Boxed Chocolate In The Australian Chocolate - Case Study Example

Name: Instructor: Course: Date: Industry Background A report by IBIS World reveals that the Australian chocolate industry has survived to the recent global economic crisis (4). Manufactures have managed to weather the economic storm and currently, the industry has an estimated growth rate of 4%. The growth has been driven by boxed chocolate assortments, which traditionally were viewed as a popular gift option. The report attributes the industry’s resilience to manufacture’s strategic decision and marketing strategies. They sector has seen manufacturers move towards value addition practices as opposed to cutting down on costs. The move has popularized the boxed chocolate category. Companies like Cadbury, Lindt, and Ferrero Rocher have been able to grow their boxed chocolates despite the hard economic situation (Euromonitor 1). This report looks at how Lindt has managed to achieve such growth in spite of the prevailing economic conditions. It analyses the company’s market position as well as external forces by performing a PEST analysis, 4P and other market concepts. PEST and 4P analysis are the most effective tools for strategic analysis (Henry 36). Company Background Lindt & Sprungli (Australia) is the company that imports and supplies the Australian market with Lindt brand of chocolates. In addition, it operates Lindt chocolate cafes spread across Sydney and Melbourne. The company was established in 1997 as a subsidiary of chocoladefabrikenLindt&Sprüngli AG (Lindt & Sprüngli (Australia) Pty Ltd 3). The company conducts its operations from level 7 299 Elizabeth street Sydney with the support of two hundred and sixty two employees. According to the company’s financial reports (FIG), in 2012, the total revenue was $ 151.85 million up from 2011’s 141.15 million. The net profit was $ 10.15 million and increase from the previous year’s $8.62 million (Lindt & Sprüngli (Australia) Pty Ltd 5). Source: “http://www.4-traders.com/CHOCOLADEFABRIKEN-LINDT-73888/news/Chocoladefabriken-Lindt--Spruengli-AG--Lindt-sees-new-markets-fuelling-growth-in-2014-18078879/” 4P Analysis The company operates eight production companies distributed across Europe and America. It also runs several sales and distribution companies in four continents. The Australian subsidiary is one of them. In order to boost its operations in Australia, the company also runs Lindt Chocolate cafes in Sydney and Australia. The cafes give Lindt increased market presence over its competitors. It also enables them market capture the high-end market. In Australia, New South Wales, Victoria, and Queensland is home to almost 80% of all chocolate manufacturing and production facilities. South Wales is host to most of the industry establishments at 34.5%, followed by Victoria at 34.2% (IBMS 18). Source: “https://www.google.com/search?q=global+chocolate+retail+market+value+diagram&espv=2&biw=1024&bih=475&tbm=isch&imgil=Lax226BiCDnyLM%253A%253Bhttps%253A%252F%252Fencrypted-” Product Lindt& Sprungli offers a wide range of confectionary products. According to Kenny, product broadening can be considered as a scale strategy (137).The well known ones include the Lindt chocolates blocks, and the boxed chocolates. Other products available to the market include its drinking chocolate powder, Lindt Pralines range of upscale chocolates, lindor ball among others prestigious and premium Lindt brands. The company’s strategy has always been to provide each market segment a distinctive product that suits their tastes and preferences. Kenny describes it a scale strategy (137). The company prides itself in creating the most unique and creative products whose taste is unique to its brand only. In addition, the company boosts of over 160 years of chocolate craftsmanship therefore, reassuring their customers that they are enjoying the same high quality product that they have come to know and love. Most of its products are exquisitely packaged and meets the highest possible standards (Lindt & Sprüngli Annual Review 11). The wide range of products has enabled the company satisfy different consumer tastes and preferences. It has also given the company quite an extensive market segment. Promotion The company has been involved in several successful product launches in various markets it operates in. it has also participated in various festivals and events. In Australia, the company has managed to promote its products by initiating several advertising campaigns as well as capitalizing on its existing brands, lindor, and excellence. In addition, the company has launched Creation, a filled chocolate tablet, into its product line. The company’s promotion activities are expected to not only boost its sales but also, increase its market share. Price The company offers various prices for its different products as per the quality, standards, and market segments. Lindt also operates duty free shops, which enable it to offer millions of travelers a chance to enjoy its products at a highly discounted rate. The company’s competitive pricing strategy has not only had an impact on their revenue but also has had an impact on the market prices. External Factors: Microenvironment The company has high regard for its suppliers so much, so that it has even initiated programs to ensure that it is the preferred over the rest. Lindt and Sprunger recognize the value of strong supplier relationships in building its business. According to Lai and Cheng, strong supplier