Prabhat Dairy - mbacasecomp.com€¢ e.g Cadbury for use in chocolate • B2C sales are through...
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Prabhat Dairy B2C Growth Strategy Lazaridis Consulting Elly Bradley, Taylor Hansen, Kiri Olekas, Christina Wilson
Transcript of Prabhat Dairy - mbacasecomp.com€¢ e.g Cadbury for use in chocolate • B2C sales are through...
Prabhat DairyB2C Growth Strategy
Lazaridis ConsultingElly Bradley, Taylor Hansen, Kiri Olekas, Christina Wilson
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Facing the analysts
• What should the balance between B2B and B2C sales be for Prabhat?
• How should Prabhat deal with distribution and branding of value added B2C milk products?
• Ensure stronger financial position with working capital & cash for future growth
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Product market focus needs to change
Strong end to end sourcing
to selling value
proposition
Low price strategy
Supplier / Customer of
Choice
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
B2C expansion strategy
Reduce B2B to B2C ratio
Focus on value-added, increase capacity utilization
Use Kiranas
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Key assumptions
• B2B sales include sales to restaurants, factories, MNCS• e.g Cadbury for use in chocolate
• B2C sales are through retail channels to the consumer• Any current marketing efforts will continue as scheduled
(Project Raftaar & B2B strategies)
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Profits drop significantly
2015 2016 2017 2018 2019Revenue 10,043 11,720 12,261 12,885 13,605Operating Expenses 8,743 10,231 11,559 12,147 12,826Personnel Cost 256 282 310 342 376Depreciation 344 399 399 399 399Interest & Financing Cost 412 427 427 427 427Provision for Taxation 29 136 142 149 158Profit after Tax 260 245 -577 -580 -582
All financials in million Rs
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Analysts are correct about Prabhat’s future
Full utilization on B2B product production
Expected growth in
milk pricing
Out of cash by end of FY2017
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Not hitting many internal and external targetsKPI Where We Are Where We Need to Be
Gross Margin 22.4% >20%
Accounts Receivable Days 76 <50
Value-Add Processing Capacity 20% 70%
B2B:B2C Ratio 70:30 50:50
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Need to act quickly
Ope
ratio
nal P
erfo
rman
ce
Time
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
The market is attractive and growing
Floor prices control the low price strategy
Rising incomes are driving industry growth
Largest portion of consumers are rural
Buffalo is more profitable than cow
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Well positioned for growth
Excess production capacity in value-added milk products
Competitive consumer pricing
Innovative distribution models
Strong relationship with Kiranas as mini stockist
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Need to align capacity utilization to market
Litres of milk products
Non raw form Raw form
Capacity for value added products
Utilized Non-utilized
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Weaknesses have contributed to crisis
Declining working capital
Need to raise cash
Marketing is a growing competency
Principle product is currently B2B (powered milk)
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Demand exceeds supply. Strong market growth anticipated• Demand will grow by 10%• Food is 51% of personal
income expenditure• Dairy is a food stable
• Supply will grow by 7%• New Zealand exports• Fodder price is increasing
and quality is decreasing• Competition has strong
buying power
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
What does the strategy look like
Increased profitability
Management goals
Reduce working capital
Financial objectives
Improves brand
awarenessTurn around weaknesses
Improves market share
Turn around weaknesses
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Creating the strategy
Should Prabhat
extend B2C
Which product
should be expanded
Where should
Prabhatfocus
How does Prabhatexecute
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Should Prabhat extend B2C
• Capacity is maximized on B2B products such as milk powder and condensed milk
• Well established with B2B; opportunity to expand brand with B2C
• Utilize distribution core competency to expand relationship with rural retail stores
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Which product should be expanded
• Value added products• Largest excess capacity (80%)• Highest margin products
• Poly-pack milk• Declining market• Opportunity to generate cash by selling excess manufacturing
equipment
• Condensed Milk / Milk Powder• B2B product• Expansion would require additional capital
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Where should Prabhat focus
• Kirana• Rural market is growing• Strong presence in Tier 1, 2 & 3 cities• Kiranas are located in both urban and rural• 15,000 Kiranas, 10,000 in urban
