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Almarai Company: Milk and Modernization in the Kingdom of Saudi Arabia Case Solution & Answer

Almarai Company:Milk and Modernization in the Kingdom of Saudi Arabia Case Study Solution

Executive Summary:

Almarai is the largest producer, marketer, and distributor of dairy products. The company significantly entered in the bakery segment by the acquisition of Western Bakeries – a Saudi production and marketing facility of bread, cupcakes, rolls, pastries, and other related products.In 2018, the sale of all products sold through the channel of Alaska were under pressure because of included cutting subsidies, price controls, implementation of new taxes, and introduction of incentive by the government of Saudi Arabia. The government brought reduction in the financial support which was both directly and indirectly provided to the households of Saudi Arabia. Similarly, around 75 percent of the market is dominated by expatriates which play an important role in driving potential growth of the company and the state.

The buying habits of the consumers were mainly dependent on the upbringing and culture. The gradual introduction of new dual-temperature vans was to transport both fresh dairy and bakery products. However, the state subsidies and cheap energy was the primary reason behind the low cost of feed and water for Almarai. The preference of the consumers vary with the change in product type and its price.The organization is recommended to expand its business operation in new market or new geography. It would add value to the business through significant reduction in the dependency on GCC market where the sales growth potential is relatively low as compared to other countries like Sri Lanka, Turkey, Iraq, and other serving as both near-term and long-term growth options.

 

Introduction:

The largest producer, marketer, and distributor of dairy products – Almarai initiated the business operations followed by the production of fresh milk and laban–traditional fermented yogurt drink. The emphasis of the company was primarily on the family-focused products and was known to be strictly committed to quality based on the brand message “Quality You Can Trust”. In 2007, the company significantly entered in the bakery segment by the acquisition of Western Bakeries – a Saudi production and marketing facility of bread, cupcakes, rolls, pastries, and other related products. Similarly, the entrance in the joint venture with a Greek organization – Chipita was based on the production and distribution of its 7Day brands.

In 2009, the approach to product diversification into poultry was by the acquisition of Saudi poultry operations. During the same year, the organization entered into a joint venture with PepsiCo to enter in Egypt and Jordan with Almarai 48% and PepsiCo 52%. In 2010, the entrance in the market of infant formula was through a joint venture with an American infant nutrition organization – Mead Johnson Nutrition. In 2018, the organization had the workforce comprising of 42, 592 employees based in farm, procession, and distribution facility. Around 75 percent of workforce comprised of expatriates representing nearly 70 different nationalities. (Kristin Fabbe, 2018)

 

Problem Statement:

The firm is facing threats from overseas market and local market because of the changing market conditions and rigorous competition, due to which the management is seeking growth opportunities. Particularly, the attention is focused on marketing activity, allowing the discussion of future possibilities and existing strategies. Additionally, significant variations in the policies of other government have started causing expatriates, which has been making about 3rd of Saudi Arabian ‘population who are considered as the key customers of the dairy products offered by Almarai – to leave the kingdom in droves.

In 2018, the sale of all products sold through the channel of Balalaikas were under pressure. This was mainly because of the restructuring economic initiatives by the crown prince which included cutting subsidies, price controls, implementation of new taxes, and introduction of incentives to bring improvement in the participation of Saudi national’s workforce because major roles were primarily dominated by the foreigners.

Analysis:

Almarai currently producing many branded products which includes dairy, juice, yogurts, poultry, infant nutrition, fresh milk, bakery products and other perishable products. Because of the changing demographics and economic conditions, the CEO has been considering all available options for Calamari’s sustainable growth. The first analysis is SWOT analysis to identify strength, weaknesses, opportunities and threats.

SWOT Analysis:

Strength:

  • Almarai is the largest producer of dairy products for which the entire supply of milk came from its own farms.
  • Alaska – main sales channel of Al maraiwere provided free refrigerators by the organization and the shopkeepers only had to pay for electricity use which was cheap because of the presence of subsidies. Due to this reason, Bakalas became integral to the business model of the organization.
  • The extension of business operations was mainly across the GCC region which mainly comprised of the United Arab Emirates, Qatar, Oman, Kuwait, Bahrain, and Saudi Arabia.
  • Almarai made heavy investment in processing with the notion to keep the capacity ahead of the product demand.
  • Infant formula was the most attractive segment of Almarai which represented a significant increase in its sales i.e. around 50 percent (SAR 3.3 billion) from the year 2013 to 2018.

Weakness:

  • The fluid milk consumption in the GCC regions is relatively low in comparison to other countries despite 4 percent annual growth rate of population, and high per capita disposable income.
  • The growth of the company is highly dependent on the expatriate labor adding cost because of the tax addition on the foreign workers.
  • A significant increase in the energy cost is known to drive the operational cost of Almarai to process and distribute products leading to higher cost.
  • The organization significantly lack participation in new geographies or in new categories which is known to add value in the market share.

Opportunities:

  • The entrance of Almarai in the new product segment followed by the introduction of customer-friendly cuts would allow the organization to capture broader market.
  • Expansion of business operations in the new markets or geographies which are fragmented and lack efficient dairy sectors would lead to increased revenue generation and profitable growth.
  • Manufacturing in other markets with low labor cost would result in cost reduction eliminating the threat of higher cost followed by the use of decentralized dairy sourcing.

Threats:

  • An increase in production and distribution is expected to fall the sales to Bakalasi.e. around 5 percent in 2018 and might be more in coming years. This is mainly because of the closure of 3000 Bakalas in the year 2017.
  • Competition has been a rising threat of Almarai followed by the announcement of two leading competitors’ merger which would lead to the offering of better quality products.
  • Expansion in new geographies represents a threat of political risk in particular region and long-term viability which would greatly influence the potential of growth……….
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