relationships have an impact on the quality of the product or service. In Ghana, the company has initiated a farming program that ensures that it gets the best possible quality cocoa from the farmers (Lindt & Sprüngli. Corporate Sustainability Communication on Progress 16). The company’s decision to invest in such an initiative helps the business protect its sources of raw materials as well as influence the quality. The price reductions by Coles and Woolworths have driven the price of chocolate confectionaries slightly up. However, consumers have taken advantage of the price reduction to upgrade from the tablet chocolates to the boxed assortments. In terms of manufacturing, Lindt has made significant steps in making its operations greener as it plans to use the cocoa shells as an environmentally friendlier source of fuel. In addition, the company has adopted a multi-tiered distribution format as an effective way of driving sales. The Australian confectionary market is dominated by a youthful target market. The company hopes to capitalize in future on the increase in births rate to provide a bigger market for its product especially brands that target children. The company faces competition from both Mondleza and Ferrero. Mondelez owns about 43% of the value share and experiences rapid market growth in the last four years (Euromonitor 1). On the other hand, Ferrero’s market share has grown to 4% because of premiumnization of Coles and Woolworths (Euromonitor 3). In addition, Ferrero enjoys substantial brand recognition with its boxed chocolates that have always been considered premium by the customers. Macro environment: PEST analysis The impact of political aspects such as regulation cannot be ignored and as Australian confectionary manufacturing are expecting to face greater government regulation. . According to Applegate and Johnsen, home market lobbying and government regulation are very crucial political aspects that marketers need to consider when analyzing political factors (29). Due to increased lobbying from consumer groups, the government has been forced to tighten regulation with respect to product labeling and food safety. The impact of these new regulations is expected to vary individual manufactures as well as products. However, the proposed regulation on advertising of high sugar and high fat foods is expected to have an affect all Lindt’s ads especially those targeting children and teenagers Confectionary products are very sensitive to economic uncertainties because consumers consider them non-essential goods. However, should the economic situation improve consumers allow themselves to spend some of their disposable incomes on such products. In order to drive demand even during unfavorable situations, manufacturers have found it necessary to come up with innovative products as well as look into other variables such as supply chain efficiencies. Most of the economic related decisions have a direct impact on the company’s market share. During the recession, Lindt like many other companies recorded reduced sales on their tablet chocolates; however, with the recovery underway the company is growing its boxed chocolate segment. Consumers are increasingly becoming aware of how their favorite brand companies are conducting their business. They now care where their chocolates come from as well as how it affects their health and wellness. Although organic chocolates brands do not enjoy as much popularity as conventional chocolates, the Australians are increasingly becoming concerned about the current obesity issues facing and the contributions made by the confectionary industry. Negative media campaigns on sugary foods have affected Lindt; however, the company is looking forward to correcting it by emphasizing on the positive effects of flavanoids found in their chocolates has on health. Jonge, Marcia, and Sylvia ascertain that technology has improved the way businesses are run and the confectionary industry has not been left behind (2). Automation of manufacturing process and the use of new technology to create chocolate recipes have had an impact on the quality of the product. Lindt has been facing financial and research capacities constraints that hinder it from manufacturing high technology products SWOT analysis Strong brand management is one of the important organizational strengths (Fortenberry 59). Lindt has a very strong brand portfolio especially in the premium brand segment. In addition, the company has an impressive market growth performance as well as a strong financial base. The company has opened up several retail outlets in line with its expansion strategies especially now that it enjoys good sales and profitable growth. The company deals with mainly with the premium priced products whose price is not easily expandable especially when considering emerging markets. This scenario marks Lindt’s weakness. However, the emerging Chinese markets present potential growth opportunities for the company. In addition, the Brazilian market has also shown great potential for boxed chocolates (Euromonitor 7). The negativities surrounding chocolates is a major threat to the company. Increased campaigns against high sugar foods such as chocolates could see the company record reduced sales in some markets. According to Delmatter and Myers, media campaigns have an effect on people’s attitudes; therefore, can build or destroy an organization (209). Comparing Lindt and Cadbury Both companies have a strong brand presence in the