United Cereal:Lora Brill’s Eurobrand Challenge

About the Company

• Established in 1910 in Kalamazoo, Michigan by Jed Thomas• First Product: packaged mix of cracked wheat, rolled oats, and malt

flakes• Diversified into snack foods, dairy products, drinks and beverages,

frozen foods and baked goods• 2010 revenues: $9 billion – one-third contributed by breakfast cereals

Corporate Values

CommitmentDiligenceLoyalty

Policies and Practices• Managers promoted from within• Strong commitment to “The UC way”• “Listen to the customer” – pioneer in

the use of consumer research and focus groups

• “ Spot the trend, make the market”- extensive market testing prior to product launch

• Innovation and Brand Management

Breakfast Cereal Market Scenario

• Breakfast cereal was one of the great food commercialization successes of the 20th century

• Worldwide revenues: $21 billion in 2009

• Highly competitive industry• 10% of revenues spent on advertising and marketing • New-product introductions typically occurred every year• Brand extensions were less risky and less expensive compared to developing a new brand• Growth from expansion to offshore markets

Cere

als

Hot

Ready-to-Eat(accounted for 90% of sales in both the US

and Europe)80%

20%

US Sales ($12 billion)

Top 5 players

Remaining 25

UC’s European Operations UC entered European Market by acquiring and expanded by

introducing productsCompetitive StructureEuropean Industry

• $7 Billion breakfast cereal

market• Varies with countries tastes and

breakfast traditions• Channels also vary country-wise

•26% market share•High volume low cost modelKellogg

•20% market share•Europe accounts for 20% of UC’s sales

United Cereal

•17% market share•JV between General Mills and Nestle

Cereal Partners

Weetabix7% market shareStrong branding and promotions

UC’s Europe Strategy and Organization

• Follows national subsidiary model led by Country Manager(CM)

• CM works as entrepreneurs to maximize the subsidiary’s local profit

• Each subsidiaries built as mini UC’s- exact replica of parent organization

• CM’s were expected to respect the UC way• Differences in product profiles and market strategies became a

problem• Same product positioned differently across different markets

Increasing price and profit pressure

UC’s European Operations

• Total sales : stable

• Market growth : less than

1% annually

• Product mix: lower price

offerings

• Price and promotion

pressure: Kellogg and

cereal partners.

Areas of concern

• Focus on local products and

market

• Market & product development

teams outside US had 25% more

operating expenses

• Slow new product introduction

• Favor product extension

United Cereal ResponseArne Olsen, UC’s European VP invigorate product portfolio and reverse decline in profitability

UC’s European Operations

Year 20021. Re-organised R&D2. Created European Technical Team

(ETT)2.1 link scientists to subsidiary based technologists2.2 gain overall product development direction

Year 2004Expanded ETT to ‘European Initiative1. Aimed at product market strategies2. Disastrous ‘European Juice Nazi’

incident2.1 Standardize product across countries2.2 Challenged local autonomy

Year 20061. Olsen transferred to Kalamazoo2. Lora Brill took over as VP

Aftermath of 2008-09 recession 1. Growing pressure on margins2. Leverage the marketing

resources to control budgets3. focus on coordinated European

approach for product development

4. ‘Eurobrand' concept test- Healthy Berry Crunch

The Healthy Berry Crunch Project

The French Opportunity:• Market for organic fruit based cereal in France

Blueberry product

Organic blueberry based cereal as a product extension of Healthy Crunch Blueberries - antioxidant qualities

Implemented a full scale test market in Lyon - mixed results

Intention to repurchase - below UC target of 60%

Raspberry Product

Too expensive to manufacture

Sweeter Blueberry version

Taste tested in 6 French cities

64% intention to repurchase

Ready to launch

The European Debate

Before Launch• Brill started testing Healthy

Berry crunch European wide

• Finance team had estimated that coordinated European market strategy would reduce the staff and bring in more saving

• Estimated around 10 to 15% of over the three years

• Appropriate time to consider products for the local market

• As the consumer taste is converging, cultural habits are disappearing

• EU regulations on labeling, advertising and general marketing practices are eroding marketing differences

PodCafe Debacle• Podcafe was launched in

Germany in 2003 for home espresso machines

• French subsidiary launched this version in 2006

• But in 2006 the market was crowded by similar product which took their market share to third place

The Launch• Cost would was estimated

around $20 million in France- 10 times the approval level

• Problems to get the shelf space for specialty cereal

• The Spanish subsidiary is still under recession

• Reluctance for this launch as it without proper product, consumer and market research

The proposed UC European OrgLora Brill,

European VP

Director, R&D

Manufacturing Director

Director of Admin and

Finance

Engineering Manager

Director of Marketing Services

European Sales Manager.

