Internal Diagnosis of Vel Pitar

Alina Dumitrascu
Andrei Cazangiu
Gabriel Nicuta

International Business Management

Bucuresti
2014
 I. Company description

Company presentation
In a globalized world like the one we live in, everything is in a continuous change.
However, at a national level, there will always be certain goods, values and customs which
will continue to be representative and of great influence on the market. Romanias bakery
industry has a long tradition and it has been developing over the years.
The main goal of this research is to analyse the internal diagnosis of a Romanian
leading company in the bakery market - Vel Pitar - whose brand values are: integrity, loyalty,
responsibility, efficiency, performance and ethics. The resources, strengths and weaknesses,
capabilities, core competences, competitive advantage and value chain of the organization
will be identified and its response strategies for dealing with competition.
The Vel Pitar Group is the leader of the Romanian market of bread and bakery
products from all points of view: size, geographical coverage, turnover, profit level, number
of clients, the level of implementation of modern technologies and compliance with European
legislation. It is also an important player in the production and distribution of biscuits, wafers,
confectionery specialties and pastries.
Throughout the years, it has changed the way milling and bakery industry is perceived
as a business in Romania: they were the first who invested heavily in innovative technologies
in order to offer their customers highest quality products.
Vel Pitar SA was formed in December 2001 through the merger of four milling and
bakery factories: Mopariv Vlcea, Berceni Bucharest, Panegrano Cluj and Granpan Tecuci. In
October 2002, it merged by absorption with the company owning some credence Sorelo and
up to the present the enlargement process continued with the take-over of the other smaller
bakery companies or milling factories.
Currently, the group owns 13 production centers: 2 in Bucharest and 11 in the rest of
the country, milling units and a network of 157 commercial shops in major cities in Romania.
It has a national coverage, 4.600 employees and over 2 million customers daily. Once a
month, on average, about 10,000 tons of bread are produced, along with 300 tons of biscuits
and wafers and 14,000 tons of grain mill products.
With elite trained employees at a European level and by means of an effective and
professional production and distribution system, Vel Pitar offers to its clients quality products,
in accordance with legal requirements and national and European regulations.
 General Manager

Administrative HR Production IT Supply Marketing Logistics

Organizational purposes
Mission:

The objectives of Vel Pitars mission are the following, regarding:

Consumers: to reach every bread and pastry eater
Technology: the most modern technology- Keine Touch (untouched product)
Survival, growth and profitability: investment plans in Romania and abroad
Filosophy: offering consumers high quality products and assuring an optimum number of
nutritients.

HR
Interest points: 12 factories, 157 stores
Employees: training programmes, bonuses

PR campaings
Social responsibility in the education (Usi deschide catre viitor) and social (Impreuna mai
aproape de oameni) sectors

Objectives:

The top of the objectives list consists in supplying customers with the best quality
products. By quality, Vel Pitar means conforming to customers requests, following
specifications and the technological process by the book, not disregarding work parameters
and also reducing claims and damaged goods.
Also, a lead objective is creating a synergy between teamwork and operational
excellency in order to assure a maximum degree of competitivity in the market.
Important objectives as well are its consolidating Vel Pitars image- represented by the
high quality products and services offered- and extending its equity by purchasing new new
production units and improve them technologically
 Brand Values:
Integrity: Vel Pitar is honest with itself and with its partners
Loyalty: Vel Pitar respects its name and its business engagements

Responsibility: Vel Pitar has the courage to take decisions and assume results. It is making
progress through learning

Efficiency: Vel Pitar is using its full array of resources in order to create the very best products

Performance: Vel Pitar utilizes intitiative, action, creativity and a spirit of competition to
reach its goals. The reward of meeting and exceeding this goals is the direct result of staying
tru to the aforementioned values

Ethics: Vel Pitar always acts with integrity and honesty

II. General analysis of the business environment

PESTEL Analysis

Political environment:

Political factors are country specific and they mainly consist of society structures,
social classes and their role in society, political forces and the relations between them, the
degree of involvement of the state in the economy, the stability of the political environment-
internal, regional and international. These factors may be, as appropriate, stimulating and
limiting factors of some market activities.

