Elite

through illegal means. Sales of Cadbury were continuously declining. Reports in the media about the behavior of Elite

sales representatives towards Cadbury. The Israeli Antitrust Authority received the first

complaints and announced publicly that it

opened an investigation.

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May 2003- Carmit decided to stop selling Cadbury in Israel.Its assessment were that the chances to succeed were lowand the spending was higher than expected.

The demand for Cadbury goods was lower than theexpectations

Disappointed by the lack of intervention of the AntitrustAuthority.

The Chairman of Carmit (July 2009): We were surprised bythe intensity of the reaction by Elite, especially in their pricesstrategy. The reduction of prices of their chocolates wasmore than we expected.

Heavy losses to Carmit that almost brought to itstermination.

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Carmit complained that Elite used its monopolistic power against theinterests of the customers by pressuring on various elements in the localmarket and succeeded in causing Cadbury to withdraw the market(theChairman of Carmit).

The Israel Antitrust Authority finished its investigation and announced (2003)that the alleged offenses committed by Elite, looked to be severe and thepotential convictions can be rejections to supply its goods and abuse of itsmonopolist power. The Authority was referring also to alleged restrictivearrangements between Elite and retailers by giving special discounts andbenefits in order to stop Cadbury in Israel.

2006 The Antitrust Authority announced that it had reached to anagreement that Elite will pay a penalty of 750k and pledged not stop anycompetition by illegal means in the future. Elite did not admit any wrongdoing.

Objection by Carmit was turned down.

2007 the Antitrust Tribunal approved the agreement.

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Customer

Value

Competition

Service

Quality

ProductQuality

Price


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..to prevent the creation of market power through

the regulation of mergers and anti-cartel enforcement,

to restrain abuse by dominant firms of their positions

and to preserve competition in the various markets.

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Cadbury / Carmit were not familiar enough with the businessstrategy of Elite, especially in times of sever threat on its corebusiness.

Cadbury / Carmit strategy to enter the market was based onoptimistic assumptions rather than on realistic ones.

A better analysis of the market in advance may proposed to pick updifferent strategy that could be more successful. An example: outflanking strategy/ The strategy of indirect approach-

In strategy the longest way round is often the shortest way there; a direct approach to the objectexhausts the attacker and hardens the resistance by compression, whereas an indirect approachloosens the defender's hold by upsetting his balance).

Cadbury/Carmit did not have a contingency plan in case they face anintensive reaction by Elite.

The overall customer value of the Cadbury goods may not be goodenough to overcome the unfair campaign carried out by the keyrival, Elite Ltd.

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Cadbury / Carmit were unsuccessful in recruiting thepublic opinion against the moves made by Elite.

Cadbury / Carmit were unsuccessful in buildingsignificant demand for their products.

The response by the Antitrust authority was late anddid not create deterrence for future attempts againstmonopolist powers in Israel.

And finally - Cadbury may made a mistake bycollaborating with a local partner which was not

fitting for this challenge.

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Avner Barnea

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Cadbury Experience in Israel_Avner Barnea

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