Strategic Analysis of Mitchell’s Fruit Farm Ltd.

Objective of Analysis

• Our objective is to strategically analyze Mitchell’s tactics to utilize value chain efficiencies and market trends and impact of those tactics on the company’s financial indicators

Road Map

• In 1947, as a result of emergence of Pakistan, Mitchell’s lost three fourth of its market to India

• In 1957, the Mitchell’s family sold majority of its shares to the Pakistani investor’s

• Sophisticated food processing machinery was installed and additional products were added to a growing range of preserves, fruit, drinks, juices, canned fruits, sauces and vinegar

• In 1980 came the sweetest chapter of all with diversification to confectionery industry

• In 1983 Mitchell’s golden jubilee was celebrated with a fan fare and a chocolate bar, appropriately named as "Jubilee" was launched to commemorate the event

• In the year of 1994 it was ISO certified, the first food company to be certified

• In 2001, Mitchell’s launched moulded chocolate and launched products like gift box of pralines, golden hearts and top milk was accepted by consumer.

Mitchell’s Prodcuts

• Jam Jellies and Marmalade - 15 products• Squashes and syrups - 22 products• Ketchup and sauces - 20 products• Canned food – 19 products• Fruit drinks – 13 products• Bottled water – 2 products

Competitors• SQUASH MARKET1. Shezan2. Sundip

• PRESERVES MARKET1. Shezan2. Salman’s3. Ahmad4. Rafhan5. National

• SAUCES AND TOMATO KETCHUP MARKET1. Shezan2. Ahmad3. Knorr4. Rafhan5. National

• PICKLE MARKET

1. Shezan

2. National

3. Shangrilla

4. Ahmad

• CONFECTIONERIES MARKET1. Candy land2. Mayfair3. Hilal 4. Kidco5. Nestle6. B.P

FACTORY OF MITCHELL’S• The production facilities and factory offices are situated in the

Renal Khurd district near Okara• This place is about 115 kilo-meters far from the head office of the

company in Lahore.• The capacity of the plant is not determinable as it is a multi product

plant• Capable of producing several interchangeable products• The farms of MITCHELL’S Fruit Farms Limited are also occur

between renal Khurd and Okara• The farms of the company lying on the area of 450 acres.• The distance between renal and Okara district is round about 13 km

Importance of Location

• Renala Khurd is home to the food processing company "Mitchell's Fruit Farms Limited“

• It has orchards of guava & citrus running b/w the lower bari doab canal and the Multan Road

• This region is also well known as a major producer of sugarcane & rice

• These crops can be cultivated due to abundance of water supplied by the lower bari doab canal & smaller water channels.

• Okara District is famous for its fertile lands, peaceful natural environment and green fields of potato, tomato, sugarcane, wheat, rice and maize crops

• Oranges and Mangoes orchards are famous• Okara District is also famous for the lemon, guava

& grapefruit orchards, belonging to the food processing company, Mitchell's Fruit Farms Limited

• The orchard runs for about 6 miles

• Following fruits are being cultivated / grown at Mitchell’s own agriculture land.

• Lemon 100%• Grape Fruit 100%• Sevlik Orange 100%• Tomato 30%• Garlic 30%

Quality Control & Training• From selection of the finest fruits, to processing and packaging,

quality control plays a key role in every step of the process• Quality Control staff• Up-to-date laboratory• Two line-control labs for the Groceries and Sugar Confectionery

divisions• Incubation lab• Updating of employee skills by training • Acquisition of new technology • Re-evaluation of its quality control and quality assurance system

Management

Target Market: up to 80 years. Core target market includes ages between 15 – 30

• Age: 10 and above for chocolate and confectionery

Family Life Cycle: Young, Children and Old people

Psychographics: Middle, Middle Upper, Lower, Lower Upper, Upper class

COUNTRIES WHERE MITCHELL’S MAKE IMPORTS

• 1. Malaysia• 2. Singapore• 3. Indonesia• 4. England• 5. Philippine• 6. China• 7. Germany

MAJOR IMPORT ITEMS OF MITCHELL’S

• COCOA BUTTER• COCOA POWDER• HPK OIL (HYDROGENATED PALM KERNELS)• METAL CAPS• PINEAPPLE CONCENTRATE

LOCALLY PURCHASED ITEMS

The following are the major items that MITCHELL’S Fruit Farms Limited purchase from the domestic market:

• Raw material includes spices, tomatoes, fruits, vegetables, colours and flavours.

• Packaging material- Packages Pvt Ltd• Different types of chemical because of their low

quantity are purchased from the domestic market• Engineering solutions

Distribution

• Premier is responsible for managing the distribution system of the company.

