sae final report_v1
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Strategy, Analysis and Evaluation
Strategy, Analysis and Evaluation
S TRATEGIC RECOMMENDATIONS FOR WIMM B ILL DANN
Report prepared by:
Georges A. BouveratReg. # 200556668
Kinsey
Kenneth W. GregsonReg. # 200563139
Kinsey
Stephen HopkinsonReg. #Kinsey
Jennifer QuintonReg. #Kinsey
Robert ReynoldsReg. #Kinsey
Anna C. SeidelReg. # 200653802
Ledaig
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Strategy, Analysis and Evaluation
Executive Summary (300-400 words)
From Workbook, pg 121: “…should be a short, high-level report in its own right, in which youshould communicate concisely the key opportunities and challenges, the recommendationsyou wish to make, together with a statement which sets out the benefits and advantages thecase study organisation are likely to gain in the future as a consequence of your report.… should discuss briefly implications of each of the key opportunities and challengesidentified from analysis. …provide enough detail and understanding for the CEO…alsoprovide a discussion of the strategic benefits to be gained by the org. together with a noteabout resource implications in the future. ...each major recommendation is discussed in ashort concise paragraph of its own….”Goal: 300 – 400 words
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Strategy, Analysis and Evaluation
Table of Contents
1 Introduction (100-200 words)...............................................................................................4
2 Environmental Analysis (700 words)...................................................................................5
2.1 Transactional Environment...........................................................................................5
2.2 Internal Environment.....................................................................................................6
3 Key Strategic Issues and Constraints (200 words)..............................................................8
4 Conclusions (200-300 words)..............................................................................................9
5 Recommendation (700 words)...........................................................................................10
6 References (check referencing style)................................................................................11
7 Appendices........................................................................................................................13
Appendix A PESTLE Analysis..........................................................................................13Appendix B WBD Sectors.................................................................................................16Appendix C Five Forces Analysis – Russian Dairy, Drinks and Baby Food......................17Appendix D WBD Resources............................................................................................21Appendix E WBD Market Segmentation...........................................................................22Appendix F WBD Markets, Market Share & Competition ........................................... .....24
Appendix G Relative Strengths of WBD and Top 10 Global Leaders in Food............ .......25Appendix H Russian Consumer Values ...........................................................................26Appendix I Stakeholder Analysis......................................................................................27Appendix J 7 Why’s....................................................................................................... ...28Appendix K WBD SWOT Analysis ...................................................................................29Appendix L Strategic Option Generation – TOWS ...........................................................31Strategic Option Generation – Ansoff Matrix ...................................................................32
Appendix M Options to be considered..............................................................................34
Appendix N Option Evaluation – Suitability.......................................................................37Appendix O Option Evaluation – Stakeholder Expectations..............................................39
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1 Introduction (100-200 words)
Assumptions/Fundamentals (Aim to maximise value in 5 years to make it attractive for sale.)From Workbook, pg 121 “…include a brief not about the approach adopted to undertake the
strategic analysis…note about the purpose of the report and how it could be used by theorganisation in the future.”Goal: 100-200 words
Sample content/Comments:
Field Packaging Example from Intranet:
This report outlines medium term (3 – 5 years) strategic recommendations for the businessstrategy for Field Packaging East Kilbride (FPEK). These recommendations are based upona comprehensive strategic analysis of FPEK’s current and likely future situation. Therecommendations aim to enhance FPEK’s existing competencies. This will add value to theboth the company and its customers. Thus enabling FPEK to develop and sustaincompetitive advantage in the highly competitive branded products market segment of thepackaging industry, in which it operates.
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2 Environmental Analysis (700 words)
2.1 Transactional Environment
Social Despite a projected decline in population of 10 million by 2010 6, Russia is seeing a rise of the middle class, which has now reached 4 million adults and children 6. This segment hasa taste for westernised affluence, so is demanding higher quality, premium, healthy productsand increased convenience from the retail sector. There is a strong need for organisationsto address this demand by supplying more innovative products of higher quality to themarket (such as premium-range yogurts and healthy snacks).
Market It is estimated that the grocery market in Russia will reach $186 Billion USD by 2010 whichwill be good for WBD’s future in the dairy market6. In urban centres especially, there is ashift towards food being sold in supermarkets so that by 2010, 45% of it will be sold there ascompared to 28% in 2006 6. These figures suggest that the future for WBD dairy lies withstrategic customers, such as major supermarkets.
Globalisation
With an increase in globalisation, continued growth in GDP (5% per annum), a decrease inunemployment and increases in disposable income, the Russian consumer marketcontinues to be attractive to global players. In recent years, Marks and Spencer, Wal-Mart ,Anchan and other Global retail chains have looked to expand into Russia, however, of the25 food retailers currently, only 6 are International 6.
Competitive forces
The sectors in which WBD operates (dairy, beverage and baby food) are attractive tocompanies and offer the potential for significant growth (see C). A dominant force is theunique Russian context acting as a barrier to entry for international companies, althoughthey are overcoming this by establishing production facilities in Russia (see C). The need for good distribution and regional suppliers acts as a barrier to entry. The potential buyingpower of major retailers (eg. major supermarkets) can put pressure on food producers andWBD is highly reliant on industry leaders Cargill for supplying juice concentrate andTetrapak for supplying packaging. The increasing demand for premiumisation is putting
pressure on Russian companies to improve quality due to the perception that internationalcompanies offer higher quality (see C).
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Dangers
There are a number of areas of concern for WBD in the future. Politically, Russia continuesto be uncertain, volatile and governmentally restrictive 6. Corruption is also an ongoinglimitation for organisations 6. A present threat for WBD, in terms of the SWOT analysis, isthat if it grows too big, then it will be more susceptible to corruption and political influence.
2.2 Internal Environment
In order for WBD to survive and prosper, it is important to determine the adequacy andsuitability of its resources and competencies. This section considers WBD’s strategiccapability, with reference both to its competitors and crucially the values of consumers.
