3.

Dominant Economic traits of the industry (Handout 3)

4. What is competition how strong each competitive forces (5 forces) (Handout 3)

Cargills (Ceylon) PLC is engaged in the manufacturing of and trading in food and beverage, and
distribution. The Company operates through four segments: food and beverages, wholesale
distribution operation, photo processing and leisure. The Company operates a chain of
supermarkets, convenience stores and a hyper market. It also manufactures, produces,
processes and markets processed meats, dairy ice cream, milk, jams, cordials, sauces and
beverages. It operates Kentucky Fried Chicken franchise restaurants in Srilanka, by processing
of agricultural produce. Its subsidiaries include Cargills Distributors (Private) Limited, Cargills
Quality Dairies (Private) Limited and CPC (Lanka) Limited, among others. On March 12, 2008,
the Company acquired Millers Distributors limited.

Cargills at a Glance

Cargills (Ceylon) PLC is a Sri Lankan corporate established in 1844 and built on a strong
foundation of values and ethics. Guided by trusted leadership it spearheads the sustainable
development of the food industry in Sri Lanka.

Its continuous investment in retail has made the Cargills retail arm Cargills Food City the largest
retailer in the island in all categories. Pursuing innovation and food safety its manufacturing
brands Cargills Supremo and Cargills Finest (processed meats) Cargills Kist (processed fruits
and vegetables) and Cargills Magic (ice cream and dairy products) lead sectoral growth. Its KFC
franchise is the largest international restaurant chain in Sri Lanka. Through its marketing and
distribution arm spread across the island Cargills distributes its manufactured brands as well as
internationally renowned food and non-food brands.

The Cargills agribusiness model has gained global recognition for linking farmers and
entrepreneurs to the market through a sustainable and inclusive value creation process.

Key business

1. Modern retailing
2. Manufacturing
3. Agri Business
4. Restaurants
5. Distribution

Subsidiary Companies

 Cargills Quality Foods (Pvt) Ltd

 Cargills Distributors (Pvt) Ltd

 Cargills Quality Dairies (Pvt) Ltd

 Cargills Food Processors (Pvt) Ltd

 Cargills Food Services (Pvt) Ltd

 CPC Agrifoods Ltd

 CPC Lanka Ltd

 Cargills Retail (Pvt) Ltd

 Millers Distributors Ltd

 Cargills (Ceylon) Plc (Cargills) operates in the retail chain of food outlets. The company also engaged in
food manufacturing and
 restaurant chain sectors. Cargills operates through its ten subsidiaries. Cargills is the official franchisee for
Kentucky Fried Chicken
 (KFC) in Sri Lanka. It also provides distribution and FMCG manufacturing services. The company also offers
discount sales to its
 products. Cargills operates through its 116 outlets across 19 districts in Sri Lanka. Cargills is headquartered
at Colombo, Sri Lanka

 Pricing and availability are what drives the economy of the fast food industry. They
effectively penetrate markets with advertising campaigns that cater to a whole range of
demographics that make them a need in high demand in almost all US geographic
locations. With specialized and highly focused franchise management and vast
distribution channel they can be established themselves in a new community almost
overnight creating instant revenue and jobs wherever demand is present.

Economic Characteristics
OF THE FOOD AND DRUG RETAIL INDUSTRYIt is extremely important to understand what the
dominant economic factors are in an industry in which you are participating. These factors have a
very strong influence in determining the corporate strategies that a company will decide to
implement. How can a corporation define and implement their corporate strategy without
understanding the environment of the market they are in? They simply can not! The economic
factors to be considered are as follows: market size, scope of competitive rivalry, market growth
rate, number of rivals, number of customers, degree of vertical integration, economies of scales,
resource requirements for market entry, and profitability of the industry. Each one of these factors
will be defined in the following paragraphs.

The supermarket retail market is a $363 billion industry(sales 2000). Approximately $272 billion in
sales, or 75%, is achieved by 25 companies with 16,000 stores. The total number of retail grocery
stores total 127,000. It is obvious that the market share is dominated by a select few corporations.
The largest company is Kroger (11% market share), followed closely by Albertson’s(9%),
Safeway(6%), and Win

The number of rivals in this industry is becoming more important to recognize. According to
Progressive Grocer, supermarket sales have increased 5. Gross margins are approximately 2%
greater for a supermarket when they have access to a distribution center. In closing, the
supermarket industry is profitable. All indications in the research that I have done leads me to
believe that sales have increased at the same pace in 2000 that it did in 1999. These companies
manufacture some of their products in inventory. Because of the single-person and one-parent
households, less people are frequenting the grocery stores and more people are eating out at
restaurants. Kroger brand(private label) products account for approximately 25% of their grocery
sales and almost 9% of drugs and general merchandise. Albertson"tms has acquired American Food
to increase their market share in the West region. Kroger is the only major supermarket operator to
implement a three-tier distribution system. As stated above, the top 25 companies capture 75% of
the market. Safeway, SuperValu, and Kroger are the only companies that go even further upstream
concerning vertical integration. They use these facilities to produce private label products.

The growth has been driven by increasing affluence and the rise of a middle class; the entry of
women into the workforce; with a consequent incentive to seek out easy-to-prepare foods; the
growth in the use of refrigerators, making it possible to shop weekly instead of daily; and the
growth in car ownership, facilitating journeys to distant stores and purchases of large quantities
of goods. The opportunities presented by this potential have encouraged several European
companies to invest in these markets (mainly in Asia) and American companies to invest in Latin
America and China. Local companies also entered the market.[12] Initial development of
supermarkets has now been followed by hypermarket growth. In addition there were investments
by companies such as Makro and Metro in large-scale Cash-and-Carry operations.