• Chain Retail• Less control over marketing strategy• Only focused on urban• Mini stockist program too expensive
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
B2C expansion strategy
Reduce B2B to B2C ratio
Focus on value-added, increase capacity utilization
Use Kiranas
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Need to attack the working capital issue
Since there is a limit on our cash flow, the focus needs to be on increasing the money available and starting to increase brand awareness in the first 6 months
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Need to attack the working capital issue
Task Responsibility Cost Key Metrics
Establish price for selling Polypack equipment
Finance / Engineering
Business as usual (BAU)
Price for manufacturing equipment
Hire Sales & logistics in Mumbai
HR -5000 Rs/hire-500,000 Rs total
100 Hired
Build sales model to include relationship and debt management
Market planning BAU Model complete for rural market
Designate additional kiranas as mini stockists
Sales Included in marketing campaign
Increase by 100 ministockist
Expand branding & marketing team for B2C
HR / marketing -14,000 Rs total 2 Hired
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Need to attack the working capital issue
Task Responsibility Cost Key Metrics
Board of Director meeting – manufacturing capacity
Vivek, MD BAU Decision made to sell excess polypackcapacityIncrease utilization of VA
Secure contract with available partner for excess capacity
MD +215 Million Rs Excess Capacity Sold
Launch mini stockistmodel
Sales VP Incurred previously 10 HiredDecrease accounts recievable
Launch B2C marketing campaign. Includes expanding project raftaar
Marketing VP -100 Million Rs Campaign launched
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Focus on value-added B2C
Within the next 6-12 months, since the marketing campaign has been launched the focus will be on monitoring and course correction as needed.
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Focus on value-added B2C
Task Responsibility Cost Key Metrics
Increase utilization of value added capacity
Manufacturing Lead
BAU Increased utilizationIncreased VA sales
Hire sales & logistics for rural area – continue to expand on this model
Sales VPHR
-250,000 Rs 50 HiredAR decreased
Continue with branding & marketing campaign for B2C• Milk magic & Flava
Marketing VP Incurred previously Increased awareness
Monitor manufacturingcapacity to ensure efficiency – course correct if needed
Operations BAU Increased utilization
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Focus on value-added B2C
Task Responsibility Cost Key Metrics
Monitor marketing campaign data analytics –course correct if needed
Marketing VP BAU Increased brand awareness
Monitor financials Finance BAU Increase profitabilityDecreased accounts receivableIncreased market share
Continue with project raftaar and mini stockistsprogram
Marketing & Sales
BAU Decreased accounts receivableIncreased market share
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Financial Assumptions
• B2B business maintains revenues during this period• B2C products are higher margin (30%) than existing
products• Market growth maintains previous CAGR (15% for product
mix)• Milk prices grow at 8% as forecasted
• Marketing expenses are maintained at 50% of initial launch• Salaries increase at 10% per year for new hires
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Project Costs
• Revenue from equipment sale: 214M Rs• Marketing Campaign: -100M Rs• Total Salary Increase: -0.8M Rs
• Project is net positive without revenue increases: 113M Rs
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Project returns company to profits
2015 2016 2017 2018 2019Revenue 10,043 11,720 12,621 15,948 17,670Operating Expenses 8,743 10,231 11,899 14,021 15,409Personnel Cost 256 282 317 350 386Depreciation 344 399 399 399 399Interest & Financing Cost 412 427 427 427 427Provision for Taxation 29 136 146 185 205Profit after Tax 260 245 573 566 844
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Reduces reliance on B2B sales
0%
10%
20%
30%
40%
50%
60%
70%
80%
2016 2017 2018 2019
Percentage of Sales from B2B
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Hitting or exceeding targets
KPI Where We Need to Be Where We Will Be 2019
Gross Margin >20% 26%
Accounts Receivable Days <50 49
Value-Add Processing Capacity 70% 70%
B2B:B2C Ratio 70:30 50:50
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Key risks & mitigations
• Kiranas do not pay on time• Increase training and awareness for debt collection with sales
team• Work with retailers to help them understand problems and
determine solutions
• Cost of milk procurement increases• Develop formal supply contracts for Fodder with farmers
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
B2C expansion strategy
Reduce B2B to B2C ratio
Focus on value-added, increase capacity utilization
Use Kiranas
Problem
Analysis
Strategic Fit
Alternatives
Recommendation
Implementation
Financials
Q & A
Q & A
