Bunagan Stama Paper

A strategic management paper on Universal Robina Corporation

Submitted to: Prof. Ricardo Palo Faculty, CAS

Submitted by: Kristel Mae J. Bunagan 4-ALM

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TABLE OF CONTENTS I. EXECUTIVE SUMMARY………………………………………………………………………….. 1. 2. 3. 3.1. 3.2. 3.3. 3.4. 3.5. 4. 4.1. 4.2. 4.3. 4.4. 5. 5.1. 5.2. 5.3. 6. 6.1. 6.2. 6.3. 6.4. 6.5. 7. 8.

INTRODUCTION ……………………………………………………………………. RESEARCH DESIGN AND METHODOLOGY ……………………………………. MACROENVIRONMENTAL ANALYSIS …………………………………………... Political Forces ……………………………………………………… Economic Forces ………………………………………………………… Social/Cultural Forces ………………………………………………… Technological Forces ………………………………………………… Environmental Forces ………………………………………………… INDUSTRY, MARKET AND COMPETITOR ANALYSIS …………………………. Porter’s 5 Forces Model …………………………………………….. Market Analysis ………………………………………………………. Competitive Profile Matrix (CPM ……………………………………. External Factor Evaluation (EFE) Matrix …………………………… COMPANY ANALYSIS ……………………………………………………………….. Company Internal Audit ………………………………………………. Key Financial Ratio Analysis ………………………………………… Internal Factor Evaluation (IFE) Matrix ……………………………... STRATEGY FORMULATION ………………………………………………………… Strengths, Weaknesses, Opportunities, Threats (SWOT) ……….. Strategic Positioning & Action Evaluation (SPACE) ………………. Boston Consulting Group (BCG) Matrix……………………………… Internal-External Matrix……………………………………………….. Grand Strategy Matrix…………………………………………………. Quantitative Strategic Planning Matrix………………………………. Objectives and Strategy Recommendations………………………..

3 4 5 9 9 15 23 25 28 30 30 32 35 35 38 38 43 46 47 47 49 52 53 54 54 55

II. Strategy Evaluation, Monitoring and Control…………………………................

57

III. List of Tables………………………………………………………………………..

59

IV. Appendix……………………………………………………………………………

60

V. Bibliography…………………………………………………………………………

65

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I. EXECUTIVE SUMMARY Universal Robina Corporation is a leading company in terms of snack foods industry and is one of the largest food manufacturing company in the Philippines. It is excellent in providing quality foods and services in the Philippines and across the South East Asian Countries. The food industry is a basic commodity that never experienced a significant down turn in terms of its demand from the customers. It has always been the most patronized industry. Meanwhile, the players in the industry often experiences down turn in terms of how demandable their products are. The key competition among them is how attractive your products are and how likely you are going to be patronized and produce loyal. The Company URC has ventured in different market segments and fortunately its snack food products generate most of its return of investments. Thus, URC registered an EFE rating of 3.1 in terms of responsiveness to external environment. The food industry is led by three major players each dominating in a specific income segment. In terms of global expansion, URC is a market leader based on CSF rating and market share. This is evident on the international expansion that the company recently had. URC however, has a total modest competitive position with a CSF rating of 2.9 considering that it has strong capitalization but poor accessibility to its product moderated by its price competitiveness. Hence, an opportunity exists for URC to be the market leader in the industry. Internally, most of the company’s strengths are owed to its synergy with URC’s diversified brand segments. The operational synergy has allowed URC to obtain a sales growth by 14% compared to the sales growth of year 2014. Despite this, the company still generated a total rating of 2.89 in terms of responsiveness to its internal environment. Based on the URC’s SPACE rating, URC falls within the Aggressive profile quadrant which states that it has an excellent position to use its internal strengths to take advantage of external opportunities, overcome internal weaknesses and avoid external threats. Feasible strategies under this quadrant are market penetration, market development, product development, backward integration, forward integration, horizontal integration, diversification or a com The company is very competitive in competing with other leading companies. This paper shows the recommended strategies gathered through research by identifying the possible hindrance the company is currently facing in the market. Ultimately, this paper is aimed at identifying the areas of concern that need improvement. This paper will also be tackling what these strategies best do for the said company and what will be the most appropriate strategy for the company to achieve its strategic objective to be a strong market leader. The is also a score care for URC which states how will the firm is improving in the industry and how it is continually creating values through measures, it also states how it improved upon its core competencies and competitive advantages and how satisfied the firm’s customers are.

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1. Introduction Business Overview Founded in 1954 when Mr. John Gokongwei, Jr. established Universal Corn Products, Inc., a corn manufacturing plant in Pasig, Universal Robina Corporation (URC) was founded. Mr. Gokongwie Jr. established a vision for Universal Robina Corporation to become one of the leading pan Asian players in snack foods and beverages. This vision is gradually being realized as URC has managed to transform itself from a Philippines operation to a recognized Asian Multinational with full scale operation in eight countries outside the Philippines, and soon in emerging markets such as Myanmar, Laos and Cambodia. Universal Robina is involved in a wide range of food-related businesses, including the manufacture and distribution of branded consumer foods, production of hogs and day-old chicks, manufacture of animal and fish feeds, glucose and veterinary compounds, flour milling, and sugar milling and refining. It is one of the largest branded consumer food and beverage product companies in the Philippines and as mentioned above it has a significant growing presence in the ASEAN markets. URC is among the Philippines’ pioneers in the industry. URC operates its business through operating divisions and wholly-owned or majority-owned subsidiaries that are organized into three core business segments, namely, branded consumer foods, agroindustrial products and commodity food products. Branded consumer foods (BCF) segment, including their packaging division, is the Company’s largest segment. Majority of URC's branded consumer foods business is conducted in the Philippines, but the Company has expanded into other Asian markets through its subsidiary, URC International, and subsidiaries in China, Malaysia, Thailand, Singapore, Indonesia, Vietnam, and Myanmar. Business Operations and others URC’S financial position remains healthy with strong cash levels. The Company has a current ratio of 2.35:1 as of December 21, 2015, higher than 2.30:1 as of September 30, 2015. It has its total assets amounted to P117.375 billion as of December 31, 2015. More particularly, its current assets is currently at P52, 040,781 while P65, 334,494 amounts to its non-current assets in the year ended December 31, 2015. With regards to its total liabilities and equity, they amount to P48, 557,288 and P68, 817,987 respectively. The Company’s financial position can be seen in its financial statement for the first quarter of Fiscal Year 2016 as it was filed in the Securities and Exchange Commission. On the other hand, the company’s revenues for the first quarter ended December 31, 2015 and 2014 by each of the principal business segments is as follows:

First quarter ended December 31 4 | Page

In millions Branded Consumer Foods Group Domestic International Packaging Total BCFG Agro-industrial group Commodity Foods Group Total

2015

2014

P15,695 8,985 24,680 315 P24,995 2,287 2,2705 P29,987

P14,840 7,535 22,375 294 P22,375 2,250 2,032 P26,951

Aside from its market leadership in snack foods and beverages in the Philippines, URC is the first “Philippine Pan ASEAN Multinational” and has proven itself to be a trailblazer in manufacturing with a strong and loyal consumer base. It has built three strong regional brands over the years; “Jack ‘n Jill” for snack foods, “C2” for ready to drink tea, and “Great Taste” for coffee and these brands are becoming popular across the ASEAN Region. Just recently, in November 2014, the Company acquired 100% shares of NZ Snack Foods Holdings Limited. It is the holding company of Griffin's Food Limited, a snack food company in New Zealand, from Pacific Equity Partners. URC also entered into joint ventures with Calbee, Inc. to form Calbee-URC, Inc., which manufactures and distributes food products under the "Calbee Jack 'n Jill" brand name; and with Danone Asia Holdings Pte, Ltd. to form Danone Universal Robina Beverages Inc., which manufactures and distributes food products under the "B'lue" brand name. 2. Research Design and Methodology Collections of data and information as well as tables and figures endowed in this paper were all gathered from various reliable resources from the internet either as official publication or the segment of an official publication. Official publications would comprise, but not limited to, of the different official websites of the government agencies and the segments of these agencies would comprise of the private and private institutions duly accredited by the government to conduct projects and researches for general and specific resources. As to the industry analysis of the subject company of this paper it will be limited to the food and beverage industry which include branded consumer food groups and packaging industry. All other information sought under this paper are taken from reliable resources in the internet those of refutable background in the conduct of researches and outputs. 3. The Company’s Vision and Mission Statement A. MISSION Universal Robina Corporation (URC) is one of the largest branded food product companies in the Philippines and has a growing presence in other ASEAN markets.

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Components 1. Customers

Yes *

No

Evaluation They are into expansion to ASEAN

countries

which

means that they want to offer the same quality brand 2. Products/Sevices

to other nationalities. It is stated in their mission

*

that they aim to be the largest

branded

food

product companies in the Philippines 3. Markets

and

across

South East Asian Countries. The company plays a

*

dominant leadership in the market

or

industry

it

belongs through the quality and convenience it can give 4. Technology

*

to the customers. The mission does

not

specifically

the

states

technological component of 5. Concern for survival,

the company. The company is concerned

*

growth, profitability

with its survival that they aim to be the market leader

6. Philosophy

*

in the industry. This element in the mission of the company is not

7. Self-concept

*

present. It is stated in their mission that they aim to have a presence

in

countries

which

ASEAN is

a

manifestation that they aim for more trust from the customers 6 | Page

through

8. Concern for public image

expansion. They aim for what is best

*

for the customers and gaining the trust of every 9. Employees

*

individual. They did not include the livelihoods

10. Nation Building

of

the

employees. They are constructing an

*

identity

as

an

active

contributor to the economy by providing high quality product. B. VISSION URC’s Vision is to be the best Philippine food and beverage company, with a powerful presence throughout the ASEAN region, carrying a wide portfolio of delightful brands of exceptional quality and value, equipped with efficient systems and motivated people. We are committed in making lives a truly fun experience.

Parameter 1. Does it clearly answer

Yes *

No

Evaluation It has been indicated that

the question: “What do we

they want to be the best

want to become?”

food and beverage company with a powerful presence in the

2. Is it concise enough yet

*

inspirational?

ASEAN

regions/countries. The vision is straightforward on what the company really want to achieve and what they

3. Is it inspirational?

*

can

offer

to

the

customers. The company is determined to

expand

its

market

internationally with a wide portfolio of their brands, 7 | Page

efficient 4. Does it give clear

*

indication as to when it

systems

motivated people. There is no

and specific

indication as to time.

should be attained?

