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Introduction

Dairy products are one of the basic commodities of a person’s day to day life. Throughout the
world, dairy products are considered to be vital for human health due to their high nutritional
value. Despite of the socio economic problems faced by the dairy industry, Pakistan is currently
the 6rd largest milk producing country in the world that makes a huge contribution towards
country’s economy. According to the recent statistics, the annual production of milk in Pakistan
is worth Rupees 177 million and produces 33 billion liters of milk. Annual availability of milk is
82.4kg per capita. The milk production demand in the country is rapidly increasing as a result of
rapid urbanization and overpopulation. Out of the total milk produced by the country, informal
sector has 97% that includes raw milk sold in countryside and city markets. Due to the poor
keeping of the raw milk, there is a high risk of microbial infections and various diseases like Q-
fever among the human population. However, 3% of the milk is accommodated by packaged
milk producing companies with the purpose of augmenting the quality, preservation, increasing
the quantity and also to improve the lactometer reading. On the other hand, in order to mask the
effects of water dilution by these companies, certain substances like ammonium sulphate,
glucose and sugar cane have been used as additives.

The leading tetra-pack (packaged) milk producing companies in Pakistan are 15 in number
including Nestle Pakistan, Millac, Haleeb foods, Nur Pur, Nirala, Halla, Dairy Crest, Prime, K &
K, Karachi Dairies, Butt dairies, Munno Dairies, Vita, Military Dairy Farms and Engro Foods;
manufacturing ultra-high temperature (UHT) treated milk.

Engro Foods is one of the leading and also the foremost experts of dairy nutrition in Pakistan.
Recognized nationally and internationally, Company’s mission is to provide nutrient security to
its 24 million consumers nationwide. It was established in 2005 and became the 2nd largest dairy
company in the country within a short span of 14 years. Fresh milk is provided to the company
by more than 250,000 dairy farmers working across the country. Currently, the company has
more than 1400 employees that are working relentlessly to uplift the quality of the products and
to provide better, safe and affordable nutrition to the population of Pakistan. The company is
based on the core values of integrity and ethics, diversity and international focus, individual
growth and development, open and candid opportunities, leadership and innovation along with
safety, health and environment. Engro Foods processes, manufactures and sells dairy products,
ice cream beverages and frozen desserts. Presently, the product portfolio of this company
comprises of Olper’s milk, OMORE’, Olper’s Lite, Olper’s Lassi, Tarang, Tarang elaichi,
Olper’s tarka, Omung Dobala and Dairy Omung.

Business strategy of Engro Foods is to acquire more market share than other competitors in the
dairy market. The company uses differential strategy to stand out in the consumers market by
introducing the unique taste and high quality of its products. Olper’s milk is the Flag ship brand
of Engro Foods that was introduced in 2006, one year after the establishment of the company
itself. Through safety, convenience, nutrition and consistency in the quality, Olper’s milk gained
the position of leading Ultra high temperature treated milk across the country. It is currently
available in four different size and packaging designs; tetra brik 1000ml and 1500ml with cap
along with the portion packs. With high calcium content and low fat content, Engro foods
introduced another energy boosting brand in 2011 known as Olper’s lite. It was exclusively
formulated for that part of the society that wants to stay healthy and fit. Furthermore, Olper’s
cream introduced in 2006 (popular among baking enthusiasts and traditional household), Olper’s
Tarka (Desi ghee) and Tarang (Tea whitening product) in 2007 continued to be the widely
distributed products in the UHT category of the country. Moreover in 2009, The ice creams and
frozen desserts launched under the brand name of Omore , gained enormous popularity across
the country with the slogan of “bites of happiness”.