Economic environment:

Inflation rose by by 6.7 % in November 2008 compared to November 2007. Food

prices rose by 6.5 %, the non-food products by 6.9 % and service charges by 7%. In the same
period bakery products price rose by 6.6% . Average net wage was 1795 lei in October 2008,
2.4 % higher than the previous month.
External financing is more expensive and difficult to obtain and especially in the long
term we face a very dynamic fast growing foreign debt, trade and services accounting for the
first places in this.

Social environment:
 The last ten years have brought a drop in consumption of 10 kgs of bread/ capita as a
result of preference changes. Changes occur every year, on this highly fragmented market, the
segment being very dynamic. The bread is not bought daily but two to three times a week and
packaged and sliced bread is preferred at the expense of fresh one. Many Romanians with
higher incomes prefer to give more money on packaged bread, both because it has a longer
shelf life and because products contain information such as product name, basis weight, shelf
life, ingredients, packaging and storage conditions.
Also the concept of packaged bread prompted consumers to switch from daily to the weekly
purchase .
Religion and nationality are important factors in shaping the consumer profile and it is
an issue that has to be considered by the supplier. Habits and personalities of individuals are
influenced by the type of religion, holidays and traditions of each etnic group. Target
customers consist generally of Romanians and the religion with the largest share is
Orthodoxism.
Another element that helps to identify the cultural aspects, is the educational level,
influencing the company in two aspects: the knowledge of the personnel and the knowledge
of the customers.

Technologic environment:

Vel Pitar Group has invested in factories, mills and stores purchased. Modern
technological lines -unique in Romania-have been purchased. The buildings were renovated
and adapted to European standards. There is a national distribution system covering the entire
country, and the production was diversified to meet the needs of consumers.
Vel Pitar invested in the latest technology line fully automated from kneading
operation and up to the packaging. Productivity is increased and also products made on these
lines are of very high quality (prolonged freshness, constant color and shape).
Investment in new technologies has allowed the packaging, and the entire production
process to use the Keine Touch technology. (the consumer is the first person to touch the
product).
 Environment:

The environment has an increasingly important role in the design and conduct of
economic activity. Natural conditions determine the location and the distribution of the
activities of the economic entity, thus directly influencing the activity objective. In this
category falls and the need to avoid pollution. There are strict rules on how regulated the
collection of food and non-food waste.

Legal Environment:

Regarding the regulatory environment, legislation affecting businesses generally has

the following objectives:
Protecting buyers, society and organizations.
Market competition rules (entrepreneurs protection against unfair competition, price
discrimination)
Wellbeing for the general society (reducing environmental pollution, resource preservation,
quality of life)
CNA regulations on comparative advertising, defamation and plagiarism
Consumer protection (ensuring the safety of products used, protection against deceptive trade
practices)
Protection of companies: patent protection, trademark registration

The 5 Force Framkework- Porters Model

Buyers bargaining power:

Main customers are VP Stores, hypermarkets cash & carry locations and any consumer
bakery. The main customers are supplied from Seven Spice Brasov are Vel Pitar Brasov,
Brutaria Orzar Mures, Fundatia Casa Copilului Brasov, Braldico Brasov-Tarlungeni, Asensi
Arad, Nova Pan Distribution Brasov, Bucuresti ,Alexdi Brasov-Feldioara, Nicu Prem si Fii
Brasov.

Suppliers bargaining power:

Main suppliers are generally companies that have long relationships with Vel Pitar and
have not created problems. Among the main suppliers of raw materials are: wheat suppliers
(Comcereal Teleorman, Comcereal Giurgiu, Comcereal Galati, Nidera, Cargill, certified
 private suppliers) and suppliers of auxiliary materials (Lesaffre SRL, Agemod Crist Impex,
Intermeridian S.R.L, Drim Daniel, Avicola Impex S.R.L., Scavil S.A., Slanic Prahova,
MegaRoll SA, S.C. Puratos Prod SRL, S.C. Solaris SA, S.C. Vinalcool Arges)

Direct competitors:

The rivalry is very high in the bakery industry and retail business (estimated at about 2
billion euros in 2008 compared to 1.5 billion in 2007) the rivalry is very high. Vel Pitars main
competitors are: SCBoromir SRL as the main competitor in the field of bakery products,
S.C.Dobrogea S.A, S.C. Baneasa S.A, S.C.Moara Baciu S.A. Cluj-Napoca, S.C.Mopan SA
Suceava, S.C.Compan Tirgoviste, S.C.Anairo Tg.Jiu, S.C. Gerpen Tg.Jiu, S.C. Pambac Bacau,
S.C. Rostar Bucuresti, S.C. Propast Iasi, S.C. Galmopan Galati, but also smaller companies
with low individual productivity, but significant as a whole.