• Mitchell’s has divided the whole country into three regions and there are about more than 270 distributors.

Pricing

• Different pricing strategies are used for different products

• Normally, the strategy makers use premium-pricing strategy

• The reasons of adopting this strategy are:1. Very good repute and image of the company2. Best high quality of the products.3. Mitchell’s target middle, upper middle & elite class of

the total food market

Trade Trends• The traditional food retail sector comprise about 95% of all

food retail stores in Pakistan • While the modern retail sector (hypermarkets, supermarkets,

discount stores, etc.) make up the remaining 5%• Pakistan GDP is about 20 trillion Rupees• GDP growth is about 2.7 %• Pakistan has a population of over 170 million• consumer with middle income class estimated at about 25% of

the total population• With a share of expenditures on food and beverages estimated

at 42% of income

Headline Industry Data

• 2012 food consumption growth = +7.8%, CAGR forecast to 2016 = +9.3%

• 2012 soft drinks value sales growth = +14.2%, CAGR forecast to 2016 = +8.8%

• 2012 grocery retail sales growth = +20.9%, CAGR forecast to 2016 = +12.2%

SWOT

TOW’s Matrix

Porter’s Five Forces

Threat of New Entrants:• Threat of entry depends upon the

extent to which there are barriers to entry• A food company requires a big manufacturing

unit which requires a huge capital investment• Groceries-manufacturing unit is highly capital

intensive and because of high capital investment it has high risk for new to enter introduction

Supplier’s Power:• Foreign suppliers have power of bargain because the

material is not available locally and the buyer don’t have any option other than import, so the supplier charge the high prices and transaction is done through banks by opening letter of credit and buyer also has to bear high transportation cost and import duties.

• local suppliers have small fruit farms, food companies are highly capital intensive so they don’t have any power because they can’t do forward integration.

• There are large numbers of fruit, vegetables, sugar and other raw material suppliers so the buyer checks the quality of suppliers’ products and make contract with any one which meet their requirements regarding quality as well as price

• Another reason of no influence of the suppliers over the Mitchell's is that the company itself producing large amount of fruit, vegetables, milk and butter. In this way, backward integration reduces the power and influence of suppliers of the raw material

• Mitchell's has very good repute in the market since from the 1933. another fact is that Mitchell's is the market giant in its industry, so every supplier want to work with the Mitchell's

Buyer’s Power:• The buyers don’t have any power because the

prices of the products are fix• Competition among food companies leads the

company to face problems in the price competitiveness

Competitive Rivalry:• It could be concluded that the food market is

highly competitive.• And the degree of competition in the industry

is increasing day by day.• Which may cause Mitchell’s to change it’s

premium pricing strategy

Substitute:Consumers have following options:• Nestle• Shezan• Haleeb• Ahmed• Salman’s

Impact of Strategies in Financial Terms

Financial Indicators Analysis

Sales breakup

Review• Overall economic conditions in the country did not improve

over the previous year• As a result managing the manufacturing operations with

frequent Electricity and Gas outages amidst low economic growth together with high inflation remained an unending challenge

• The costs of main Raw & Packaging materials as well as Energy continued to rise necessitating selling price adjustments

• The company's net sales recorded a growth of almost 30 % rising from Rs. 1,377 million to Rs. 1,794 million

• This rise was supported by groceries and confectionery sales showing an upward trend of 49 % and 9%, respectively

• Exports recorded an 81% increase in value

• Optimization of costs and operating margins helped in increasing Operating Profit from Rs. 107 million to Rs. 147 million.

• Improvements in the Supply Chain and sound management of Working Capital helped in limiting increase in financial charges from Rs.37 million in the previous year, to Rs. 38 million

• Short term running finances secured:Rs 154,794,581 in 2011Rs 166,615,728 in 2010

• As a result of all the efforts After Tax Profit for the year was Rs 73 Million compared to Rs 46 million in the corresponding period last year

• The Company manages liquidity risk by maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities

• At September 30, 2011, the Company had Rs 390 million available borrowing limits from financial institutions

• Rs 13.580 million cash and bank balances

Financial Ratio’s Analysis

Conclusion

• Mitchells is in growing sector• Growing population of Pakistan• Caters basic necessity good• Inflation, per capital income and power tariffs

are causing problems• Showed rapid growth in export, company

should focus more geographic locations

• Company identified right tactics to increase operating profits and increase working capital efficiencies to perform above industry average

• Company has strong history and brand name• Most of company’s products are still relatively

young in industry ( chocolates, juices and other confectionery)

• A good future prospect