RECOMMENDED MISSION: To be the customers’ first choice inn fun snacks, dominant market leader in the Philippine Food Industry and has a growing presence in other ASEAN markets with ultimate passion and commitment in endowing quality, value and convenience that the customers deserve and to hand over a great livelihood to every employee. RECOMMENDED VISION: URC’s Vision is to be the best Philippine food and beverage company, with a powerful presence throughout the ASEAN region, carrying a wide portfolio of delightful brands of exceptional quality and value, equipped with efficient systems and motivated people. We are committed in making lives a truly fun experience.

4. External Analysis With about seven thousand islands lying off south west coast of the Asian mainland, the Philippines is one of the largest island groups in the world. It is strategically located as a gateway to the East and Southeast Asian market, and well-poised to be a staging area for local food and beverage processors that seek to penetrate the lucrative market. The Philippines’ food and beverage processing industry is comprised of the following major factors: beverages, coffee and cacao, condiments and seasonings, dairy products, fats and oils, flour and bakery products, fruits and vegetables, meat and poultry products, seafood products, snack foods, and sugar and confectionery. As reported by Global Agricultural Information Network, the food processing industry contributes to the country’s total manufacturing output. Roughly 90 percent of the Philippines’ food and processing industry’s output is consumed locally. Consumption growth in the coming years is underscored by the country’s robust economy and a fast-growing, highly urbanized population with increasingly sophisticated tastes and ever-growing access to supermarkets. 3.1 Political forces Existing laws and government regulations

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The regulation of food and drugs in the Philippines is enshrined in the 1987 Philippine Constitution. Statutory laws are also in place to provide legal basis for the creation of a regulatory agency such as Bureau of Food and Drugs, Department of Health, Department of Agriculture, Department of Trade and Industry and other, all mandated to ensure the safety, efficacy and good quality of all food and drug products being made available to the general public. Among these statutes four of them are of relevance to the industry of Universal Robina Corporation namely: Consumer Act of the Philippines (RA No. 7394), Food Safety Act of 2013, Food Fortification Act of 2000, and Food, Drug and Cosmetic Act. There had been laws passed with regards to food safety control and regulatory system in the Philippines. The National Food Safety Network is generally composed of agriculture and fisheries (Fresh produce), the food industry (food manufacturing, distribution and retail outlets), the food service sector (restaurants, caterers, street vendors) and the consumers (household consumption). Each components has a corresponding responsible regulatory agencies/bureaus and services and regulatory laws. Alarmed of the emergence of food borne disease incidence, the national government in 1998, created through an Executive Order the National Food Security Council Under this, a National Food Safety Committee was organized to formulate National Food Safety Policy Program. Together with partner agencies a consultative meeting was convened to discuss and formulate of a framework for a National Food Safety initiative. Several issues were raised in the consultative meetings and the committee came up with the following recommendations namely: •

Formulation and issuance of a national policy on Food Safety.

•

Review critical areas of the food chain which are unprotected by laws or regulations and standards.

•

Development of a comprehensive Food Disease Surveillance System

•

Develop detection methodologies and assessment in the emergence of GMOs.

The action plans however were only given a life span of 3 phases from a period of year 2002-2007 with threeyear coverage each phase because of certain adjustments such as changing of leadership in the local government units and national leaders. Hence, the current laws governing government regulation with regards to the food industry and the food service sector are elucidated in this portion. A. Republic Act No. 7394, The Consumer Act of the Philippines Under the statute, the provisions provided and the implementing rules and regulations shall be enforced by: The Department of Health with respect to food, drugs, cosmetics and devices and substances; the department of agriculture with respect to products related to agriculture; and the department of trade and industry with respect 9 | Page

to other consumer products not specified above. Article 7 of the said statute the concerned departments shall establish consumer product quality and safety standards which shall consist of one or more of the following: 

Requirements to performance, composition, contents, design, construction, finish, packaging of a consumer

   

product; Requirements as to kind, class, grade, dimensions, weights, material; Requirements as to the methods of sampling, tests and codes used to check the quality of the products; Requirements as to precautions in storage, transporting and packaging; Requirements that a consumer product be marked with or accompanied by clear and adequate safety warnings or instructions, or requirements respecting the form of warnings or instructions. Relevance: Under the statute, before entering the industry there are certain requirements that should be complied first. The company would have to take into consider this because this might affect the company’s overall expense and might occur barriers to entry. B. Republic Act No. 10611, An Act to strengthen the food safety regulatory system in the country to protect consumer health and facilitate market access of local foods and food products, and for other purposes Food security refers to the assurance that food will not cause harm, human health is protected and market access of locally produced foods and food products is facilitated. Food, as one of the basic needs of man, provides the health requirements of a person in order to live. The availability of food on the plate of every Filipino is among the main concerns of the government in achieving food security. The supply to meet the ever growing food demand. However, more than achieving availability and sufficiency and supply, food security is also defined as access to safe and nutritious foods as defined by food and agricultural organization of the United Nations (FAO 2014). In August 23, 2013, President Benigno S. Aquino III signed into law Republic Act No. 10611 otherwise known as the “Food Safety Act of 2013.” The law primarily adheres to the Philippine Constitution’s declaration to protect and promote the right of the people to health and keep its populace from the threat of trade malpractice and substandard and hazardous products. With these as pronouncement, the country shall support and advocate for a farm-to-fork food safety regulatory system which guarantees high level safety, promotes fair trade and fosters the competitiveness of the country’s food and food products. Republic Act no. 10611, also known as the “Food safety act of 2013” defines food as any substance or product whether processed, partially or unprocessed that is intended for human consumption. It includes drinks, chewing gum, water and other substances, which are intentionally incorporated into the food during it manufacture, preparation and treatment. On the other hand, food safety refers to the assurance that food will not cause harm to the consumer when it is prepared or eaten according to its intended use. The law primarily aims to strengthen the food safety regulatory system in the country. Food safety regulatory system is the combination of regulations, food safety standards, inspection, testing, data collection,

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monitoring and other activities carried out by food safety regulatory agencies composed of the Department of Health, Department of Agriculture, the Department of Interior and Local Government and the Local Government Units in the implementation of their responsibilities for the control of food safety risks in the food supply chain. Specifically, it aims to: protect the public from food-borne and water-borne illnesses and unsanitary unwholesome, misbranded or adulterated foods; enhance industry and consumer confidence in the food regulatory system; and achieve economic growth and development by promoting fair trade and sound regulatory foundation for domestic and international trade. In general RA 10611 woks in the principle of achieving food safety to protect human life and health in the production and consumption of food and protect consumer interests fair practices in the food trade. The protection of consumer interests shall be geared toward the prevention of adulteration, misbranding, fraudulent practices and other practices which mislead the consumer, and the prevention of misrepresentation in the labelling and false advertising in the presentation of food. In order to support this legislation, standards for food safety measures shall be developed. Food safety standards refer to the formal documents containing the requirements that foods or food processors have to comply with to safeguard human health. It should be noted that the food safety standards shall be based on risk assessment which is anchored to sound scientific evidence. Relevance: The Company produces manufacture and packaged foods and beverages. Hence it must make sure that is had complied with all the necessary requirements needed to operate the business especially to safety. With all the incidents happened in the past, one incident of safety issues from a company would break it down and would be a cause to piles of lawsuits. Because after all, it must always be proven that the company have done due diligence to avoid the happening of the incident. C. Republic Act 8976, An Act Establishing the Philippine Food Fortification Program and for other purposes The Food Fortification Program is the Philippine government’s response to the growing micronutrient malnutrition, which has been prevalent in the country for the past several years. Republic Act 8976, “An Act Establishing the Philippine Food Fortification Program and for other purposes” mandating fortification of flour, oil and sugar with Vitamin A and flour and rice with iron by November 7, 2004 and promoting voluntary fortification through the Sangkap Pinoy Seal Program, signed into law on November 7, 2000. And the following are the sources of the mandates included in the statute: • There are 139 processed food products with Sangkap Pinoy Seal Program with 83% with vitamin A, 29% with iron and 14% with iodine (2008) • 37% of the products are snack foods. Most of the products FDA analyzed are within the standard • Based on 2003 NNS Households’ awareness of SPS- and FF-products is 11% and 14%, respectively, in 2008 awareness is 11.6% • Although awareness is low, usage of SPS-products is 99.2% Food fortification is the addition of Sangkap Pinoy or Micronutrient such as vitamin A, iron and iodine to food, whether or not they are normally contained in the food, for the purposes of preventing or correcting 11 | P a g e

demonstrated deficiency with one or more nutrients in the population or specific population groups. Sangkap Pinoy nutrients or micronutrients are vitamins and minerals required by the body in very small quantities. These are essential in maintaining a strong, healthy, and active body and a sharp mind; and, for women, to



bear healthy children. The following are the objectives of the Food Fortification Program: To provide the basis for the need for a food fortification program in the Philippines: The Micronutrient Malnutrition

 

Problem To discuss various types of food fortification strategies To provide an update on the current situation of food fortification in the Philippines

Relevance: One of the problems that besets the packaged foods and beverage industry is the problem of food nutrition. The company must take this into consideration this requirement because it might be the only factor to switch to other brands by loyal customers. D. Republic Act 3720, Food, drug and cosmetic act The above statute prescribes rules for the packaging and labelling foods and distributed in the Philippines. Also in the Bureau of food and drug interpreting regulations and details of Act no. 3720 provides lists of substances permitted for use in food and food packaging materials. Labelling as defined in the Act, means the provision of adequate information and accurate identification of the pre-packaged foods on the packaged; means by which product communicates with the consumers, traders, regulatory agency; it must be correct, misleading, accurate and legible. Every label of a packaged food has a principal display panel or alternate principal display panel. It must include product identity name and net content declaration. Every company must take note of the area designated for the Principal Display Panel (PDP). For rectangular package, it is the height times the width. For cylindrical or nearly cylindrical container, it is 40% of the value of the height of the container times the circumference. For other shaped container, it is 40% of the total surface area excluding tops, bottoms, flanges of cans and shoulders and necks of bottles and jars. However, if the container has an obvious PDP, e.g. the top of the triangular or rectangular package, the area shall consist of the entire top surface. The information panel is the label panel immediately to the right of the PDP, as seen by the consumer facing the product with the following exceptions: If the panel is too small to accommodate the necessary information or is not usable e.g. folded flaps, then the information panel is the next label panel immediately to the right of this part of the label If the package has one or more alternate PDP, the information panel is immediately contiguous and to the right of any PDP If the top of the container is the PDP and the package has no alternate PDP, the information panel is any panel adjacent to the PDP Relevance: This might affect the company’s product marketing and advertising because some necessary components used in the production of the product are compromised. Although the company is a leader in packaging products this 12 | P a g e

