Corporate StrategyCase Study

SabritasGroup Members:

M Zia ul MustafaUbaid ShareefM Hassan AliSyed M Afaq

Fazal Abbas Chishti M Ibrahim

Faiza Saleem

SupplierSupplier

Distribution and MarketingDistribution and Marketing

SABRITAS Past Strategy and EnvironmentSABRITAS Past Strategy and Environment

CompetitorsCompetitors

GovtGovt

ProductsProducts

SupplierSupplier

SABRITAS Past Strategy and EnvironmentSABRITAS Past Strategy and Environment•Growing need of raw material •Potato Seed Improvement program•Food and feed Grains•Sugar•Cooking Oil•Corn•Packing Material

CompetitorsCompetitors

SABRITAS Past Strategy and EnvironmentSABRITAS Past Strategy and Environment

• Kellog and Del Monte left the market when there market share dropped below 10% in 1968.

• Bimbo’s Barcel subsidiary entered the snack market in 1978.

• Barcel adopted the similar Distribution strategy as of Sabritas

GovtGovt

SABRITAS Past Strategy and EnvironmentSABRITAS Past Strategy and Environment

• Potato improvement centre• Under potato partnership

program with Govt, Sabritas gave improved seed stock to selected producers.

• Companies less than 51% mexico owned were required to negotiate entry

• Created employment with new plants

Distribution and MarketingDistribution and Marketing

SABRITAS Past Strategy and EnvironmentSABRITAS Past Strategy and Environment

• Advertising on TV was the major marketing activity.

• Brand recognition was developed via Sabritas logo and brightly colored packages and delivery vans.

• Maintain a dominant market share through creative merchandizing techniques emphasizing the Sabritas brand image and the :small bags into small stores

• Store-door direct delivery

Customers and Quality ProductCustomers and Quality Product

SABRITAS Past Strategy and EnvironmentSABRITAS Past Strategy and Environment• Superior product• Independent test to confirm

that our products are the quality leaders in Mexico.

• Addition of Nutritional snacks and fortified product

Strategy Summary Before 1980

• Rapid expansion of Mexican Snack Market.• Maintain a dominant market share through

creative merchandizing techniques emphasizing the Sabritas brand image and the:small bags into small stores,”

• Store-door (Direct-deliver system)

Successful strategy Indicators

Successful Strategy Indicators

• Expected to double its volume every 5 years

• In 10 years - half a billion $ company.

• Consistent Profit Margins 14.5 % • Net Operating profit after tax -28

% increase• Return on assets 20 %• Balance sheet and income

statement• Net Income of 7.5 M $• Large Market Share

Barcel’s competitive threat – Copying Sabritas distribution strategy

Barcel’s competitive threat – Copying Sabritas distribution strategy

Mexican Government's increasing pressure to contribute to its development objectives for permission to pursue companies objectives.

Increasing difficulty in obtaining needed quantity and quality of raw materials.

Government price controls

Restriction on advertising “Junk food”.

New Threats and Changes in Strategy

SABRITAS

SUPPLIERSSUBSTITUTE PRODUCTS

NEW ENTRANTS

BUYERSRIVAL FIRMS

REGULATIONS

GENERAL ECONOMIC CONDITION AFTER 1980

GENERAL ECONOMIC CONDITION

•Differential between Mexican and US inflation rates

•Record high inflation in US

Strategy Points

• Profit Margin should be maintained by Keeping price ahead of Inflation

• Introduction of new nutritious product

REGULATIONS

•Need for another plant in Mexico city for future expansion

•Mexican government expected all divisions of same corporate entity to behave in coordinated manner

Strategy Points

• Negotiate with government to establish new plant at Nezahualcoyotl providing new job opportunities and reducing unemployment

SabritasBalance of Payment Problem

Options Available

•Reduced imports of goods and services, exports of some traditional product lines.

•Government encouraged Sabritas to export sporting goods.

•Other export alternative was supplying Frito Lay with products made in Mexico

Strategy PointsReduce the import contents of sporting goods and began to sell to the Mexican market while continue to export enough to cover Foreign Exchange cost

Raw Material Supplier

Strategy PointsTake fuller advantage of commercial

expertise and combine it with organizational commercial research rather continuing

agricultural research by Sabritas.

Learning Objectives?

• Marketing in the developing countries faces many challenges due to the distinctive environment.

• Rapid urbanization• Deficiencies in infrastructure, institutions and information• Because of these deficiencies and political salience of

marketing activities, government often intervene in the market.

• Nature and significance of government interventions• Infrastructural and organizational problems in distribution

channels.

Way Forward

• More focus on profitability and customer satisfaction rather than market share for sustainable competitive advantage.

• Exit from products of low volumes and dependent on imported raw material.

• Improved marketing strategy with more focus on nutritional aspect & product differentiation.

• Pricing needs to be adjusted and charge premium.• Preparation of local Managers for Top Positions and

creating more middle management jobs.