The following resources are considered to be unique to WBD as they are not readily copiedor obtained by competitors, they build on the consumer values (such as strong yet localbrand, health additives, accessibility – see H) and underpin a competitive advantage for thecompany:
• Manufacturing facilities across Russia and CIS in the most resource-rich areas 6• Distribution centres providing access to local markets and 2000+ Moscow shops 6 • Access to funding as a floated company on the NYSE 6, enabling investment in
innovation• 21,000 staff with Russian market knowledge 6• Strong dairy and juice brands 6• Management team focusing on value and driving down costs 6
Many of the strengths displayed by the top 10 food leaders globally (see GG) are mirroredon a country-wide basis by WBD in Russia, such as market leading position, large productrange, investment in acquisition and innovation.
It is important to consider whether WBD’s resources are deployed effectively to create a setof core competencies. According to its website, WBD considers one of its competitiveadvantages to be “that it is neither regional nor Moscow-centered but is a truly nationalRussian manufacturer” 6. WBD is investing heavily in marketing and innovation to growbrand equity and market share 6. The most recent company presentation highlights, as astrategic imperative, an investment in the sales team and ‘route to market’ control, with afocus on “trade and Point of Sale marketing, centralized key account management for allbusiness leading to economies of skill and scale in dealing with large customers” 6.
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We used the “7 Whys” technique (see J) to help better understand the underlying causes of WBD’s dominant market position. It suggests that WBD’s sound financial systems andaccess to funding have enabled good investment decisions for research and developmentand acquisition of regional manufacturing plants. To leverage its strong financial position,WBD adopts a marketing focus to understand consumer demands and excellent peoplemanagement to make the most of the breadth and deep experience of staff to produce andsustain strong brands.
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3 Key Strategic Issues and Constraints (200 words)
The key strategic issues, which will have the greatest impact on WBD, are:
Politics
Russian politics will see increasing authoritarianism and statism in economic policy 6.Corruption at all levels of society will present considerable constraints to economicdevelopment 6.
Economy
Despite the political influences the Russian economy will continue to stabilise. A growingmiddle class with increased spending power will emerge 6. The result of this is projected13% annual growth rate in spending on food & beverages 6.
Competitive Situation
Double-digit growth will attract multinationals to the Russian food & drink market, e.g.Danone, Unilever. Strategic customers such as restaurant and supermarket chains e.g.Tesco will assume a significant role in the market.
Food & Drink TrendsGrowing westernisation of Russian culture will take place in the upper and middle classes.Convenience foods and affordable restaurants will be in demand by the busy middle class. 6 6Decreasing life expectancy in the poorer sections of society will prompt trend towardshealthier nutrition. 6 6The market will exhibit the following competing trends:
• Premiumisation 6
• Convenience 6, 6• Health consciousness 6• Return to traditional tastes 6• Low-income preference for low-cost nectars and traditional dairy products 6
Raw Materials & Logistics
Growth will be constrained by raw material supply problems e.g milk and fruit concentrate 6. Increases in transportation and packaging costs due to rising oil prices and currencyfluctuations may restrict growth. 6
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4 Conclusions (200-300 words)
The following conclusions can be drawn from a review of the environmental analysis andidentified key issues.
• WBD’s current marketing-focussed strategy addresses the identified trends in foodand drinks in Russia. This should be maintained since quickly satisfying changingconsumer needs is key to maintaining and growing market share.
• Knowledge of the Russian market (cities and regions) is an existing WBDcompetency and competitive advantage. This should be developed further, as it isa barrier to entry to non-Russian entrants to the food and beverage market.
• Marketing orientation is a necessity in consumer businesses but for WBD a key totaking advantage of the growing economy and increasing market share lies inoperations and logistics improvements. Focussing a future strategy on these areaswill expand WBD’s competitive advantage and create strong barriers to entry.Optimising operations will address the identified raw materials and logisticsconstraints and remove a current obstruction to growth, while at the same time
building new and lasting competencies in operations and logistics.
• WBD can take advantage of the growth of supermarket chains and other retailersin Russia by establishing strategic partnerships with them at an early stage in their development. Besides building competencies in strategic account management,there are opportunities for distribution agreements and own-branding. However,strong operations and logistics processes and a reliable supply of raw materialsare pre-requisites for making these partnerships work.
• The political situation in Russia is a constant threat to future developments. WBDmust monitor this but should not allow the possibility of political change to restrictits plans for strategic growth.
(See M for complete list of identified opportunities and N &O for process of optionselection.)
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5 Recommendation (700 words)
Recommended (final) strategic response(s). Note: I don’t think we need to include all our discussed options, only the final one. There do need to be high-quality appendices to backthis up though, showing different options and how they were generated and evaluated for suitability, acceptability, evidence and feasibility (Workbook, pg 111).Comment that final recommendation was submitted to (and approved by) remarkable person(Ian).Workbook, pg 122 “…develop your strategic response to safeguard the organisation fromthreats or capture the opportunity identified…discuss the ways and means to achieve theseobjectives. …recommendations include actions to capture customer value and actions todevelop distinctive competencies…to achieve sustainable competitive advantage.
…building a coherent argument…key is ability to synthesise and integrate findings… think …about implications of your recommendations in terms of creating a sustainable competitiveadvantage…consider resource implications and actions necessary for implementation.”Appendices: Ansoff Matrix, Option/Issues ranking matrix, financial evaluation, feasibilitytests, see chapter 6 of workbook, email response from Ian?Goal: 700 words
Using data from the Strategy Clock & Distinctive Competences (DC)The CSF's identified above then need to be achieved or realised. This can be done usingthe strategy clock. We need to use the existing DC's to lever the current products to newlocations on the strategy clock. This doesn't mean make everything high value, of coursesome will be. I think we can also lever current branded products to get us into the low priceown brand ("Shop Shite" as Robert MacIntosh referred to it). This will then link back toexternal analysis.
