Strategy, Analysis and Evaluation

Strategy, Analysis and Evaluation

STRATEGIC RECOMMENDATIONS FOR WIMM BILL DANN

Report prepared by: Georges A. Bouverat Reg. # 200556668 Kinsey Jennifer Quinton Reg. # Kinsey Kenneth W. Gregson Reg. # 200563139 Kinsey Robert Reynolds Reg. # Kinsey Stephen Hopkinson Reg. # Kinsey Anna C. Seidel Reg. # 200653802 Ledaig

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Executive Summary (300-400 words)

From Workbook, pg 121: should be a short, high-level report in its own right, in which you should communicate concisely the key opportunities and challenges, the recommendations you wish to make, together with a statement which sets out the benefits and advantages the case 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 challenges identified from analysis. provide enough detail and understanding for the CEOalso provide a discussion of the strategic benefits to be gained by the org. together with a note about resource implications in the future. ...each major recommendation is discussed in a short concise paragraph of its own. Goal: 300 400 words

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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..........................................................................................13 Appendix B WBD Sectors.................................................................................................16 Appendix C Five Forces Analysis Russian Dairy, Drinks and Baby Food......................17 Appendix D WBD Resources............................................................................................21 Appendix E WBD Market Segmentation...........................................................................22 Appendix F WBD Markets, Market Share & Competition ................................................24 Appendix G Relative Strengths of WBD and Top 10 Global Leaders in Food...................25 Appendix H Russian Consumer Values ...........................................................................26 Appendix I Stakeholder Analysis......................................................................................27 Appendix J 7 Whys..........................................................................................................28 Appendix K WBD SWOT Analysis ...................................................................................29 Appendix L Strategic Option Generation TOWS ...........................................................31 Strategic Option Generation Ansoff Matrix ...................................................................32 Appendix M Options to be considered..............................................................................34 Appendix N Option Evaluation Suitability.......................................................................37 Appendix 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 analysisnote about the purpose of the report and how it could be used by the organisation 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 business strategy for Field Packaging East Kilbride (FPEK). These recommendations are based upon a comprehensive strategic analysis of FPEKs current and likely future situation. The recommendations aim to enhance FPEKs existing competencies. This will add value to the both the company and its customers. Thus enabling FPEK to develop and sustain competitive advantage in the highly competitive branded products market segment of the packaging 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 has a taste for westernised affluence, so is demanding higher quality, premium, healthy products and increased convenience from the retail sector. There is a strong need for organisations to address this demand by supplying more innovative products of higher quality to the market (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 which will be good for WBDs future in the dairy market 6. In urban centres especially, there is a shift towards food being sold in supermarkets so that by 2010, 45% of it will be sold there as compared to 28% in 2006 6. These figures suggest that the future for WBD dairy lies with strategic customers, such as major supermarkets. Globalisation With an increase in globalisation, continued growth in GDP (5% per annum), a decrease in unemployment and increases in disposable income, the Russian consumer market continues 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 the 25 food retailers currently, only 6 are International 6. Competitive forces The sectors in which WBD operates (dairy, beverage and baby food) are attractive to companies and offer the potential for significant growth (see C). A dominant force is the unique Russian context acting as a barrier to entry for international companies, although they 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 buying power of major retailers (eg. major supermarkets) can put pressure on food producers and WBD is highly reliant on industry leaders Cargill for supplying juice concentrate and Tetrapak for supplying packaging. The increasing demand for premiumisation is putting pressure on Russian companies to improve quality due to the perception that international companies 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 continues to be uncertain, volatile and governmentally restrictive 6. Corruption is also an ongoing limitation for organisations 6. A present threat for WBD, in terms of the SWOT analysis, is that 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 and suitability of its resources and competencies. This section considers WBDs strategic capability, 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 copied or obtained by competitors, they build on the consumer values (such as strong yet local brand, health additives, accessibility see H) and underpin a competitive advantage for the company: 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 mirrored on a country-wide basis by WBD in Russia, such as market leading position, large product range, investment in acquisition and innovation. It is important to consider whether WBDs resources are deployed effectively to create a set of core competencies. According to its website, WBD considers one of its competitive advantages to be that it is neither regional nor Moscow-centered but is a truly national Russian manufacturer 6. WBD is investing heavily in marketing and innovation to grow brand equity and market share 6. The most recent company presentation highlights, as a strategic imperative, an investment in the sales team and route to market control, with a focus on trade and Point of Sale marketing, centralized key account management for all business 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 WBDs dominant market position. It suggests that WBDs sound financial systems and access to funding have enabled good investment decisions for research and development and acquisition of regional manufacturing plants. To leverage its strong financial position, WBD adopts a marketing focus to understand consumer demands and excellent people management to make the most of the breadth and deep experience of staff to produce and sustain 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 economic development 6. Economy Despite the political influences the Russian economy will continue to stabilise. A growing middle class with increased spending power will emerge 6. The result of this is projected 13% 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 Trends Growing 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 6 Decreasing life expectancy in the poorer sections of society will prompt trend towards healthier nutrition. 6 6 The 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 currency fluctuations 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 and identified key issues. WBDs current marketing-focussed strategy addresses the identified trends in food and drinks in Russia. This should be maintained since quickly satisfying changing consumer needs is key to maintaining and growing market share. Knowledge of the Russian market (cities and regions) is an existing WBD competency and competitive advantage. This should be developed further, as it is a 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 to taking advantage of the growing economy and increasing market share lies in operations and logistics improvements. Focussing a future strategy on these areas will expand WBDs competitive advantage and create strong barriers to entry. Optimising operations will address the identified raw materials and logistics constraints 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 retailers in 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 materials are pre-requisites for making these partnerships work. The political situation in Russia is a constant threat to future developments. WBD must monitor this but should not allow the possibility of political change to restrict its plans for strategic growth.