Presently, there are Nine departments of Engro foods (pvt) playing their intricate roles. Their
mutual aim is to ensure efficient and smooth functioning of the company’s affairs. The
“Administration department” focuses on administrative concerns from legal matters to general
day to day operations. The “finance and accounts department” ensures the proper documentation,
audit and financial management of different business of the company. The “Human resource
department” maintains and implements HR policies besides spearheading the recruitment process
and makes sure that finest human resource is taken on board at the company. Furthermore,
Graduates of top business schools working in the “marketing department” of the company
identify the target market and make all the strategic decisions based on evidence and research.
Moreover, “Milk procurement” department plays a vital role to ensure that quality product
reaches the customer and thus define the excellence of the end product. Milk procurement
department of Engro Foods Company include food technologists and veterinary doctors working
at collection centers and providing constant quality services to the farmers. Modification and
updating the accounting software of the company is the responsibility of the team working at the
“MIS (Management information systems) department”. This department ensures the error free
running of the automation all the times. The largest plant setup of the country established by
Engro Foods near Sukkur has a capacity of more than 300,000 liters of milk per day. To maintain
the highest hygiene standards, qualified team of workers is working day and night at the
“production department” using the modern technology as a part of their progressive journey. A
team of qualified food technologists working at “quality assurance department” strictly follows
the rules of quality assurance so that high quality product reaches to the customers as per
standards and promise. The distribution of products to different markets, stores and shops timely
and effectively, from transportation to route permits and approvals, is done by “supply and
distribution” department of Engro Foods.

In order to identify and resolve the marketing challenges faced by the company, The Company
started off with an important step of marketing research as soon as its first product was launched.
At first, secondary data was taken for analysis and conducting research. Later on, the researchers
started collecting the primary data from the customers and used different methodologies like
survey research and observational studies with a purpose to know the preferences of the
customers. Self-designed questionnaires were used that included open ended questions to find
out what brand they actually bought, where do they spend most of time in purchase process and
what do they look when they are out for grocery. The statistical analysis of the data showed the
positive results that encouraged the company to invest more and launch new products.
Furthermore, the positive results of the marketing research also resulted in the setup of new plant
in Sahiwal. Through different research methodologies, the organization was also able to find the
number of competitor’s brands. The sales figure in the first eight months after the launch of first
product was in billions. The main reason was that there were only few names in the milk sector
back then and thus customer’s ability to recall the brand name became easier. Also, Olpers had
been excessively promoted. The prominence of the red color along with the shelf space made it
unique and one of its kinds compared to other brands.

Similar to other dairy tetra pack milk producing companies across the country, Engro foods has
certain strengths, weakness, opportunities and threats of its own. The analysis shows that third
generation plants, a relationship of positivity with the farmers and customers and strong
consumers and product research are some of the strengths of the company. However, the
company being totally dependent on tetra milk packaging for all of its products , milk processing
factories near Sukkar despite of having 34 out of 40 milk collecting centers located in Punjab can
be counted as weaknesses. Moreover, huge funding by the government along with the awareness
programs by the company itself are some of its external opportunities. Biggest threat to the
Engro foods is enormous amount of competition in the dairy market due to the presence of
highly competitive UHT milk producing companies, along with the perceptions of the consumers
and price differential.

A survey was conducted from January 2007 to January 2009 with a purpose to measure the
competitiveness of various brands like Engro foods, Good milk, Nestle, Dairy Queen and Haleeb
in terms of performance as well as production. The results showed that Engro Foods had lowest
cash costs per unit of production compared to Nestle, Good milk, Dairy Queen and Haleeb. The
analysis of the survey also showed that because of the lowest cost, Engro Foods enjoyed highest
profit margins compared to all other tetra milk producing companies.

In collaboration with the government of Punjab, The Company launched a project named “Big
Push for rural economy” (BPRE) for dairy development in the country. The aim of this project is
to improve the milk production and development strategies thus increasing the income of small
livestock owners. Till 2017, this project had trained more than 94,000 farmers in 60 villages
across different areas of Punjab. The design of the project was to train 700 entrepreneurs in
different trading approaches including livestock extension and village milk collection. Till date,
this project is still aiming to generate the revenue of 190 million per annum in rural economy of
Pakistan. The company has almost 1300 milk collection centers all over Pakistan that provides
employment to more than 40,000 registered farmers across the country.

