Strategic Analysis of Greek Pastry Industry: Alfa Pastry SA

M.Sc in Marketing Management Strategy & Leadership in Marketing Stategic Analysis of Alfa Pastries S.A

SPYROS LANGKOS ID: 100285557 Tutor: Mr. Nikolaos Kitonakis Athens, May 2014

Strategic Analysis of Alfa Pastry SA

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“Pastry

is different from cooking because you have to

consider the chemistry, beauty and flavor. It's not just sugar and eggs thrown together.

I tell my pastry chefs to be in tune for all of this. You have to be challenged by using secret or unusual ingredients.�

Ron Ben-Israel Famous Israeli pastry chef

Strategic Analysis of Alfa Pastry SA

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TABLE OF CONTENTS

1] INTRODUCTION ........................................................ 4

2] COMPANY PROFILE .................................................... 5

3] EXTERNAL ENVIRONMENT ANALYSIS .............................. 6 4] PORTER’S 5 FORCES ANALYSIS ..................................... 9 5] COMPETITION ......................................................... 11

6] MARKET ANALYSIS .................................................... 12

7] INTERNAL ENVIRONMENT ANALYSIS .............................. 13

8] FUTURE GROWTH RECOMMENDATIONS .......................... 16

9] REFERENCES ........................................................... 19

10] APPENDICES .......................................................... 20

Strategic Analysis of Alfa Pastry SA

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1. INTRODUCTION

This report aims at providing a strategic management analysis of Alfa Pastry S. A., one of the most important players, operating in the Greek frozen processed food industry. As it happens with most of Greek companies, Alfa operates in a turbulent economic and political environment. At the same time, Greek consumers emphasize on low prices and high quality of food products. Thanks to its quality and innovativeness, Alfa has managed to significantly improve its growth sales since 1998.

However, its uncompetitive position in the associated industry ranking, as well as the threats it has to face, imply that the company needs to make steps towards improving its current position. Market development, effective promotion, development of online sales, product differentiation, and excessive internal financial control are only some of the ways in which Alfa could enhance and maintain its future growth and competitiveness.

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2. COMPANY PROFILE The aim of this project is to provide a detailed report regarding Alfa Pastry from a strategic management and marketing’s perspective.

This case study starts by briefly presenting the company profile of Alfa Pastry. Then, an analysis of the external and internal environment surrounding the company’s business takes place, paying particular attention to the company’s sources of competitive advantage, its strengths and weaknesses, as well as the dynamics of its external environment that have an impact on Alfa’s strategy. After the analysis, the project summarizes the key points and recommends ways in which the company could confront competition and ensure its future growth.

Alfa Pastry

Alfa is one of the most important producers of pastry-related products in Greece. The company was founded in 1965 in Kozani in Northern Greece by Mr. Athanasios Koukoutaris. It offers a wide range of retail and catering products, namely traditional pies, various types of pastry sheets, pizzas, and a wide variety of bakery products, such as traditional Greek bougatsa, brioche, and croissants. Specifically, Alfa operates in three sectors, namely retail (92 different products), food service (135 different products), and both retail and food service sectors in foreign markets, reporting significant sales growth since 1998). Nowadays, Alfa operates four production plants in Greece, Romania, Serbia, and the United States, while its sales network consists of 50 distributors and around 11.000 points of sales across the world (Alfa Pastry, 2013).

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3. EXTERNAL ENVIRONMENT ANALYSIS PEST Analysis Political conditions The political conditions of Greece are mainly characterized by the implementation of the two packages of austerity measures by the Greek governments after 2009. These measures implied the cut in wages and pensions, as well as cutting several employment rights and benefits of Greeks, thereby causing an overall political instability over the last three years. As far as the food industry as a whole is concerned, very strict legislation rules Greek food manufacturers, not only in terms of their products and packaging, but also in terms of their production processes, especially as far as environmental protection issues are concerned. EFET is the

main

governmental

authority

occupied

with

regulating

food

manufacturers, and those that are not certified with ISO:2001 quality certification are subject to serious financial penalties and even closure (Euromonitor International, 2014).

Economic conditions The Greek economy is expected to suffer the seventh year of recession, with the country’s GDP being expected to decline by 0.8% in the end of 2014. It is estimated that, in order for the country’s debt to become affordable, Greece needs to report an average growth of 3% from 2014 to 2021. As far as unemployment is concerned, this is expected to reach 27.1 in the end of 2014, slightly improved than the 27.4% of 2013. As a result of the turbulent economic conditions in Greece over the last three years, Greek consumers have seen their disposable incomes diminishing by 35%, while the country ranked last in the World Bank’s Ease of Doing Business 2013 report (Euromonitor International, 2014).

