INTRODUCTION

Engro Foods (Pvt) Limited (EFL) was established in 2005 as part of a

diversification process at the Engro Group. The plant located at Sukkur (Sindh)

on 23 acre land, has the raw milk reception capability of 300,000 litres per day

and UHT milk capacity of 200,000 litres per day. The project cost was of $ 16

million and it provides direct employment to 750 people.

Engro Foods has entered the Food business through milk processing and sale

with the company’s vision to pursue growth opportunities based on country

fundamentals and own strength. It also positions the company to leverage its

corporate social responsibility initiatives and work closely with rural

communities to promote integrated farming and livestock development. This

effort is expected to play an essential role in poverty alleviation and improving

livelihoods of the poor in the milk collection areas.

Olpers Milk, company’s first brand was launched in March 2006 in 20 cities of

the country simultaneously. Since then two other brands Olpers cream and

Olwell have been successfully launched and have established Engro Foods

Limited as a major player in the foods business already. Their goal is to be one

of the biggest players in the food business and their aim is to dominate the food

business. To achieve this they will settle for nothing less than the cream!

The vision statement of Engro Foods Limited is

“To become a fast expanding mega foods company.”

SWOT ANALYSIS

STRENGTHS:

Brand of Engro Foods:

Olpers is a brand of Engro foods. Engro is a well-established brand name in fertilizer, IT and infrastructure. The brand is well known so customers will automatically have a brand association to Olpers and see it as a premium quality product. It can easily afford research and development. It can also promote its brand through better channel.

Public Relationship with farmers:

Engro foods have a strong bond and long term relationship with the farmers who are willing to supply milk to the company.

Strong Consumer and Product Research:

Olpers have done a strong consumer and product research before and after launching its product. EFL has hired various global research partners like AC Nielsen, Mindshare, JWT Asiatic and MARS advertising and marketing agencies.

Third Generation Plant:

Only EFL has a third generation UHT milk plant in the country. It is the only company using Bactofuge technology to virtually eliminate bacteria and ensure premium quality and hygiene.

2

WEAKNESSES:

Milk collection and Distribution costs:

EFL’s 34 out of 40 milk collection centres are located in Punjab, whereas its milk processing facility is situated near Sukkur. It increases the chance of milk collection and distribution costs.

Owning Red Colour:

EFL has not owned the red colour like Nestle has owned green colour for Milkpak, Haleeb has a blue carton etc. Consumers might have problems in recalling the brand because there is no colour association attached to Olpers.

OPPURTUNITIES:

Awareness:

Growing dissatisfaction with loose milk and growing awareness about health issues have led to increased processed milk consumption.

Fourth largest producer of milk:

Pakistan is the fourth largest producer of milk in the country. Milk is the largest commodity from the livestock sector accounting for 51 percent of the total value of the sector. There is an opportunity for Engro foods to grow in this part of the sector.

3

THREATS:

Competition:

Olpers have a threat of competition from its competitors such as Haleeb

and Nestle. These brands have been in the market for a long time even

before Olpers so they have created a mark in the minds of consumers in

terms of quality.

Price Differentials:

Price differentials can also cause a threat to Olpers because price might

create barriers in terms of the profit margins. For example, loose milk is

much cheaper than packed milk and people might shift from packed milk

to loose milk due to difference in prices.

Inflation:

A serious threat can be caused by inflation because due to inflation

people could no longer afford to pay higher prices for processed milk and

could switch from processed milk to loose milk. So there can be a shift in

demand from companies providing packed milk to milkmen who provide

unprocessed milk.

4

INDUSTRIAL ANALYSIS

5

Pakistan Milk Market/Industrial Analysis

Pakistan’s economy is predominantly agrarian in nature.

Agriculture accounts for 20.9 percent of the GDP.

43.4 percent of the total work force is from agriculture

sector and it is the main source of livelihood for 66 percent of

the country’s population living in rural areas.

Growth in the agriculture sector registered a sharp

recovery in 2006-07 and grew by 5%.

Pakistan is the 4rth largest milk producing country in the

world.

An estimated 33.25 billion liters of annual milk is

produced.

Approximately 50 million animals managed by 8 million

farming households.

Contribution of the livestock sector to Pakistan’s GDP is

at 11% while the processed milk sector contributes about 0.43

percent.

The milk economy represents 27.7%2 of the total value of

the Agriculture sector.

6

The graphical representation of forecast of milk

industry in the previous years is such that the demand for milk

would be more than its supply. Reason being that people would

become more health conscious and would consume more milk.

The consumption of milk would exceed its production.

2008-2009 2009-201034000

34500

35000

35500

36000

36500

37000

37500

38000

38500

ProductionConsumption

PRODUCTION vs CONSUMPTION

MARKET TRENDS:

Market trends for milk industry are changing. The following trends are occurring:

The growth of processed milk is increasing by 20% annually.

7

People are getting more quality and health conscious with the passage of time.