Substitutes:

The main substitutes are mamaliga and Lent (fast) products

Potential entrants:

Bakery products market competition is increasingly fierce and competition appears all
the time. Even if competition is often unfair and is very high in terms of number of
companies, the main battle is still given between large bakery and milling manufacturers.

III. Market analysis

1. SWOT

a) Strengths
Market leader for bread and bakery products in Romania.
The company is known for its own strong distribution network that covers more than 190
specialized stores.
Has a diversified range of products, fact that is connected to the well functioning of the
production department.
The existence of well-structured promotional campaigns that include price reductions and all
sorts of advantages for the final consumer.
 A competitive advantage is represented by the Keine Touch technology that allows the
consumer to be the first that touches the bread.
Represents a top-of-mind choice for many bread and bakery consumers and has good
reputation in our country.

b) Weaknesses
Its own network of stores doesnt cover all the country. Dobrogea and some parts of the West
and North are considered weak in terms of distribution.
The price of products on certain segments is considered to be too high.
The flour production and distribution is considered underdeveloped in comparison to Vel
Pitars competitors.
Not visible in the online environment (the website is not functioning, the facebook page has
less than 2000 likes showing low online engagement with the customers).

c) Opportunities
growing demand for healthy bread and bakery products
the national program developed by the Educational Ministry to supply milk and bakery
products in schools
availability of numerous European funds
economic stability after the crises
Discussions regarding the decrease of VAT for bread and bakery products.

d) Threats
Increasing number of competitors leading to a decrease in market share
Competitors developing their distribution channels
Decrease of the bread market due to obesity
Imported goods are perceived as being better

2. Competitor analysis

Boromir is the second largest producer of bread and bakery in Romania and the
biggest competitor of Vel Pitar. Over the course of 16 years, Boromir has developed in a
dynamic rhythm so that today it controls 10% of the milling market in Romania. The
company owns a network of specialized shops Boromir Pan Caf (shops with surfaces
between 50 and 150 square meters), a project launched in 2008, based on the re-branding of
the traditional Boromir bakeries already existent in Rm Valcea since the year 1996.
Out of the total Boromir business, the milling division represents 55% followed by the Sweets
 and Cakes division that holds 20%, the baking division with 15% and the rest of the activities
represented by shops, distribution and gas stations that cover 10% of the business.

Dobrogea group is the third major player in the industry with a market share of
8%. It has a history of 50 years and a wide variety of products. Fresh Dobrogea retail chain
comprises 19 shops located in Constanta and in the main towns of Constanta County; Fresh
Dobrogea retail chain is being organized as modern convenience shops with a pleasant
atmosphere, well-stocked with food supplies and provides personalized concept of selling
fresh bakery and pastry products.

BCG Matrix of Vel Pitar and Boromir

Vel Pitar Boromir
Stars Question Stars Question
French toast marks Croissants marks
Cake Pain au Leit Kraffen
Tabiet biscuits French Toast
Integral
Vel Pitar flour

Milking cows Dogs Milking cows Dogs

AlmaDolce French Rolls Bread Kindersib line
Roll4Ever Clopotel line Cake
Bread Bulk biscuits Giani pasta

3. Consumer analysis
Baked goods in Romania remains under the impact of bread, which continues to
dictate the performance of the category as a whole due to the big consumption per capita.
Bread is a traditional product and the replacement rate by other bakery products is extremely
low. The fact the majority of the population suffers from a reduction of their purchasing
power has led to the relatively small change of volume sales of bread as consumers prefer to
stick to consumption of bread which satisfies the demand for a cheaper meal. Whilst the city
consumers remain loyal to artisanal and packaged bread, the countryside population focuses
on unpackaged bread purchased from the small local bakeries but also on home-made bread
as well as on mamaliga (polenta), home-made from maize harvested in most cases from their
own backyard.

