Dairy: Milk and Clover Essay

Clover S. A. (Proprietary) Limited (â€Å"Clover†) is the biggest dairy processor in South Africa with a turnover of R 4. 3 billion and staff in excess of 6 000. Clover collects approximately 30% of South Africa’s milk supply and processes it into well known branded dairy and related products which is then distributed nationally and even exported into certain African countries. In this document, Clover’s external opportunities and threats, and its internal strengths and weaknesses will be evaluated in order to complete the relevant matrices, whereafter the Grand Strategy Matrix will be used to devise appropriate strategies to deal with the key opportunities, threats, strengths and weaknesses Mission and Vision Statements: Clover’s mission (which answers the question â€Å"What is Clover’s business?†) is as follows: â€Å"Clover is a branded foods and beverages group with a strong emphasis on value-added products. Clover’s South African dairy business is the perfect enabler to reach the Group’s widely dispersed customers and consumers. Extraordinary care is taken to develop brands which will occupy the number one or two positions in its chosen segments. It believes in the superior procurement, production, marketing, sales and distribution of these branded consumer goods (BCG) to its loyal consumers. † A review of the mission statement shows that most of the â€Å"9 C’s† (i. e. Customers, Products, Markets, Technology, Concern for survival, Growth and Profitability, Philosophy, Self Concept, Concern for Public Image and Concern for Employees) have been utilised in a short statement. It is suggested that the following of the â€Å"absent† â€Å"9 C’s† be included or elaborated upon in the mission statement Concern for employees; Philosophy. Its vision (which answers the question â€Å"What do we want to become?†) is as follows: â€Å"To be a leading and competitive company in South Africa and selected African countries, reaching every consumer on a daily basis with its most admired branded and trusted products, delivering improved and sustainable shareholder value by being a responsible corporate citizen and preferred employer. † A review of the vision statement shows stronger and more reliance by Clover on its brand than on its products. However, Clover’s vision is most certainly achievable, and in certain aspects one may argue that the vision statement might be outdated. THE EXTERNAL ASSESSMENT Introduction: Broadly, the purpose of an external assessment is to a company’s (in this case Clover’s) opportunities which could benefit it on the one hand, and on the other, threats that should be avoided. Generally, these external â€Å"forces† can be divided into the following categories: Economic forces; Social, cultural, demographic and environmental forces; Political, governmental and legal forces; Technological forces; and Competitive forces. Each of these categories will be discussed briefly, as well as the opportunities and threats will be listed under each heading. Economic Forces: The current and ongoing recession had a negative impact on the company’s interim financial results for the 6 months ending December 2008. More particularly and in the words of Clover’s Chief Executive, Mr JH Vorster, â€Å"a recent international publication on dairy matters stated that the industry faces a perfect storm of destructive economic forces and South Africa and Clover could not escape these forces†. The high unemployment numbers (which increases by the day) have an impact on disposable income, which in turn has an impact on buying behaviour, especially towards branded products (which Clover prides itself on), which as a very general rule carries a price margin. This, however, will continue to pose a problem, and as such, Clover must continue to ride the wave of brand recognition to endeavour to brace itself against the prevailing negative economic forces, which is seen as a huge threat. A further threat is the high number of farmers leaving the trade due to what they generally term â€Å"unaffordability†. Social, Cultural, Demographic and Environmental Forces: Clover believes in personal social uplift, thereby not only donating money in general, but being directly involved in the upliftment. Its flagship upliftment programme, Mama Afrika, currently supports in excess of 10 000 people. Appropriately, Clover views this project along the following lines: â€Å"Clover’s flagship CSI philosophy is underpinned by the principle of sustainability; instead of giving people handouts, it is investing in projects that empower communities and enhance their ability to become self-sufficient in the long term. â€Å"We teach the Mamas how to fish rather than give them the fish. †Ã¢â‚¬  According to Clover, it believes that: â€Å"The company is inextricably part of the community and will therefore, in terms of support and development, accept its social responsibility; Profitability and growth are pre-requisites to fulfill its social responsibility within financial means; The community, primarily has to accept responsibility for its own well-being and will only within means, be supported in this; It creates wealth through company taxes, employee taxes and levies which enable government to establish and maintain essential infrastructure like roads, education and health services; Opportunities for work and prosperity are not only created within the business, but that it, indirectly, contributes to job creation and combating poverty. † It furthermore enforces strict environmental disposal techniques in order to protect the environment. It is therefore that Clover views the Social, Cultural and Demographic Forces as an exciting opportunity. The general deterioration of the environment is naturally a concern for Clover, as some of its biggest assets (i. e. cows) rely on a safe environment. This may therefore be seen as a (general) threat. Political, Governmental and Legal