Habib Oil Mills 56x3i

2014

Habib Oil Mills Submitted By: Nabeel Raja

Introduction Habib Oil Mills (Pvt.) Ltd. "HOM" is the largest FMCG Company exclusively in the vegetable oil & fats sector in Pakistan. The company produces brand cooking oils and hydrogenated cooking mediums, and markets the products through its own distribution network, which covers almost all commercially viable markets nationwide. Incorporated in 1954-55, Habib Oil Mills (Pvt.) Limited was initially established as an oil expelling unit. The present management took over the unit in 1978. The company has strong financial background and has sizable infrastructure managed by professional staff. It enjoys excellent relations with its bankers and is considered liquid on all financial considerations throughout its performance. It has proven track record in this business and has plans for targeted prosperous growth in future. The marketing policy of the company envisages development of brand loyalties among the customers and consumers through their continued involvement and participation in series of several promotional activities run by professional staff and consultants. The products enjoy vast popularity and brand loyalty and stand first in of market share in this sector nationwide. The company has achieved a growth of over 500% in last ten-year period, which is primarily attributed to its consistent quality care and driving successes from application of needed market strategies.

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Mission Statement Of Habib Oil "Our aim is to become the trend setters in promoting healthy living through providing quality food products.” Components present: 1) Concern for public image: Promoting healthy living 2) Self concept: To become the trend setters .

Proposed Mission Statement Our aim is to become the trend setters in Pakistan promoting healthy living through providing quality food products and also maintain this position. We demands openness and honesty throughout operations to prompt trust, and integrity. Employees are encouraged to bring forth new and better ideas for improved performance. We strive to provide products and services of superior value to meet the expectations of our internal and external customers.

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INTERNAL FACTOR EVALUATION Internal Factor Evaluation (IFE) Matrix is a strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among those areas. Assign 1 to 4 rating to each factor to indicate whether that factor represents; 1 2 3 4

= = = =

Major weakness Minor weakness Minor strength Major strength Weight

Ratings

Weighted Score

A respectable position in the eyes of the consumers Market Leader

0.11

3

0.3

0.08

4

0.2

Habib’s slogan

0.06

3

0.06

Loyal customers

0.08

4

0.32

Production facilities

0.07

3

0.21

0.1

4

0.32

Pricing

0.04

3

0.18

Strong sales and distribution network

0.12

4

0.48

Centralized Decision Making

0.12

2

0.24

Huge amount of Import

0.14

2

0.2

Lack of company-owned R&D

0.08

1

0.08

Key Internal Factors STRENGTHS

Efficient supply chain management system

WEAKNESSES

Total

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1

2.59

ANALYSIS The total weighted score of IFE Matrix is 2.59 which is above industry average. It means that company’s internal position is good. Factors like efficient supply chain management system and sales and distribution network are getting higher weights and company’s rating to these factors are also very strong. It appears from this analysis that Habib is overcoming its weaknesses quite fairly with its strengths. Such as strong distribution network, production facilities and efficient supply chain management system. When we analyzed the weaknesses, centralized decision making and huge amount of import are the weaknesses that need to be overcome.

EXTERNAL FACTOR EVALUATION The EFE matrix is the strategic tool used to evaluate firm existing strategies, EFE matrix can be defined as the strategic tool to evaluate external environment or macro environment of the firm include economic, social, technological, government, political, legal and competitive information. The EFE matrix is similar to IFE matrix the only difference is that IFE matrix evaluate the internal factors of the company and EFE matrix evaluate the external factors. Assign 1 to 4 rating to each key, that indicate how effectively the firm's current strategies respond to the factor, where 4 = the response is superior 3 = the response is above average 2 = the response is average 1 = the response is poor

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Key Internal Factors

Weighted Score

Weight

Ratings

0.12 0.1 0.09 0.11 0.05

4 3 4 3 3

0.48 0.3 0.36 0.33 0.15 0

0.08 0.15 0.13 0.1

3 3 3 2

0.39 0.45 0.24 0.2

0.07

2

0.14

OPPORTUNITIES

Setting Refineries Local production of Raw Material Untapped rural Market People are becoming more health conscious Population growth THREATS

Unbranded edible oils Lower pricing by competitors Intense competition in the industry Reduction in the purchasing power of people due to inflation International brands are entering in the market

Total

1

ANALYSIS The total weighted score of EFE Matrix is 3.04 which is above industry average. It appears that Habib is responding in a good way to existing opportunities and threats in the industry. The average weighted score shows that Company’s performance is good but not outstanding in the industry. When we analyze the EFE Matrix by separating the opportunities and threats, we found that Setting up Refineries and emerging modern trade departmental chains like Macro and Metro carry more weights and Habib’s rating to these factors is also very good means Habib is taking full advantage to these opportunities. After that, Local production of Raw Material 0.10 weights each and company’s rating to this factor is 3. These are the areas where Habib needs improvement to take advantage of the market opportunities. When we analyzed the threats we found that the biggest threat in the industry is intense competition and company’s rating is 3. It shows that competition is the biggest threat for Habib (competition from the local as well as from unbranded/ loose edible oil) is also severe threats face by the whole industry.