portion is still of great importance since the government is the foremost regulation authority hence all mandatory acts must be complied with. Potential Charter Change E. House Bill No. 743, An act promoting urban farming and providing funds and incentives therefore Driven by the policy of the state to protect and advance the right of the people to a balanced and healthful ecology in accord with the rhythm and harmony of nature and towards this end, the state shall endeavour to promote activities that will ensure that its people will continue to live in a sustainable environment. Therefore under the proposed law, the state will support any act of farming in a city using land or space of a building, including but not limited to a roof of a building that is partially or completely covered with vegetation through the use of any growing medium such as but is not limited to pots, plots and/or membranes. Relevance: The Company manufactures products and distributes them to their customers in a processed food or beverage. Support for urban farming will pose a threat to the company because it will teach people produce foods on their own. Producing foods on their own would mean people would be able to produce foods, especially for commodities that are similar to what the company can offer, on their own and it will lessen customer patronization to the company’s products. F. House Bill No. 206, An Act providing for a system of determining the minimum food requirement of Filipinos, reorganizing the National Food Security, establishing the National Strategic Food Supply and reserve corporation for other purposes Driven by the policy of the state to promote just and dynamic social order that will ensure the prosperity and independence of the nation and free the people from poverty through policies that provide adequate social services, promote full employment, a rising standard of living and an improved quality of life for all hence the statute is proposed. The bill requires that the Department of Agriculture to define and put together a Food Requirement Plan for Filipinos ensuring that all Filipinos are able to eat from what is locally produced first before exporting our produce to the international market. As such, if there is a shortage in the supply of rice, fish, livestock and poultry, vegetables and fruits needed to feed the total number of Filipinos, the Department of Trade and Industry shall be able to roll out a trade plan to source out the same from our trading partners. Consequently, the nation’s import and export policies as a nation shall be adjusted to what is needed by the people first before sending raw material and produce to other nations. With the food requirement plan, the Department of Agriculture is able to plan which province should produce what, enhance its competitiveness through infrastructure support, monitor, distribute and market the produce, ensuring supply chain management is enforced to identify gaps in terms of the food requirement per province. Relevance: As reported by Global Agricultural Information Network, the food processing industry contributes to the country’s total manufacturing output. Roughly 90 percent of the Philippines’ food and processing industry’s output is consumed locally. In relation to the proposed bill, it has a duo-effect to the company. It 13 | P a g e

can either be a good news or a bad news. The business has wholly-owned conglomerates and subsidiaries operating outside the country, hence if the government stops exportation it would affect the schedule production and manufacturing of the products. If it is not delivered on time, it would affect target sales and production and it may led to a breakdown. However, the act encourages locally produced products and enhances competitiveness through programs provided by the state. The company would have to invest more on its local production especially in its agro-industrial group. G. House Bill No. 467, An act promoting corporate farming and providing incentives therefore Corporate farming programs aim to attract more private sector engagement in the agricultural sector. Corporate farming’s unique advantage is its ability to vertically integrate the entire process of food production and offers more efficient and effective management not only of the farm itself, but also to the entire chain of agricultural related business including feed supply, agrochemicals, food processing, machinery, storage, transport, distribution, marketing, advertising, and retail sales. Participation to the corporate farming program shall be on a voluntary basis. Hence the act provided schemes that corporations may engage in: ~ Corporation with landholdings suitable for rice or corn production may manage the same and produce such corn or rice or may enter into a management or contractual arrangement with farmers’ groups ~ Corporations may purchase or lease on a long term basis, public or private agricultural land suitable for rice or corn production, whereby the corporation are given full management and production control over the purchased or leased lands or may enter into joint ventures with farmers. However, leased or purchased lands cannot be converted for other uses. ~Corporation may enter into contractual arrangements with farmers’ organizations whereby the corporation will provide the production inputs and technical and related services, then buy back the produce. Relevance: This enables the company’s farm produced products open to wider horizon such stronger partnership with farmers. This is because the farmers are the best gateway to the government. The government provides subsidies to the farmers and tax incentives especially to the marginalized. Hence when the company partners with these farmers it would be lesser cost during the process of producing the company’s farm produce. Lower cost would result to greater mass number of produce hence higher profit. 3.2 Economic forces A. World’s economic condition Global growth as forecasted by the International Monetary Fund, is projected at 3.4 percent this year (2016) and 3.6 percent in 2017. In the advanced economies, growth is projected to rise by 0.2 percentage point in 2016 to 2.1 percent and hold steady in 2017. In the United States, overall activity remains resilient because of the still-easy financial conditions and strengthening housing and labor market but with weighing of dollar strength on its manufacturing activities and also the limiting of investment in mining structures and equipment by low oil prices. In European Countries with the stronger private consumption supported by low oil prices and stronger financial conditions are able to outweigh the weakening of its net exports. 14 | P a g e

In the emerging market and developing economies on the other hand are projected to increase from 4 percent in 2015 which is the lowest since the financial crisis last 2008 and 2009 to 4.3 percent and 2.7 percent in 2016 and 2017 respectively. China’s growth is expected to slow to 6.3 percent in 2016 and 6.0 percent in 2017, primarily because of the weakening of the investment growth as the economy continues to rebalance. The rest of the emerging Asian countries are generally projected to continue growing at a robust pace, although with some countries facing strong headwinds from China’s economic rebalancing and global manufacturing weakness. Relevance: The Company operates across the country hence it must be updated with the world’s economic condition. The world economic condition can either make or unmake the condition of the company with regards to its growth plan to expand across the globe. One factor of this is the forecasted downsizing of the consumer prices in the emerging and developing market from 0.5 percent to 0.1 percent only in the year 2016 and 2017 respectively as can be seen in the table below. Above all, this can be a strong indication that around the world, growth patterns and sources of competitiveness are changing dramatically with emerging economies becoming key players as the US, EU, Japan continue to face slow growth. This is a wakeup call for the company to compete intensively as greater opportunities are coming through for emerging and developing countries such as Philippines. Table 1.

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B. Filipino Family Income and Expenditure 16 | P a g e

From the results of the survey conducted by the National Statistics last 2012 in the Filipino family income and expenditure in NCR, the final results show that 55.2 percent of the families in NCR sourced their income from salaries and wages while 46.7 percent for the entire country. In terms of income class, nearly 60 percent of families in NCR with average annual income of over 100 thousand pesos obtained their income from salaries and wages. A big proportion of families whose income class as below 60 thousand pesos source their income form entrepreneurial activities and other sources. On the other hand, the results also show that families in NCR spend more on food which consisted of 36.5 percent of their total expenditure. This was followed by payment on housing, water, electricity, gas and other fuels which were 26.5 percent and transportation expenditure with 7.5 percent of the total expenditure. Families whose average annual income ranged under 60 thousand pesos incurred food expenditures at 50.0 percent of total expenditures. Families with average annual income of over 250 thousand pesos had the lowest proportion of food expenditure at 33.2 percent. Relevance: This may help the company modify its target market especially that it is involved in many business segments as proven by the business ventures and partnerships it had. In the results above the company may have to focus on those families whose income class is below 60 thousand pesos who source their income from entrepreneurial activities and other sources as this may pose an opportunity for the company because these are the target markets that the company’s products are found stressing the entrepreneurial activities. However it bears stressing that under this income class, families only incurred 50% of the total expenditure which is not desirable as a strong market Table 2.

Table 3.

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C. Consumption Patterns According to 2014 Nielsen survey, an increasing number of Filipinos prefer to consume ready-to-eat meals because of their fast-paced and time-strapped lifestyles. Also, the 2014 Nielsen Shopper Trends Report, Filipino shoppers only spend an average of P4,700 on food items from groceries. This represented a 13% decline from 2012's P5,400. From only 14% in 2012, the number of respondents who frequently eat out of their houses rose to 25% in 2014. Lou-Ann Navalta, Nielsen's Shopper Insights leader in the Philippines said restaurants are appealing because they cater to their needs for convenience, quick preparation, and ready-to-eat meal options. "Shoppers are leading fast-paced lifestyles and are constantly on the go," Navalta explained. "These time-strapped Filipinos are spending more time away from home or in transit and are now more serious about convenient. Table 4.

Relevance: Ready-to-eat meal are also known as processed foods in a standpoint where the company is primarily operating. The main product of the company composed of processed foods and beverages hence with the results of the survey above it is an opportunity for the company since it is one of the major players in the said industry. Processed products are now prominent among various markets hence it is an opportunity for the company to widen its reach of major market to serve as in these markets processed foods are patronized. D. Philippine Economic Growth by 2016 The economy will grow at a healthy pace in 2016. Positive factors include a modest rebound in exports, steady gains in consumer spending and an increase in public spending. A prolonged slowdown in Japan and China – the Philippines’ biggest trade partners – represents the greatest risk. Growth in employment and pre-election spending support private consumption. Real GDP will grow by about 6.5% per year in the medium term.

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Relevance: Economic movement in the country affects the company as it is one of the players that contributes to its growth. Hence, this year the company might want to consider the positive factors contributing to the economic activity namely exports, consumer spending and public spending. These are areas where the company’s activities pass through so these areas must be taken into consideration when formulating the development plan for the year 2016. E. Philippines’ strong performance in the year 2015 The Philippines is among the strongest performers in the region, bucking the trend, because of strong fundamentals. In the first half of 2015, among the major economies in the region, the only countries to accelerate their quarterly growth rates were the Philippines, from 5 to 5.6 percent, and Vietnam. In spite of this acceleration, for the two quarters combined, Philippine growth rate came out at 5.3 percent—its lowest half year growth rate since 2011. On the demand side, the strong performance of private domestic demand at 8.1 percent, supported by record low inflation and robust remittances, drove growth. However, the slow pace of public spending and the contraction in net exports pulled down overall growth. On the supply side, the onset of El Niño slowed agriculture growth to only 0.3 percent. Meanwhile, growth in industry and services was respectable, with both sectors growing by around 5.8 percent. Relevance: Gross domestic product affects almost all areas in the business industry. With this the company would be able to look out for the certain factors that affect the growth and slow pace growth of the GDP. Once determined, the company may have the basis on what industries it must invest more and where to invest less or suffice to say, to avoid those areas which might not be desirable for the company.

Table 5.

F.