(See M for complete list of identified opportunities and N & O for process of option selection.)

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5 Recommendation (700 words)

Recommended (final) strategic response(s). Note: I dont think we need to include all our discussed options, only the final one. There do need to be high-quality appendices to back this 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 from threats or capture the opportunity identifieddiscuss the ways and means to achieve these objectives. recommendations include actions to capture customer value and actions to develop distinctive competenciesto achieve sustainable competitive advantage. building a coherent argumentkey is ability to synthesise and integrate findings think about implications of your recommendations in terms of creating a sustainable competitive advantageconsider resource implications and actions necessary for implementation. Appendices: Ansoff Matrix, Option/Issues ranking matrix, financial evaluation, feasibility tests, 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 using the strategy clock. We need to use the existing DC's to lever the current products to new locations on the strategy clock. This doesn't mean make everything high value, of course some will be. I think we can also lever current branded products to get us into the low price own brand ("Shop Shite" as Robert MacIntosh referred to it). This will then link back to external 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.] [11.] [12.] [13.] [14.] [15.] [16.] [17.] [18.] [19.] [20.] [21.] [22.] [23.] [24.] [25.] [26.] [27.] [28.] Consumer Foodservice, Russia, February 2007 WBD Memorandum, 6 February 2007 Danone Annual Report, 2005, from company website www.danone.com Customer Loyalty: Devising successful strategies in food and drink, Business Insights, 2003 S Massey, The Top10 Global Leaders in Food, Business Insights, 2006 Exploring Corporate Strategy, Johnson, Scholes and Whittington, FT Prentice Hall, 7th ed, 2006, Essex Associate British Foods plc, 2006 Company Profile: Competition Analysis. Just Food, July 2006 Pyaterochka's $800m loan sets pace for Russian M&A finance in fresh sectors, Euroweek. London: Aug 18, 2006. pg. 1 COMPANIES INTERNATIONAL: Danone's Russia man moves to Wimm Bill Dann, Financial Times, London (UK), Jul 1, 2004. Pg. 22, Andrew Jack Cargill company website, http://www.cargill.com/ Tetrapak company website, http://www.tetrapak.com/ Russia: Wimm-Bill-Dann Opens Baby Food Plant, Flex News, 30 April 2007 Rising juice demand helps Troya Ultra in Russia, cee-foodindustry.com, 21 March 2006 As wages rise in Eastern Europe, businesses look elsewhere, International Herald Tribune, Europe, 4 April 2007 Milk supply dries up as demand spills over, nzherald.co.nz, 16 May 2007 CEE markets support beverage giants' ambitions for European expansion, ceefoodindustry.com, 18 October 2006 CIA World Fact Book Russia feels effects of emerging markets turmoil, Global Finance, Kim Iskyan, NY, Apr 2007, Vol 21, Iss 4 Russia economy: Criminals in the marketplace? EIU ViewsWire. New York: Nov 1,
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2006 [29.] [30.] [31.] [32.] Wal-Mart expansion should focus on Russia report, cee-foodindustry.com, October 25 2004 Difference that Russians enjoy Profile McDonalds. Neil Buckley, Financial Times, London, UK, 16 May 2005 BBC Country Profile Western Retailer. Progressive Grocer. Larry Shaeffer, Dec 1995