Traditional unpackaged baked goods accounted for the majority of sales in 2008, as a
consequence of the strong fragmentation of mainly bread production. Fragmentation was very
high at the regional level, where each county and district generally has two or three larger
producers as well as hundreds of small producers that are very active in bread production.
Unpackaged (artisanal) bread accounted for the vast bulk of sales in Romania, with
small bakeries often representing the sole source of fresh bread in smaller communities.
In the future no spectacular changes are expected at least in the bakery sector, due to
the already high per capita consumption of bread. Longer working hours and higher incomes
will result into busier lifestyles and greater health awareness. This, in turn, will encourage the
consumption of packaged/industrial bread, perceived as healthier and having a longer shelf
life, which fits with the growing preference for weekend shopping.
The milling sector, however, will continue its development and modernisation also
with the help of EU funds which will result in higher cereal storage capacities (silos) and the
setting up or upgrading of flour and feed mills.

IV. Strategy formulation

The strategies applied in relation to pricing are pretty similar for both Vel Pitar and her
main competitor, Boromir. They use high prices for new products that can be positioned as
high quality for a middle to high income target, position that is often sustained through
marketing campaigns and low prices for widely spread products and as a form of supporting a
current promotion.

The K-touch technology, for which Vel Pitar has differentiated its products from the
others on the market, represents a strong base for competitive advantage. What is truly worth
mentioning as a factor that determines Vel Pitars competitive advantage on the market its its
distribution network.
 What is important to know is that Vel Pitar has the most efficient network for direct
distribution, its logistical center is fully computerized and its delivery time is always on term.
Among the delivery points and final entities that sell Vel Pitars products one should
mention: Vel Pitars own shops, independent grocery stores, supermarkets, hypermarkets,
discounters, institutions, HORECA and bakeries. As a downside one should take into account
the fact that Vel Pitar is able to distribute directly its products only to big cities. Also, many
have argued that the size and the ambiance of their own stores are unable to capture the
quality of their products.
Vel Pitars succeeds in sustaining its competitive advantage mostly through
differentiation: the K-touch technology is difficult to imitate due to the high costs associated
with the production equipment needed, but also through the activity of its efficient marketing
department that can also make the consumers perceive Vel Pitars product as different from
the ones of the competition.

Bread and bakery products are not extremely advertised in our country due to the fact
that people will always buy bread here keeping in mind factors like price and quality.
However, Vel Pitars Marketing department is a very efficient one and it develops many
extensive marketing strategies and advertising plans. Vel Pitar was the first company that
created a campaign for bread, respectively for its French Toast made through Keine Touch
technology. In order to emphasize the quality of the bread and the professionalism of the team
theyve engaged in sampling campaigns using cross strategies: sampling along with products
from Hochland and Unilever. They also had a strong online presence through the website:
www.sandvisulperfect.ro. In this way all the aspects of a good and powerful marketing
campaign were covered.

Vel Pitar has achieved both size and market dominance, therefore, it can easily be
given as a successful example in sustaining competitive advantage.

