Keels Food Product Plc vision and values

Keells Food Products PLC is presently Sri Lanka’s market leader in the processed meat industry and enjoys a market share of approximately 70%. A subsidiary company of John Keells Holdings, KFP PLC started its operations in the year 1983, and today takes the pride being solely responsible in developing the Sri Lankan Processed Meats industry to its current heights.

KFP PLC have kept abreast of the industry through strategic investments in state-of-the-art food processing technology, quality control systems, an aggressive company wide R&D orientation and ground breaking marketing leadership in the food industry of Sri Lanka.

Keells Food Products PLC, together with its subsidiaries, engages in the manufacture and sale of processed meats and crumbed products, as well as the sale of raw meats primarily in Sri Lanka. The company offers sausages, meatballs, and cold cuts under the brand name of Keells; and Chinese rolls, formed meats, french fries, nuggets, burgers, fish fingers, and kieves under the Halal (Krest) brand name. They offer taste, nutrition and a superior quality product to meet today’s demanding lifestyles of consumers all over the world.

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Beverages carbonated soft drinks range include Elephant House Ginger Beer, better known as EGB which contains natural ginger, Cream Soda the popular vanilla flavored youth beverage, raspberry flavored Necto, orange flavored Orange Crush and Orange Barley, Lemonade, Soda, Apple Soda, Dry Ginger Ale and Tonic. Caffeine based Wild Elephant (energy drinks) and Blue Fountain bottled drinking water under the brand name of Elephant House. (http://www.keells.com/beverages.html) And also they offer a unique brand of Ice cream which is the leading frozen confectionery brand both in Sri Lanka and Maldives, where many other international brands are available but humbled.

It exports its products to India, the United Arab Emirates, and Maldives.

KFP PLC brands enjoy tremendous equity in the Sri Lankan market, as established of core values of convenience and quality. KFP PLC serves certain markets in India, United Arab Emirates & Maldives and is currently in the process of strengthening their presence in these regional markets. (KFP PLC Annual Report 2009/2010 available on http://www.keellsfoods.com/images/inside_pages/annual/KeellsFood-AR-2009-2010.pdf).

Vision and Values of Group

Corporate Vision

Building businesses that are leader in the region

Values

Changing constantly, reinventing and evolving

Striving to get things right the first time

Doing right things always

Constantly raising the bar

Fostering a great place to work

Building strong relationships based on openness and trust

http://www.keells.com/vision-and-values.html

Points for PEST Analysis of Keels

Political

The comprehensive victory of the Sri Lankan armed forces in liberating the North and East of the country and developments since then, with presidential and parliamentary elections and the recent local council elections shows stability now behind keels.

The Company profitability was significantly impacted in last year by the increase in the Nation Building Tax (NBT) which was initially introduced as 1% point of turnover and subsequently increased to 3% points. The total impact due to NBT amounted to Rs. 40 million which the Company was not able to pass on due to suppressed consumer demand on account of reduced purchasing power.

The imported chicken meat cost too was impacted by high taxes and levies resulting in a significant cost disadvantage to the Company (Annual Report KFP Plc 2009/2010).

Economical

The Sri Lankan economy saw GDP growth of 3.5 percent in 2009. This was lower than the 6 percent seen in 2008 but a good performance given the global environment. Inflation and interest rates declined significantly through the year, while the local currency appreciated, reflecting the strengthening economic fundamentals post war. The Sri Lankan Rupee as at 31st March 2010 was Rs. 114 to the US dollar compared to Rs. 115.53 as of 31st March 2009 (Annual Report KFP Plc 2009/2010).

Prediction of an economic growth in the next years, however sales of keels has dramatically been increased in the past three years. Sausages continued to account for the biggest segment amounting to almost 50% of their total market volumes in the Keells range of products. Overall sales of keel’s sausages grew by 1%, in a very static market (Annual Report KFP Plc 2009/2010).

French fries, which accounts for a small segment of sales in the Krest Range faced stiff competition. However due to stock pressure and distribution strengths the product grew rapidly adding 36% growth. It is believed further marketing support and changes in the marketing mix will further grow this category (Annual Report KFP Plc 2009/2010).

Points for SWOT analysis of keels

Strength

High Quality Conscious

Keels products are the only processed meats in Sri Lanka that conform to the SLS (Sri Lanka Standards) certification, whilst the processes that are carried out are aligned to incorporate ISO 22000 standards. Moreover at an organizational level our entire operations conform to ISO 9000 standards

Also having food quality standards, such as ISO 9001 certificate, HACCP certificate for food safety management tool and SLS certificates

High technology

Having Modern Technology and qualifies works through out the process and upgraded machineries and equipments. They incorporates some of the most modern semi automated machinery conforming to international standards for hygiene and safety, such as sausage linking machine ( to automate the portioning and hanging process, at high speed) peeler machine, slicer machine and a thermoform packaging machine. in their keells range factory.

Keels using high Tec MC3000 Motorola mobile computers system working on a Wi-Fi network, across 30 supermarket stores for inventory variation.