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3.04

COMPETITIVE PROFILE MATRIX Competitive profile matrix is an essential strategic management tool to compare the firm with the major players of the industry. Competitive profile matrix show the clear picture to the firm about their strong points and weak points relative to their competitors. The M score is measured on basis of critical success factors, each factor is measured in same scale mean the weight remain same for every firm only rating varies. The best thing about M that it include your firm and also facilitate to add other competitors make easier the comparative analysis. IFE matrix only internal factors are evaluated and in EFE matrix external factors are evaluated but M include both internal and external factors to evaluate overall position of the firm with respective to their major competitors. Assign ratings values are represent as: 1 = major weakness 2 = minor weakness 3 = minor strength 4 = major strength Critical Success Weight Factor

Habib Oil Rating

Price Competitiveness Market Share Product Quality Promotion Efforts Customer Loyalty

Total

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0.2 0.15 0.1 0.2 0.2 0.15

1

4 4 3 3 3 4

Habib

Sufi

Score Rating Score Rating

0.8 0.6 0.3 0.6 0.6 0.6

3.5

4 3 3 3 4 3

0.8 0.4 0.3 0.6 0.8 0.4

3.3

3 2 2 3 3 3

Score

0.6 0.3 0.2 0.6 0.6 0.4

2.7

ANALYSIS From the analysis of M, we found that overall rating of Habib is better than Habib and Sufi. In M if Habib’s rating is higher than the competing firms it doesn’t mean that Habib is better than the second or third. So, we have to take a look to individual success factors. If we take a look to individual factors we found that the price, Market share and Customer loyalty is better as compare to competitors. In product quality the company’s position is same as the competing firms. But in promotional efforts Habib’s position is better than Habib. So, Habib has to pay more attention to the promotional efforts.

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Strengths (S)

SWOT Matrix Of HOM

1. A respectable position in the eyes of the

consumers 2. Market Leader 3. Habib’s slogan 4. Loyal customers 5. Production facilities 6. Efficient supply chain management system 7. Pricing 8. Strong sales and distribution network

Weakness (W) 1. Centralized Decision

Making 2. Huge amount of Import 3. Lack of companyowned R&D

SO Strategies

1. Setting Refineries 2. Local production of Raw Material 3. Untapped rural Market 4. People are becoming more health conscious 5. Population growth

 Strong sales and distribution and sales network can be use to tap rural market (S8, O3)  Habib’s production facility is very strong if it succeeds to establish local production of raw material Habib can further increase the production of cooking oil (S5, O2)  Habib’s name and image is very reputable in the international market help Habib to get export potential (S6, O1, O2)  Habib’s production facility is very strong if it succeeds to establish local production of raw material Habib can further increase the production of cooking oil (S5,O2).  If Habib decreases the price by lowering its cost, able to get share in the rural market (S7,O3).

Threats (T)

ST Strategies

Opportunities (O)

1. Unbranded edible oils 2. Lower pricing by competitors 3. Intense competition in the industry 4. Reduction in the purchasing power of people due to inflation 5. International brands are entering in the market

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 Habib can use its strong sales and distribution to compete with unbranded oil in rural markets (S8,T1).  If Habib decrease its prices by lowering its cost, can cope with the decreasing purchasing power (S7,T4)  Habib should further strengthen its brand name and positioning to increase threat for new entrants (S1,T5)

WO Strategies  If Habib improves the R&D it able to have local production of raw material (W3, O2).  If Habib decrease import and focus on local production of raw material can increase the export (W2,O1).

WT Strategies  If Habib become self sufficient in raw material production, it helps Habib to decrease the cost of production and become more competitive and strong in the industry (W2, T2, T3)

SPACE Matrix

Y axis

X axis

Financial strength 3.75 Environmental stability -3.5 Y axis : 3.75+ (-3.5) = 0.25

Industry strength 3.50 Competitive advantage -1.50 X axis: 3.5 + (-1.5) = 2.0

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ANALYSIS Habib is financially very strong (3.75) and having good competitive advantage (-1.5) in a growing industry.Habib is in an excellent position to use its internal strengths. Habib is taking full advantage of external opportunities and overcoming internal weaknesses and avoiding external threats.