Netherlands based dairy company known as FrieslandCompina, 6th largest dairy company of the
world was attracted to invest in to Pakistan in December 2016 and thus acquired 51% shares of
Engro Foods as a result of the credibility established by the company. In the beginning, this
acquisition not only strengthened the country’s economy but also diminished the rising problems
of unemployment. FrieslandCompina was established in 1871 with annual revenue of 12 billion
euros. Such rich legacy paved way for the products of Engro Foods to more than 100 countries
across the globe.

Critical Issues:

Massive decline in profits for the year end 2018:

Primarily due to the massive decline in the sales in the year 2018, financial reports yet again
showed declining annual profits during the whole year. Reports showed a decline of 83.18% in
company’s net profit to just 63.78% in the year 2018 compared to Rs. 972 million earnings in
2017. Furthermore, the annual report analysis also revealed the decline in gross profit 8.55% to
Rs. 5.15 billion during the year. A net loss of Rs. 448 million was also reported by the company
compared to Rs. 3 million loss in the same part of the previous year.

By the end of year 2017, The Company announced financial results of the year on December
31st. A massive decline of approximately 21% was reported in Net sales. According to MG links
comparison of key financials, the Gross profit (GP) was reported to be 5.636 million against
2016s GP of 10.015 million that shows -43.72% of the change. More than 71% of decline in
company’s operating profit was also reported by the end of year 2017. Reports showed Earnings
per share (EPS) of Rs. 0.49 at the end of 2017 vs an EPS of Rs. 3.11 at the end of December
2016. Ever since Engro Corp sold the company to Friesland, Engro foods has been struggling on
the financial fronts. Furthermore, changing the senior management of the company also had a
huge impact on the company’s decline in performance.
Change in Food laws and tax regulations:

According The Quarter report published by Engro Foods on behalf of board of directors Engro
Foods limited on September 31st 2018, It was clearly stated that the misalignment between
provincial and federal food laws and tax changes was a key cause of financial and sales decline
during that period compared to the same period in the preceding year. Nonetheless, it was
highlighted that the company will continue to put in the efforts to remove the inconsistencies
between provincial and federal food laws. The sow motto taken by Supreme Court of Pakistan on
tea whitener had a huge impact on Efoods Sales as one of their primary products; TARANG
sales saw a huge decline during one year.

Increase in Marketing Promotions by competitors:

The biggest competitor for Engro foods is Nestle Pakistan. According to Nelson Pakistan, Olpers
(the biggest source of earning for Engro foods) has the 2nd largest market share in the industry
and is very close to that of Nestle Pakistan. Nestle has a diversified portfolio of products and
they have the tendency to compete at a large scale. The company started massive promotions
during the last few quarters resulting in decline of market share of Olpers. Fauji foods also
started promoting Nurpur which captured the market share of Efoods dairy products.

Poor integration of Supply chain:

Olpers are totally dependent on 3rd party logistics (through Local vendors) which results in
massive losses of milk from Farm to Fridge. Their Competitor, Neslte on the other hand has a
concept of “Green Supply chain management” where they have outsourced the whole process to
a company named “egility”. The 3rd party logistics has the timely distribution problem which
results in shortage of milk during the summers season, hence decline in sales.
Probable solutions:

Our plan is to conduct a research which would be based on interviews from the companies’
managers, as well as customers. We need to see the consumer behavior as well as which factors
influence them to shift to another brand and how a customer is retained besides the pricing factor
in dairy industry.

 Placement of certain Brands in BCG matrix will show the current scenario of brands;
which will help us analyze which brand can they keep and which can be replaced or
removed.
 Create a niche market for Olpers cream which has the huge potential but has not been
targeted properly by Engro foods.
 Create a “Targeted Positioning Statement” for the brands who are not performing well
due to external factors (Mainly tarang) and propose them a Marketing mix for this brand.