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6 References (check referencing style)
[1.] EIU Viewswire, 19 Jan 2007. Proquest.[2.] Sector Profile on Food and Beverage in the Russian Market, New Zealand Trade and
Enterprise, Hamburg, January, 2007[3.] WBD Segmentation in WBD Memorandum, 6 February 2006[4.] Open Season . Global Finance, Mark Lehane, April 2007[5.] EIU Industry Forecast Food, beverage and tobacco, Russia, 24 Jan 2007, EIU
Viewswire, New York[6.] FCO Country Profile – Russia, 2007[7.] WBD Case Study, GSB Strathclyde, April 2007[8.] WBD Investor Presentation, FY2006, company website
[9.] WBD company website http://www.wbd.com/ [10.] Consumer Foodservice, Russia, February 2007[11.] WBD Memorandum, 6 February 2007[12.] Danone Annual Report, 2005, from company website www.danone.com [13.] Customer Loyalty: Devising successful strategies in food and drink, Business
Insights, 2003[14.] S Massey, The Top10 Global Leaders in Food, Business Insights, 2006[15.] Exploring Corporate Strategy, Johnson, Scholes and Whittington, FT Prentice Hall,
7th ed, 2006, Essex[16.] Associate British Foods plc, 2006 Company Profile: Competition Analysis. Just Food,
July 2006[17.] “Pyaterochka's $800m loan sets pace for Russian M&A finance in fresh sectors”,
Euroweek. London: Aug 18, 2006. pg. 1[18.] “COMPANIES INTERNATIONAL: Danone's Russia man moves to Wimm Bill Dann”,
Financial Times, London (UK),Jul 1, 2004. Pg. 22, Andrew Jack[19.] Cargill company website, http://www.cargill.com/ [20.] Tetrapak company website, http://www.tetrapak.com/[21.] “Russia: Wimm-Bill-Dann Opens Baby Food Plant”, Flex News, 30 April 2007[22.] “Rising juice demand helps Troya Ultra in Russia”, cee-foodindustry.com, 21 March
2006[23.] “As wages rise in Eastern Europe, businesses look elsewhere”, International Herald
Tribune, Europe, 4 April 2007[24.] “Milk supply dries up as demand spills over”, nzherald.co.nz, 16 May 2007[25.] “CEE markets support beverage giants' ambitions for European expansion”, cee-
foodindustry.com, 18 October 2006[26.] CIA World Fact Book[27.] Russia feels effects of emerging markets turmoil, Global Finance , Kim Iskyan, NY,
Apr 2007, Vol 21, Iss 4[28.] Russia economy: Criminals in the marketplace? EIU ViewsWire. New York: Nov 1,
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2006[29.] Wal-Mart expansion should focus on Russia – report, cee-foodindustry.com, October
25 2004[30.] Difference that Russians enjoy – Profile McDonald’s. Neil Buckley, Financial Times,
London, UK, 16 May 2005[31.] BBC Country Profile[32.] Western Retailer. Progressive Grocer. Larry Shaeffer, Dec 1995
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7 Appendices
Appendix A PESTLE Analysis
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Economic
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Social
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Technological
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Legal
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Environmental
Source: Exploring Corporate Strategy 6Political
Fact• Money laundering is still rife6• Vladimir Putin is not standing for re-election when his term expires in September 2007 6• Russia is likely to enter into the WTO by 2008 6• Increasing statism in economic policy is hindering growth 6• The slow pace of institutional change (and other factors) will lead to decreasing of
growth economy 6• “Over regulation, uncertainty and corruption remain serious problems”. 6• War with Chechnya; bomb attacks from Chechen militants in Moscow and other cities 6
Economic
Fact• Russia’s economy is powering ahead, GDP up 6.3% in 2006, predicted up further 6%
2007. 6• Driving away from resource-driven export economy towards domestic demand for goods
and services 6• Steady growth in household income and rapid growth in consumer financing (Incr of
11% in personal consumption = incr of 80% of GDP) 6• The Top 5 players in the food industry only control 8% of the market, due to
fragmentation still. 6• Market opening up to Western conglomerates 6• Western Companies investing in Emerging Markets such as Russia, despite still relative
volatility6• Lending to individuals increased by 85% in 2005 6• Global emerging market correction slowed Russia’s market by 7% after its boom in 2006
of up 70%. 6• GDP expected to rise Annually by 5% until 2011. 6• Consumer Price inflation at 9.7% in 2006, 8.8% in 2007. 6• Demographic decline will present growing economic and labour-force challenge. 6• In 2005, the Russian grocery market equalled about US$ 144.2 billion, making Russia
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the 5 th largest market throughout continental Europe. 6• It is estimated that the grocery market will account for US$ 186 billion by 2010. 6• Due to rising wages, which are predicted to grow by 48% by 2009, per capita consumer
spending will increase by 75% to approximately US$ 4,600. 6• About 30% of food is sold via hyper- and supermarkets. Their number exploded from
8,991 in 2003 to 20,524 in 2006 and is set to overtake traditional distribution channelssuch as open markets. 6• Russian consumer market continues to grow, helped by decreasing inflation and
consistent growth in GDP, as well as rising personal and disposable income levels,declining unemployment and developing western lifestyles, more companies areexpected to take an interest, making market entry within the next year vital for Wal-Martif it is to stay ahead of the competition. 6
• Estimates that Russian market is worth around €108.8 billion, making it the fifth largestmarket in Europe, behind Germany, France, the UK and Italy," said the IGD chief executive Joanne Denney-Finch, "It is a developing market that offers large-scalegrowth opportunities. 6
• Modern retail chains (hypermarkets, supermarkets and discounters) growing fast. Their share of the market accounted for around 30% in 2006. 6
• The top 5 grocery retailers by net grocery turnover in 2005 were Metro Group (Metro,Real), Tander (Magnit), X5 Retail Group (a consolidation of Pyaterochka Holding andPerekriostok), Auchan (Auchan, Atak) and Uniland Holding (Dixi, Megamart).6
• Russia's largest food retailer Pyaterochka announced its merger with supermarket chainPerekriostok, creating a true retail heavyweight that--with 880 stores and US$2.4bn insales--has the muscle to expand nationally to the untapped regional markets beyond theurban centres. 6
Social
Fact• Russia is not only angry, but dying: the population is shrinking by around 750,000 per
year, a drop mostly driven by the catastrophic rate of death--by violence, heart disease,tuberculosis and, increasingly, AIDS--among working-age men. 6
• Government limiting immigration (only allowing 6Mn permits this year)6• In 2006, only 28% of food was sold through supermarkets. Predicted that by 2010, 45%
will be sold there. 6• Small but growing middle class 6• 129 Macdonalds retaurants in Russia in 36 cities. There are more customers per store
