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Strategy analysis
Table of content
Table of content..........................................................................................................................2
THE SIÓ-ECKES Kft.................................................................................................................3
The history of SIÓ-ECKES.....................................................................................................3
The main brands and products of SIÓ-ECKES:.....................................................................4
Present market position...........................................................................................................4
THE CORPORATE STRATEGY OF SIÓ-ECKES...................................................................5
General mission and vision.....................................................................................................5
Goals.......................................................................................................................................6
High and trustable quality...................................................................................................6
Unique brand-building strategy..........................................................................................7
Widening distribution.........................................................................................................7
Cost-efficiency....................................................................................................................8
Innovation...........................................................................................................................8
Being part of Eckes-Granini Group....................................................................................8
CSR.....................................................................................................................................8
THE STRATEGIC ENVIRONMENT OF SIÓ-ECKES............................................................9
FMCGs....................................................................................................................................9
Threat of entry, rivalry on the market...................................................................................10
Threat of substitutes..............................................................................................................11
Bargaining power of consumers...........................................................................................12
Bargaining power of suppliers..............................................................................................12
Broader environmental factors (according to PESTEL analysis).........................................13
SUMMARY..............................................................................................................................13
Bibliography.............................................................................................................................16
THE SIÓ-ECKES Kft.
SIÓ-ECKES kft. is Hungary’s market leader juice and fruit drink producer. It’s a limited
liability company and is part of the market leading European group, Eckes-Granini, which
operates through Europe, in 14 countries.
It’s located in the South-West region of Hungary, in Balatonszéplak-felső. Here is the
headquarter of the company and the fruit-processor, as well as hundreds of hectares of fruit-
tree plantations.
The story of SIÓ in Hungary started in 1977 when the company entered the market with its
0,2 l product in two flavors: peach and apricot. Since the first time there was significant
demand for the product: its annual sales were 2 million packages and increased continuously
as the product range widened : new tastes and new packaging modes were introduced.
In 1991, after its privatization, SIÓ-Nektár Kft Limited Liability Company was established.
The change in ownership happened in 1993 when Europe-leader ECKES AG bought up the
SIÓ-Nektár Kft. However, this wasn’t a hostile buy-up. Granini didn’t want to kill the local
competition for its own brand through an acquisition. This fusion only ensured the Hungarian
market access for the ECKES AG. SIÓ still remained appreciated, focus product, a ‘local
hero’ which is now considered as a core product. (From the point of strategy this is important
because SIÓ has its own, tailor-made strategy and doesn’t only follow the parent company’s
way.)
The new owners meant a pulse for the company and persuade the Hungarian brand-
managers to want more than simply satisfy the existing demand and perform good, positive
sales and profit numbers. Success came soon: SIÓ gained market leader position in the
Hungarian market in 1994 and in 1996 SIÓ 100% orange beverage was the ‘most successful
new drink of the year’.
The last decade of the company was very fruitful: they have strengthened and stably
maintained the market leading position. They expanded the product range with several new
products, tastes. They’ve got into partnership with Szentkirályi mineral water producer and
they cooperate with the energy drink producer Bomba! to further diversify their product
portfolio.
The crisis and the negative economic trends hit the juice and fruit beverage market, as well.
Therefore the last 2 years meant significant threat for the company. But SIO-ECKES
managed to respond to the new trends and consumer habits and remain market leader and still
grows in sales volume and EBIT number. The company also introduced new products to
widen the circle of its consumers.
The General Assembly of the company held its annual meeting on 10 th of November, 2009.
Data released then claim that the company has kept its leading position. Despite the crisis its
sales numbers and profit has increased in comparison with data from previous year. In 2008,
the company made sales revenue of more than 21 billion HUF and sold app. 70 million litres
of drink. Its market share accounts for 25% of the market. (Although this figure looks low
because doesn’t mean major share, but in reality there are many actors on the Hungarian
market with only 1-5% shares and only 2 other companies have more than 10 % share, but
they are still far behind SIÓ – therefore this 25% share can be considered as a big market
power.)
