Caroli Foods Analysis 1

Caroli salami and sausages Keep Romanians on the move!

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Caroli Foods Analysis 2 TABLE OF CONTENTS Executive Summary Company Overview Strategic Analysis Overall Business Strength Marketing Strategy Conclusions References 2 3 6 8 10 11 12

Caroli Foods Analysis 3 Executive Summary We live in a world governed by two main attributes: speed and information, where our time for daily meals is becoming increasingly scarce. Since we do not have enough time for meals, well, what and how do we choose to cover the daily demand for calories and to eat, however, healthy food? Caroli salami and sausages! Here's an option to start a day! With a range of 5 brands, 13 years on the market and a turnover of about EUR 67.3 million in 2008, Caroli Prod. SRL, the manufacturing company, is battling today to get market share. But the main competitors such as Cristim, Aldis Calarasi, Angst, Campofrio or Elit Cugir are not letting themselves conquered that easily. Carolis strategy focuses on increasing market share from 13% to 20% until 2012, extending the distribution network in 5 countries and diversifying its product portfolio.

Company Overview Caroli Prod. Ltd. was founded in 1996 and is part of Caroli Group, which also includes TC Affaires, Indcarf S.A. and Maestro Industries companies. The Group is controlled by El Solh family of Lebanese origin and has, according to the data recorded in the Trade Registry, a registered social capital of RON 569,440 (about EUR 0.16 million). In 2007, Caroli had a turnover of RON 195.87 million (about EUR 58.69 million), which rose in 2008 to RON 268.12 million (about EUR 72.81 million), representing an increase of 25%. In the first six months of 2009, the company achieved a net income of EUR 29 million and an operating profit of EUR 1 million, 4% higher than the first half of 2008. The product portfolio is grouped in 5 brands, called: Caroli (with the slogan "Keep Romanians on the move!"), Maestro ("Respect the tradition!"), Gourmet (The passion for perfection"), Primo Family (First hand sausages and salami") and Sissi ("The very fine Ham", a Czech franchise). The product range includes baloney, pate, salami, sausages, frankfurters, ham, chicken and pork

Caroli Foods Analysis 4 specialties etc. The companys production activity complies with the European regulations in force in terms of quality and management; evidence is the fact that in 2004, Caroli Foods received ISO 9001:2000 certification, and in January 2005 the HACCP (The Hazard Analysis Critical Control Point System) certification. The company manages 2 factories in the city of Pitesti, Arges County, and has around 1,400 employees, mostly young people aged between 18 and 35 years. Specialists are estimating the salami and sausages market to 220,000 tones annually and EUR 1 billion worth. Over 250 salami and sausages producers operate on this market and top 10 of them together hold about 60% of the market. Caroli Foods's main competitors are: Cristim, Aldis, Angst, Campofrio and Elite Cugir.

Figure 1. Porter Competitive Model: The Romanian salami and sausages market Technical Foreign manufacturers equipment Romanian manufacturers manufacturers Established Company Potential New Food ingredients Entering New Market Entrant suppliers Segment Vans and trucks New Startup manufacturers

Bargaining Power of Suppliers

CAROLI Foods Rivals: CrisTim, Aldis, Campofrio, Angst, Elit

Bargaining Power of Buyers

Soya products Meat products Eco products

Substitute Product or Service

People of all ages Companies State institutions Hospitals and Homes for the elderly

Bargaining Power of Suppliers It is manifested mainly by the threat of rising sale prices or by reducing the quality of services or products provided (Porter, 2004). Technical equipment manufacturers such as Bilancia Exim SRL, Franke Romania SRL, Daas Impex SRL, Alprom SA have the power to

Caroli Foods Analysis 5 do so, but under the current financial and economical circumstances, the main problem even for them is how to make sales work. Perhaps a price decreasing policy and/or a better preand post-sales service offered for free is the key to maintain profits. The food ingredients suppliers are building a much bigger market with hundreds of companies. As for the Caroli Foods, most of the food ingredients are imported from abroad. Vans and cold-storage trucks manufacturers for food industry are also important, as EU legislation constrains food producers to comply with higher and higher security transportation and hygiene regulations.

Potential New Entrants As far as people still need to eat regardless of the economical environment, there is plenty of room for new companies to enter the market. Also, mergers and acquisitions within the industry could bring new market conditions and/or new and more powerful players.

Substitute Product or Service Soy is a revolutionary product that aims to replace many food articles on the market. Basically, almost any kind of food can be made out of soy. This substitute is gaining market share on the salami and sausages market, and on the food industry in general, because it is less toxic to the human body and it is obviously much cheaper in price. Also, eco products are increasingly sought by consumers for their outstanding quality and because they are healthier.