Respectable growth in services industry although in manufacturing the growth decelerated significantly

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and

The industry sector grew slower at 5.8 percent compared to 7.3 percent in the same period in 2014, brought down by the deceleration in manufacturing growth from 9 to 5.3 percent. Slower manufacturing growth, in turn, was driven by food manufacturing which grew by 2.1 percent reflecting lower agricultural production and contraction in food exports. Several other manufacturing sub-sectors are underperformed as exports to Japan (-7.5%) and china (-32%) fell. On the other hand, the services sector grew at a slightly slower pace of 5.8 percent relative to a year ago, but continued to be the main driver of growth, accounting for 3.3 percentage point, given its dominant size. Relevance: The Company’s products are manufactured and/or processed foods. In addition to this, the slow paced growth of the manufacturing industry was driven by food manufacturing industries due to the lower agricultural production and contraction in food exports. This can be taken into consideration by the company because this might affect the company’s growth especially to its sectors abroad. Table 6. G.

Packaged food records slight improvement in value growth terms in 2015 The favorable performance recorded by packaged food over the entire review period was sustained in 2015 as slight improvements were noted in current value terms. This is being partly driven by the growing middle class, who are upgrading their brand choices as their purchasing power improves. This, in turn, is encouraging companies to introduce foreign brands, which is helping to push value growth as imported products are invariably pricier than local options. Foreign food specialist retailers which drive sales of unique and high-quality products are also increasing in number. Relevance: According to the Euromonitor, URC is the leader in packaged food in 2015 derived from its wide product portfolio, which targets mainly mass consumers. The company has also positioned itself so as to take advantage of the Philippines’ growing middle class as it expands its product portfolio to include more premium brands. Its launch of Jack ‘n’ Jill Calbee in 2015 is expected to be followed by similar launches following its recent acquisition of New Zealand Snack Food Holdings Ltd. Other established players are also facilitating their expansion through the acquisition of existing local players and/or foreign brands. H. Consumer desire for convenience influences product development and promotion 20 | P a g e

In addition to rising health consciousness, another trend which is positively influencing sales of packaged food is the desire for convenience among consumers. Categories featuring mainly products which can be used as ingredients in home cooking such as sauces, dressings and condiments have been among the most adversely affected as consumers prefer dining out for convenience. Packaged food companies have responded by encouraging home cooking in their promotions, utilising technology for the easy downloading of online recipes and developing products which reduce meal preparation times. Major convenience store brands have also introduced healthy ready meals. Relevance: since the company’s market leadership is in packaged foods, consumer’s growing desire for convenience would mean wider market profile for its consumers. This means that there is an additional market for the company’s products since packaged foods offer the best possible convenience I.

that consumers can get. Modern grocery retailers remain the key distribution channel for packaged food Modern grocery retailers, particularly supermarkets, remained the key distribution channel for packaged food in 2015. The continuous expansion of the outlet networks of key chained grocery retailers has assisted in the steady growth of supermarkets at the expense of traditional grocery retailers, the value share of which is gradually decreasing. New retail brands and formats are also being introduced. Similarly, small outlet formats are growing in number with the introduction of new convenience stores brands and the creation of mini-supermarkets by some major grocery retailers. Furthermore, supermarkets and hypermarkets, dominate the distribution of the US$9.1 billion packaged food market in 2011, followed by other grocery retailers and small grocery retailers. Grocery retail sales totalled US$32 billion in 2010, 67 per cent of the market dominated by other grocery retailers. Sari-sari stores, small independent stores, remain the largest grocery channel in terms of total sales. Spending on grocery products rose among middle and high income consumers in urban locations and while grocery retail sales grew by 24 percent during the period 2005-2010, hypermarket experienced the most rapid growth, 33 percent in 2010. Relevance: The movement and growth of these key distribution channels helps the company’s target market area of focus. This is an opportunity for the company to expand and strengthen its relationships

with its distribution channel. 3.3 Socio-cultural and demographic, trends and lifestyle changes A. The Philippines’ Population is growing 2 percent annually According to Euromonitor, the Philippines is the 18th-most populous country in the world with an estimated 98.4 million people in 2013. The population is expected to grow to 105.2 million by 2017, and then to 110.4 million by 2020. With an increasing number of population there is also an increased demand for food and beverages products. Additionally, the Philippines has one of the world’s youngest population with a median age of 23 years in 2013, Euromonitor predicts that by the year 2030, the fastest growing age group will be 60+, but the

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Philippines will still remain one of the youngest countries with 71.4% of the population under the age of 40. Relevance: The updates on the number of population including age brackets come every year provided by the National Statistics Office. The Filipinos are the market of the company hence with the yearly report on the growing number of population connotes that the company should produce more of its products. With an increase in the population and increase in the production of products would result to growth sales annually for the company. Also, the age profile would affect the introduction of the company’s new products including those coming from its joint ventures outside the country as a hint towards the market targeting and focusing of the company. Moreover, with these given data the company would be able to monitor the growth of these market segments and be able to abide with the growth factors through its products. B. Attitudes toward saving Filipinos were more cautious in spending their money—and more keen on saving it—in the first quarter of 2013, according to a survey conducted by Neilsen on March 2013. The survey results are the following: The Nielsen consumer confidence index measures perceptions of local job prospects, personal finances and immediate spending intentions. Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism, respectively. The Nielsen Global Survey of Consumer Confidence and Spending Intentions, established in 2005, measures consumer confidence, major concerns and spending intentions among more than 30,000 respondents with Internet access in 60 countries. In Nielsen's Global Survey on Consumer Confidence and Spending Intentions, the Philippines dropped one point to 118 on the consumer confidence index from 119 in the last quarter of 2012. The new total dropped the Philippines from second place to third, after Indonesia (122 points) and last quarter's leader India (120 points). The study also revealed that although Filipinos remain optimistic, the optimism does not necessarily equate to more spending. “Aside from the slight decrease in consumer index, we are seeing a more conservative attitude towards spending and an increase is willingness to save,” Nielsen Philippines managing director Stuart Jamieson said in a statement. Relevance: This may affect the pricing patterns and standards of the company as Filipinos are become more conscious of their spending. However, it is not of great importance to the company’s welfare or in any way may affect since its products are composed mainly of processed foods and beverages. The effect on the prices may have to stem out from certain factors that are directly affecting the business operation such as fuel price. Table 7.

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C. Attitudes toward product quality Research shows that Filipinos associate product quality with the product brand hence making foreign brands more patronized by Filipinos than local brands. One concrete example is the market trend of Mandaue Foam. Although the local furniture manufacturing industry still thrives amid the entry of similar imported products that are pegged at much competitive prices, Filipinos are encouraged to adopt the “Buy Filipino” attitude to help keep the industry afloat. Jonathan Ho of Mandaue Foam, one of the country’s largest foam and furniture makers, said that the increasing number of Filipinos who are upholding their values in supporting the local industry, is what’s keeping the local furniture manufacturing alive. However, he admitted that the growing entry of more furniture and other home furnishing products from other countries have continued to eat up on the local manufacturers’ market share. Mandaue Foam managing director Ryan Uy said that despite the bottleneck competition against the imported and cheaper furniture products that entered the Philippine market, Filipino manufacturers like Mandaue Foam is confident that they will be able to fight the competition in terms of quality, design, and workmanship. Meanwhile, the furniture export sector is also intensifying its move to attract the domestic market, specifically the institutional customers, such as hotels, condominiums, and residential buyers in order to sustain the business, while the global market is still under-pressure. Department of Trade and Industry (DTI-7) regional director Asteria Caberte said that the establishment of the “Tindahang Pinoy” in Cebu 23 | P a g e

will help exporters mainly in the furniture and home furnishing, including fashion accessories and gifts, toys, and houseware to stay afloat, Likewise, Caberte said that there are now a growing number of Filipinos, whose buying attitude is geared towards supporting the local economy, by buying only “Philippine-made” products. Relevance: This might require adjustment of the company’s over-all marketing strategies towards product branding including introduction of new products and the strengthening of established products. Encouragement of consumers to “buy local” has long been practiced by the government. This has helped long-established companies be promoted. However, under certain studies, (Journal of International Marketng Vol.2, No. 2, 1994, pp. 49-62 ISSN 1069-031X Submitted August 1992, Revised July 1993) this move by the government stems out from the products manufactured from another country. Hence, the company must keep an eye on this matter if it want to strengthen its longestablished products in the Philippines. 3.4 Technological forces A. Food and beverage industry executives see technology as the greatest driver of future growth Found in the KMPG LLP’s 2013 food and beverage industry outlook survey, respondents, which include 100 US-based senior executives from companies with annual revenues over $1 billion, say that social media, mobile and online marketing and cloud computing are creating new opportunities to engage with consumers and explore new business opportunities. KMPG LLP is professional service being one of the BIG Four auditors along with Deliotte, EY and PwC. Nearly two-thirds of executives say they have adopted or plan to adopt cloud technologies, with 44 percent saying it will dramatically shift their business model and 78 percent believing it will increase transparency. Interestingly, while cost reduction is a goal with cloud computing, the survey indicates that executives are equally, if not more, interested in technology adoption for strategic, “transformation” purposes. Relevance: it is established that company executives are increasingly recognizing the value of using data and analytics to improve decision making related to consumer insight, brand and product management and pricing. Despite this growing interest, however, 46 percent rate their data and analytics capabilities as average or below. Hence, the introduction of new technologies to conduct surveys and reaching out customers has never been this accessible today. Hence, the company looks out through the technological developments as a tool not only for data gathering purposes but also in reaching its customers here in the Philippines and abroad. Table 8.

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B. Emerging market for online food shoppers As consumers look

to reduce time, effort and energy, online food

shopping

will

also

continue to grow in the next two decades. New Technologies inside stores enabling retailers an augmented shopping experience will help companies engage with customers through personalized offers and product suggestions to fit with diet and lifestyle. Hand-held scanners allowing users to get the nutritional values of food looks set to rise in popularity. Relevance: This might lead to URC as a food company to be challenged to be more consistent in delivering quality food products. The company may bring convenience to its customers because of its packed food as well-established in the market C. Food technology’s top 10 predictions for 2016 As published by the Institute of Food Technologies, the editors at Food Technology magazine (Newswise-Chicago) announced their predictions on food trends for 2016. Among the listed trends are the following that relates to the company:  The intersection of health and convenience Food and beverages that deliver on both health and convenience will proliferate and gain wider distribution as consumers look for easy ways to incorporate more healthy products into their lives. The market will be blasted with portion-controlled snacks and ready-to-eat salad kits complete with slightly exotic ingredients to gain more curiosity for the customers and be able to provide nutritional information for them. These kind of products are expected to be seen on retail shelves as entrepreneurs continue to get creative and major food companies acquire or 

partner with innovative niche marketers. Less is more Food manufacturers will have to continue to make food products that are less processed as



consumers demand more transparency and foods that are closer to their natural state. The packaging connection Consumers have long been interested in the backstory behind the foods they choose, but recent technologies have made it more possible than ever to bring this kind of information to the everyday consumer. This year, this trend will continue to grow, with packaging innovations allowing consumers to interact with products on the shelf and when they get them home.