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This has been a very important indicator of the difficult and risky business environment that Greece has formed due to the economic crisis it faces, as well as lack of competitiveness and corruption (Euromonitor International, 2013).

Social conditions The numerous consecutive years of crisis have led Greek consumers becoming very price-sensitive, as well as cutting down on their spending, making their household budgets even tighter, and seeking for offers and discounts. As far as food products are concerned, Greeks are highly sensitive in health issues, their preference for fresh and qualitative food being at the forefront, especially when it comes to purchase food products for their children. Despite the fact that private label products are still perceived as of inferior quality to branded ones, a switch towards private-label food products has been observed in Greece, mainly due to their lower price.

At the same time, Greek consumers have become very sensitive with the origin of the food products they purchase. They have switched towards purchasing products made by Greek food manufacturers, as a means of supporting

Greek

economy

and

Greek

employment

(Euromonitor

International, 2014).

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Technological conditions The information and communications technology in Greece is quite developed. The Greek government has employed its Digital Strategy 20062013, aiming at giving the incentives to Greek enterprises to develop ICT infrastructure, in order to meet European standards. Mobile phone processions and Internet connectivity have also been improved in Greece households, compared with 2007, but there are still below the European averages, major reasons for that being the lack of Internet connections in many Greek islands, as well as lack of computer skills from an important part of the Greek population.

As it is clear, the development of the Internet has been the most important technological development in Greece during the last decade, which has given companies the opportunity to create new online sales and marketing platforms. At the same time, the Internet has given Greek consumers the ability to quickly identify what is offered in international markets, thereby having become more demanding. (Euromonitor International, 2013)

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4. PORTER’S 5 FORCES ANALYSIS Bargaining power of buyers The bargaining power of buyers is high in the Greek frozen processed food industry. Indeed, consumers have the opportunity to select the particular food products from a number of different manufacturers, and switch to alternative ones, if they are satisfied with their current suppliers for any reason.

Bargaining power of suppliers The bargaining power of suppliers is low in the particular sector.

Thanks

to

globalization

and

the

diminishing

trade

barriers,

food

manufacturers have the option to select the suppliers of their raw materials and ingredients from any part of the world. Domestic suppliers have higher negotiating power, due to the manufacturers’ emphasis on selecting ingredients that are locally produced, in order to keep up with the associated consumer trend.

Threat of substitutes The threat of substitutes is really high in the frozen processed food industry in Greece. The most important and direct substitute is identical, though fresh, food, which consumers can purchase on a regular basis, but just cannot store in big quantities and for long time periods. Except for that, any other food product could be considered as an indirect substitute of pasty and other forms of frozen foods. Last but not least, eating out or ordering food could also be perceived as indirect substitutes, in cases whereby Greek consumers decide not to cook at home.

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Threat of new entrants The threat of new entrants in the market is moderate. One on the one hand, the increasing interest of Greek consumers towards frozen processed food, as well as their increasing preference in private label products, have constituted the Greek frozen processed food industry as rather attractive for new companies to invest in. However, the large investments required for establishing such a business, together with strict legislation and the already established brand awareness and loyalty of existing brands form some important entry barriers that may prevent new players from entering the market.

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5. COMPETITION Barba Stathis S.A. is the leader in the Greek frozen processed food industry, holding a market share of approximately 30% in 2013, with its growth mainly been driven by its two flagship brands, Uncle Stathis and Chrisi Zimi, the latter referring to frozen bakery products similar to those offered by Alfa.

Lidl Hellas holds the second place in the sector with its private-label products and a market share of 10.4%, followed by Kallimanis S. A. and its market share of approximately 9% in the same year (Euromonitor International, 2014).

Marketing and overall promotional activities that emphasize on price benefits form a very critical success factor in the Greek frozen processed food industry, with companies operating in the sector striving to switch consumers’ attention from the more expensive fresh foods. Those companies that have used celebrities to promote their products have identified the most significant sales volume increases. New product development and innovation are also important success factors in the particular industry, together with price offers and discounts, in order to attract sales from the very price-sensitive Greek consumers. Within the context of frozen bakery products, latest innovation trends have been mainly driven by Evoiki Zymi SA and its traditional country style fyllo, as well as Alfa and its soft fyllo sold under the Afrata brand. Together with the above, emphasis on the Greek origin of products, as well as offering small packaging and higher product diversity are expected to play a very crucial role in the years to come (Euromonitor International, 2014).