Bargaining Power of Buyers Under the economic and financial crisis conditions, the food producers are facing the worst situation ever: customers have smaller and smaller incomes, sales are going down, the food market in terms of volumes is decreasing, research and development investments are put on

Caroli Foods Analysis 6 hold. The most effective and appropriate strategy to remain on the market is to decrease your selling price. Having less money to spend on food, people became more careful when choosing between the brands and the quantity needed.

Strategic Analysis Analyzing the food industry is not an easy task, especially under the current circumstances in Romania (financial crisis and presidential elections). 1. What is the primary companys current competitive strategy (be specific)? Think of Porters Generic Strategies or the Capsim six strategies. Caroli Foodss competitive strategy is some kind of a combination between the cost leadership and product differentiation. While decreasing the entire products price by 10 per cent by the beginning of the current year, the company representatives also focused on diversifying their product range by launching similar and/or complementary products. (http://www.caroli.ro). Caroli Foods launched a rebranding campaign by the end of 2008, aimed at individualizing all Caroli product labels. Aldis Calarasi was founded in 1990 by businessman George Naghi and has at present about 1,340 employees. The company achieved last year a turnover of RON 337.9 million (about EUR 91.8 million), 16.3% up as compared to 2007. (http://www.dailybusiness.ro/newscompanies). Raw materials are imported from countries such as Brazil, U.S.A. and Canada. The company has a daily production of 120 tones, which corresponds to a market share of 18%. Cristim was founded in 1994 as a family business by the married couple Cristina and Radu Timis. In the first 6 months of 2009, the company achieved a turnover of RON 171 million (about EUR 40.7 million), 14% up as compared to the same period of 2008. In 2008, the

Caroli Foods Analysis 7 companys turnover was of about EUR 91 million and the operating profit was of EUR 8.7 million. (http://www.zf.ro/companii) 2. What are the two competitors doing to improve their current competitive position? For Cristim, shareholder and manager Radu Timis decided to give up his top executives (COO and Marketing & PR Manager) and take over the reins of his personal business. He also gave up 5% of the company employees. This has been done in order to reduce the general costs (especially the staff costs), to increase the remaining employees operating efficiency and to be able to decide by himself, thus being the only one responsible for the company results. Aldis Calarasi decided not to dismiss its employees, but the company representatives declared that it is possible to close some of their own stores if they become unprofitable. (http://www.wall-street.ro) 3. What likely moves or strategy shifts will the two competitors make? Apart from the two companies re-organization in line with adopting the business structure to the actual environment, none of them announced strategy shifts or big market moves. 4. Where is the primary company most vulnerable? Apart from the threat represented by the economic crisis, theres no reason to panic within the Caroli Foods company. Its management team decided to continue the investments in the branding and production capacity, however on a smaller scale; it decided not to fire employees more than usual, to extend the distribution chain abroad, and to gain more market share. If the company has indeed a big weak point, then its competitors have to make assumptions on it. 5. Where are the two competitors most vulnerable? Cristim is highly focused on diminishing the overall operating cost as much as possible by cutting the salary costs in the first place. This could be a tricky choice. While the general

Caroli Foods Analysis 8 costs will be lower on the short run, enabling the company to remain profitable, things could chance on the long run: employees could leave the company when the economic situation shows signs of steady recovery. The Aldis group consists in three companies: Aldis (with operations in the slaughter, sausage production, convenience food and ready meals), Aldis AP (agriculture, animal husbandry, agrotourism, food) and Campis (construction). Since the financial status of the construction, tourism and agricultural companies is affected by the current crisis, this could also affect the salami & sausages business as well. 6. What competitive moves of the two competitors will provoke the greatest and most effective retaliation by the primary company? Since gaining more market share together with maintaining a stable rate of incomes is the greatest debate, only a sharp cut in prices made by its competitors could take Caroli Foods by surprise. The right answer in this case is to take the same action: decrease your price in order to survive. When it comes to food, customers are most interested in the lower price of the products than in their quality increase.