1. The VRINE model

The VRINE analysis suggests how a firm might use its resources and capabilities to
differentiate its products or services in valuable ways that competitors cannot imitate.
Therefore, by evaluating the resources of the Vel Pitar company using the VRINE model
(value, rarity, inimitability, non-substitutability, and exploitability), we have reached the
following conclusions:
Rarity is defined as scarcity relative to demand. An otherwise valuable resource that
isn`t rare won`t necessarily contribute to competitive advantage. Valuable resources that are
available to most competitors simply enable a firm to achieve parity with everyone else.
Rarity manifested by Vel Pitar can be noticed in the concept developed "in-store bakery",
which is performed in the Vel Pitar Koglniceanu store (Bucharest), where marketing bakery
products takes place in a space specially designed for this type of products. Also, the company
uses the K-Touch Technology (Keine Touch = untouched product). Additional to this, there
are several companies like Vel Pitar which are big in the food business, but they are less
specialised, less popular and have less diverse products.
Vel Pitar adds value by permanently investing in getting healthy products, with high
nutritional value and rich content of beneficial ingredients for the body. Also, the
technological grinding process is in very tightly control, giving each product its own virtues.
Another valuable concept used by Vel Pitar is the Whole Wheat bread, which preserves all
the nutritional properties of the grains of wheat, thus creating a unique bread in our country
that assures an optimal and balanced nutrition. Compared with the white bread, the Whole
Wheat bread has: 6 times more fiber, 15% fewer calories, 5 times more natural vitamins and
no preservatives.
The huge and well-known portfolio is also valuable, as it enables the company to
cover a broad range of needs as well as share resources (mainly in production) between its
subsidiaries.
Furthermore, a capability will grant an advantage only so long as competitors don`t
gain possession of it or find a close substitute. In this case, the inimitability and non-
substitutability are promoted by the company through the price. Its establishment depends on
many factors, but the most important one is the flour. An increase of the cost of flour brought
along an increase of the price of the products, but this has not shrunk the number of
customers.

The fifth and final VRINE criterion emphasizes the fact that possession of a resource
or capability is necessary but not sufficient to gain a competitive advantage. A firm must be
able to exploit it, to nurture and take advantage of it.
In 2009, Vel Pitar began to develop a strong CSR policy. On July 2 nd, 2009 the
Imparte.ro campaign was founded, initially at a local level, under the slogan "Share - it's
more than a slice of bread!". The project was designed to be a communication path between
those who need help and those who can offer it, being centered on bread donations made with
the registration code of every package of French Toast. The feedback received from the users
(more than 15.000) and the desire of Vel Pitar to engage more in the community life led to a
strong development of the project, so, on July 5 th, 2010 imparte.ro was re-launched, adding
new facilities and new types of donations - through money or items. Currently, donating
loaves of bread is unique in Romania and different NGOs show support it.

2. Capabilities and core competences

An organization capability focuses on internal processes and systems for meeting

customer needs, creates organization-specific competencies that provide competitive
advantage since they are unique and ensures that employee skills and efforts are directed
toward achieving organizational goals and strategies.
a) Economic / financial capability: Vel Pitar stays informed in terms of what the
Romanian consumers needs are and it is able to produce certain goods whose quality-price
ratio is rated as the most efficient and accurate on the market at the moment. Homologue
products belonging to S.C. DobrogeaGroup S.A. Constanta or to Smart Food Solutions
Savoria S.R.L. are less accessible to the public because of their higher price.
In addition to this, by strategically planning its budget and acquiring its own milling
factories, Vel Pitar overcame the problems of flours price instability as well as of flour supply
and demand, which was significant since flour is the most important ingredient. The
acquisition has also greatly helped in improving product quality, since the company can now
mill flour and grains according to its products characteristics.
The core competences generated by the financial capability of Vel Pitar are:
adaptation, planning, competitive price and quality results orientation.
b) Strategic / marketing capability: the products or goods produced by Vel Pitar
differentiate it from its competitors by adding-value or product-portfolio mix.
The extensive marketing strategies and advertising plans described at the SWOT
analysis show that Vel Pitar has market knowledge, effective Internet presence and strategic
customer targeting. Vel Pitar has a wide range of products and it provides bakery expertise
the marketing, sales, culinary, and new product development teams are well trained in order to
maintain their relationship focused attitude towards the customers. In addition to this, every
year it organizes the Opening doors for the future campaign, addressed to students and
charity campaigns in order to offer free bread to people with low income and address the
needs of the communities in which they operate.
Choosing the design and the colours for the packaging is another interesting marketing
strategy that Vel Pitar uses in order to catch the attention of the customers and the assure that
the product that is inside stays fresh and in a perfect shape.
 c) Technological capability: the products customers receive are innovative and high-
quality, typically in how they are built or delivered.
The K-Touch Technology (Keine Touch = untouched product), used by Vel Pitar
guarantees each client to be the first person to touch the targeted product. The modern
technology used in its 13 factories includes assembly lines that reduce the delivery and
packaging times. Moreover, the company invested over 2.5 million euro in the most
performing equipment on the market for the modernization of its mills.
Vel Pitar manages to preserve all the nutritional properties of the grains of wheat, thus
creating an unique bread in Romania: the Whole Wheat bread - healthy and recommend to
all people, because it provides an optimal and balanced nutrition.

d) Organizational capability: Vel Pitar focuses on achieving goals through employee

commitment and competence having therefore a commitment to continuous learning.
In terms of human resources, the Vel Pitar Company has over 5200 employees chosen
according to their previous performance or growing potential. There are regular learning
trainings, equal chances of promotion and a work environment that compensates the
individual performance. Vel Pitar aims to create beneficial, long term relation with its
employers, shareholders, or clients.