These numbers are even more significant in the light of the present global crisis. This recent
crisis has landed the company in difficulty. Consumers had to rethink their consumption
patterns and moderate their spendings. The company’s products fell pray to these saving
desires. Juices, mineral water and energy drink are not vital consumption goods, people in
hard situation simply cannot afford them or – because of the high price-elasticity – they
sacrifice quality and turn toward lower category but cheaper brands.
(Information source: 11 Nov 2009 article found in Trade Magazin online, www.trademagazin.hu)
So, from where comes this market power, this high competitiveness? What is the strategy
behind this brand which differentiates it so well?
1
Source: Eckes Granini Annual Report 2008
persuade the consumers to choose quality. Also, SIÓ uses the nationalist feelings of
Hungarians.
Goals
In the ultimate years the company has appointed as its main target to remain the market
leader of the Hungarian nectar/juice market and to build a strong brand. This medium-term
goal gained even more importance in the light of EU-accession as the common market
increased potential competition with the appearance of several new, even lower-price brands
and the possibility of cheap import.
Among its new goals they mentioned that the company wants to be 100% prepared for the
after-crisis market trends. They expect more dynamic market movements, increasing demand.
They want to benefit from these new trends as much as it’s possible and return to the growth
path again. The adaptation to the new trend reflects dynamic corporate thinking.
To achieve its goals the company direction sees 5 key success factors, strategic capabilities:
•innovation,
•cost-efficiency,
•high and trustable quality,
•unique brand-building strategy,
•widening distribution
Widening distribution
SIÓ as consumer goods producer has the advantage of being able to use nearly any kind of
distribution channel. Although in case of top quality products it can be advantageous to use
top quality distributors, for a drink it doesn’t create or destroys value where it is sold.
Moreover, easy access is much more important. SIÓ focus on being on the selves in every
shop: let it be a hypermarket or the corner shop in a town.
But in connection with distribution SIÓ’s foreign presence is surprisingly low. The main
reason is the fact the parent company doesn’t want to create competition for other own
brands, they want to keep SIÓ and the other foreign brands like Finnish Marli or French Joker
to be “local heroes” and don’t go international.
Cost-efficiency
Cost efficiency is a result of 4 basic factors: economies of scale, experience, supply costs
and product design. As SIÓ is a mass producer its production costs are low (economies of
scale). SIÓ has the right know-how, up-to-date technology and experience to produce in the
most cost-saving manner. The ingredients are in general low-cost products. Packaging can be
considered as a cost driver but as SIÓ purchases them in huge quantity and continuously their
price is lower. Product design is also a cost driver as its vital part of the marketing strategy
and the company cannot make savings on it. But in the long run investments pay off.
However, we have to state that in cost-efficiency the company lacks wide range of
possibilities.
Innovation
SIÓ is a very innovative company. In packaging, the company always creates something
new, and these innovations earn prices for the company. For example its Go-Pack won first
place in 2005 in Hungary, and 2nd place in 2006 in Paris. Such achievements are important
from the aspect of good reputation, as well.
Innovativeness is shown in the variety of products: SIÓ always tries something new, a new
product, new taste combination, etc. And as innovation moves a company further, this is a
great competitive advantage of the company.
Beside these 5 strategic capabilities for competitive advantage I would like to add 2 others,
which I think are also important.
CSR
Reputation is always important to create a strong brand, and to gain it corporate social
programs are very important. SIÓ put big emphasize on it: it has the “Thank you, SIÓ”
program to help children in need, they have charity programs and they regularly sponsor
events in line with their vision: healthy lifestyle or children.
Some capabilities like the reputation, the long presence on the market are inimitable by
competitors. Its marketing strategy is very complex, a similar product offer cannot be
designed in the short run. Being part of a company group, a holding is not matter of strategic
decision, managers don’t have direct power over it. From these it’s clear that the company
possesses all the necessary threshold resources and capabilities (not question in case of a
market-leader company) and beside them it can build on numerous unique resources and core
competences to increase its competitive advantage.
But for future success their sustainability is also important. Examining the capabilities from
this point of view we can emphasize the importance of innovativeness. Quality, reputation and
the product mix can be maintained if managers plan strategy carefully and realize them
properly. The holding’s role in this question is huge, but SIÓ-ECKES can trust in the
professional and high-quality operation of its parent company. Cost-efficiency, sales volume
determines the company’s success and unfavorable economic circumstances (like the crisis)
can destroy its position, but these circumstances effect the whole industry, as well, not only
SIÓ-ECKES. All in all, if SIÓ-ECKES remains of the right path and doesn’t make mistake, it
will probably be able to maintain its comparative advantage.