Australian market and face similar challenges in terms of political factors. However, Lindt has been in the forefront introducing new products into the market and expanding on their current market shares. Cadbury on the other hand mainly holds a significantly larger market share under the Mondelez group. The company has remained among the top market players since 2008 according to statistics provided by (Euromonitor 7). Recommendations Cadbury needs to extend fair trade because of the emergence of ethical consumers has shifted focus towards sustainable production processes. The prices of chocolates and other confectionaries is expected to rise in the next five years owing to the introduction of higher valued product lines (IBIS World) Distribution is also expected to change however, the Australian market is still remain dominated by the major players. In terms of brand expansion, the market is expected to witness a widened scope. Therefore, it in the company needs to re-align its operations to capitalize on these new trends. Cadbury may also find it necessary to market some of its brands aggressively so that the company can reap maximum benefits from the expected price increases. The new regulation on packaging is expected to change the way confectionary products are packaged. Manufacturers are moving towards smaller packs as consumers begin to move towards the premium brands. More chocolates are being packaged in folded cartons as manufactures aim to increase the recycling rates. In the next few months, Cadbury should come up with new packaging designs and sizes that not only comply with regulations but are environmentally friendly. It is important that the company comes up with attractive packaging as it is one the strongest ways of communicating product quality and standard(Tertula, 377) The Chinese and Brazilian markets have shown great potential for growth, especially in the boxed chocolate market segment. Cadbury should be looking increasing its brand presence in not China and Brazil. These two markets have a strong gift giving and celebratory culture that makes Lindt’s product ranges suitable for such occasions. In 2013, the Chinese New Year celebrations saw an increase in the number of chocolates purchased as gifts. Brands such as Ferrero recorded up to 20% increase in retail value. The market for the confectionaries was estimated to have reached $ 772 million by 2013 and the sales are expected to increase by 3%. Marketing boxed chocolates could increase Cadbury’s sales beyond the holiday periods. Assorted chocolates are the main growth drivers in the confectionary industry. Therefore, in the next twelve months, company needs to embark on an aggressive marketing campaign for its products in this category in both the emerging and existing markets. New product developments is one way the company can sustain its growth performance as well as provide consumers with exciting and health conscious products. Therefore, Cadbury needs to invest more in new product development in the next twelve months. Works Cited Applegate, Edd, and Art Johnsen. Cases in Advertising and Marketing Management: Real Situations for Tomorrow's Managers. Lanham: Rowman & Littlefield, 2007. Print. Company360. Lindt& Sprungli (AUSTRALIA) PTY LTD. 2014 DeLamater, John D, and Daniel J. Myers. Social Psychology. Belmont, Calif. [u.a.: Wadsworth / Cengage Learning, 2010. Print. Euromonitor. “Chocolate Confectionery in Australia.” Passport, 2014. Euromonitor. “ChocoladefabrikenLindt&Sprüngli AG in Packaged Food (WORLD).” Passport, 2014. Euromonitor International. “Confectionery Packing In Australia.” Passport, 2013 Euromonitor International. “Consumer lifestyles in Australia.” Passport, 2013. Euromonitor International. “Global Trends and Developments in Cocoa Ingredients (World).” Passport, (2014): 12-39. Fortenberry, John L. Nonprofit Marketing. Burlington, MA: Jones & Bartlett Learning, 2013. Print. Henry, Anthony. Understanding Strategic Management. Oxford: Oxford University Press, 2011. Print. IBISWord. “Chocolate and confectionery Manufacturing in Australia.” IBISWord Industry Report C1182, 2013. Print Jonge, Desleigh , Marcia J. Scherer, and Sylvia Rodger. Assistive Technology in the Workplace. Elsevier: Mosby, 2006. Print. Kenny, Graham. Strategic Planning and Performance Management New York. Routledge ,2012. Print Lai, Kee-hung, and T C. E. Cheng. Just-in-time Logistics. Farnham, England: Gower, 2009. Internet resource. Terlutter, Ralf. Cutting Edge International Research: [selected Expanded Papers from the 8th Icora (international Conference on Research in Advertising), Wich Took Place at the Alpen Adria University of Klagenfurt, Austria in 2009]. Wiesbaden: Gabler, 2010. Print. Appendix 1 figures for the Group 2013 2012(1) Change Sales in CHF CHF million 2,882.5 2,669.5 8.0% Organic growth (in Key local currencies) % 8.6% Operating profit (EBIT) CHF million 404.1 330.1 22.4% -as % of sales (EBIT margin) % 14.0 12.4 Net income CHF million 303.0 244.9 23.7% -as % of sales (return on sales) % 10.5 9.2 Operating Cash Flow CHF million 419.1 381.2 9.9% -as % of sales % 14.5 14.3 Shareholders' equity as of CHF million 2,634.7 1,694.4 55.5% 31 December -as % of total assets % 67.9 64.2 Average number of employees 8,949 8,157 9.7% -sales per employee TCHF 322.1 327.3 -1.6% Source: “http://www.4-traders.com/CHOCOLADEFABRIKEN-LINDT-73888/news/Chocoladefabriken-Lindt--Spruengli-AG--Chocoladefabriken-Lindt--Sprungli-AG-Financial-year-2013-18078708/” Read More