Having the best Laboratory among in asia and Modern storage facilities.

Keels hold a high web technology which is speed, quick download, easy navigation bars, customer friendly and corporate colour for their web strategies

Threats

French fries, which accounts for a small segment of sales in the Krest Range faced stiff competition from cheaper variants introduced into the market by our competitors. However due to stock pressure and distribution strengths the product grew rapidly adding 36% growth. It is believed further marketing support and changes in the marketing mix will further grow this category.

Competitive Strategy

Porter’s five forces Analysis

Introduction

First of all, competition within the food and beverage industry seems to be large as well as diversified. McDonalds, KFC, Tea firms, Coffee firms, Cargill’s, etc. which have a tremendous range of resources at their disposal. Although bakeries and smaller retailers (shops).

Poter’s five forces model is based on the simple fact that each industry and market is influenced by several competitive forces namely threat of new entrance, bargaining power of suppliers and buyers, competitive rivalry and threat of substitutes. The intensity of completion and therefore an industry attractiveness and profitability will mostly depend on these external factors.

Awareness of the five forces can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack and protecting against the competitive forces and shaping them in a company’s favor are crucial to strategy.

(Harvard Business Review January 2008).

The strongest competitive force or forces determine the profitability of an industry and become the most important to strategy formulation. (Harvard Business Review January 2008).

Poter’s five forces of Keels

Potential Entrants

Bargaining power of Threat of new entrants low

Suppliers Low/high

The Competitive

Rivalry High

Buyers

Suppliers

Bargaining power of

Customers high

Threat of substitutes

high

Substitutes

Threat of New Entrance

The threat of new entrants is very low in the food and beverages industry. The industry is very mature and it has successfully reached economies of scale. In order to compete in this industry a retailer must be able to achieve economies of scale.

Supply side of keels: high economics of scale, because high volume of own production, thus it will reduce the cost per unit as they can spread fixed cost over more units, employ more efficient technology, or command better stipulations from suppliers. So these deter entry by forcing the hopefuling entrant either to come into the industry on a large scale or to accept a cost disadvantage.

Demand side: discourage the entry by limiting the willingness of customers to buy from a newcomer and by reducing the price the newcomer can command until it builds up a large base of customers.

Another barrier to entry is that it takes an incredible amount of capital requirements technological cost. It takes an extreme amount of capital not only to be able to manufacture and sell the products but also to keep up with the research and development that is necessary for the innovation requirements. High initial investment will be required for building or renting new stores, manufacturing plants, storages, and also to extend customer credit, build inventories, and fund start-up losses. Thus the barrier is particularly great if the capital is required for unrecoverable and therefore harder to finance expenditures, such as advertising or research and development. Access to distribution channels is another high barrier to entry. A company must find a retailer to sell their products or have their own retails.

Finally, strong brand loyalty of customers also contributes to entry barriers. But as switching cost for buyers are low, the threat of new entrants could be characterized as moderate.

Bargaining Power of Suppliers

The bargaining power of suppliers is very low in this industry. There are so many suppliers to keels, they have wide rage of different suppliers, thus can easily switch to another supplier if it is necessary. Suppliers are business partners of keels, so that the bargaining power of them is relatively low; however, suppliers will protect them through reasonable pricing.

Though the local supply of chicken meat could not meet the demand last year. Even though agreement with key suppliers, keels faced shortages during the year. They were import the shortfall from their foreign suppliers from Europe and Australia.

Bargaining Power of Buyer

The group of keel’s buyers is formed by individual customers, Pizza Hut, McDonalds and Hotels. The bargaining power of the buyers is moderately high. There is a high volume of buyers and large retailers dominate in the food and beverages market. The buyers also are a significant portion of the industries revenue. If they can not keep their buyers happy then they risk losing them to their competitors. The buyers have low switching cost if they are not happy. The reasons why the power is not completely high is that the buyers do have the ability to integrate backwards into the industry.

Threat of substitutes

There are many Products for product substitute in the industry and the buyer’s cost of switching to the substitute is low. The threat of product to product substitutes is high thus, its affect profitability of the company. So that they should keep distance itself from substitutes through product performance, marketing etc. It also effects the growth of the company and the bonanza of industry that they reap in good times. Some of the substitutes are bakeries, non-carbonated substitutes for beverages such as juices, milk, fruit drinks, and coffee and tea are maintaining a strong foothold in the market. And the entry of low cost sausages and in some instances unbranded sausages sold in loose form, poses a challenge to the industry in maintaining the integrity of the products.

Intensity of Rivalry among Competitive

Rivalry among the competitors is very strong in this industry. The major competitors are so closely balanced that it increases the rivalry. In order to gain market share in the food and beverage must gain market share by taking it from their competitors. One of the other reasons for high rivalry is lack of differentiation opportunities. Competitors make similar products for example sausages, ice cream etc. The competitors are compared to one another constantly, their price, quality, packing, and in many other aspects. Also competition among the market competitors, including price, price discounting, new product introductions, advertising wars, promotions etc are very high. Thus, it limits the profitability of the company.