FMCGs
Fruit juices and beverages are fast moving consumer goods (FMCGs) which mean that they
are frequently sold products and their price level is relatively low (in Hungary it varies
between 100 and 500 HUF/liter depending on fruit content, flavor and brand). For such
product it is typical that consumers have their preferences, they get used to a brand, a product
and they purchase it without reconsideration. Therefore if SIÓ would like to attract more
consumers it had to change their habits by using a special, effective marketing strategy.
However, in Hungary SIÓ has the strategic advantage of being a well-known and appreciated,
quality product with a properly intensive marketing strategy and most Hungarians buy or
would buy this brand by habit – if they can afford it.
This is another important characteristic of FMCGs: price-elasticity and price-sensitivity.
Price is a basic determining factor. Consumers, in worse times, are tending to choose cheaper
products and get used to poorer quality. In such case, after gaining back their financial
stability they still remain at the poorer brand because of habit – then comes the importance of
marketing strategy to gain back the consumers. But according to the data about SIÓ this
strategy can be considered successful.
Strategic capabilities of SIÓ: traditional, well-known product
brand name is associated with quality
proper marketing strategy
2
Source: http://www.gvh.hu/gvh/alpha?do=2&pg=11&st=1&m5_doc=2756
impossible: too costly, requires too complex strategy, too intensive marketing and success is
even then unpredictable. It is hard to properly differentiate the product on a saturated market.
In higher categories maybe there are possibilities, but quality should be excellent as well as
the whole introduction strategy, and the new entrant should be competitive in price, as well.
But still, SIÓ is the traditional, Hungarian brand Hungarians trust.
Strategic capabilities: no real threat of new entrant, despite the fierce competition,
SIÓ –as far as doesn’t make a big mistake – doesn’t have dangerous
Threat of substitutes
In case of any FMCG it is a real threat: consumers are flexible to substitute these products
with any similar product category, if necessary. For fruit juices and beverages there are
several possibilities for substitution. Mineral and flavored water, tea and ice tea, milk and
flavored milk, soft drinks – all kind of non-alcoholic drinks. Within it the closest substitutes
are the waters, ice teas and soft drinks.
About the Hungarian fruit juice and beverage market we can tell that the market is
important segment of the non-alcoholic drinks’ market but the yearly consumption of such
products fall behind the consumption of soft drinks, and is much less than the consumption of
mineral water.
Table 1: The yearly per capita consumption of non-alcoholic drinks in liters 1999 - 2008 3
3
Source: Hungarian Accosiation of Soft drinks, Fruit drinks and Mineral water Producers’ webpage
(red: juice, beverage, drink, tea; green: soft drinks; blue: mineral water)
SUMMARY
In general, I found that SIÓ-ECKES Kft. uses a clear, proper strategy and it determines
achievable goals but these goals are challenging enough to keep the company in move. So far
they are able to fulfill their goals, they are effective as well as flexible and dynamic.
The company can build on a wide range of important resources and capabilities, from which
several has strategic importance or they ensure the competitive advantage of the company.
About the industry we can tell that the operation has difficulties (saturated market, fierce
competition, high bargaining power of stakeholders) but SIÓ even among these hard
circumstances is able to perform extraordinarily. This well shows its strategic and market
power.
The following SWOT table summarizes the strategic position and capabilities of SIÓ-
ECKES Kft. .
The numbers in the brackets indicate the weight of each characteristic according to my
judgement. I gave score from 2 to 4 for strength and weaknesses according to that how
unique/general they are and how much benefit/loss they mean. For the other two I gave scores
of 0.5, 1 and 2: how possible they are, what is the cost/benefit ratio or how much it hurts SIÓ.
After summarizing we arrive to 11.5: a quite high, positive ratio which testifies the strong
position of SIÓ-ECKES.
All in all we can state that the company is highly competitive, strong leader of its target
market because it possesses special capabilities, adapts well to its environment and do its best
to fulfill its goals and reach that level it created for itself in its vision.
Bibliography