in Russia than any other country. 6• Labour force 73.88 million6•
17.8% of pop below poverty line 6• 400 daily newspaper titles; regional press strong. 6• Predictions that the population will decrease by 10 million over the next 10 years. 6• Russia is a huge consumer market with a population of 142 million. Urban Russia
accounts for 73% of the total population, containing 85% of all purchasing power. 6• The Russian grocery market is highly fragmented and there is no retailer covering or
dominating the whole country. The top 25 retailers, out of which there are currently only6 international players reached a combined market share of only 9.2% in 2005.apopulation that is becoming more affluent and a middle class that is growing steadily,consumers will increasingly equate high prices with high quality. 6
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Technological
Fact• Main communications across Russia are by air and rail. Road system not well
developed. 6• Nearly 1Mn km of roadways 6• Retail market has developed faster than the infrastructure needed to support it, meaning
that delivery reliability is poor.6• low level of technology and time-worn operational methods. 6
Legal
Fact• It takes 2 years to get permits to set up companies in Russia, so barrier to entry for new
suppliers. 6• Import tariffs can vary from 5 to 20%, depending on the product and its origin. 6• Land in Russia is also taxed by the local
authorities, and prices have risen dramatically over the last few years. Duties in centralMoscow are as high as $2,000 a month per square metre, and as a result, somecompanies (such as Auchan) have positioned their stores outside the city limits. Here itis the Moscow regional (rather than municipal) authorities, which levy duties, and therates are a far more reasonable $880 per square metre. 6
Environmental
Fact• Wide natural resource base – oil, gas, coal
Agricultural pollution, soil contamination from chemicals, radioactive contamination,groundwater contamination from toxic waste, abandoned stocks of obsolete pesticides.Much of country lacks proper soils and climates (either too cold or too dry) for agriculture. 6
• Government has illicit crop eradication programme. 6
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Appendix B WBD Sectors
What sectors does WBD operate (or potentially) operate in?Dairy
• traditional products• yogurt and dairy desserts• health orientated enriched products• Cheese products
Drinks
• produced from juice concentrate• traditional berry-juice-based drinks• Other juice-based drinks• Mineral water
Baby food • liquid dairy for infants• powdered formula and cereal• fruit & veg purees and juice for infants
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Appendix C Five Forces Analysis – Russian Dairy, Drinks and Baby Food
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Source: Exploring Corporate Strategy 6
Potential entrants
Economies of scale – is there a critical mass of business required in the Russian market for viability? Low production costs is a driver 6. Need good distribution channels – what ispotential for buying/merging with existing distribution? WBD owns its distribution network
and has increased product range to fully exploit it 6, and is seeking further control over distribution6.Experience – WBD has experience in sector with established relationships with buyers andsuppliers.Is there a threat from overseas companies operating at lower costs? The trend has been for international companies to set up local production facilities in Russia 6. Unlikely as Russiahas the potential to be self-sufficient, thereby putting price pressures on importers 6.Would WBD retaliate to try and prevent new companies entering the market? WBD could
price aggressively with importers due to its reduced cost base of local production, suppliesand distribution (and its ability to share facilities across its product range), although mightstruggle to do this with global companies having in-country production facilities and other Russian competitors.What is the threat of government action if WBD grows its market position, and how wouldgovernment react to global companies trying to enter the Russian market? The use of franchising is an industry standard for market expansion, but there is some concern over Russian franchise legislation which is making Russia potentially less attractive than other
countries 6.
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Suppliers
Conditions for high supplier power are where there is a concentration of suppliers; switchingcosts between suppliers are high; and there is the possibility of forward integration, ie.suppliers decide to compete with buyers. This is not the case with the Russian Dairy sector where supplies are unreliable (see K). Furthermore , the Russian climate, problems withlogistics and availability of local food processors creates a barrier to entry for new entrants 6.The Russian juice sector is highly reliant on imported ingredients 6. For juice concentrate,WBD is supplied by the world’s largest provider (Cargill) which puts WBD in a relativelyweak position although Cargill is keen to improve supply chain management for its clientswhich is a statement of positive intent 6 and there is no evidence that Cargill wishes tocompete directly with food processing companies. WBD also uses Tetra-Pack packagingwhich again makes them reliant on a dominant supplier. Despite its dominance, Tetrapak(like Cargill) appears not to move into the food processing industry and is keen to work withits clients for mutual benefit 6.
Substitutes
Is there a threat from new dairy products replacing existing range, or alternatively what is thelikelihood of convergence either between product types or the dairy sector with other sectors(eg juice)? Are there any products from other sectors that could potentially compete withdairy? Increasing affluence is creating a substitution affect on home cooking from a growingmarket for eating out and pre-prepared food. There is increasing emphasis on healthyalternatives which is increasing demand for products focussing on bio, vitamins, low-fat andchildren’s products 6.
Buyers
Conditions for high buyer power include a concentration of buyers, eg. small number of
supermarket retailers squeezing milk suppliers. As the number of supermarkets is growingrapidly (see A), this reduces the potential for supermarket power. However the picture in theRussian supermarket sector is changing; although the number of supermarkets is growingrapidly, there has been merger and acquisition activity, such as between the two leadingsupermarkets Pyaterochka and Perekryostok 6. There is potential for strong buyer power if this trend continues. Switching costs between suppliers are relatively low. There is thepossibility of backward integration, ie. supermarkets set up in competition with – or acquire -the supplier. In the case of the Russian Diary sector, WBD has a track record of acquisition
of regional dairies.