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Packaging technologies will also make it easier than ever for consumers to reorder their 

favorite items at the touch of a button. Generational nutrition Baby Boomers, Gen X-ers, and Millennial will continue to play a role in popular nutritional trends as well as product labelling. Baby Boomers want to lead lives full of energy and strong mental focus. Generation X-ers are concerned not only with their own health, but with the health of their children. Immune health will continue to be a trend as this generation understands the link between immunity and overall wellness. Millennial tend to be more focused on labels and natural foods, so being transparent—not only in terms of healthful ingredients but also in terms of how the foods and beverages are made—will be important. Information is key to all generations, so communicating science-based information in an understandable way will be critical in upholding the credibility of products focused on health and wellness. Relevance: Aside from packaging as the company’s one of the largest line of business, these are factors that the company will have to consider when introducing new product line or brands. The company’s products must always conform to the technological trends from time to time because these are the factors that people associates in their standard of choosing their best quality brands. This would also help the company in updating its customer profile when

conducting marketing strategies for the company’s annual development plan. 3.5 Environmental forces A. Consumers incorporate social issues into their purchase decisions by evaluating the consequences of their consumption upon society such as environmental consequences A socially conscious consumer takes into account the public consequences of his or her private consumption or who attempts to use his or her purchasing power to bring about social change. Consumers who consider the environment to be important will therefore evaluate the environmental consequences associated with the purchase of a product. According to the study made by the international journal’s research journal of commerce and behavioural science, consumers with strong environmental beliefs have knowledge on environmental issues, have concern for the environment, have environment friendly habits and have no environment attitude but are not reflected in the consumers’ buying behaviour. Hence there is a gap between articulated positive attitudes toward sustainability and people’s actual consumption behaviour wherein the former is mostly unsustainable. Although consumers say they are willing to buy green products, only a few do so (Ehrich and Irwin, 2005). If left unaddressed, this gap will continue to frustrate producers of sustainable alternatives who rely on traditional, attitudinal market research methods, only to find that actual demand often falls far short of their initial projections. This limits the availability of sustainable product alternatives and thus limits movement toward more sustainable consumption. 26 | P a g e

Relevance: The Company’s ecological contributions and actions in implementing have been healthy since then. Thus, it would have no great effect on the company since it is doing efforts to support such. With respect to its consumers there had not yet ecological issues raised by its customers through the years of its operations. B. Environmental challenges remains a low priority for food and beverage industry Environmental risk remains a low priority for the global food and beverage industry, while food safety, financial risks are the most vulnerable areas according to a survey conducted by certain certification firms. As carried out by certification firms namely DNV Business Assurance and GFK Eurisko, the survey asked 500 food and beverage professionals from companies in Europe, America and Asia to prioritize the main risk areas to their supply chains. According to the survey, food safety (63%) and quality (54%) are the areas of supply chain management that companies consider particularly vulnerable. Financial risks (38%) are deemed less threatening, together with legal and regulatory ompliance (35%), while environmental challenges (29%) are deemed a lower concern. Last on the list as community relations (10% and ethics (8%). The results of the survey have sparked concern, as food and drink manufacturers account for 5.3% of industrial final energy use globally, according to figures by industry association for the European food and drink industry, FoodDrink Europe. The industry also accounts for 1.8% of total water use in Europe. Relevance: Although this is not a good outlook on the industry because manufacturers source out their raw materials from agriculture and it is an established dogma that all things has its consequences. This could be an opportunity for the company to introduce itself as an advocate of ecological change so that when time comes that the consumers will shift to being ecologically conscious the company would not be left behind. C. Industry analysis Food manufacturing, which includes food and beverage processing, remains the Philippines most dominant primary industry. Food and beverage (f&b) processing is a booming industry in the Philippines. Quadrupling to $27.1billion in five years (2009-2013), the food processing industry contributes 50 percent to the country’s total manufacturing output. While most of the roughly 500 f&b processors registered under the Philippine Food and Drug Administration are micro or medium-sized businesses, food processors are also among the largest corporations in the country. The food processing industry is comprised of the following major sectors: fruits and vegetables, fish and marine products, meat and poultry products, flour and bakery products, beverage and confectionery, dairy foods, food condiments and seasonings, food supplements, bottled water; snack foods, and fats and oils. The company under stud, ranks fourth among the players in food and beverage manufacturing industry in the Philippines. Big ideas from Porter’s five forces were used to analyse five connecting factors critical for an industry to become and remain competitive. The five forces analysis is used to understand the dynamics of competition within the industry to which the company under study belongs. 27 | P a g e

Table 9

Industry, Market and Competitor analysis 4.1 Porter’s 5 Forces Model A. Rivalry among competing firms – STRONG Food manufacturing – including food and beverage processing – remains the Philippines’ most dominant primary industry with over top 20 major players each contributing to the total 40.1 percent total output in manufacturing. Competition in the food and beverage industry is intense and primarily based on product quality, brand recognition, brand loyalty, service, marketing, advertising, price, availability of products and the ability to get its product widely distributed. Competition among these rival firms varies by country and product category. However, for purposes of this paper it will only focus on the rivalry of the firms producing locally and encroached only with respect to their competition in food and beverage Substantial advertising and promotional expenditures are required to maintain or improve a brand’s market position or to introduce a new product as can be viewed in the above list of competitors. With many number of key players in the industry the target market is one important to consider significant fluctuation that includes their movements, preferences, ad developments such recent or current trends from time to time. As evidently shown in the economic developments section of this paper, consumers nowadays desire convenience which primarily influences product development and promotion. With the rival firms’ brand positioning it is imperative that they develop and introduce brands from time to time. However this would also depend on the marketing and advertising of these firms. Most firms spend marketing

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strategies widening their distribution channels such as retailers and wholesalers. Nowadays, there is a growing developments among these distribution channels hence the firms are also watchful of their competitive channels of distribution as there is an adverse effect on both ends. Above all, the competition in the industry is strong mainly because of the growing trends of consumer preferences and the introduction together with position of the products in the market all roots back that food and beverage industry is one of the most essential industry in the country. B. Threat of substitute products – MODERATE Players in the industry have almost the same products and line of segments and business hence products could be substituted based on consumer preferences and trends and other variables. The high performance among the substitutes alarms certain producers to introduce more products in the market. Dominants in the market are being imitated either in their packaging or recipe. However, it is a determinant when it comes to consumers’ substitution decisions. Significantly, player in the industry compete based on product packaging, recipe and quality. Filipino families spend almost 5,000 pesos of their monthly income from purchasing grocery items hence a potential market for the key players. Products from companies already established in the market makes switching cost low because of brand loyalty dominating the consumers’ buying decisions. Since most manufacturers makes their products available among the distribution channels hence makes substitutes highly available. Producers diversify their channels of distribution to make their products readily available to the consumers. They widen their networks and grab the latest technological breakthroughs in order to make products readily available. C. Bargaining power of consumers – WEAK Consumers are among the top priorities of food and beverage producers. Bargaining power of consumers are determined based on the packaging, location and recipe of the product. These factors establish product loyalty and strong buyer preference. In the industry, the products are almost the same and switching costs nothing for the consumers. In addition to this is the high accessibility of product information from the internet, websites and in most cases stems from the high availability of the products. Almost everywhere in the distribution channels of the key players substitutes are available also. It depends upon the consumer preference. However, more than these are the core essentials of determining bargaining powers namely: packaging, location and recipe. There is a weak bargaining power among the consumers because despite same product segments and lines, are diversified and unique packaging and ingredients of the products. The industry key players compete in product innovations and developments because there is a high tendency of product loyalty. However, this may vary when consumers’ preference trends affect their actual purchasing power. D. Bargaining power of suppliers – WEAK

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Almost all resources in manufacturing the products in the industry come from agriculture. However, these companies acquire their own plants in order to have their own sources of raw materials. Several producers have high overall supply from their own plants and producers of agricultural segments hence do not affect production and manufacture of their products. This also increases producers’ options in acquiring raw material thereby reducing the bargaining power of supplier. This power is also weakened because of the low forward integration which limits suppliers’ control of the producers’ supply chain. These external factors weaken suppliers’ influence on the company even though some of them are moderately sized or large forms. E. Barriers to entry – MODERATE There are factors which determines the moderate threat of new entry in the industry. These are low switching cost, customer loyalty and high cost of brand development. New firms may threaten the already established producers because consumers can easily shift from one company to another. However, there is a moderate customer loyalty hence producers in the industry have a corresponding level of protection form new entrants. Also, the cost of brand development is high hence making it difficult for new entrants to directly compete against the players in the industry especially those of strongest brands. With respect to product differentiation, there is a moderate indication because products in the industry are diversified and there are corresponding consumer level of loyalty. In addition to this is the consumer preferences and developments including innovations that varies and changes from time to time. Government and legal requirements in entering the business have long been highly indicated because of the many requirements to establish a business. 4.2 Market Analysis A. Market Segmentation Table 11. One of the ways to segment the market for processors and manufacturers, whose target market are

local

wholesalers

and

distributors especially groceries, is

to

break down the establishment population based on its size in

terms

of

distributor and wholesalers sector

then further break to its industry 30 | P a g e

group by its geographic location. As provided in the data provided by the NSO, micro enterprises comprise 91% of the total establishments while the rest are shared by small, medium and large enterprises (SMLEs). Of the 77 thousand SMLEs, 28% is from Wholesale and Retail Trade including Repair of Motorcycles and Motor Vehicles, 16% is form manufacturing, 15% from Accommodation and Food Services and the rest are less than 10% each. In terms of geography, 43% of the SMLEs are in NCR, 12% in Region 4-A, 9% in Region VII and 30% in the rest of the regions. 4.3 Competitor Analysis Universal Robina Corporation operates both locally and in the international markets. It is highly competitive and competition varies by country and product category. With respect to this papers it will only conduct study in the operation of the business in the Philippines and only with its branded consumer segments in relation to its competitors. Hence the matrix below summarizes the competitor analysis of URC and its competitors. Universal Robina Corporation’s critical success factors A. Global Expansion In 2000, the company began to expand its branded consumer foods business more aggressively into other Asian Markets primarily its subsidiary, URC International and its subsidiaries in China: Shanghai Peggy Foods Co. Ltd., Guangzhou Peggy Foods Co., Ltd., and URC Hongkong Co. Ltd.; in Malaysia: URC Snack Foods (Malaysia) Sdn. Bhd. and Ricellent Sdn. Bhd.; in Thailand: URC (Thailand) Co. Ltd.; in Singapore: URC Foods (Singapore) Pte. Ltd.: Acesfood Network Pte, Ltd. in 2007 and Advanson International Pte, Ltd. in 2008; in Indonesia: PT URC Indonesia; in Vietnam: URC Vietnam Company Ltd. in 2006, URC Hanoi Company, Ltd. in 2009 and URC Central Co. Ltd. in 2013; and in Myanmar: URC (Myanmar) Co. Ltd in 2013. The Asian operations contributed about 23.3% of the Company‟s revenues for the fiscal year ended September 30, 2015. B. Product innovation and quality This fiscal year alone, the company’s Philippines branded consumer foods has introduced 79 new products which contributed to sales growth. In particular, URC launched “Jack n’ Jill” as a master umbrella brand for all its snack food products in order to enhance customer recognition. Also, according to the Euromonitor, URC is the leader in packaged food in 2015 derived from its wide product portfolio, which targets mainly mass consumers. C. Distribution, sales and marketing The company’s BCFP are distributed to approximately 120,000 outlets in the Philippines and sold out through its direct sales force and regional distributors. 15 to 30 day credit terms are extended to wholesalers, supermarkets and regional distributors. D. Price competitiveness

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Being one of the market leader in the industry, it is undoubtedly competitive in its price competition to others. Also, the company own plants for the production of its products hence coming up with a price for its products moderately acceptable to the other competitors. Table 10.