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7 Appendices
Appendix A PESTLE Analysis
Political
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Economic

Environmental QuickTime and a decompressor are needed to see this picture. QuickTime and a decompressor are needed to see this picture.

WBD
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Technological

Source: Exploring Corporate Strategy 6 Political Fact Money laundering is still rife 6 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 Russias 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 volatility 6 Lending to individuals increased by 85% in 2005 6 Global emerging market correction slowed Russias 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 5th 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 channels such 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 are expected to take an interest, making market entry within the next year vital for Wal-Mart if it is to stay ahead of the competition. 6 Estimates that Russian market is worth around 108.8 billion, making it the fifth largest market 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-scale growth 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 and Perekriostok), Auchan (Auchan, Atak) and Uniland Holding (Dixi, Megamart). 6 Russia's largest food retailer Pyaterochka announced its merger with supermarket chain Perekriostok, creating a true retail heavyweight that--with 880 stores and US$2.4bn in sales--has the muscle to expand nationally to the untapped regional markets beyond the urban 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 million 6 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 only 6 international players reached a combined market share of only 9.2% in 2005.a population 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 central Moscow are as high as $2,000 a month per square metre, and as a result, some companies (such as Auchan) have positioned their stores outside the city limits. Here it is the Moscow regional (rather than municipal) authorities, which levy duties, and the rates 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
Dairy Drinks

WBD Sectors

What sectors does WBD operate (or potentially) operate in? traditional products yogurt and dairy desserts health orientated enriched products Cheese products produced from juice concentrate traditional berry-juice-based drinks Other juice-based drinks Mineral water liquid dairy for infants powdered formula and cereal fruit & veg purees and juice for infants

Baby food

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Appendix C

Five Forces Analysis Russian Dairy, Drinks and Baby Food

Potential Entrants
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entry

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Bargaining

power

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Bargaining

power

Threat of

substitutes

Substitutes

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 is potential 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 distribution 6. Experience WBD has experience in sector with established relationships with buyers and suppliers. 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 Russia has 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, supplies and distribution (and its ability to share facilities across its product range), although might struggle 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 would government 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; switching costs 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 with logistics 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 worlds largest provider (Cargill) which puts WBD in a relatively weak position although Cargill is keen to improve supply chain management for its clients which is a statement of positive intent 6 and there is no evidence that Cargill wishes to compete directly with food processing companies. WBD also uses Tetra-Pack packaging which 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 with its clients for mutual benefit 6. Substitutes Is there a threat from new dairy products replacing existing range, or alternatively what is the likelihood 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 with dairy? Increasing affluence is creating a substitution affect on home cooking from a growing market for eating out and pre-prepared food. There is increasing emphasis on healthy alternatives which is increasing demand for products focussing on bio, vitamins, low-fat and childrens 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 growing rapidly (see A), this reduces the potential for supermarket power. However the picture in the Russian supermarket sector is changing; although the number of supermarkets is growing rapidly, there has been merger and acquisition activity, such as between the two leading supermarkets Pyaterochka and Perekryostok 6. There is potential for strong buyer power if this trend continues. Switching costs between suppliers are relatively low. There is the possibility 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 create potential 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 at growing 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. WBDs main competitor for traditional dairy Unimilk is active in acquiring dairies and investing in technology. Other competitors in Dairy include Russian company Petmol, and international companies 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, WBD competes with global companies Nestle and Nutricia in addition to Russian companies Unimilk 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 baby food sector as is Swedish company Semper (see F). This competitive environment is resulting in innovations in packaging, quality and branding 6. WBD has held take-over talks with 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 and offer the potential for significant growth 6. The sectors can be segmented into two subgroups: companies that are global, and Russian, where differing sets of forces apply. A dominant force is the unique Russian context acting as a barrier to entry for international companies where new entrants need knowledge of, and experience in, the Russian market and 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 has been 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 a dominance in the market of supplying juice concentrate (by Cargill) and packaging (by Tetrapak) which puts them in powerful positions although there is no indication that they are exploiting 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 will also see growth in the restaurant/caf/and pre-prepared food sector, and there is a growing demand for health, bio and low fat products.