Overall Business Strength Market share (percent, rank): 12% market share, 3rd place. Market share trend (five years): 20% market share by 2012 and a turnover of over EUR 100 million Financial strengths: Turnover/2008 = RON 268.12 mil (EUR 75.31 mil) Profitability: ROS/2008 = 0.38%, ROA/2008 = 0.63% Management: General Manager - Haluk Akdemir, Commercial Vice-President Andrew Taylor, Marketing Manager - Adrian Ion Nicolaescu

Caroli Foods Analysis 9 Presently, Caroli Foods has a market share of 12% in terms of production of salami and sausages, ranking 3rd place in the top industry sales. According to the data as of 31.12.2008 (http://www.doingbusiness.ro), the first positions were held by Aldis Calarasi, with RON 337.87 million (about EUR 94.91 million), and by Cristim, with RON 325.31 million (about EUR 91.37 million). Carolis management proposed, as future targets, winning a market share of 20% until 2012 either from the shares held by competitors, or from those of smaller players that would not withstand the crisis and come out of the market. It will also invest in the range of products to increase brand appeal and boost sales. The turnover of the company has continually increased over the past 4 years, as it can be seen in the table below (http://www.doingbusiness.ro):
Year 2005 Annual Turnover (RON mil) % increase as compared to the previous year % increase as compared to 2005 Total assets (RON mil) Net profit (RON mil) 120.74 N/A N/A N/A N/A Year 2006 161.15 33.47% 33.47% N/A N/A Year 2007 195.87 21.55% 62.23% 59.59 1.44 Year 2008 268.12 36.89% 122.07% 86.94 0.55

Caroli Foods Analysis 10

Annual turnover

300 250

268,12 195,87

200

RON mil

161,15 120,74

150 100 50 0

year 2005

year 2006

year 2007

year 2008

ROS (Return on Sales) and ROA (Return on Assets) are very small (subunit, actually), as the company invested a lot of money in the production line, in strengthening and diversifying its product portfolio, as well as in an image and brand communication campaign (the rebranding campaign began in late 2008 and required an EUR 1.3 million investment for the research, production and deployment activities). A proof of the Carolis image strategy may be the simple fact that it is the only one to have a website of the top 5 industry companies. As for the companys management, it seems that foreign executives with experience in multinationals can manage better. Cristim owner Radu Timis has changed lately two teams of experienced executives. It could be considered one of the reasons why the companys turnover has dropped since 2007.

Marketing Strategy As previously mentioned, Carolis market positioning strategy focuses on the product portfolio diversification by launching similar or complementary products. The marketing and development team aims at achieving this by (http://www.caroli.ro):

Caroli Foods Analysis 11 - adopting a quality lifestyle; - winning the confidence of all those involved or interested; - constantly taking initiative; - permanent innovation in the organization of activities and products. The implementation of this strategy is hoped to obtain an increase of 50% in brand awareness among consumers, using all media channels: TV, PR, outdoor, print, BTL. The advertising company that implemented the image and the communication brand strategy was McCann Creative, which is one of the leaders on the advertising market. The companys distribution strategy is focused on using its own fleet of vehicles, which numbers about 200 units. When trying to get market share, you have to be present everywhere. That is why the company decided to operate a national distribution network through 9 regional centers located in major urban centers of the country: Bucharest, Constanta, Braila, Ploiesti, Pitesti, Bacau, Brasov, Cluj -Napoca and Timisoara.

Conclusions Even if the market registers a decline during the present financial crisis, experts in the field are optimistic and believe that the industry trend next year will be an ascending one. Using this assumption as an oxygen breath for the food industry, Caroli Foods should continue the investments in its production capacity by increasing it, and also in its image campaign. As mentioned before, people will continue to buy salami and sausages, even if the quantities diminish. So, having the right way ahead, the company should maintain the current strategy and keep the same approach in terms of business.

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References Caroli, 2009 Despre Caroli Foods, Marcile noastre, Stiri & media, Retea de distributie, Productia, Retrieved October 27th, 2009 from http://www.caroli.ro Companii, 02.02.2009 Aldis nu face concedieri, dar ia in calcul inchiderea unor magazine; Retrieved October 26th, 2009 from http://www.wall-street.ro IBP Financiar, 2009 Raport Cristim-2-prodcom-srl, Raport aldis-srl, Raport caroli-prod2000-srl, Retrieved October 27th, 2009 from http://www.doingbusiness.ro Newsletter, 20.08.2009, Aldis Calarasi: Profit de aproape doua ori mai mic in 2008, de 1,6 mil. euro; Aldis estimeaza o crestere a vanzarilor cu 10% in 2009 Retrieved October 25th, 2009 from http://www.dailybusiness.ro Porter, M.E. (2004). Competitive strategy: Techniques for analyzing industries and competitors. New York, NY: Simon & Schuster, Inc. Tudor, Diana. 27.02.2009 Producatorul de mezeluri Aldis Calarasi si-a bugetat afaceri de 140 de milioane de euro; Retrieved October 28th, 2009 from http://www.zf.ro