E. Financial position URC’s financial position remains healthy with strong cash levels. The company is in net debt position of 8.595 billion pesos this year against net cash position of 1.834 billion pesos last year 2015 due to availment of long-term debt for Griffin’ acquisition. The following are some of its material changes in the 2015 financial statements: 18.1 percent increase in sales of goods and services, 15.3 percent in cost of sales and other. F. Customer loyalty None of the Company’s businesses is dependent upon a single customer or a few customers that a loss of anyone of them would have a material adverse effect on the Company. The Company has no single customer that, based upon existing orders, will account for 20.0% or more of the Company’s total sale of goods and services. G. Market share The principal market for URC’s common equity is the Philippine Stock Exchange. As of March 17, 2016 at 3:20 PM the traded price is at 203.27 pesos, with outstanding shares of 2,181,501,933 pesos. The listed and issued shares is 2,227,638,933 billion. The number of shareholders as of this date is approximately 1,042.

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Universal

Robina Nestle Philippines Inc.

Del Monte Philippines

Corp. FACTORS WEIGHT RATING Global expansion 0.15 4 Product innovation 0.25 3

SCORE 0.60 0.75

RATING 4 4

SCORE 0.60 1.0

RATING 2 3

SCORE 0.30 0.75

and quality Distribution, and marketing Price

sales 0.05

3

0.15

4

0.20

3

0.15

0.10

3

0.30

3

0.30

2

0.10

competitiveness Financial position 0.10 2 0.20 4 0.40 3 0.30 Customer loyalty 0.20 3 0.60 3 0.60 4 0.80 Market share 0.15 2 0.30 4 0.60 2 0.30 Total 1.0 2.9 3.7 2.7 Note: the ratings values are as follows: 1=major weakness, 2=minor weakness, 3=minor weakness, 4=major strength Based on the Critical Success Factors Ratings, Nestle has the competitive advantage over Del Monte and URC and other key competitors. Its competitive advantage has allowed Nestle to be the leader in market share in the income segment. Nestlé’s strength over the rest of the companies is the area of Global Expansion, Product Innovation and quality, Distribution, Sales and Marketing and Price Competitiveness. It has the modest ratings in customer loyalty and price competitiveness. 4.4 External Factors Evaluation A. Opportunities and Importance Weight O1. Forecasted downsizing of the consumer prices in the emerging and developing market from 0.5 percent to 0.1 percent only in the year 2016 and 2017 respectively. (Macro – Economic); Weight – 20% Over the years the consumer prices in the Philippines hurdled so long that the demand for rescaling is highly needed. If consumer prices would go down then the industry would have to increase product differentiation and development because by then there would be stronger rivalry among firms. For URC, a 0.1 growth would mean greater propensity of consumer population and amounts to bigger cost of sales. However, it must still look to the adverse effect if all kinds of commodities would price down then would create a stronger market rivalries. O2. Families in NCR spend more on food which consisted of 36.5 percent of their total expenditure (Macro-economic); weight – 10% Although it is already given that Filipino families would prioritize food in their monthly expenditure especially in their daily affairs. If among these foods there is a 10% consumption on the packaged food and beverage products such as URC’s, it would generate an income for the company especially so if it maintains brand loyalty.

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O3. Filipino shoppers’ spending on food items from groceries grew by 13% (Macroeconomic); Weight – 15% Nowadays, Filipino families would spend a lot of money to dine outside hence it would be an opportunity also to spend money on processed foods. As for the URC, if 5% of the food items comprised of processed foods produced by the company t would be favourable to its revenue especially when influenced by brand loyalty. O4. Real GDP will grow by about 6.5% per year (Macro-economic); Weight – 10% Historically, GDP growth shows a corresponding market growth. It is very conservative already to target at least growth equal to GDP. Hence when the GDP grows that would translate also to industry growth. When the market grows the companies revolving around it also grown hence this must be a concern of URC. O5. In the first half of 2015, among the major economies in the region, the only countries to accelerate their quarterly growth rates were the Philippines, from 5 to 5.6 percent, and Vietnam (Macro-economic); Weight – 10% This would mean that as for the industry’s market share in the economic growth there is an improvement and would mean more investments. Although this happened in 2015, nowhere in the market that one could not see the potential growth in the future. As for the URC, although the international segments of the company are not of primary concern, its international operations might attract investors from other countries to come invest in the Philippines. This would greatly affect market leadership of the company more aggressive than usual. O6. Modern grocery retailers remain the key distribution channel for packaged food (MacroEconomic); Weight – 15% With the 13% increase in consumer spending in grocery items, do doubt that grocery retailers are the key distribution channel for packaged food. As for the URC, this would mean maintaining relationship with its distribution channels. B. Threats and Importance weight T1. Consistent government intervention and dominance (Macro-Political, Legal and Governmental); Weight – 5% Over the years one of the problems that challenges investors form other countries to invest in the Philippines is the 60%-40% agreement enshrined in the Philippines constitution. Hence as to the company even if it expands its line of production abroad government would still intervene even to the smallest kind of operation. More than this are the regulations that the government imposes because it is imperative for the country’s nation building however adverse to its true purpose when politics tramples in. T2. Filipinos were more cautious in spending their money—and more keen on saving it (Macro-Demographics); Weight – 10%

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When the behaviour of Filipinos towards buying would affect the industry especially when buyer propensity is required. As for the URC it would affect the company’s operation in all factors since buyer preferences towards saving is unstoppable unless prevented. The company may have to take cognizance of the changing trends of the consumer preferences. T3. Food and beverage industry executives see technology as the greatest driver of future growth (Macro-technology); Weight – 5% Technology affects almost all kinds of operations nowadays. It connotes better delivery of goods and services and easier access to anything. Future growth of URC would require technological aspect hence greater demand for investment on technology in order to compete consistently with key players in the market. Unless technology would not essentially affect the company then it would not be of great importance to the company. EFE MATRIX Opportunities 1. Downsizing of the consumer prices 2. Families in NCR spend more on food 3. Growth of Filipino shoppers’ spending on grocery food items 4. Real GDP will grow by about 6.5% per year 5. Economic growth of the Philippines in 2013 6. Modern grocery retailers remain the key distribution

Weight 20% 10% 15%

Rating 3 3 4

Weighted Score 0.60 0.30 0.60

10% 10% 15%

3 3 4

0.30 0.30 0.60

channel for packaged food Threats 1. Consistent government intervention and dominance 5% 2 2. Filipino attitudes toward spending 10% 2 3. Technology as the greatest driver of future growth 5% 3 TOTAL 100% Note: the ratings values are as follows: 1=response is poor, 2=response is average, 3=response 4=response is superior

0.10 0.20 0.10 3.1 is above average,

URC registered an EFE rating of 3.1 in terms of responsiveness to external environment. In terms of responsiveness to the external threat, URC gathered a rating of 0.4 being the highest level of responsiveness to the threat. It means that URC can respond to the threat of existing several substitutes and in the key factors in maintain position in the industry. In terms of its responsiveness to the external opportunities, it earned a rating of 2.4 being the highest level of responsiveness to the opportunity as well. In is indicative that URC effectively responds to the external opportunities. 5. Company Analysis 5.1 Company Internal Audit The mission of Corporate Internal Audit of the Company is to provide independent and objective assurance within the Corporation, designed to add value and improve the Corporation’s operations. It helps the Corporation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the 35 | P a g e

effectiveness of risk management, control and governance processes. The Corporate Internal Audit shall be solely responsible for the planning, implementation, and reporting of the internal audits. Resource based view A. Physical Resources Universal Robina Corporation is financially healthy to support the business. With its financial capability, the company can invest in different areas that it could to gain profit. It has its own plant and equipment where money is not a problem for the company to sustain. URC choose to invest in equipment and machines as its own to incur less cost on its part. It is strategically located all over the Philippines. This is considered as one of the strengths of URC. It extends to different cities in the country and in abroad. A wide variety of raw materials are required in the manufacture of the Company’s food products, including corn, wheat, flour, sugar, robust coffee beans, palm oil and cocoa powder. Some of which are purchased domestically and some of which the Company imports. The Company also obtains a major portion of its raw materials from its agro-industrial and commodity food products segments, such as flour and sugar, and flexible packaging materials from wholly owned subsidiary, CFC Clubhouse Property, Inc. A portion of flexible packaging material requirements is also purchased both locally and from abroad (Vietnam and Indonesia), while Tetra-pak packaging is purchased entirely from Singapore. The Company’s policy is to maintain a number of suppliers for its raw and packaging materials to ensure a steady supply of quality materials at competitive prices. However, the prices paid for raw materials generally reflect external factors such as weather conditions, commodity market fluctuations, currency fluctuations and the effects of government agricultural programs. The Company believes that alternative sources of supply of the raw materials that it uses are readily available. The Company’s policy is to maintain approximately 30 to 90 days of inventory. B. Human Resources As of September 30, 2015, the number of permanent full employees engaged in the Company’s respective businesses is 12,260 and are deployed as follows: Business Branded consumer foods