Forces: General: First and foremost, Clover must ensure that the relevant agreements are in place with its retailers, service providers and suppliers. These agreements must also be regularly updated. Legislation: The following legislation will be applicable to Clover (or at least cognisance should be taken of these Acts at all times): The Companies’ Act, 69 of 1973; The Companies’ Act, 71 of 2008 (which will come into operation during 2010); The Consumer Protection Act, 68 of 2008, which provides for, inter alia, promoting a fair, accessible and sustainable marketplace for consumer products; Promotion of Access to Information Act, 2 of 2000, which provides for access to information by individuals and/or entities. Broad Based Black Economic Empowerment Act, 53 of 2003, which provides for, inter alia, increased broad-based and effective participation of black people in the economy; The Competition Act, 89 of 1998, which provides for, inter alia, the investigation, control and evaluation of certain restrictive practices (the amendments passed during 2010 holds grave consequences in for those who do not adhere to the provisions of the Act). It might well be that a company’s knowledge of particular Acts as mentioned above will be an opportunity. Similarly, a company’s ignorance will be a threat to the company. Clover is an established company, has a legal department and therefore its knowledge of the current law and legislation are adequate. Technological Forces: Clover’s relationship with its customers and clients are entirely computer based (â€Å"IT based†). It is therefore of paramount importance that all its IT be updated regularly (and adequately). Although it has an IT department, Clover does not have a manager close enough to the Executive Committee (such as legal and/or Human Resources). This is seen as a weakness. Competitive Forces: As mentioned in the general introduction in 1. 1 above, Clover collects approximately 30% of South Africa’s milk, leaving 70% which is collected by between 200 to 350 other dairies in South Africa. Of these, Parmalat (Pty) Ltd, Woodlands Dairy (Pty) Ltd, Nestle Dairy (Pty) Ltd, Milkwood (Pty) Ltd and Dairybelle (Pty) Ltd are the biggest competitors. It does however depend on the type of products (for instance, Parmalat is the biggest processor of UHT (Ultra High temperature) milk in South Africa) and geographically (for instance, Parmalat is the biggest distributor of milk in the Western Cape). However, the mentioned companies are competitors and competitors are generally a threat. Clover relies on its brand and extensive distribution network to gain the competitive advantage. Some of the smaller competitors are more than likely to fail due to the current economic recession, thereby giving Clover the opportunities in respect of possible acquisitions of growing market share. A further threat is the (sometimes) ease with which competitors may be successful in convincing farmers to change one processor to another. THE EXTERNAL FACTOR EVALUATION (â€Å"EFE†) MATRIX FOR CLOVER: Key External FactorsWeightRatingWeighted Score Opportunities 1. Recession may cause increase in market share0. 0820. 16 2. Social upliftment programme is extremely successful0. 0540. 20 3. Knowledge of applicable legislation and law0. 1030. 3 4. Possible acquisitions of competitors0. 0810. 08 5. Clover has branded products0. 1130. 33 Threats 6. Economic Recession is a great concern0. 2020. 40 7. Farmers leaving the trade0. 0820. 16 8. Agreements not updated regularly enough0. 0540. 20 9. New and amended legislation places enormous pressure on companies0. 0530. 15 10. Continual Environment Deterioration is of concern0. 0340. 12 11. IT department not close enough to management0. 0320. 06 12. Competitors are generally a threat0. 0730. 21 13. Farmers are convinced to leave Clover for its competitors0. 0720. 14 Total1. 002. 51 CONCLUSION: Clover scores an average of 2. 51 out of a possible 4. There is therefore ample room for improvement. THE INTERNAL ASSESSMENT: Introduction: Broadly, the purpose of an internal assessment is to identify and list a company’s internal strengths and weaknesses. Generally, these internal forces by Clover can be divided into the following categories: Management Forces; Marketing Forces; Finance / Accounting Forces; Production / Operations Forces; Research and Development Forces; and Management Information Systems Forces. As with the External Assessment, each of these categories will be cryptically analysed and the strengths and weaknesses will be listed under each heading. Management: Management of Clover has 5 basic activities, namely: Planning; Organising; Motivating; Staffing; and Controlling. Management may be seen as actively planning in order to take the company forward in line with its vision. However, the motivational activity may have taken a turn for the worst, as Clover closed down one of its factories, and is in the process of restructuring and retrenchment. It is therefore submitted that management motivation is, at the moment, a weakness. Apart from the above, the activities of management are attended to adequately and the employees are always encouraged to participate and voice concerns, even directly with management. Marketing: There are 7 basic functions of marketing, namely: Customer analysis; Selling products/services; Product and service planning; Pricing; Distribution; Marketing research; and Opportunity analysis. Clover is well positioned in the market and is a very strong branded company. That being said, its market share has remained stagnant for the past year or two. Clover’s marketing team is very strong, and focuses on the â€Å"new† products, rather than milk. The main product of Clover is thus difficult to market. The view at this stage, is that Clover’s prices of its products are sometimes too high, but the fact remains that Clover is marketing an extremely strong and well known brand. Finance / Accounting : Strengths: Can identify early on future shortfalls in the company and react. Had a positive net profit over last 6 year period. Operating profit was 22. 