3. Competitive advantage

Vel Pitar was rewarded for being one of the top consumer brands on the local market.
In 2013, it was on top of the leaderboard for Romanian Top Bakers, a competition
organized by the Agrointeligena magazine. In 2014 it won the Trusted Brands Award in
the Bakery category at the survey realized by Readers Digest. Also, it won the award for
Bread of the Year at the GastroPan Trade fair.
The sustainable competitive advantage of Vel Pitar on the local market is maintained
by:
- The ongoing acquisition of new bakery lines;
- The years of experience (they were the first Romanian company to invest heavily in
innovative technologies);
- Its wide area of production centers and milling units;
 - Its prestige and simple, yet catchy name (Vel Pitar was the bread supplier of the royal
court);
- The Keine Touch technology that allows the consumer to be the first that touches the bread;
- The concept developed "in-store bakery", performed in Bucharest, at the Vel Pitar
Koglniceanu store (the bakery production takes place in a specially designed space)
- The neighbourhood bakery stores;

4. Value chain analysis

A value chain is the process by which a company creates added value through a series
of corporate activities, and is divided into primary activities and support activities. Support
activities consist of planning, research and development, human resource, financial activities
and accounting, while primary activities are manufacture, distribution, marketing, sales and
services. (Porter, 1998)
Leadership requires a quick decision making system centered on the CEO. In 2010,
George Frincu, the CEO of Vel Pitar, decided to make some serious changes in order to
improve the overall situation of the company: he renegotiated the contracts with the suppliers,
managed to settle for smaller rents, reduced the fund for utilities, and reorganized the logistics
system by increasing the number of products per transport.
Meanwhile, Vel Pitar R&D section continually strives for technological innovations in
order to simplify the labor and offer high quality products.
Even though there are more than 190 specialized stores, the Logistics
department has to face with the underdeveloped distribution of goods, in comparison to Vel
Pitars competitors (Titan, Boromir, Pambac, Dobrogea). In order to have better
distribution channels, the company should look at the methods its competitors use, rank the Margin

existing options and weigh the costs and benefits associated with each of these options.
The companys strategies: operational excellence, product innovation, customer driven
and outlet development require improvement of customer loyalty and a reputation
for customer service, choosing the best locations for its neighbourhood bakery stores and
shops, enlargement and redesign of the in-store bakeries and maintenance of the good vendor
relations.
Support Leadership
activities - Prompt decision making system
Human Resources Management
 - Regular tests for all the baked products
- Active communication efforts with all the national factories and mills
- Encouragement for the employees personal initiative
- Opportunities for growth, learning and personal accomplishment.
- At least 40 hours of specialized training per year
R&D
- High quality raw materials
- Maintain R&D activities for innovative product development
- Active adoption of advanced technologies from abroad
Purchase / Logistics Production Marketing/Sales Service
- Using highest quality - Processing raw - customized seasonal - Communication with
raw material produced material through marketing customers through
in good areas of differentiated milling - effective use of strong online presence
production technology promotional and social (www.velpitar.ro,
- Fully computerized - Improvement of campaigns ("Share - it's www.sandvisulperfect.ro
Primary
logistical center product quality more than a slice of bread!") www.imparte.ro)
activities - Distribution network through differentiated - national Vel Pitar stores - The diversified range
covering more than 190 method - Extensive marketing and of products satisfies a
specialized stores. advertising strategies large number of
- Sampling along with consumers
products from Hochland and
Unilever.

Bibliography:
http://www.boromir.ro/en/about-boromir
http://www.dobrogeagrup.ro/en/#
http://www.euromonitor.com/biscuits-in-romania/report