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Competitive rivalry
How competitive is the sector? Are there any other competitors of similar size to createpotential for competition? Or are there one or two dominant organisations in the sector making it less competitive? Some of the bigger global food companies are looking atgrowing markets, including Russia, such as Danone 6. The Russian Food sector is growing(see K); WBD would expect therefore some growth as a result of this. WBD’s maincompetitor for traditional dairy Unimilk is active in acquiring dairies and investing intechnology. Other competitors in Dairy include Russian company Petmol, and internationalcompanies Ehrmann, Danone, Parmalat and Campina. The Drinks sector has a number of major local players who dominate 85% of the market [10]. In the Baby food sector, WBDcompetes with global companies Nestle and Nutricia in addition to Russian companiesUnimilk and Lebedyansky (one of the leaders in Russian baby food market and the largest
juice producer in Eastern Europe) (see F). Nestle is seeking growth in the Russian babyfood sector as is Swedish company Semper (see F). This competitive environment isresulting in innovations in packaging, quality and branding 6. WBD has held take-over talkswith Danone in the past and Danone has a reported stake of 7% in WBD 6.
5 Forces conclusions
As growing sectors, Dairy, beverage and baby food sectors are attractive to companies andoffer the potential for significant growth6. The sectors can be segmented into two sub-groups: companies that are global, and Russian, where differing sets of forces apply. Adominant force is the unique Russian context acting as a barrier to entry for internationalcompanies where new entrants need knowledge of, and experience in, the Russian marketand there has been mixed success with franchising as a means to expand into Russia,although there are signs that this is changing 6. A trend for international companies hasbeen to establish production facilities in Russia 6.The need for good distribution and regional suppliers acts as a barrier to entry. The potential
buying power of major retailers can put pressure on dairy producers, with the potential for more backward integration (such as the acquisition of regional dairies). There is also adominance in the market of supplying juice concentrate (by Cargill) and packaging (byTetrapak) which puts them in powerful positions although there is no indication that they areexploiting this position, but could make it difficult to drive down prices in these areas..
Changes to the main drivers could occur through developments in the supermarket sector (eg further mergers and acquisition). This could lead to further backward integration from
supermarkets acquiring their own production capability. An increased demand for premiumisation could put pressure on Russian companies to improve quality due to the
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perception that international companies offer higher quality 6. A shift to more eating out willalso see growth in the restaurant/café/and pre-prepared food sector, and there is a growingdemand for health, bio and low fat products.
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Appendix D WBD Resources
Physical
• 24 manufacturing facilities linking dairy and juice production in 20 cities in Russia
and CIS – in the most resource-rich areas for milk production 6• Its own distribution centres in 26 cities in Russia and abroad providing access to
local markets 6• Relationships with 2000+ shops in Moscow 6
Financial resources
• Access to funding as a floated company on the NYSE 6
Human resources
• 21,000 staff with knowledge of the Russian market including an experiencedmanagement team (many senior managers from competitors) 6
Intellectual capital
• 1100 types of dairy product 6• 170 types of juice product 6
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Appendix E WBD Market Segmentation
WBD Segmentation – Dairy 6
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WBD Segmentation – Juice 6
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Appendix F WBD Markets, Market Share & Competition
Source: WBD Memorandum, 6
Market Market Share,2006
Competition
D a
i r y Traditional Dairy 29% local producers, such asUnimilksmaller producers in other regions
Enriched Dairy 28% Danone, PetmolDesserts & Yogurt 41% Danone
CampinaEhrmann
(all continuing to invest inRussia)
D r i n
k s Juice 19,4%
Together thelocal playerscontrol 85%
Lebedyansky (Lipetskregion)Multon (St. Petersburg,owned by Coca-Cola)Nidan (Novosibirsk)
Mineral Water Fragmentedmarket
Pepsi’s “Aqua Minerale”Coca-Cola’s “BonAqua”BorzhomiNarzanSaint Springs
B a
b y
F o o
d Liquid Dairy for Infants leader Unimilk (Russian)Powdered Formula & Cereal Nestlé
NutriciaFruit & Veg. Purees andJuice for infants
Lebedyansky
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Appendix G Relative Strengths of WBD and Top 10 Global Leaders in Food
Company StrengthsWimm Bill Dann Manufacturing facilities across Russia and CIS in the most resource-rich
areas.Distribution centres provide access to local markets and 2000+ Moscowshops.Access to funding as a floated company on the NYSE enablesinvestment in innovation.21,000 staff with Russian market knowledge.Strong dairy and juice brands.Management team focusing on value and driving down costs. ( K WBDSWOT Analysis)
CadburySchweppes
Strong performance in beverages and confectionery.Exceptional performance by Adams.Performance of US beverages. 6
Danone Market leadership.Vast geographical presence.Improved operational efficiency.Innovative product launches. 6