Company or Division BCF, Packaging Division, CCPI, URCI,

Number 9,778

URCCCI, NURC, HURC, CURC and DURBI Agro-industrial products: Agribusiness Products and veterinary compounds Company food products:

Robina Farms UCP and Robichem

541 337

URSUMCO, SONEDCO, CARSUMCO, PASSI and Tolong Sugar Flour and pasta Bio-ethanol and renewable energy

36 | P a g e

Flour Distillery and cogeneration

1,140 311 153 12,260

At the same date, approximately 15,800 contractual and agency employees are engaged in the Company’s businesses. The Company does not anticipate any substantial increase in the number of its employees in fiscal 2016. C. Organizational Culture and Resources The Governance, Nomination and Election Committee shall be responsible for overseeing the development and implementation of corporate governance principles and policies and ensuring that the nomination and election of new members of the Board is transparent with the end objective of having the Board increase shareholder value and aligned with the Corporation’s strategic direction. D. Management The Board of Directors (the “Board”) represents the shareholders’ interests in its objective to continuously improve the value of the Corporation and to achieve a successful and long-term business. The Board believes that it has to be actively responsible to ensure that the Corporation is properly managed to attain this result. In addition to fulfilling its obligations for increased shareholder value, the Board has responsibility to other stakeholders as well – customers, employees, suppliers, financiers, government, business partners, and to the communities and environment it operates in, all of whom are important to a successful business. The Board of Directors is primarily responsible for the governance of the Corporation. Corollary to setting the policies for the accomplishment of the corporate objectives, it shall provide an independent check on Management. The Board and Management of the Corporation commit themselves to the principles and best practices as contained in their Corporate Governance Manual. The Board and Management, employees, and shareholders believe that corporate governance is a necessary component of what constitutes sound business management and will therefore undertake every effort necessary to create and strengthen awareness within the organization. The rules embodied in the manual shall be used as reference by the member of the Board and Management. This Manual shall be made available for inspection by any shareholder at reasonable hours on business days. Management Officers shall receive appropriate orientation on his duties as a management executive and how to discharge these duties when he is first appointed to the Corporation. This would ensure that incoming Senior Management Officers are familiar with the Corporation’s business and governance processes. Each director or key officer shall be required to attend a yearly corporate governance training another continuous professional education programmes in accordance with the rules and regulations of the Commission. A director or key officer who was exempted from attending the yearly corporate governance training shall present proof of such exemption. E. Marketing E.1 Customer None of the Company’s businesses is dependent upon a single customer or a few customers that a loss of anyone of them would have a material adverse effect on the Company. The Company has no single customer that, based upon existing orders, will account for 20.0% or more of the Company’s total sale of goods and services. 37 | P a g e

E.2 Distribution and sales The Company has developed an effective nationwide distribution chain and sales network that it believes provide its competitive advantage. The Company sells its branded food products primarily to supermarkets, as well as directly to top wholesalers, large convenience stores, large scale trading companies and regional distributors, which in turn sell its products to other small retailers and down line markets. The Company’s branded consumer food products are distributed to approximately 120,000 outlets in the Philippines and sold through its direct sales force and regional distributors. URC intends to enlarge its distribution network coverage in the Philippines by increasing the number of retail outlets that its sales force and distributors directly service. The branded consumer food products are generally sold by the Company from salesmen to wholesalers or supermarkets, and regional distributors to small retail outlets. 15 to 30 day credit terms are extended to wholesalers, supermarkets and regional distributors. The Company believes that its emphasis on marketing, product innovation and quality, and strong brand equity has played a key role in its success in achieving leading market shares in the different categories where it competes. In particular, URC launched “Jack „n Jill” as a master umbrella brand for all its snack food products in order to enhance customer recognition. URC devotes significant expenditures to support advertising and branding to differentiate its products and further expand market share both in the Philippines and in its overseas markets, including funding for advertising campaigns such as television commercials and radio and print advertisements, as well as promotions for new product launches. E.3 Enhancement and Development of New Products The Company intends to continuously introduce innovative new products, product variants and line extensions in the snack foods (snacks, biscuits, candies, chocolates and bakery), beverage and grocery (instant noodles and tomato-based) products. This fiscal year alone, the Company’s Philippines Branded Consumer Foods has introduced 41 new products, which contributed to sales growth. The Company supports the rapid growth of the business through line expansion, construction and acquisition of plants. In 2013, the Company acquired a plant facility in San Pedro, Laguna to further enhance its production and warehouse capacities. F. Production A wide variety of raw materials are required in the manufacture of the Company’s food products, including corn, wheat, flour, sugar, robust coffee beans, palm oil and cocoa powder. Some of which are purchased domestically and some of which the Company imports. The Company also obtains a major portion of its raw materials from its agro-industrial and commodity food products segments, such as flour and sugar, and flexible packaging materials from wholly owned subsidiary, CFC Clubhouse Property, Inc. A portion of flexible packaging material requirements is also purchased both locally and from abroad (Vietnam and Indonesia), while Tetra-pak packaging is purchased entirely from Singapore. For its feeds segment, the Company requires a variety of raw materials, including corn grains, soya beans and meals, feed-wheat grains, wheat bran, wheat pollard, soya 38 | P a g e

seeds, rice bran, copra meal and fish meal. The Company purchases corn locally from corn traders and imports feed-wheat from suppliers in China, North America, and Europe. Likewise, soya seeds are imported by the Company from the USA. For its animal health products, the Company requires a variety of antibiotics and vitamins, which it acquires from suppliers in Europe and Asia. The Company maintains approximately two months physical inventory and one month in-transit inventory for its imported raw materials. For its hog business, the Company requires a variety of raw materials, primarily imported breeding stocks or semen. For its poultry business, the Company purchases the parent stock for its layer chicks from Hendrix Genetics of France and Hyline from USA. The Company purchases vaccines from various suppliers, including Merial, Intervet Philippines, Inc. (through authorized local distributor Castle Marketing and Vetaide Inc.) and Boehringer Ingelheim GmbH and Ceva. Robina Farms obtainall of the feeds it requires from its UCP division and substantially all of the minerals and antibiotics from its Robichem division as part of the vertical integration. The Company purchases vaccines, medications and nutritional products from a variety of suppliers based on the values of their products. The Company obtains sugar cane from local farmers. Competition for sugar cane supply is very intense and is a critical success factor for its sugar business. Additional material requirements for the sugar cane milling process are either purchased locally or imported. The Company generally purchases wheat, the principal raw material for its flour milling and pasta business, from suppliers in the United States, Canada and Australia. The Company’s policy is to maintain a number of suppliers for its raw and packaging materials to ensure a steady supply of quality materials at competitive prices. However, the prices paid for raw materials generally reflect external factors such as weather conditions, commodity market fluctuations, currency fluctuations and the effects of government agricultural programs. The Company believes that alternative sources of supply of the raw materials that it uses are readily available. The Company’s policy is to maintain approximately 30 to 90 days of inventory. G. Research and Development The Company develops new products and variants of existing product lines, researches new processes and tests new equipment on a regular basis in order to maintain and improve the quality of the Company’s food products. In Philippine operations alone, about P =43 million was spent for research and development activities for fiscal 2014 and approximately P =37 million and P =43 million for fiscals 2013 and 2012, respectively. The Company has research and development staff for its branded consumer foods and packaging divisions of approximately 103 people located in its research and development facility in Metro Manila. The Company also has research and development staff in each of its manufacturing facilities. In addition, the Company hires experts from all over the world to assist its research and development staff. The Company conducts extensive research and development for new products, line extensions for existing products and for improved production, quality control and packaging as well as customising products to meet the local needs and tastes in the international markets. The Company’s commodity foods segment also utilises this research and development facility to improve their production and quality control. The Company also strives to capitalize on its existing joint ventures to effect technology transfers. 39 | P a g e

The Company has a dedicated research and development team for its agro-industrial business that continually explores advancements in feeds, breeding and farming technology. The Company regularly conducts market research and farm-test for all of its products. As a policy, no commercial product is released if it was not tested and used in Robina Farms. H. Management Information System URC established an Internal Audit System that can reasonably assure the board, management, and stockholders that its key organizational and operational controls are faithfully complied with. URC has a mechanism in place, allowing employees, suppliers, and other stakeholders to raise valid issues. The Chief Executive Officer and Chief Audit Executive executes annually a written attestation that a sound internal audit, control and compliance system is in place and working effectively. The attestation is presented by the Chief Audit Executive during the Audit Committee meeting. The Audit Committee provides an independent and objective assurance to the Corporation’s stakeholders for the continuous improvement of risk management systems, internal control systems, governance processes, business operations, and proper safeguarding and use of the Corporation’s resources and assets. URC has a formal risk management policy that guides URC’s risk management and compliance processes and procedures. The company will seek external technical support in risk management when such competence is not available internally. URC has a formal risk management policy that guides URC’s risk management and compliance processes and procedures. The Company’s Audit Committee evaluates and determines the non-audit work, review periodically the non-audit fees paid to the External Auditor in relation to their significance to the company’s overall consultancy expenses. 5.2 Key Financial Ratio Analysis Financial and accounting analysis is used to know the firm’s competitive position and overall attractiveness to investors. It determines an organization’s financial strengths and weaknesses. The functions of finance or accounting comprise three decisions: the investment decision, the financing decision and the dividend decision. Hence from the financial statement of the company as filed in the Securities and Exchange Commission the following are the financial ratios of the company. A. Liquidity Ratio Current Ratio The current ratio measures the firm’s ability to meet its short-term obligations with its short-term assets. With a high current ratio, there is a higher ability of a firm to meet its short-term obligations. This ratio is obtained by dividing the "Total Current Assets" of URC by its "Total Current Liabilities". The ratio is regarded as a test of liquidity for the company. It expresses the working capital relationship of the current assets available to meet the company's current obligations. Liquidity is an essential character of any organization, and the Company, including the Group as a whole, should indicate acceptable levels of liquidity. The initial test of liquidity is the current ratio, which will display a company’s ability to satisfy current obligations with current 40 | P a g e

resources. Current ratio is arrived by dividing the current assets over the current liabilities. The Company uses this test and compares it with industry balances to determine its ability to satisfy current obligations with respect to its competitors. This means that in 2015, URC had a strong financial position in the market and that it has sufficient liquid assets to maintain its operations. This indicates the company is financially stable and health with an increase of 0.05 from the previous year.