While the growth in sales of processed foods in these countries has been much more rapid than
the growth in fresh food sales, the imperative nature of supermarkets to achieve economies of
scale in purchasing, means that the expansion of supermarkets in these countries has important
repercussions for small farmers, particularly those growing perishable crops. New supply chains
have developed involving cluster formation; development of specialized wholesalers; leading
farmers organizing supply; and farmer associations or cooperatives.
Cargills (Ceylon) entered the Business Today TOP 10 list a year ago at the tenth place and this
year notched one place up to number nine. Having evolved from its original four department
stores, Cargills (Ceylon) is today the fastest growing and largest retail chain in Sri Lanka. The
company continues to invest in food and agriculture, and with the expansion of the retail outlets
to 136 during the year, new opportunities were reportedly presented to more rural famers and
entrepreneurs. The company is also actively participating in the revival of the Eastern Province
with the opening of outlets in Batticaloa, Ampara and Trincomalee. At present Cargills has
established its presence in 23 districts of the country.

Cargills (Ceylon) owns and operates its own manufacturing and distribution arm. The company
also owns the KFC franchise in Sri Lanka, and it introduced the first KFC drive-thru in the South
Asia region. During the year a full year of operation of Millers Distribution was brought under
the fold of Cargills. An Island-wide reach and distribution capability of Millers is expected to
help Cagills (Ceylon) further penetrate the market.

Turnover of the company during the year was Rs 16 billion and profit after tax was Rs 499
million.

Five forces analysis

 Potential Competitors: Medium pressure

o Grocers could potentially enter into the retail side.
o Entry barriers are relatively high, as Wal-Mart has an outstanding distribution
systems, locations, brand name, and financial capital to fend off competitors.
o Wal-mart often has an absolute cost advantage over other competitors.

 Rivalry Among Established Companies: Medium Pressure

 o Currently, there are three main incumbent companies that exist in the same
market as Wal-Mart: Sears, K Mart, and Target. Target is the strongest of the
three in relation to retail.
o Target has experienced tremendous growth in their domestic markets and have
defined their niche quite effectively.
o Sears and K-Mart seem to be drifting and have not challenged K-Mart in
sometime.
o Mature industry life cycle.

 The Bargaining Power of Buyers: Low pressure

o The individual buyer has little to no pressure on Wal-Mart.
o Consumer advocate groups have complained about Wal-Mart’s pricing
techniques.
o Consumer could shop at a competitor who offers comparable products at
comparable prices, but the convenience is lost.

 Bargaining Power of Suppliers: Low to Medium pressure

o Since Wal-Mart holds so much of the market share, they offer a lot of business to
manufacturers and wholesalers. This gives Wal-Mart a lot of power because by Wal-
Mart threatening to switch to a different supplier would create a scare tactic to the
suppliers.
o Wal-Mart could vertically integrate.
o Wal-Mart does deal with some large suppliers like Proctor & Gamble, Coca-Cola who
have more bargaining power than small suppliers.
  Substitute Products: Low pressure
o When it comes to this market, there are not many substitutes that offer
convenience and low pricing.
o The customer has the choice of going to many specialty stores to get their desired
products but are not going to find Wal-Mart’s low pricing.
o Online shopping proves another alternative because it is so different and the
customer can gain price advantages because the company does not necessarily
have to have a brick and mortar store, passing the savings onto the consumer.

 Complementors: Low pressure

o One complementor that exists for Wal-Mart is Sam’s Wholesale Clubs. Although the
same company owns this, it complements Wal-Mart by offering the same products in
wholesale form, making the company more profitable.
o Suppliers of goods need to have innovative products to attract customers.
o For the most part, complementors do not affect Wal-Mart’s business model.

An industry is a group of firms that market products, which are close substitutes for each other.
Some industries are more profitable than others. The answer lies in understanding the dynamics
of competitive structure in an industry. Considering today Sri Lankan chocolate market /
industry, we could see that there is huge competition between each chocolate manufactures
company. All are trying to become market leader, & try to capture the other’s market share. In
addition, we can see number of chocolate manufactures within the industry.

When we talk about the consumers of Sri Lankan chocolate market, everyone in Sri Lanka has
an uncontrollable sweet taste for chocolates and not for just one brand. Ever since its inception in
our country, Sri Lankan have gone out of the way to get the right kind of chocolates that would
provide them with the ultimate satisfaction; one that is the best in flavor, quality and texture.
Whether it is at a super store or a drug market, Sri Lankan fined it as easy as paying a couple of
rupees and attaining a bar or more of chocolate. Some even go to the extent of bringing back a
load of chocolate when they travel abroad on business or a holiday. That tells us how far Sri
Lankan people prefer to chocolate.
According to porter’s five forces, which are determined industry attractiveness and long- run
industry profitability. These five "competitive forces" are:

 The threat of entry of new competitors (new entrants)

 The threat of substitutes

 The bargaining power of buyers

 The bargaining power of suppliers

 The degree of rivalry between existing competitors

New entrants to a industry can raise the level of competition , there by reducing its

attractiveness.

The treat of new entrants largely depends on the barriers to [Link] addition to that it depends on
following factors.