General Mills Brand name and market leadership.Strong financial performance and consolidation of businesses.Successful acquisition and joint venture strategies. 6
Heinz Market leadership.Strong brand name stretching across many products.Wide range of products.Competitive return on assets and equity. 6
Kellogg Leading market position.High brand equity.Consistent performance. 6
Kraft Market leadership.Strong brand portfolio.Wide range of products.Active in worldwide markets.6
Mars Strong brand name.Wide product portfolio.Global market presence. 6
Nestle Leading market position.Improvement in overall profitability.Well-diversified business portfolio.Strong brand equity. 6
PepsiCo Robust growth.Leading brands.Powerful go-to market systems. 6
Unilever Brand name and market leadership.Growth in emerging markets.Strong R&D focus. 6
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Appendix H Russian Consumer Values
• Quality6
• Packaging – handling, size (volume), design/visual appeal (foreign name),portability6
• Branding – image, statement about current or desired lifestyle (psychologicalfactors), uniformity & clarity (4C’s)6
• Value-for-money 6• Price 6• Novelty6• Innovation 6• Health benefits – additives (bio, vitamins), low-fat, high-fibre6• Convenience – drinkable, spoonable (including spoon), combination products (food
& health) 6• Location, accessibility, availability (distance to travel) 6• Regional differences in tastes and habits 6• Local brands (more important in country than city) 6• Preference for local products as perceived to be healthier and better value for
money 6
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Appendix I Stakeholder Analysis
High Power Low Interest
High Power High Interest
End User ConsumersGovernment
Strategic CustomersWBD ShareholdersSuppliers
WBD EmployeesCompetitors
Low Power Low Interest
Low Power High Interest
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Appendix J 7 Why’s
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Appendix K WBD SWOT Analysis
S TRENGTHS
• Occupy leadingposition in the market 6, 6, 6 • EstablishedBrand in Russia 6, 6,• High qualityproducts 6, 6• Diverse productbasket 6• Understandingof Russian Market 6
• Survivors,prospered during the financial crisis dueto being the local producer, when importsstruggled due to the weakness of theRouble 6• Entrepreneurialmanagement: rented a production line inan existing factory to get started. 6• Ambitious,experienced new people from outside thecompany hired for leading positions 6
WEAKNESSES
• Lack of recognition abroad 6• Lack of networks and contacts in foreign markets• Lack of internalinnovation reliance on M&A for newproducts 6, 6, 6
• Reliance on(primitive) dairy farmers6• Russian climatelimits fruit supply to certain seasons
• Internallyfragmented 6• Weak financialreporting 6
• Finding & hiringqualified personnel in growing market 6
OPPORTUNITIES
• Diversificationinto higher value segments, e.g.premium-range yoghurt, yogurt drinks,dairy deserts, soft drinks (e.g. sparking,flavoured water) 6, 6• Diversification
into growing market for Baby & children’sfood 6• Diversificationinto non-directly related fields, e.g. ice-cream, chocolate, tea 6
• Acquisition of other dairies to get geographicalcoverage 6• M&A in water to gain consolidated market 6
• Improve the
THREATS
• Unreliable,insufficient local supplies of milk6• World-widereduction in milk-supply6• Regulation of milk supply in Russia 6•
Margins for dairy under pressure due to increase inraw milk prices 6
• Price-sensitiveconsumers may start to prefer low-cost/low margin juice & nectar 6
• Increasing localcompetition in all sectors (Lebedyansky)6, F
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supply chain (logistics, JIT delivery, order intake, IT)• Operationalefficiency improvements (at dairies) 6• Changing
market, increasing distribution throughsupermarkets (strategic customers) ( A)• Low wages 6
• Abundantnatural resources. E.g. gas
• Joint venture,e.g. with Danone or Pepsi Co. to gaincapital and distribution 6
• GrowingRussian Market for dairy, baby food,water, drinks, confectionery 6, 6• Growingupper/middle class, greater supply of money available 6, 6• Increasinghealth consciousness 6, 6• Increaseddemand for premium products 6
• Competitionfrom foreign Multinationals, e.g. Nestlé,Danone producing locally (increaseddemand for milk, lower costs of locallyproduced products decreased
profitability for WBD)6
• Increased priceof fuel could impact transportation costs& profitability6• Increased costof petroleum-based products may impactcost of packaging 6
• Politicaluncertainty 6, 6• Changeableregulatory environment 6, 6• Corruption andcrime 6• Underdeveloped Russian banking system 6• Unstablecurrency & exchange rate 6
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Appendix L Strategic Option Generation – TOWS
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STRENGTHS WEAKNESSES
S1: Occupy leading position in the market W1: Lack of recognition abroadS2: Established Brand in Russia W2: Lack of networks and contacts in foreign marketsS3: High quality products W3: Lack of internal innovation and reliance on M&A for new productsS4: Diverse product basket W4: Reliance on (primitive) dairy farmersS5: Understanding of Russian Market W5: Russian climate limits fruit supply to certain seasonsS6: Survivors, prospered during the financial crisis due to being the local producer, whenimports struggled due to the weakness of the Rouble
W6: Internally fragmented
S7: Entrepreneurial management: rented a production line in an existing factory to getstarted.