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Appendix D
Physical

WBD Resources

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 experienced management 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
Market Dairy

WBD Markets, Market Share & Competition

Market Share, 2006 29% Competition local producers, such as Unimilk smaller producers in other regions Danone, Petmol Danone Campina Ehrmann (all continuing to invest in Russia) Lebedyansky (Lipetsk region) Multon (St. Petersburg, owned by Coca-Cola) Nidan (Novosibirsk) Pepsis Aqua Minerale Coca-Colas BonAqua Borzhomi Narzan Saint Springs Unimilk (Russian) Nestl Nutricia Lebedyansky

Source: WBD Memorandum, 6

Traditional Dairy

Enriched Dairy Desserts & Yogurt

28% 41%

Drinks

Juice

19,4% Together the local players control 85%

Mineral Water

Fragmented market

Baby Food

Liquid Dairy for Infants Powdered Formula & Cereal Fruit & Veg. Purees and Juice for infants

leader

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Appendix G
Company Wimm Bill Dann

Relative Strengths of WBD and Top 10 Global Leaders in Food

Strengths Manufacturing facilities across Russia and CIS in the most resource-rich areas. Distribution centres provide access to local markets and 2000+ Moscow shops. Access to funding as a floated company on the NYSE enables investment in innovation. 21,000 staff with Russian market knowledge. Strong dairy and juice brands. Management team focusing on value and driving down costs. (K WBD SWOT Analysis) Strong performance in beverages and confectionery. Exceptional performance by Adams. Performance of US beverages. 6 Market leadership. Vast geographical presence. Improved operational efficiency. Innovative product launches. 6 Brand name and market leadership. Strong financial performance and consolidation of businesses. Successful acquisition and joint venture strategies. 6 Market leadership. Strong brand name stretching across many products. Wide range of products. Competitive return on assets and equity. 6 Leading market position. High brand equity. Consistent performance. 6 Market leadership. Strong brand portfolio. Wide range of products. Active in worldwide markets. 6 Strong brand name. Wide product portfolio. Global market presence. 6 Leading market position. Improvement in overall profitability. Well-diversified business portfolio. Strong brand equity. 6 Robust growth. Leading brands. Powerful go-to market systems. 6 Brand name and market leadership. Growth in emerging markets. Strong R&D focus. 6

Cadbury Schweppes Danone

General Mills

Heinz

Kellogg

Kraft

Mars

Nestle

PepsiCo

Unilever

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Appendix H

Russian Consumer Values

Quality 6 Packaging handling, size (volume), design/visual appeal (foreign name), portability 6 Branding image, statement about current or desired lifestyle (psychological factors), uniformity & clarity (4Cs) 6 Value-for-money 6 Price 6 Novelty 6 Innovation 6 Health benefits additives (bio, vitamins), low-fat, high-fibre 6 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
High Power Low Interest

Stakeholder Analysis
High Power High Interest Strategic Customers WBD Shareholders Suppliers

End User Consumers Government

WBD Employees Competitors

Low Power Low Interest

Low Power High Interest

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Appendix J

7 Whys

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Appendix K
STRENGTHS

WBD SWOT Analysis

WEAKNESSES Lack of recognition abroad 6 Lack of networks and contacts in foreign markets Lack of internal innovation reliance on M&A for new products 6, 6, 6 Reliance on (primitive) dairy farmers 6 Russian climate limits fruit supply to certain seasons fragmented 6 reporting 6 Internally Weak financial

Occupy leading position in the market 6, 6, 6 Established Brand in Russia 6, 6, High quality products 6, 6 Diverse product basket 6 Understanding of Russian Market 6 Survivors, prospered during the financial crisis due to being the local producer, when imports struggled due to the weakness of the Rouble 6 Entrepreneurial management: rented a production line in an existing factory to get started. 6 Ambitious, experienced new people from outside the company hired for leading positions 6