6% higher than 2007. Property, plant and equipment increased from 2007. Goodwill increased as a result of acquisition of 70% of Mayo Dairy by Clover’s joint venture Danone Clover. Weaknesses: There was a 22. 8% increase internally on operating expenses in 2008 and no mention of plans to combat same. Company suffered tax loss. Interest bearing debt increased. Cash utilisation increased by 26% from 2007. Production / Operations: Clover’s main product (milk) is extremely perishable and as such, Clover succeeds in putting milk, in whatever form, in its packaging within 48 hours after collection thereof from the farmers. This is quite impressive bearing in mind that whilst most of its milk is collected at the coast (KwaZulu-Natal and Eastern Caper) most are processed in the Highveld. It is a concern that most of its factories are not close to its source, but Clover is addressing this at the moment. Its quality control is well maintained, and according to Clover, each litre of milk undergoes 55 quality checks before leaving the factory. Research and Development (â€Å"R & D†): Clover survives on â€Å"older† products, but its R & D department is always busy exploring newer and innovative products. It is however difficult to do with a product such as milk. One of its most innovative products in recent years were no fat milk and vanilla milk. Management Information Systems (â€Å"MIS†): It might be argued that Clover’s MIS is not up to scratch. It relies on data from the trade and field. There is no information officer in the company. Information is collected as and when requested and/or needed. INTERNAL FACTOR EVALUATION (â€Å"IFE†) MATRIX FOR CLOVER: Key Internal FactorsWeightRatingWeighted Score Strengths 1. Management’s Planning, organising staff and controlling is good0. 1040. 40 2. Brand is very strong and thus marketing is fairly easy and successful0. 2040. 80 3. Strong marketing team0. 0530. 15 4. Turnover increases year on year for the past 6 years0. 0930. 27 5. Production and operation very strong0. 1140. 44 Weaknesses 6. Management motivation low due to impending restructuring0. 7010. 2 7. Operating expenses rose by 22. 8%0. 0620. 12 8. High turnover but low profit margin (between 7% and 8%)0. 0510. 05 9. Factories too far away from source, thereby increasing production costs0. 0810. 08 10. Product may be seen as old and stagnant, thereby inhibiting R & D0. 0220. 04 11. MIS not adequate0. 0410. 04 Total1. 000. 002. 59 IFE CONCLUSION: Clover score of 2. 59 is above average, therefore indicating average to slightly strong internal position. There is therefore ample room for improvement, but it is not weak internally, which is positive. Strengths, Weaknesses, Opportunities and Threats (SWOT). SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. Opportunities and threats are external factors. Strategies to adopt in improving Clovers mission statement Human resources Applies to all actors along the chain from producers to consumers. Producers: continuing education on breeding, feeding, animal health, the role of institutions and groups. Milk collectors and handlers: training in clean milk processes; payment systems. Milk procurement: organization logistics; environmental issues and concerns; aim is to keep cost as low as possible. Knowledge management Marketing: consumer education and awareness (e. g. school trips to dairies); educate the media so they can help promote milk campaigns; educate health professionals so they know about the benefits. Competitiveness Producing high quality milk at lowest cost; quality is linked to other elements; government can provide loans, artificial insemination, knowledge (training programs); Productivity. Private sector can provide knowledge, consultants, equipment; research and development on new products and technology; nutrition; management (keeping costs low, quality high) Value addition There is a phenomenal scope for innovations in product development, packaging and presentation. Steps should be taken to introduce value-added products like ice creams, flavored milk, dairy sweets, etc. This will lead to a greater presence and flexibility in the market place along with opportunities in the field of brand building. Addition of cultured products like yoghurt and cheese lend further strength – both in terms of utilization of resources and presence in the market place. Export potential Efforts to exploit export potential are already on. Clover should export to Bangladesh, Sri Lanka and the Middle East. Following the new GATT treaty, opportunities will increase tremendously for the export of agri-products in general and dairy products in particular. Cooperatives Greater awareness of farmers’ needs Clover should not think that they are the only custodians or ‘voice’ of Farmers or the only ones protecting the interests of Farmers. Clover should be open enough to understand and think ‘out of the box’ and to understand and see what ways and means can help farmers stay loyal and be more productive. Competition With so many newcomers entering this industry, competition is becoming tougher day by day. But then competition has to be faced as a ground reality. It is large enough for many to carve out their niche. Problematic distribution All is not well with distribution. But then if ice creams can be sold virtually at every nook and corner, why can’t Clover sell other dairy products too? Moreover, it is only a matter of time before we see the emergence of a cold chain linking the producer to the refrigerator at the consumer’s home Perishability Pasteurization has overcome this weakness partially. UHT gives milk long life. Surely, many new processes will follow to improve milk quality and extend its shelf life. Clover needs to overhaul its R & D department.