W7: Weak financial reporting
S8: Ambitious, experienced new people from outside the company hired for leadingpositions
W8: Finding & hiring qualified personnel in growing market
O1: Diversification into higher value segments, e.g. premium-range yoghurt,yogurt drinks, dairy deserts, soft drinks (e.g. sparking, flavoured water)
O2: Diversification into growing market for Baby & childrenÕs foodO3: Diversification into non-directly related fields, e.g. ice-cream, chocolate,teaO4: Acquisition of other dairies to get geographical coverageO5: M&A in water to gain consolidated marketO6: Improve the supply chain (logistics, JIT delivery, order intake, IT)O7: Operational efficiency improvements (at dairies)O8: Changing market, increasing distribution through supermarkets(strategic customers)O9: Low wagesO10: Abundant natural resources. E.g. gasO11: Joint venture, e.g. with Danone or Pepsi Co. to gain capital anddistributionO12: Growing Russian Market for dairy, baby food, water, drinks,confectioneryO13: Growing upper/middle class, greater supply of money available ,O14: Increasing health consciousnessO15: Increased demand for premium productsT1: Unreliable, insufficient local supplies of milkT2: World-wide reduction in milk-supplyT3: Regulation of milk supply in RussiaT4: Margins for dairy under pressure due to increase in raw milk pricesT5: Price-sensitive consumers may start to prefer low-cost/low margin juice& nectar T6: Increasing local competition in all sectors (Lebedyansky) ,T7: Competition from foreign Multinationals, e.g. Nestl , Danone producinglocally (increased demand for milk, lower costs of locally produced products
decreased profitability for WBD)T8: Increased price of fuel could impact transportation costs & profitability
T9: Increased cost of petroleum-based products may impact cost of packagingT10: Political uncertainty ,T11: Changeable regulatory environment ,T12: Corruption and crimeT13: Underdeveloped Russian banking systemT14: Unstable currency & exchange rate
Internal Factors
External Factors
Option 8: Offer low-price range of products so as not to neglect price-sensitivecustomers (S1, S4, S5 : T5)
Option 7: Leverage strong position, understanding of market dynamics andestablished relationships to build stronger alliances and partnerships with dairiesand fruit suppliers to offset potential shortages and price increases, thus loweringcosts to increase competitive postition vis-a-vis other local & i nternationalmanufacturers. (S1, S5, S6, S8 : T1 - T4, T6, T7)
Option 6: Address market trend towards health and supplements using strong brandposition and (perception) of quality products. (S1-S3 : O14)
Option 1: Utilise market position & knowledge to diversify into higher value segments(premiumisation, baby-food, ice-cream, confectionery, ...) (S1-S5 : O1-O3, O12, O13,O15)
Option 2: Build on experience in acquisitions to further buy-in and grow market shareto growing water market (S8 : O5)
Option 3: Improve operations and introduce cost savings by upgrading dairy andfruit plants and streamlining logistics process. Further acquisitions to improvegeographic coverage and reduce transportation distances. (S6, S8 : O4, O6-O7)
Option 5: Sell current market position & knowledge to interested multinational to gaincapital and experience (JV or sale) (S1, S2, S5 : O11)
Option 4: Leverage understanding of market and its dynamics to build relationshipswith strategic customers such as growing supermarket chains, possibility of "ownbrands" (S5, S7, S8 : O8)
Option 10: Build political connections to i nfluence regulations and reduce impact of political uncertainty. Build good corporate governance and ethics into business anduse influence to spread best practise through the market/politics. (S5 - S8 : T10 - T12)
Option 14: Overhaul operations & logistics, thereby restructuring internally and fullyutilising available resources and competencies. Build new competencies inoperations & logistics as competitive differentiator. (W6, W8 : O6, O7, O9)
Option 13: Sell out to multinational who would restructure management &organisation to reduce fragmentation and inefficiencies while opening doors tointernational markets (W1, W2, W6, W7 : O11)
Option 11: Overcome the lack of innovation culture by developing new products toaddress diversification trend. Build R&D division with view to branching out into newproduct groups (e.g. ice-cream) (W3: O1-O3, O12, O14, O15)
Option 12: Acquisition or JV with dairies and fruit producers, either in Russia or neighbooring countries to reduce reliance on poor Russian producers and climate(W4-W5 : O4)
Option 15: Build innovation culture by developing products with less reliance on milkand fruit as raw materials. (W3 : T1 - T4)
Option 16: Develop relationships with international packaging suppliers to takeadvantage of best possible prices for packaging and reduce costs. (W2 : T9)
Option 17: Build strong internal structures and culture (develop culture of openness,trust, ethics, innovation, and good corporate govenance) to better cope with externalthreats. By doing so become a company Russians want to work for, thus attractingqualified workforce. (W3, W6-W8 : T10-T14)
Option 9: Focus on logistics and packaging concepts to offset rise in transportationand packaging costs, at the same time improving overall cost position. (S6-S8 : T8,T9)
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Strategic Option Generation – Ansoff Matrix
The Ansoff Matrix used for the identification of possible directions and options available toan organisation for future strategic development 6.
Products
M a r k e
t s
E x
i s t i n g Existing
Protect and buildNew
Product DevelopmentTheory:The strategy is concerned with gaininga greater proportion of the currentmarket through two ways:consolidation (downsizing andmaintenance) or Market penetration(gaining market share)
Theory:This strategy is when an organisationdelivers modified or new products toexisting markets through either existingor newly acquired capabilities.
Option 18WBD to withdrawal from one or moreof their less profitable sectors(beverage/baby food) by marginalisingtheir 1000 product range and bykeeping products than are identifiableby the consumer and have a lengthyproduct life cycle.
Option 26Through internal research anddevelopment develop a new productwithin the Russian consumer marketthat competes with competitors thatmakes WBD an attractive futureacquisition target. For examples -confectionery (Cadbury Schweppes), icecream (General Mills), tea/coffee(Nestle), organic (Heinz), biscuits(Danone)
Option 19:
Greater emphasis on increasepromotional spend within themarketing mix (research,communication, advertisement, salespromotion) of key products to generalpublic to increase product awarenessand brand identification.
Option 27
Could also continue with mergers andacquisitions in new product sectors(Chocolate, ice cream, biscuits) wherethey already have regional presenceand infrastructure.
Option 20Market is growing therefore attractinginternational organisations and insome regions the market is saturated,so WBD could focus more on the
regions with poor market coverage.
Option 28WBD to respond quickly to changingconsumer demands for healthier, on-the-go, pre-prepared foods throughincreased investment in R&D because
most competitors will be adapting newproduct ranges.
Option 21:Strengthen current market byincreased rate of acquisition of Dairy/Beverage/baby food companies.
Option 29WBD to forge working partnerships withglobal company with bigger R&Dcapability to help increase and improveproduct development in the currentmarkets.
Option 22.WBD to focus on building links andpartnerships with strategic customerssuch as supermarkets (better clientmanagement).
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Products
M a r k e
t s
N e w Existing
Market DevelopmentNew
Diversification
Theory:A strategy in which an organisationwould offer existing products in newmarkets. This will be determined by thecurrent market coverage and theorganisations capability for marketexpansion.
Theory:A high-risk strategy in which theorganisation moves away from their current market and products andattempts to generate growth throughdifferent means. It requires theorganisation to have the capability,capacity and knowledge to make thisstrategy successful.
Option 23Take existing product range into newgeographical areas (Eastern andWestern European countries with nocurrent presence)
Option 30Using the strong distinctioncompetencies of WBD (great peoplemaking good acquisitions), buy healthand leisure clubs in Europe/Americaand develop a company essence thatcommunicates health, fitness andlifestyle.