Finding & hiring qualified personnel in growing market 6

OPPORTUNITIES Diversification into 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 & childrens food 6 Diversification into non-directly related fields, e.g. icecream, chocolate, tea 6 Acquisition of other dairies to get geographical coverage 6 M&A in water to gain consolidated market 6
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THREATS Unreliable, insufficient local supplies of milk 6 World-wide reduction in milk-supply 6 Regulation of milk supply in Russia 6 Margins for dairy under pressure due to increase in raw milk prices 6 Price-sensitive consumers may start to prefer lowcost/low margin juice & nectar 6 Increasing local competition in all sectors (Lebedyansky) 6, F

Improve the
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supply chain (logistics, JIT delivery, order intake, IT) Operational efficiency improvements (at dairies) 6 Changing market, increasing distribution through supermarkets (strategic customers) (A) Low wages 6 Abundant natural resources. E.g. gas Joint venture, e.g. with Danone or Pepsi Co. to gain capital and distribution 6 Growing Russian Market for dairy, baby food, water, drinks, confectionery 6, 6 Growing upper/middle class, greater supply of money available 6, 6 Increasing health consciousness 6, 6 Increased demand for premium products 6

Competition from foreign Multinationals, e.g. Nestl, Danone producing locally (increased demand for milk, lower costs of locally produced products decreased profitability for WBD) 6 Increased price of fuel could impact transportation costs & profitability 6 Increased cost of petroleum-based products may impact cost of packaging 6 Political uncertainty 6, 6 Changeable regulatory environment 6, 6 Corruption and crime 6 Underdevelope d Russian banking system 6 Unstable currency & exchange rate 6

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Appendix L

Strategic Option Generation TOWS

STRENGTHS WEAKNESSES

S1: Occupy leading position in the market W1: Lack of recognition abroad Internal Factors S2: Established Brand in Russia W2: Lack of networks and contacts in foreign markets S3: High quality products W3: Lack of internal innovation and reliance on M&A for new products S4: Diverse product basket W4: Reliance on (primitive) dairy farmers S5: Understanding of Russian Market W5: Russian climate limits fruit supply to certain seasons S6: Survivors, prospered during the financial crisis due to being the local producer, when W6: Internally fragmented imports struggled due to the weakness of the Rouble S7: Entrepreneurial management: rented a production line in an existing factory to get W7: Weak financial reporting External Factors started. S8: Ambitious, experienced new people from outside the company hired for leading W8: Finding & hiring qualified personnel in growing market positions O1: Diversification into higher value segments, e.g. premium-range yoghurt, Option 1: Utilise market position & knowledge to diversify into higher value segments yogurt drinks, dairy deserts, soft drinks (e.g. sparking, flavoured water) (premiumisation, baby-food, ice-cream, confectionery, ...) (S1-S5 : O1-O3, O12, O13, Option 11: Overcome the lack of innovation culture by developing new products to address diversification trend. Build R&D division with view to branching out into new O15) O2: Diversification into growing market for Baby & childrens food product groups (e.g. ice-cream) (W3: O1-O3, O12, O14, O15) O3: Diversification into non-directly related fields, e.g. ice-cream, chocolate, Option 2: Build on experience in acquisitions to further buy-in and grow market share tea to growing water market (S8 : O5) O4: Acquisition of other dairies to get geographical coverage Option 12: Acquisition or JV with dairies and fruit producers, either in Russia or O5: M&A in water to gain consolidated market Option 3: Improve operations and introduce cost savings by upgrading dairy and neighbooring countries to reduce reliance on poor Russian producers and climate O6: Improve the supply chain (logistics, JIT delivery, order intake, IT) fruit plants and streamlining logistics process. Further acquisitions to improve (W4-W5 : O4) O7: Operational efficiency improvements (at dairies) geographic coverage and reduce transportation distances. (S6, S8 : O4, O6-O7) O8: Changing market, increasing distribution through supermarkets Option 4: Leverage understanding of market and its dynamics to build relationships (strategic customers) with strategic customers such as growing supermarket chains, possibility of "own Option 13: Sell out to multinational who would restructure management & O9: Low wages brands" (S5, S7, S8 : O8) organisation to reduce fragmentation and inefficiencies while opening doors to O10: Abundant OPPORTUNITIES natural resources. E.g. gas international markets (W1, W2, W6, W7 : O11) O11: Joint venture, e.g. with Danone or Pepsi Co. to gain capital and distribution Option 5: Sell current market position & knowledge to interested multinational to gain O12: Growing Russian Market for dairy, baby food, water, drinks, capital and experience (JV or sale) (S1, S2, S5 : O11) Option 14: Overhaul operations & logistics, thereby restructuring internally and fully confectionery O13: Growing upper/middle class, greater supply of money available , utilising available resources and competencies. Build new competencies in Option 6: Address market trend towards health and supplements using strong brand O14: Increasing health consciousness operations & logistics as competitive differentiator. (W6, W8 : O6, O7, O9) position and (perception) of quality products. (S1-S3 : O14) O15: Increased demand for premium products T1: Unreliable, insufficient local supplies of milk Option 7: Leverage strong position, understanding of market dynamics and Option 15: Build innovation culture by developing products with less reliance on milk T2: World-wide reduction in milk-supply established relationships to build stronger alliances and partnerships with dairies and fruit as raw materials. (W3 : T1 - T4) T3: Regulation of milk supply in Russia and fruit suppliers to offset potential shortages and price increases, thus lowering T4: Margins for dairy under pressure due to increase in raw milk prices costs to increase competitive postition vis-a-vis other local & international T5: Price-sensitive consumers may start to prefer low-cost/low margin juice Option 16: Develop relationships with international packaging suppliers to take manufacturers. (S1, S5, S6, S8 : T1 - T4, T6, T7) advantage of best possible prices for packaging and reduce costs. (W2 : T9) & nectar T6: Increasing local competition in all sectors (Lebedyansky) , T7: Competition from foreign Multinationals, e.g. Nestl, Danone producing Option 8: Offer low-price range of products so as not to neglect price-sensitive locally (increased demand for milk, lower costs of locally produced products customers (S1, S4, S5 : T5) Option 17: Build strong internal structures and culture (develop culture of openness, decreased profitability for WBD) trust, ethics, innovation, and good corporate govenance) to better cope with external T8: Increased price of fuel could impact transportation costs & profitability Option 9: Focus on logistics and packaging concepts to offset rise in transportation threats. By doing so become a company Russians want to work for, thus attracting THREATS and packaging costs, at the same time improving overall cost position. (S6-S8 : T8, qualified workforce. (W3, W6-W8 : T10-T14) T9: Increased cost of petroleum-based products may impact cost of T9) packaging T10: Political uncertainty , Option 10: Build political connections to influence regulations and reduce impact of T11: Changeable regulatory environment , political uncertainty. Build good corporate governance and ethics into business and T12: Corruption and crime T13: Underdeveloped Russian banking system use influence to spread best practise through the market/politics. (S5 - S8 : T10 - T12) T14: Unstable currency & exchange rate