Due to impurities of loose milk, people are attracting towards processed milk.

MARKET POTENTIAL:

The market potential of milk industry is that

At an average, a Pakistani consumer spends 42 % of income on food. Consumer often prefers branded food items for both quality and status

reasons. Per capita real GDP has increased at an average of 5.6 % per annum

during the last three years. This increase has led to a rise in average income of people and an

increase in consumer spending.

96%

4%

MILK INDUSTRY SEGMENTATION

Fresh Milk

Packed Milk

INDUSTRIAL SWOT ANALYSIS

STRENGTHS:

8

Pakistan dairy industry is the World’s fourth largest industry. Pakistan Dairy Industry is Cheaper than Austria, America and other

developed countries. Farmers are engaged in agriculture and dairy at the same time. By-product of Agriculture is used in Dairy.

WEAKNESSES:

Poor profitability for farmers. Lack of contact for farmers to the market mechanism. Poor dairy infrastructure in rural areas. Lack of education among the farmers is making it difficult to

change farm and dairy management systems. Lack of knowledge about optimal feed. Lack of a cold chain to protect milk quality. Lack of access to well trained support service staff such as

Veterinarians. Despite the huge volume of milk produced in Pakistan,

processors find it hard to obtain sufficient milk to meet future consumer demand.

Increasing demand for imported products. The product range offered to consumers is not well developed. Production of milk falls to 55% of peak production at its lowest

point in mid-June. The demand increases 60% during June compared to December

when the milk supply is ample.

OPPURTUNITIES:

9

There is an opportunity for companies to introduce

value-added products like ice creams, flavored milk, dairy

sweets, etc.

There is a phenomenal scope for innovations in product

development, packaging and presentation.

THREATS:

Very low quality milk is provided by the milkmen to dairy

farms which is a very big threat for the entire market.

The shortage of milk providing animals is also a threat for entire

milk industry.

10

Michael Porter’s

Competitive Strategy

Model

11

A company can survive and succeed in the long run only if it successfully develops strategies to confront five competitive forces that shape the structure of competition in its industry. Michael Porter’s classic model of competition has given analytical method which tells about two dynamic factors, Competitive forces and Competitive strategies. This model helps to evaluate the competitive position of the business. In Michael Porter’s model, any business that wants to survive and succeed must develop and implement strategies to effectively counter five competitive forces shown in the diagram above.

12

COMPETITIVE FORCES

RIVALRY OF COMPETITORS (HIGH)

Diverse Competitors:

In milk industry, many business giants like Nestle, Haleeb Foods, Good milk, etc. are having an immense competition and the magnitude of rivalry is very high.

Industry growth is high:

The industry has a way large potential of growth. The prospective growth can be estimated in a way that UHT milk is serving only a small chunk of total milk consumption body. So, further growth can be pursued.

Exit barriers are high:

If a firm tries to exit Milk industry, it would have to bear a High Exit Cost. The plants set up to treat milk with Ultra High Temperature have no significance use in another industry. Hence firms avoid to exit and the rivalry goes on.

THREAT OF NEW ENTRANTS (LOW)

Strong Customer Loyalty:

The already established UHT milk companies have Brand loyal customers and it would be very difficult for a new venture to make those customers switch to the newly launched product.

Large capital is required:

To build up a UHT treatment setup for milk requires a huge capital to be initially invested, hence escalating the barrier to entry.

High marketing expenditure:

To compete in the current industrial scenario, a new product would have to be marketed and promoted immensely, which requires a large promotional budget.

13

THREAT OF SUBSTITUTES (HIGH)

Loose products in the market are the major substitutes:

If a company in the milk industry goes on increasing its prices then there

is a fair chance for it to loose certain income group consumers as the

customers would shift to loose milk consumption.

BARGAINING POWER OF CUSTOMERS (HIGH)

Switching costs is low:

It costs virtually nothing in monetary terms for a customer to switch from

one brand of milk to the other. This gives rise to high bargaining power

of customers.

Switching options are more:

There are many firms in the market which offer milk for virtually the

same price. Hence consumers have many switching options.

BARGAINING POWER OF SUPPLIERS (LOW)

High number of suppliers:

There are a large number of milkmen supplying milk to the UHT milk

companies. So the bargaining power of suppliers is low.

Importance of volume to suppliers:

The suppliers of milk are interested to supply all the volume of milk to

the companies as milk is a perishable good and withholding a quantity of

milk could cost them for nothing.

14

COMPETITIVE STRATEGIES

COST LEADERSHIP:

Engro Foods is currently not following Cost leadership strategy as there is

hardly difference of a rupee or two as compared to that of its competitors. The

only way that Cost Leadership strategy could be implemented is through

Economies of Scale but contemporarily, in the presence of Business giants like

Nestle and Haleeb Foods, being the cost leader through Economies of Scale is

like building castle in the sky.

DIFFERENTIATION:

Engro Foods is following Differentiation strategy through which it has

introduced a range of different kinds of products in milk industry.

