saputo external environment analysis

EXTERNAL ANALYSIS

General Environment

A business environment refers to the factors (external and internal) that affect the performance of a business. Saputo have a number of factors, both internal and external, which affect them, including: demographic factors, political factors, and economic factors.

Demographic Segment:

The main target market for Saputo is the housewives, chefs and restaurants. This in an extension includes all the people who find and perceive dairy products and related snacks as healthy. In an ever changing population demand, many people are focusing on natural products rather than processed foods and products. However, the young people are still very indignant and want to eat the sweet processed foods that are fast and easy to obtain. The market structure is therefore being affected by the changing demands for dairy product and processed foods. On overall, not many people of any specific age-group are demanding an increase in supply of daily products due to the rising concern for caloric balance and cholesterol levels.

Political/Legal Segment

Politically, the market for dairy products is adequately supported by governments and regulations around the world. Major economies and industries recognise the agricultural sector as a major source of sustainable employment and income. This makes a food a beverage company one that enjoys major support from the government. Even with the adequate legal and political support, the foods and beverage industry is not a free market. Due to the health implication of the products, the industry is strictly regulated by laws focusing on products cleanliness, facility hygiene and additives that the manufacturer puts into their products. In addition, there are regulations in regard to environmental protection policies and compliance to all these regulations require a tariff specific for the industry. The market for the dairy products across states and nations is regulated but not prohibited. Once a company is compliant, there is relative ease of business from one area to another.

Economic Segment

The economic status of the target market is slowly improving. This means that there is a continuous increase in demand for the products with the growth of families, hospitality industry and even the focus on health. With these changes in the market, the company can predict increased sales in the coming years. However, major focus should also be placed on the health status of the products to ensure that the supply meets the demand specification in terms of quality. The performance of the company at present is being positively impacted by the economic empowerment of many households and communities to the extent of being able to expand.

Industry Environment

 

The business environment comprises of people such as suppliers, entry threats, threat of substitutes and competition. These factors will be discussed below deeply and how they affect Saputo.

 

Bargaining Power of Suppliers: High

The bargaining power of suppliers is high because they tend to reduce the profit margins for the company by increasing competition by lowering the quality of products or shoot up prices. As such, they interfere with profits especially when the business entity cannot recover the amount of resources incurred in the prices they set. The suppliers bargaining power consists of one of the several forces that influence the competition intensity in the industry. They include buyers bargaining powers, entry barriers, substitute threats, and industry rivalry.

Bargaining Power of Buyers: High

The relative bargaining power of the buyers is high since the demand is now specified in terms of quality and ingredients. With the growing focus on health and diet modifications, many people are focusing on products that support their lifestyles. As such, the power of the buyers in an extremely competitive industry cannot be ignored. Buyers have the money that the company needs and have so many options to choose from in the food and beverage industry. The products must therefore be structured to meet their specified needs.

Threat of Entry: Moderate

The threat of entry to the market is moderate. This is because some product sector such as cheese does not present entry problems since small players concentrate on marketing issues and externalize their productions. However, the new companies face complications because the barrier to entry is active for their brands, like the case where Saputo Company planned to acquire Scotsburn’s assets in 2014. The two companies both deal in dairy processors and produce skim milk, cream, yogurt, milk, cottage cheese, and ice cream mix. The competition bureau assessed various factors including barriers to entry and expansion. The Bureau realized that barriers to entry remain high. However, fluid milk processors located in Scotia and Nova face low barriers to development and entry due to the presence of surplus processing ability in those regions (Competition Bureau Canada, 2015).

Threats from Substitute Products:High

The threats from substitutes to the company products are also high. For instance, the consumption of cheese can take several forms at different places. Thus, alternatives are significant for foodstuffs such as Greek yogurt. Since Saputo Inc. will continue producing healthy food, it may benefit from the present trend in future. As the company’s customers come from established retailers whose bargaining powers are high, the bargaining power of the buyers is therefore medium. Nevertheless, the company is not likely to suffer from that situation since it has powerful and best performing brands which give it an edge in the industry.

Industry Rivalry:High

The rivalry between the industry players is high. This is because the market for cheese and ice cream milk is getting flooded as few players control that market segment. This is evident, particularly in the mature markets. Intrinsically, the top thirty producers of cheese account for more than fifty percent of the world production. Saputo Company contributes 143,408 tons of cheese with a per capita consumption of 12.49kgs (Canadian Dairy Information Center, 2016). The scenario leads to invention and marketing wars by the players so as to prevent losing market shares, hence intensifying the rivalry.

Competitor Analysis

The firms that compete with Saputo Company for market shares are Nestle, Unilever, and Danone. Unilever Company operates in almost 190 countries globally (MBA School, 2016). The company boasts of a portfolio brands and an expansive product range designed to meet the changing consumer needs around the world. It employs flexible pricing strategy and enhanced distribution channels as a marketing strategy and innovation to fine-tune its brands with customer preferences. The company has over 170,000 workers worldwide (MBA School, 2016).

Danone Incorporation is globally known for its products and services. The company has over 100,000 staff worldwide (MBA School, 2016). It is a global leader in bottled water and dairy products. It prides of substantial financial firepower and has one of the most active research and development and invention. Some of the firm’s weaknesses include stiff competition from major industry players which translates to restricted market shares. Hence, the concentration of players implies that there is high brand switching. Nestle is another competitor that deals in dairy products. The firm’s strength includes the production of high-quality products designed to meet the evolving demands of its consumers. It also uses strategic marketing approach to further product knowledge to its customers. Nonetheless, the company has many employees globally. All the competitor firms plan to expand their market shares through acquisitions and increased competitions in the emerging markets around the world.

TABLE 2: Competitor Analysis

  Nestle Unilever Danone
Future Objectives Acquire R&R Ice Cream of the UK in order to lead ice cream business in the UK Offset domestic competition through overseas growth Improve and enhance R&D strategies further
Current Strategy Partner with dairy farmers to develop dairy products segment Concentrate on overseas marketing Develop consumer confidence in the UK
Assumptions  Other players will be willing to grow via mergers Competition will largely remain domestic There will be growth in consumer  milk consumption in the UK
Capabilities  Financially Stable/Global Presence Financially Stable/Global Presence Financially Stable and highly developed in R&D
General Notes Largely interested in mergers and acquisitions as a growth strategy Has advantageous positioning due to established global presence Specialized in desserts especially in the US and Europe with the exception of the UK

 

Analysis of Dynamics of External Forces

 

Although a number of external forces impact on the profitability and the business environment for Saputo, some such as the legal and political forces are bearable and expected. However, there are two major forces that are a concern for the company. These are competition, and social-demographic factors. Saputo is in business with other companies such as Unilever which are far more diversified and expanded(Competition Bureau Canada, 2015). The ability to match-up the challenge is questionable especially with the growing need to meet specified consumers demands.  Most people are finding ready substitutes for the dairy products everywhere. The established companies also have a bigger market share and an established customer base that makes it challenging for a first mover. On the demographic changes, the concern for healthy products is pressuring new and established companies to focus more on consumer-centered production. This is hard for a first mover with no experience in specific markets and market research. The bargaining power of the buyers and suppliers is also a point of great concern in the company and the industry. All these forces are expected to impact on the business levels and profitability. Therefore, they must be adequately addressed.

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