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Strategic Option Generation Ansoff Matrix

The Ansoff Matrix used for the identification of possible directions and options available to an organisation for future strategic development 6. Products Markets Existing Existing Protect and build Theory: The strategy is concerned with gaining a greater proportion of the current market through two ways: consolidation (downsizing and maintenance) or Market penetration (gaining market share) Option 18 WBD to withdrawal from one or more of their less profitable sectors (beverage/baby food) by marginalising their 1000 product range and by keeping products than are identifiable by the consumer and have a lengthy product life cycle. New Product Development Theory: This strategy is when an organisation delivers modified or new products to existing markets through either existing or newly acquired capabilities.

Option 19: Greater emphasis on increase promotional spend within the marketing mix (research, communication, advertisement, sales promotion) of key products to general public to increase product awareness and brand identification. Option 20 Market is growing therefore attracting international organisations and in some regions the market is saturated, so WBD could focus more on the regions with poor market coverage. Option 21: Strengthen current market by increased rate of acquisition of Dairy/Beverage/baby food companies. Option 22. WBD to focus on building links and partnerships with strategic customers such as supermarkets (better client management).
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Option 26 Through internal research and development develop a new product within the Russian consumer market that competes with competitors that makes WBD an attractive future acquisition target. For examples confectionery (Cadbury Schweppes), ice cream (General Mills), tea/coffee (Nestle), organic (Heinz), biscuits (Danone) Option 27 Could also continue with mergers and acquisitions in new product sectors (Chocolate, ice cream, biscuits) where they already have regional presence and infrastructure. Option 28 WBD to respond quickly to changing consumer demands for healthier, onthe-go, pre-prepared foods through increased investment in R&D because most competitors will be adapting new product ranges. Option 29 WBD to forge working partnerships with global company with bigger R&D capability to help increase and improve product development in the current markets.