Olpers is wholesome milk which is serving major part of target market.

Olwell, the low fat milk, serves that niche of consumers who are diet and

calorie conscious.

Owsum is flavoured milk for kids. It is available in three flavours i.e.

chocolate, strawberry and mango.

Tarang is a kind of milk that serves the tea-whitening purpose.

Hence, with slight product differentiation, Engro Foods is serving all the milk-

based purposes and this strategy helps it minimize the competitive forces in

industry.

15

Effect on Competitive Forces:

Rivalry of Competitors:By diversifying its product line in milk industry, Engro Foods lessens the

magnitude of rivalry in the industry to some extent; as not every food

company which operates in milk industry provides different kinds of

milk.

Threat of New Entrants:When certain company (Engro Foods) is serving milk consumers in every

manner, it’s difficult for a nascent business to step into the grounds and

start serving the market in the same fashion.

Threat of Substitutes:By offering a complete product range in Milk, Engro Foods creates a

Brand Loyalty in its customers, binding them psychologically to pick up

its products from the shelf instead of the substitutes.

Bargaining Power of Customers:Not every company serves milk consumers in a similar manner as that of

Engro Foods. So when a few companies bring about diverse product

range for a large number of customers, this reduces the bargaining power

of customers.

Bargaining Power of Suppliers:For a diverse product range, Engro Foods collects more volume of milk.

Hence bargaining power of suppliers is shrunk.

INNOVATION:

Engro Foods is not following Innovation strategy as it’s really hard to innovate in the milk sector.

GROWTH:

16

Engro Foods has emerged and is growing its roots like anything. The company has employed ‘Push marketing style’ to enlarge its volume. If we see the graph of Engro Foods given below, the way this company has grown is commendable.

Effect on Competitive Forces:

Rivalry of Competitors:As Engro Foods is growing by leaps and bounds, it is in a sense

minimizing its rivalry. Instead of competition with every little company

in the market, it now has to compete with giant establishments only;

hence minimizing the degree of competition.

Threat of New Entrants:By pursuing Growth strategy, Engro Foods is making it hard for new

firms to jump in. In the presence of briskly progressing company in the

industry, it would be bit hard for a baby boomer to offer the same scale of

competition.

17

Threat of Substitutes:Intense growth, push marketing strategy, markets flooded with Engro

Foods milk, massive advertisement, everyone humming the ad jingles,

make it less probable for the consumers to switch to substitutes.

Bargaining Power of Customers:Being one amongst the few leading growing companies in industry,

Engro Foods enjoys less bargaining power of customers.

Bargaining Power of Suppliers:Growing implies more volume. Since Engro Foods collects milk from

suppliers in large volume, it trims down the bargaining power of

suppliers.

ALLIANCE:

Engro Foods is producing milk with no alliance with any other group or

company till date.

COMPETITIVE POSITION

Statistics show that Engro Foods stand at the ‘THIRD’ competitive position, Nestle Milkpak and Haleeb being at first and second respectively.

18

Here we compare different companies in milk industry using the measure of MARKET SHARE.

1%

45%

9%

22%17%4%

2%

MARKET SHARE

Good MilkMilk PakDairy QueenHaleebOlpersNur PurOthers

The graph shows that three or four companies are dominating the UHT milk industry. Engro Foods has attained a significant market share in a short span of time making the mat slip from under Haleeb’s feet. The pursuit of Growth Strategy is still making them progress very fast and the present predicts a bright future of Engro Foods. Engro Foods hopes to escalate its market share in the coming years.

TYPE OF COMPETITION

A ‘MODERATE’ competition prevails in UHT milk industry as evident from the above figure. Number of competing companies is not large. Few companies such as Nestle, Haleeb, Olpers (Engro Foods) and Dairy Queen dominate the

19

market and have a fierce rivalry among them. The marketing campaigns, the advertisements all indicate the strong “Choose Me” approach of the competing companies.

20

ANALYTICAL CONCLUSION

For Engro Foods:

After analyzing the industry conditions, the competitive position of Engro

Foods in the industry, their employed strategies, we come to the conclusion that

Engro Foods should REMAIN in the industry. The company is currently

holding a substantial fraction of market share and the company is pursuing

Growth strategy which is a positive sign in itself. We suggest Engro Foods to

keep going with the same strategies i.e. Growth and Differentiation as it is

doing well. Thumbs up!

For the New Entrants:

Milk industry has a great potential for new businesses to jump in. UHT milk

companies are serving only 4% of the total milk consumers. The remaining 96%

are consuming loose milk. With the increasing awareness of health

consciousness and the hygiene issues with loose milk, people are shifting

towards packed milk. Though entering in milk business is not easy. Large

investment is required and milk being perishable good offers a great challenge

to be catered. But for a Group which can afford to enter, there is prospective

chance to make profits in this industry just like Engro Foods did couple of years

ago.

21