STRATEGIES  Market penetration and Market development: It is a good strategy and this can be increased by targeting rural markets where people are still using unbranded/ loose cooking oil. Habib should use its efficient distribution network to increase market penetration.  Product development: Habib is currently is working on this strategy, recently it introduced olive oil as people are becoming more health conscious. New product development is a good strategy. Further new product development can be a good strategy.  Backward integration : Backward integration is like acquiring supplier as the suppliers of Habib are the raw material providers and Malaysian refining companies, acquiring supplier is a good strategy because raw material costs 70% of total cost of production. Acquiring suppliers or venturing with them is a good strategy to driven out cost and decreasing cost of production.

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IE Matrix

ANALYSIS In IE Matrix, Habib lies in the region of Hold and Maintain. Means that Habib has to maintain and hold its current position.

STRATEGIES  Market penetration Habib need to work on market penetration, it should capture rural markets where people still use loose or unbranded cooking oil. In this why Habib can further strengthen its position and increase its market share.  Product development Product development is another strategy that Habib is following, product development is a good strategy to maintain and hold current position.

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BCG Matrix

Star  Habib Cooking oil  Super Habib Oil These are products which have a large market share in a fast growing industry. Their sales are consistent throughout the year. Their cash generation is also high and at the same time has a high growth potential, therefore require larger investments.

Question Mark  Handi Cooking Oil  Nayab Cooking Oil This product of Habib’s requires plenty of additional investment. It was acquired only a few years ago. Right now it has a small market share in a market with a high growth rate.

Cash Cow  Habib Banaspati This product of Habib has one of the largest market shares in the category of banaspati. However during recent years there has not been 13 | P a g e

consistent growth in the industry. And the company has chosen to decrease its additional investments.

Dog  Mayar Banaspati This is a declining market. Habib’s product has a low market share in this category. And the company is not considering heavy investment in this product. Division

Revenue

1 Habib Cooking oil 500,000 2 Super Habib Oil 30,000 3 Handi Cooking Oil 50,000 4 Nayab Cooking Oil 20,000 5 Habib Banaspati 350,000 6 Mayar Banaspati 10,000

Total

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960,000

Revenue %

Profit

Profit Market Industrial % Share Growth

52%

$125,00 0

71%

1

3%

3%

$18,000

10%

0.80

3%

5%

$15,000

9%

0.47

13%

2%

$200

0.11%

0.1

15%

36%

$17,500

10%

0.67

-12%

1%

$500

0.28%

0.17

-15%

100

176,200

100

Grand Strategy Matrix

ANALYSIS Habib is in an excellent strategic position. Habib should continue its current strategies.  As we discussed earlier:  Market development,  Market development,  Product development, Horizontal and Backward integration is good strategy for Habib.

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QSPM Matrix Key Factors

Weight

Strategy 1

Attractive Score Strategy 1

Strategy 2

Attractive Score Strategy 2

0.11

3

0.33

4

0.44

0.08 0.06 0.08 0.07

3 2

0.24 0.14

4 4

0.32 0.28

0.1

4

0.4

3

0.3

0.04

2

0.08

4

0.16

0.12

4

0.48

3

0.36

0.12 0.14 0.08

1 1

0.14 0.08

4 4

0.56 0.32

0.12 0.1 0.09

3 3 4

0.36 0.3 0.36

4 4 3

0.48 0.4 0.27

0.11

4

0.44

3

0.33

0.05

3

0.15

4

0.2

0.08 0.15 0.13

4 3 4

0.32 0.45 0.52

3 4 3

0.24 0.6 0.39

0.1

3

0.3

4

0.4

0.07

2

0.14

3

0.21

STRENGTHS

A respectable position in the eyes of the consumers Market Leader Habib’s slogan Loyal customers Production facilities Efficient supply chain management system Pricing Strong sales and distribution network WEAKNESSES

Centralized Decision Making Huge amount of Import Lack of company-owned R&D

1 OPPORTUNITIES

Setting Refineries Local production of Raw Material Untapped rural Market People are becoming more health conscious Population growth THREATS

Unbranded edible oils Lower pricing by competitors Intense competition in the industry Reduction in the purchasing power of people due to inflation International brands are entering in the market

Total

1

5.23

6.26

*Strategy 1: Market penetration, capturing the rural markets of Pakistan where people still use unbranded / loose cooking oil for cooking. *Strategy 2: t ventures with Malaysian companies for the production and refining of raw material, in this way Habib can reduce its cost of production, because raw material costs 70% of total cost of production.

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ANALYSIS From the QSPM Matrix, it is found that strategy 2 is more attractive as the sum total score of the strategy 2 is 6.26.

STRATEGY 2 t ventures with Malaysian companies for the production and refining of raw material, in this way Habib can reduce its cost of production, because raw material costs 70% of total cost of production. Through this strategy Habib can easily get raw material as the raw material of cooking oil are cotton seed, Soya beans etc are not easily available in Pakistan by t venturing with Malaysian companies for the production and refining of raw material. Habib will be to reduce the cost of production and make the prices more reasonable in the market. In this way Habib can also increase its market penetration, by increasing production and lowering the prices.

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