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Products Markets New Existing Market Development Theory: A strategy in which an organisation would offer existing products in new markets. This will be determined by the current market coverage and the organisations capability for market expansion. Option 23 Take existing product range into new geographical areas (Eastern and Western European countries with no current presence) New Diversification Theory: A high-risk strategy in which the organisation moves away from their current market and products and attempts to generate growth through different means. It requires the organisation to have the capability, capacity and knowledge to make this strategy successful. Option 30 Using the strong distinction competencies of WBD (great people making good acquisitions), buy health and leisure clubs in Europe/America and develop a company essence that communicates health, fitness and lifestyle. Option 31 Continue to build and strengthen logistics & distribution processes/competencies and become provider of logistics solutions to other businesses.

Option 24 WBD to target most consumer segments by developing links with strategic customers like cafes, (starbucks) restaurants, large institutions (schools, universities, public sector, corporate environment) Option 25 WBD to offer their current product line as the own label brand for major supermarkets.

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Appendix M

Options to be considered

Options with numbers (Option 1) are taken from TOWS and Ansoff Matrices (L, Error: Reference source not found). Options with letters (Option A) are combinations of choices for consideration. OPTIONS Option A: Marketing. Address trends, increase marketing spending. Option 1: Utilise market position & knowledge to diversify into higher value segments (premiumisation, baby-food, ice-cream, confectionery,...) (TOWS) Option 6: Address market trend towards health and supplements using strong brand position and (perception) of quality products. (TOWS) Option 8: Offer low-price range of products so as not to neglect price-sensitive customers (TOWS) Option 18: WBD to withdrawal from one or more of their less profitable sectors (beverage/baby food) by marginalising their 1000 product range and by keeping products than are identifiable by the consumer and have a lengthy product life cycle. (Ansoff) Option 19: Greater emphasis on increased promotional spend within the marketing mix (research, communication, advertisement, sales promotion) of key products to general public to increase product awareness and brand identification. (Ansoff) Option 21: Strengthen current market by increased rate of acquisition of Dairy/Beverage/baby food companies. (Ansoff) Option 28: WBD to respond quickly to changing consumer demands for healthier, on-the-go, pre-prepared foods through increased investment in R&D because most competitors will be adapting new product ranges. (Ansoff) Option B: Regions. Increase Russian-wide market share. Option 20: Market is growing therefore attracting international organisations and in some regions the market is saturated, so WBD could focus more on the regions with poor market coverage. (Ansoff) Option C: Innovation. Increased R&D. Innovation & new competencies. Option 11: Overcome the lack of innovation culture by developing new products to address diversification trend. Build R&D division with view to branching out into new product groups (e.g. ice-cream) (from TOWS) Option 15: Build innovation culture by developing products with less reliance on milk and fruit as raw Addresses more than just marketing and economics (5F). This option focuses on developing distinctive competencies to ensure future competitiveness. Longer-term focus, requires culture change (this might cause it to be eliminated in the
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REASONING Marketing option. Fits with identified marketing trends, 5 Forces, PESTEL. Requires clear definition and addressing of market segments.

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Strategy, Analysis and Evaluation

materials. (from TOWS) Option D: New Products. Development of new products for existing market. Option 26 Through internal research and development develop a new product within the Russian consumer market that competes with competitors that makes WBD an attractive future 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 and acquisitions in new product sectors (Chocolate, ice cream, biscuits) where they already have regional presence and infrastructure. (Ansoff) Option E: JV. R&D partnership with multinational. Option 29: WBD to forge working partnerships with global company with bigger R&D capability to help increase and improve product development in the current markets. (Ansoff) Option F: Operations & Logistics. Operations improvements, new competitive advantage. Option 3: Improve operations and introduce cost savings by upgrading dairy and fruit plants and streamlining logistics process. Further acquisitions to improve geographic coverage and reduce transportation distances. (from TOWS) Option 9: Focus on logistics and packaging concepts to offset rise in transportation and packaging costs, at the same time improving overall cost position. (from TOWS) Option 14: Overhaul operations & logistics, thereby restructuring internally and fully utilising available resources and competencies. Build new competencies in operations & logistics as competitive differentiator. (from TOWS) Option 16: Develop relationships with international packaging suppliers to take advantage of best possible prices for packaging and reduce costs. (from TOWS) Option G: Strategic Partnerships. Build relationships with supermarkets, own branding. Option 4: Leverage understanding of market and its dynamics to build relationships with strategic customers such as growing supermarket chains, possibility of "own brands" (from TOWS) Option 22: WBD to focus on building links and partnerships with strategic customers such as supermarkets (better client management). (Ansoff)
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first pass). But leave in because of focus on competencies.