Logistics and Purchase

James MilnerDivision VP UK

and Scandinavian; Frozen Foods

Jorge SanchezDivision VPSouthern Europe

Beverages, Juices and

DairyKurt JaegarDivision VPNorthern Europe;Cereals,

Snacks and Baked Goods

The “Eurobrand” team

• Brand managers from every country subsidiary

• Delegates from each functional group such as logistics, engineering, R&D and so on

• One appropriate Vice President who is in charge of specific regional divisions

• Chaired by brand manager of an assigned “lead country”

• Apart from their current role of supervising subsidiary by region, they were offered an advisory role.

• They were tasked with cross-market coordination and communication of certain products

How effective will the Eurobrand team be?

• No dilution of CM role; VPs role only as an advisor

• Since the team consists of resources from R&D, purchasing & logistics, increased cost pressures can now be addressed for Europe as whole and not country specific

• Generic strategy allowed CM to make his own market decision and was responsible for P&L and therefore, current structure lacked consistency

• Original strategy was differentiation, but current strategy made them cost focus as SG&A cost was 25% higher than counterparts in US

• Structure should allow efficient horizontal and vertical communication lines

• Hierarchy of UC will become more complex, which will result in a longer information chain; hence hierarchical structure is clear and efficient and that every

• Employee feel they are evolved in the decision-making process.

How can the team be more efficient?

The Dilemma – Launch Healthy Berry Crunch?

• Panel results in Germany suggests trend is to move to more healthy food

• EU has loosened its regulations of labelling, marketing practicing, which also indicate an opportunity to UC

Industry moving towards healthy food

• Kellogg’s special K with strawberries is the only competitive product in the French market

• Rumours about launch of Berry Burst Cheerios

• PodCafe debacle

Competition

• Savings of 10-15% in the overall costs of all Europe, the launch of Healthy Berries Crunch seems to meet the company’s long-term strategy of streamlining the operations and product matrix of Europe

• “Spot the market, make the market” - the innovation in the products had been at the core of UC’s history and the launch of Healthy Berry Crunch will be in line with this core value

Strategic Advantage to UC

Hence, Lora should authorize the launch of Healthy Berry Crunch in France as UC’s first

Eurobrand product

SWOT analysis of UC in Europe

THREATS OPPORTUNITIES

STRENGTHS WEAKNESSES

• Global competitor in a multi-billion dollar industry

• Built on three core values - “The UC Way”, “Listen to the customer” and “Spot the trend, make the market”

• Willingness to put people with fresh ideas in leadership positions

• Lack of agreement on a managerial level• Everyone has a differing opinion on

which direction the company should be moving

In

• Kellogg, the toughest competitor, has already introduced Special K

• The competition is growing dramatically in European market

• The market growth of cereal industry has slowed to less than 1% annually

• Trend of customers’ preference to lower-priced products after the global recession

• Tastes and habits of breakfast converging

• Natural and less sugar in cereal products has become a key trend in the cereal industry

• EU has loosen its regulation oflabelling, advertising, and general marketing practices

Porter’s Five Forces of UC’s in Europe

Porter’s Five Forces for UC

in Europe

Threat of new

entrants

Bargaining power

of customers

Bargaining of Supplier

Competition in the Industry

Threat of substitute products

Low

High

High

High

High

The Healthy Berry Crunch Project

• The European Debate: Monil

• The Organizational Challenge: Shirazi• Decision/case Summary and problem: Shirazi

Exhibits

• Shirazi, Monil, Kirti, Ashish, Nidhi