Option 24WBD to target most consumer segments by developing links withstrategic customers like cafes,(starbucks) restaurants, largeinstitutions (schools, universities, public
sector, corporate environment)
Option 31Continue to build and strengthenlogistics & distributionprocesses/competencies and becomeprovider of logistics solutions to other businesses.
Option 25WBD to offer their current product lineas the “own label brand” for major supermarkets.
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materials. (from TOWS)first pass). But leave inbecause of focus oncompetencies.
Option D: New Products. Development of newproducts for existing market.Option 26Through internal research and development develop anew product within the Russian consumer market thatcompetes with competitors that makes WBD an attractivefuture acquisition target. For examples - confectionery(Cadbury Schweppes), ice cream (General Mills),tea/coffee (Nestle), organic (Heinz), biscuits (Danone).(Ansoff)Option 27: Could also continue with mergers andacquisitions in new product sectors (Chocolate, icecream, biscuits) where they already have regionalpresence and infrastructure. (Ansoff)Option E: JV. R&D partnership with multinational.
Option 29: WBD to forge working partnerships with globalcompany with bigger R&D capability to help increase andimprove product development in the current markets.(Ansoff)Option F: Operations & Logistics. Operationsimprovements, new competitive advantage.
There is always potential for improvements in operations &logistics. Particularly in acountry the size of Russia.This option allows buildingcompetitive advantage (beingvery good at distribution) – thusbuilding a barrier to entry (5F).Also builds distinctivecompetency.A company with excellentoperations & logisticsprocesses in a country the sizeof Russia is also a moreinteresting acquisition target or JV partner for a non-Russianmultinational, i.e. making WBDmore attractive for future sale.
Option 3: Improve operations and introduce cost savingsby upgrading dairy and fruit plants and streamlininglogistics process. Further acquisitions to improvegeographic coverage and reduce transportationdistances. (from TOWS)
Option 9: Focus on logistics and packaging concepts tooffset rise in transportation and packaging costs, at thesame time improving overall cost position. (from TOWS)
Option 14: Overhaul operations & logistics, therebyrestructuring internally and fully utilising availableresources and competencies. Build new competencies inoperations & logistics as competitive differentiator. (fromTOWS)
Option 16: Develop relationships with internationalpackaging suppliers to take advantage of best possibleprices for packaging and reduce costs. (from TOWS)
Option G: Strategic Partnerships. Build relationshipswith supermarkets, own branding.
Focus on strategic customers –also builds competencies.Moving position on thestrategic clock.Option 4: Leverage understanding of market and its
dynamics to build relationships with strategic customerssuch as growing supermarket chains, possibility of "ownbrands" (from TOWS)
Option 22: WBD to focus on building links andpartnerships with strategic customers such assupermarkets (better client management). (Ansoff)
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Option 25: WBD to offer their current product line as the“own label brand” for major supermarkets. (Ansoff)Option H: Strategic Customers. Build supplier relationships with restaurants,…Option 24: WBD to target most consumer segments bydeveloping links with strategic customers like cafes,(starbucks) restaurants, large institutions (schools,universities, public sector, corporate environment).(Ansoff)Option I: M&A. Growth through further acquisitions. Continuation of current
business idea /strategy.Option 7: Leverage strong position, understanding of market dynamics and established relationships to buildstronger alliances and partnerships with dairies and fruitsuppliers to offset potential shortages and priceincreases, thus lowering costs to increase competitiveposition vis-à-vis other local & internationalmanufacturers. (from TOWS)Option 12: Acquisition or JV with dairies and fruitproducers, either in Russia or neighbouring countries toreduce reliance on poor Russian producers and climate(from TOWS)
Option J: Sale. Immediate sale of WBD tomultinational.
Option expressed by expertopinion (Ian).Increasing size of WBD couldmake it target for politicalinterference. Sale to multi-
national may reduce thisimpact (PESTEL).
Option 5: Sell current market position & knowledge tointerested multinational to gain capital and experience(JV or sale) (from TOWS)
Option 13: Sell out to multinational who would restructuremanagement & organisation to reduce fragmentation andinefficiencies while opening doors to international markets(from TOWS)Option K: Diversification. Become Russian logisticsprovider.Option 31: Continue to build and strengthen logistics &distribution processes/competencies and becomeprovider of logistics solutions to other businesses.(Ansoff)
Other initially identified options were not considered. Primary reasons being that a timeframe of 5 years was considered too short for their implementation, there was a severe lackof competencies or the option was too radical a change from the current strategy or culture.
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Appendix N Option Evaluation – Suitability
All options were scored according to their impact on the identified Key Issues (see Key Strategic Issues and Constraints (200 words) ). Scoreswere -3 to +3, where +3 represents a highly positive interaction and -3 a highly negative interaction. No relationship or impact scores 0.
OptionsOption
AOption
BOption
COption
DOption
EOption
FOption
GOption
HOption
IOption
JOption
KKey Issues
Politics 20% -0,7 -1,0 -0,5 -0,5 -1,3 0,7 0,3 0,3 -1,0 0,8 -0,3
Economy 20% 2,7 1,7 1,7 2,2 1,7 1,5 2,0 1,7 1,5 -0,2 1,5
CompetitiveSituation 20% 2,3 0,2 2,0 2,7 2,0 2,3 2,3 1,5 1,5 1,7 -0,2Marketing /Food &Drink Trends 20% 2,7 1,3 2,2 2,7 2,3 0,5 1,3 2,2 1,8 0,5 -0,5RawMaterial &Logistics 20% -0,3 -0,8 0,7 -0,2 1,2 2,3 1,3 1,0 1,3 1,3 2,0
Average 1,3 0,3 1,2 1,4 1,2 1,5 1,5 1,3 1,0 0,8 0,5
Options A, D, F, G, H chosen for further consideration – Stakeholder Evaluation, see O.
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