 Which areas of supply chain can be upgraded and which can be scrutinize in order to
eliminate the factor of shortages faced during the peak season

 Proposed ATL and BTL activities to create the continuous awareness about the brand so
that customer gets the awareness, goes to the trail and Repurchase the Product. (ATR
model)

 Evaluate the current brands on different marketing models to analyze which brands need
more attention and what strategies’ can be made based on the research findings
Chapter: 02

External Analysis: Environment, industry and external five forces

Engro Foods: Strategy Formulation

Environmental Strategy Strategy Evaluation and


Scanning Formulation Imlementation Control

Every corporation is living in a world, which has some impact on its smooth running. There is no
such strategy, which can be put in place without taking consider environment. Failure or best
strategy plans depends upon the environmental change. We cannot come up with the strategy,
unless having deliberate environmental scanning. The Engro food put a lot of focus on
understanding dynamic environment.
Social factors:

A graphical representation of Pakistan’s UHT milk market shows a continuous increment of


consumer’s spending in this industry. Since 2002 it was 25%, whereas it rises to 73% since 2018.

These trends shows that, people are shifting their attention towards usage of UHT processed
milk.

The awareness regarding health issues and hygienic conditions among the people is increasing
with the increasing literacy rate. Now, people are more able to differentiate between right and
wrong. Their decision making power related to usage of brands, have been enhanced.

Pakistan Council of Scientific and industrial research has conducted a research on 16 brands of
tetra packed milk, which declared the use of UHT process. After that research, PCSIR has found
that across the country, there are only 6 brands which are safe to use. Olpers was one of them.

Additionally, Engro foods are also following “Bactofuge Technology”. This has deprecated the
petrifying attitude of people from usage of tetra packed milk.

Technological Factors:
This trend is one of the most alarming one. As it not changes frequently but when it does-gave a
high competitive edge and can even changes the boundaries of market. Engro foods claims that,
they have a best technology for processing tetra packed milk, like bactofuge and UHT.
Production of milk is seasonal. Engro foods take a lot of steps to cope up with this barrier. One
of the tactics is to increase shelf life of products. They meet economic challenges with the
intrusion of technological advancements

Third-generation plant:
Engro foods is the only brand across the country, which has Third-generation UHT milk plant. It
eliminates all bacteria from milk, using “Bactofuge technology”.

Economic Factor:
The Biggest issues which Engro foods have faced during the last few years is the instability in
the countries’ economy. Engro foods take variety of steps to respond dynamic changes in
economic factors. The biggest reason of poor results is also due to devaluation of currency which
has increased the cost of production. The economic factors have a great influence on the
companies’ performance.

Political Factors:
Engro foods strictly abide by the laws and trade policies. They are not legally bound in any trade
agreements. They develop strategies, with the first consideration on governmental laws and
regulations.

Legal Factors:
Engro foods follows all laws been imposed by the government. Like, consumer protection laws,
Child labor , employee oriented laws, minimum wage and environmental regulations etc.

Industrial Analysis

Engro Foods: Porter’s Five Forces Analysis

Five Forces:
1. Rivalry Among Existing Competitors:
A fast moving consumer goods is one of the massive markets. It includes variety of population
i.e. middle and upper class. A lot of brands are in a war of winning market share and occupying
untapped opportunities.

Engro foods is residing in a world of intense competitors. Like, Nestle, Haleeb, goodmilk,
Prema, Nurpur etc.

All of them have fewer opportunities for having competitive edge over one another. Company
which will be more efficient at managing cost structures and operations is going to lead the rest.
Demographics are the factors, which includes age, sex and life-cycle stage of product. All
aforementioned brands are being affecting by these demographic factors. Engro foods is
enjoying a high position in comparison to other brands.

Engro food is leading the rest because of various strategies, like;

 PR with Farmers:
They have a strong bound with farmers. They have built a lot of milk collection centers. Direct
milk procurement from farmers plays a two role game. Engro has built large-scale dairy farms
across the country. It gives an opportunity to farmers to earn money, whereas company can have
fresh milk easily.

In process, they have gained a market high market share and leading huge market giant Nestle.
They have introduced EMAN ( Engro Milk Automation Netwrok) strategy to pay farmers in
sophisticated and trust worthy way.

 Cost Management Strategies:


Engro have adopted cost management strategies which help them to cut cost production per unit
and ultimately enjoys with high profit margins.

 Strong product and customer research:


Engro Foods always do a deliberate research on customers and products before and after the
launch. They have hired variety of global research partners to help them in making portfolio.
These are Nielsen, MARS marketing, mindshare and JWT Asiatic.