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6. MARKET ANALYSIS The market Sales in the sector dropped by 55% within 2013, reaching €281 million.

Frozen vegetables and bakery products were the best performers in the market, reporting growth rate of 1% in the end of the same year. Unit prices in the sector as a whole dropped, mainly driven by Greek consumers’ demand for cheaper products. As far as private label products are concerned, they share was increased to 33% in 2013, indicating the high importance of price for Greek consumers.

Supermarkets form the most important distribution channel for frozen food products, mainly because of the rich presentation they offer for this product category and in contrast to small retailers, which, being unable to invest in big freezer areas, try to compete using special offers and discounts. As a whole, the industry is expected to meet a report a downturn in sales of about 1% until 2018, while value will be negatively affected by the continuous

manufacturers’

emphasis

on

discounts

(Euromonitor

International, 2014).

The consumers

Greek consumers have gradually improved their perceptions towards frozen processed foods’ quality, mainly driven by their low price compared with fresh ones, as well as marketing campaigns mentioning that frozen food keeps the same nutritional characteristics as when the same food is fresh.

At the same time, Greek consumers have become increasingly keen on cooking at home rather than going out or ordering food, and this has been another main reason for the growth in frozen vegetables and bakery products (Euromonitor International, 2014).

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7. INTERNAL ENVIRONMENT ANALYSIS Vision and mission The vision of Alfa is to offer the best piece of Greece. Under this vision statement, the company highlights its mission, which is to take advantage of Greek gastronomic characteristics and together with the astonishing taste and quality of its products to offer the best pies Greek consumers have ever tasted (Alfa Pastry, 2013).

Competitive advantage The business success and the competitive advantage that Alfa pastry has gained in the markets in which it operates form the outcome of a number of core competencies and capabilities that the company has developed since the beginning of its operation. To start with, innovation is at the heart of Alfa’s business. More specifically, Alfa was the first company in the Greek market to introduce the authentic fyllo, the so-called “kihi” pies, which are strongly related with the history of Kozani, as well as paper baking tray for pies to be directly placed in ovens, in contrast to competitors’ aluminum trays.

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Moreover, Alfa places high emphasis on quality, looking for ingredients and making food products of superior quality, which is acknowledged by 98.5% of its customers. Indeed, the company operates under the strict European IFS and BRC quality standards, while also testing every single food product it makes in the company’s certified internal laboratory. Further, Alfa is highly customer-oriented, basing its product development on the Mediterranean dietary habits and traditions. Furthermore, Alfa’s business is based on four core values that also enhance their competitive advantage, namely taste, ethos, quality, and creativity.

Additionally, the company’s workforce forms another important source of competitive advantage, mainly reflected in organizational members’ passion for what they do and emphasis on business excellence at all levels. Under no doubt, strict quality controls have also contributed to the very high quality of Alfa’s products, together with the very wide variety of pastry and bakery products the company offers. Alfa’s expansion to foreign markets has also significantly contributed to Alfa’s sales growth over the last decade, while at the same time giving it the financial capacity to further invest in the innovation and overall development of its business.

Marketing and promotional activities are also at the forefront of Alfa’s operations, with the company advertising its products through various media, the Internet also been included, both in the domestic market and abroad. Last but not least, Alfa has established a very sophisticated information system, giving the company the ability to enhance and maintain its operating efficiency (Alfa Pastry, 2013).

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SWOT Analysis Strengths

 Wide range of retail and catering products

 Sales network of 50 distributors & 11.000 PoS across the world  Significant sales growth  Innovativeness

 High product quality

 Committed employees

 Intense quality controls

 Greek origin of products

 String marketing and promotional activities  Sophisticated information system Weaknesses

 Low competitiveness in the Greek market

 Operation in the frozen bakery segment only, compared with competition Opportunities

 Greek consumers have switched towards purchasing products made by Greek food manufacturers

 Information

and

communications

technology

in

Greece

quite

developed

 Low bargaining power of suppliers

 Frozen bakery products’ sales expected to grow in the next 5 years  Improved their perceptions towards frozen processed foods’ qualit

Threats

 Overall political instability in Greece

 Very strict legislation for Greek food manufacturers  Diminishing Greek consumers’ income  High bargaining power of buyers  High threat of substitutes  Intense competition

 Increasing private label products penetration Strategic Analysis of Alfa Pastry SA

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8. FUTURE GROWTH RECOMMENDATIONS In order for Alfa to ensure its growth for the next years, it needs to take into consideration the analysis so far, as this was summarized in the SWOT analysis presented in the previous section.