There is always potential for improvements in operations & logistics. Particularly in a country the size of Russia. This option allows building competitive advantage (being very good at distribution) thus building a barrier to entry (5F). Also builds distinctive competency. A company with excellent operations & logistics processes in a country the size of Russia is also a more interesting acquisition target or JV partner for a non-Russian multinational, i.e. making WBD more attractive for future sale.

Focus on strategic customers also builds competencies. Moving position on the strategic clock.

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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 by developing 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. Option 7: Leverage strong position, understanding of market dynamics and established relationships to build stronger alliances and partnerships with dairies and fruit suppliers to offset potential shortages and price increases, thus lowering costs to increase competitive position vis--vis other local & international manufacturers. (from TOWS) Option 12: Acquisition or JV with dairies and fruit producers, either in Russia or neighbouring countries to reduce reliance on poor Russian producers and climate (from TOWS) Option J: Sale. Immediate sale of WBD to multinational. Option 5: Sell current market position & knowledge to interested multinational to gain capital and experience (JV or sale) (from TOWS) Option 13: Sell out to multinational who would restructure management & organisation to reduce fragmentation and inefficiencies while opening doors to international markets (from TOWS) Option K: Diversification. Become Russian logistics provider. Option 31: Continue to build and strengthen logistics & distribution processes/competencies and become provider of logistics solutions to other businesses. (Ansoff) Other initially identified options were not considered. Primary reasons being that a time frame of 5 years was considered too short for their implementation, there was a severe lack of competencies or the option was too radical a change from the current strategy or culture. Option expressed by expert opinion (Ian). Increasing size of WBD could make it target for political interference. Sale to multinational may reduce this impact (PESTEL). Continuation of current business idea /strategy.

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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)). Scores were -3 to +3, where +3 represents a highly positive interaction and -3 a highly negative interaction. No relationship or impact scores 0.
Options Key Issues Politics Economy Competitive Situation Marketing / Food & Drink Trends Raw Material & Logistics Average 20% 20% 20% 20% 20% -0,7 2,7 2,3 2,7 -0,3 1,3 -1,0 1,7 0,2 1,3 -0,8 0,3 -0,5 1,7 2,0 2,2 0,7 1,2 -0,5 2,2 2,7 2,7 -0,2 1,4 -1,3 1,7 2,0 2,3 1,2 1,2 0,7 1,5 2,3 0,5 2,3 1,5 0,3 2,0 2,3 1,3 1,3 1,5 0,3 1,7 1,5 2,2 1,0 1,3 -1,0 1,5 1,5 1,8 1,3 1,0 0,8 -0,2 1,7 0,5 1,3 0,8 -0,3 1,5 -0,2 -0,5 2,0 0,5 Option A Option B Option C Option D Option E Option F Option G Option H Option I Option J Option K

Options A, D, F, G, H chosen for further consideration Stakeholder Evaluation, see O.

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Option Evaluation - Suitability

3,0 2,5 2,0 1,5 1,0 0,5 0,0 Politics -0,5 -1,0 -1,5 -2,0 Key Issues & Constraints Economy Competitive Situation Marketing / Food & Raw Material & Drink Trends Logistics Sum Option Option Option Option Option Option Option Option Option Option Option A B C D E F G H I J K

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Appendix O

Option Evaluation Stakeholder Expectations

Remaining options were ranked 1-5 by importance to different stakeholder groups, where 5 is highest impact/importance and 1 is lowest. Options Stakeholders Strategic Customers (Supermarkets) WBD Employees WBD Shareholders 2 End User Consumers Suppliers 2 Sum 12 14 18 18 13 1 5 4 3 3 1 5 3 4 5 2 4 1 Option A Option D Option F Option G. Option H

1 4

2 5

3 3

5 2

4 1

Options F & G received identical high scores for both suitability and stakeholder expectations.

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