 Third- Generation plant:


They have Third generation plant using bactofuge and UHT technology. It gives them a
competitive edge over others.

 Broad Target Market:


Engro Foods is not affecting by the demographical factors. As they are targeting, all potential
buyers from high to middle class families.

2. Threat of New Entrant:


Threat of new entrant is a threat of new competitors to pose a positon into market. If firms do not
consider it seriously, it can have a drastic effect on them.

Companies can put barriers to new entrants. It resists new entrants to enter into market.

We are going to have insights on the barriers been implemented by engro foods for new entrants.

These are;
 Capital requirement:
It is hard to enter into an industry of packed products. It requires heavy investments, like;
Finances, Human capital, Technological advancements and dealing with dynamic economy etc.
It is not easy to cope up with all these barriers.

 Economy of Scale:
It is a necessary for new entrant to operate on large scale. Otherwise, they will have to bear cash
disadvantage. Existing firms have already met breakeven and now enjoying profit margins. New
entrants also have marketing and advertisement related issues as well.

Existing firms have installed high processes, technologies and plants. It helps them is producing
more number of products at less cost, i.e. low cost per unit. Olpers is already a market leader in
this scenario. It is not easy for new entrant to operate at same level as of olpers, Nestle and
Nurpur.

 Product Differentiation:
There is less untapped opportunity for new entrant in tetra pack industry. NESTLE and Engro
have already covered a huge market share. There exist less differentiation opportunities for new
entrant. Olpers stands for, “all-purpose milk” and Nestle stands for Trust. They already have
divided target markets into various segments. It is not possible for new entrant to attract new
pool of customers.

3. Availability of Substitutes:
There is less substitute availability in food industry in Pakistan. The reason is less differentiation
among companies being operating in this industry. As all of them have similar offerings. Hence,
if one company has decided to raise the prices, consumers can easily shift their attention towards
others brands. In this scenario, this industry is less attractive.

4. Bargaining Power of Suppliers:


Suppliers also have a great impact on any industry. They can increase the prices of supplies or
decrease the quality of products being supplied to companies.

If we consider food market, especially UHT milk producing market. Then in this industry,
bargaining power of suppliers is not that much great and the reasons are:

 Number of Suppliers:
Engro foods have huge number of suppliers in the market. The reason behind that concentrated
number of suppliers is the easily availability of milk from dairy farmers and milkmen. So this is
not a big problem for the companies being operating in UHT milk industry.

Suppliers are ready to sale their product to earn money. As they have less opportunities other
than this. In this case, companies are more powerful than suppliers.
More generally, UHT companies are in a safe zone regard to this resistance.

 Importance of volume to the supplier:


Companies are buying in bulk from these suppliers. It leaves less room for them to bargain from
companies. If farmers are not willing to sale milk to companies, it will be less profitable for
them. As, other opportunities are not that much profitable for them.

Engro is putting a lot of efforts to give high rewards to these dairy farmers. Since 2016 , they
have highlighted the frauds being happened to farmers. In order to mitigate this fraud, they have
introduced EMAN ( engro milk automated network) in which they deliver cash to them in a
highly sophisticated and secured channel. In this channel they are directly involve in cash
deliverance to these farmers.

5. Bargaining Power of Buyers:


The attractiveness of an industry also depends on the buyers . As they can demand for lower
prices, improved and standardized quality of the products.

If we discuss the buying patterns of individuals-they do not affect that much to EFL. As they
have less bargaining power. EFL has loyal customers, due to its standardized process of
production.

Whereas, large customers like airlines and retailers have strong bargaining power. As, their main
emphasis, is not on quality but price. These heavy clients can easily switch purchasing to other
less- priced brands. Other reason of their high bargaining power is, purchasing in bulk.

Marketers have allotted a strong position to Engro Foods-Olpers. Due to a lot of reasons:

 It is all purpose milk


 UHT process
 Third-generation plant
 6-layers of tetra pack
 Following all rules and regulations for best quality product
 Shelf life-3 months. It means consumers can purchase bulk of cartons without fear of
spoiling of milk.
 Full nutrition milk