In other words, the company needs to take advantage of its strengths, in order to deal with its internal weaknesses, explore external opportunities, and avoid external threats.

One way in which Alfa could enhance its future growth would be to explore new market segments, and mainly the frozen beans market, which is also another promising segment in the Greek frozen processed food industry.

Doing so will help the company in further increasing its sales volumes, as well as acquiring market shares in other segments as well, thereby further diversifying its product portfolio, which is already a critical success factor in the market.

Opening new markets is also consistent with the above. Alfa shall follow the strategy of market diversification, according to which companies explore new markets with new products (Farris et al., 2010). Developing countries, which are expected to drive global economic growth in the years to come, provide excellent business opportunities.

Promotion is another means of Alfa’s enhancement of future growth.

Advertising and promotional activities shall heavily emphasize on the Greek origin of Alfa’s products, while at the same time highlighting the nutritional benefits of frozen bakery products the company offers and the fact that frozen foods maintain the beneficial nutritional characteristics that fresh foods also have.

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At the same time, Alfa could also offer smaller packages of its products in the Greek market. As such, instead of lowering its prices and being involved in a price war, Alfa should offer smaller, thus more economic, packages, so that Greek consumers experiencing financial difficulties prefer to purchase smaller quantities of a branded and trusted product offered by Alfa, rather than purchasing a private label one.

Taking into consideration the high levels of its innovativeness, it will not be difficult for Alfa to also invent new pie tastes, so as to further differentiate itself from competition. In short, the company shall follow the strategy of differentiation, offering products or product features that are perceived as unique in the market (Kiechel, 2010).

Given that the business and overall economic conditions are rather turbulent in Greece and the future is unknown, Alfa must be very careful regarding its financial performance and the management of its financial resources. For this reason, tight internal financial control shall take place on a regular basis, so that the company constantly monitors its financial condition and take measure before certain financial issues cause severe problems to its business. Of course, it is also important that all other departments need to go in line with the financial strategy of the company as well. It follows that internal control shall not concentrate on product quality only, but also on overall operating efficiency.

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It is important for Alfa to create an online sales platform for wholesalers.

First of all, this will help the company in being consistent with the Internet development characterizing Greece and the global market as a whole.

Next to that, operating an online sales platform will help the company in reducing its operating costs by occupying less employees in customer service schemes.

As a last point, it may be very beneficial for the company to pursue a vertical integration strategy.

According to this strategy, a company is actively involved in and owns many parts of its supply chain, either backward (suppliers) or forward (distributors and buyers). By following such a strategy, a company controls its supply chain in a more efficient way, thereby enhancing and maintaining the quality and control of its products and overall supply chain processes (Hill & Jones, 2012).

In the case of Alfa, except for maintaining the above, the company would also have the opportunity to control its supply chain costs as well, thereby being able to offer lower prices to end buyers and complying with the diminishing incomes of Greek consumers. Vertical integration shall also be accompanied with an intensive distribution strategy, based on which Alfa shall strive to distribute its products through the maximum points of sales available in the market.

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9. REFERENCES Alfa

Pastry

“The

(2013),

company”,

available

at

<http://www.alfapastry.com/el>, accessed on 03-05-2014.

Euromonitor International

(2013), “Business

environment: Greece”,

available at <www.portal.euromonitor.com>, accessed on 05-05-2014.

Euromonitor International (2014), “Frozen processed food in Greece”, available at <www.portal.euromonitor.com>, accessed on 05-05-2014.

Euromonitor International (2014), “Greece: Country factfile”, available at <www.portal.euromonitor.com>, accessed on 04-05-2014.

Farris, P., W., Bendle, N. T., Pfeifer, P., & Reibstein, D. J. (2010), Marketing Metrics: The Definitive Guide to Measuring Marketing Performance, Upper Saddle River, New Jersey: Pearson Education Ltd.

Hill, C. W. L., & Jones, G. R. (2012), Strategic Management Theory: An Integrated Approach, 10th edition, Cengage Learning.

Kiechel, W. (2010), The Lords of Strategy, Harvard Business Press.

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10. APPENDICES A] Greece- Country and business profile Business indicators in Greece

(Euromonitor International, 2014)

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Disposable income in Greece

(Euromonitor International, 2014)

R&D spending in Greece

(Euromonitor International, 2013)

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B] The Greek frozen processed industry Sales in the Greek frozen processed food industry

(Euromonitor International, 2014)

Competition by company

(Euromonitor International, 2014)

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Major distribution channels

(Euromonitor International, 2014)

Sales forecast

(Euromonitor International, 2014)

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