Current Assets Current Liabilities

2015 P21,905,667 P13,867,351 2.35:1

2014 P19,298,379 P13,166,619 2.30:1

B. Solvency Ratio Leverage ratios measure the extent to which a firm has been financed by debt. It is used to compute the financial leverage of the firm to get an idea of the company’s ways to finance and meet its financial obligations. Leverage ratios are used to measure a company’s operating costs and how will it affect the operating costs from the company and the industry. The leverage ratios are debt to total assets and debt to equity ratios. Gearing Ratio The gearing ratio is a general term describing a financial ratio that compares some form of owner's equity (or capital) to borrowed funds. Gearing is a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds. By getting this, total financial deb which includes short-term debt, trust 2015 2014 P28,812,870 P28,569,687 P68,671,336 P65,264,937 0.42:1 0.42:1 receipts and acceptances payable and long-term debt including current portion) divided to total equity which includes

Total financial debt Total equity

equity holders and non-controlling assets).

This means that the financial debt of the company remains at its stable position. Hence no great effect on the company’s financial stability. Debt to equity ratio The company tests its financial position through the debtto equity ratio. This test indicates the company’s ownership of creditors’ vs. Owners/investors. In addition, debt to equity ratio maintenance is a requirement set by creditors as a standard for extending credit. Debt to equity ratio is computed by dividing the total liabilities over total equity.The ratio 41 | P a g e

measures how the company is leveraging its debt against the capital employed by its owners. If the liabilities exceed the net worth, the creditors have more stake than the shareowners.

Total debts Total Stockholders’ Equity

2015 P45,722,529 P68,671,336 0.71:1

2014 P42,581,581 P65,264,937 0.69:1

Asset to equity ratio The asset/equity ratio shows the relationship of the total assets of the firm to the portion owned by shareholders. This ratio is an indicator of the company’s leverage (debt) used to finance the firm. This is from dividing total assets over total equity. 2015 P117,375,275 P68,817,987 1.71:1

Total assets Total Equity

2014 P110,747,081 P65,359,628 1.69:1

C. Profitability Profitability Ratios show how successful a company is in terms of generating returns or profits on the Investment that it has made in the business. If a business is liquid and efficient it should also be profitable. Operating Margin The operating profit margin measures the profitability of the firm without concern for taxes and interest. It shows how much cash is thrown off after most of the expenses are met. It identifies whether the company has good cost control or that sales are increasing faster than the costs.

Operating income Sale of goods and services

2015 P5,142,035 P29,986,881 17.2%

2014 P4,427,168 P26,951,161 16.4 %

According to URC financial statements, its operating profit margin ratio states that the company is profitable from 16.4% in the year 2014 until it increased to 17.2% in the year 2015. URC has high operating profit margin in 2015, with 17.2% which means that it has good cost control and that its sales are increasing faster than it occur costs. Earnings per share

42 | P a g e

In getting this, net income attributable to equity holders of the parent over weighted number of common shares. Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period The earnings per share in 2014 is 1.24 pesos lower than 2.17 pesos in the year 2015 hence a good indication that the company generates income from its subsidiaries abroad. D. Leverage Interest rate coverage ratio The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio may be calculated by dividing a company's earnings before interest and taxes (EBIT) during a given period by the amount a company must pay in interest on its debts during the same period. Interest rate coverage ratio of 2014 is 24.74 while only 21.05 in 2015 hence a good implication also that while there debts due to the creditors the company is not negligent in paying its interests. 5.3 Internal Factor Evaluation Matrix Key internal factors Strengths 1. URC generated sales growth by 14% 2. Branded consumer foods segment (BCFG) international sales

Weight

Rating

Weighted score

0.50 0.05

3 3

1.5 0.15

increased by 7.8% 3. URC has Audit and Nomination Committees 4. Strong financial position in the market 5. The company has funded non-contributory defined benefit

0.10 0.06 0.05

4 3 4

0.40 0.18 0.20

retirement plan for up to P147million in 2014 6. The company’s operation in the Philippines, 43 million pesos

0.06

4

0.24

were spent on R&D activities Weaknesses 1. The Company has invested about P218 million in wastewater

0.04

2

0.08

facilities in the Philippines 2. Majority of the Company’s debt is denominated in foreign

0.08

1

0.08

currencies 3. Small capitalization in its developments Total

0.06 1.0

1

0.06 2.89

treatment in its

43 | P a g e

URC registered an IFE rating of 2.89 in terms of responsiveness to its internal environment. In terms of responsiveness to strengths, URC gathered a rating of 2.67 with 4 being the highest level of responsiveness to the strength. In terms of responsiveness to weaknesses, it earned a rating of 0.22 with 2 being the highest level of response to the weaknesses. 6. Strategy Formulation To come up with strategies for the company, it is important to take a look first at the different matrixes. Here are the following matrixes. 6.1 Strengths, Weaknesses, Opportunities and Threats (SWOT) STRENGTHS SO STRATEGIES S1. URC generated sales growth by SO1= S1 + O2 + O4 14% Utilize the presence of adequate financial S2. Branded consumer foods resources segment to take an aggressive position in inexpanding through (BCFG) increased international sales vertical

OPPORTUNITIES WO STRATEGIES WO1= W2 +O1. O5 Downsizing of the consumer prices in thein market emerging andtry to be a key Maintain position industry and player in thedeveloping industry – countries Market Development

URC has Audit and Nomination integration S3. – Integration Strategy

O2. Families in NCR spend more

SO2= S2 +Committees O5 S4. Strong financial position in the Expansion to US industries or joint ventures to take market advantage S5. in introducing products newnongeographic The company has into funded areas – Market Developments contributory defined benefit retirement

on food

SO3= S3 +plan O3 +forO6up to P147million in 2014

6.5% per year

S6. The the SWOT Gain monopoly in thecompany’s market withoperation increasedineconomies of

O5. Economic growth of the

million pesos ANALYSIS scale andPhilippines, provide 43 major competitive advantage. –

Philippines in 2013

Horizontal Inntegration

O6. Modern grocery retailers

O3. Growth of Filipino shoppers’ spending on grocery food items O4. Real GDP will grow by about

remain

the

key

distribution

WEAKNESSESS ST STRATEGIES

channel for packaged food THREATS WT STRATEGIES

ST1= S5 + W1. T1 The Company has invested about

WT1= W2 +T1. T2

P218 million in wastewater in Increase employee population to gain treatment tax exemptions and

intervention and dominance Closing obsolete factories, pruning product line, and

its the government – Market Penetration incentives from

Filipino attitudes toward instituting T2. expense control systems and profits –

in the Philippines ST2= S4 + facilities T3

spending Retrenchment

W2. Majority breakthroughs of the Company’s debt isincrease Invest on technological to further

as the greatest WT2= W3 +T3. T2 +Technology T3

denominated in foreign currencies market advantage – Product development

driver ofproducts future growth Diverse unrelated that would not conform with

W3.

Small

developments

44 | P a g e

capitalization

in

its

Consistent

government

buyer preferences - Diversification

6.2 Strategic Position and Action Evaluation (SPACE) Matix Internal analysis

Rating

External analysis

Ratings

s Financial position (FP) Rating: (worst) +1

Stability Position (SP) Rating: -1 (best) to

to +6 (best)

1. 6

-7 (worst)

1. ROE: URC has ROE of 14.1% for 2015

2. 6

1. GDP growth and economic stability:

over 2014’s 13.6% while competitors only

future market growth would be rapid as

have only 8% average in 2014 and 9.2%

more business are set up due to economic

percent in 2015

activities. Real GDP will grow by about 6.5%

2. Ease of Exit: URC has its own subsidiaries

per year in the medium term.

and joint ventures abroad. It has even owned

2. Large number of establishments in the

shares of some companies abroad. The

Philippines: in 2011 alone there are more

customers, process, tools and systems for

than 820 thousand establishment all over

these products are already in place. This

the

makes it attractive to potential acquirers who

establishments are wholesalers, retailers

want to enter these areas. Purchasing URC is

and

a quick way to enter that space.

establishments are of big market share.

Philippines. contributors.

Among Some

of

these

is growing trend for an integrated global procurement decision which makes global positioning strategic in terms of capturing global clients which also includes Filipino

45 | P a g e

-2

these

3. Global integration of procurement: There

companies going

-2

-1

Total:

12

Total:

-5

Average:

6

Average:

-1.67

Competitive position (CP) Rating: -1 (best)

Industry position (IP) Rating: +1 (worst)

to -6 (worst)

to +6 (best)

1. Strength and sustainability of network

-3

1. Profit potential- food and beverage

(global, institutional, personal): over the year,

industry does not require huge capital

URC’s marketing strategies have been

investment in terms of fixed assets for the

dedicated to sustainability and thus inclined

capital requirements imposed by the

with customer needs through times. This is a

government. As such, profit potential is high.

testimony of the strength of its personal

Based on 2011 experience and companies

relationship. However, this needs to be

comprising 40% market share, net profit

backed up by more marketing activities to gain

margin is averaging more than 15%.

more sustainability.

-2

2. Range of product/market segments- the

2. Growth potential- as the food and

company has reached its network abroad

beverage company grows driven by more

thereby causing the widening of its variety of

economic

products. URC’s brand consumer food

opportunities for the investors to widen their

segments including their packaging division is

product

the largest segment contributing about 84.2%

segments to which the investor could

of the revenues for the fiscal year 2015.

operate.

3. Strategic location and market/sales reach: URC has developed an effective nationwide distribution chain and sales networks that it believes to provide competitive advantage. It sells

its

food

products

primarily

to

supermarkets as well as directly to top wholesalers, large convenience stores, large 46 | P a g e

5

-3

activities, segments

there into

is

those

always market

6

scale

trading

companies

and

regional

distributors which in turn sell their products to small retailers and down line markets.

Total:

-8

Total:

11

Average:

-2.67

Average:

5.5

X- 4.33 Y-2.83

47 | P a g e

Conservative

Aggressive

Defensive

Competitive

X-

YBased on the analysis, URC falls within the Aggressive profile quadrant. URC is in an excellent position to use its internal strengths to take advantage of external opportunities, overcome internal weaknesses and avoid external threats. Feasible strategies are market penetration, market strategies, product development, backward integration, forward integration, horizontal integration, diversification, or a combination strategy. (David, 2009)

6.3 Boston Consulting Group (BCG) matrix As mentioned earlier, the focus of this paper is the food and beverage industry which include branded consumer food groups and packaging industry more specifically the snack foods of Universal Robina Corporation. Hence, the following data and matrix show that market share and growth rate of Universal Robina Products. DIVISION

Sales (in millions)

% Sales

Profits (in millions)

% Profits

BCFG Packaging Agroindustrial group Commodity Foods Group TOTAL

P24.680 P0.315 P2.287

83.95 1.05 7.63

P7.809 P0.130 P1.330

P2.270

7.57

P29.987

100

HIG

76.54 1.27 13.04

Relative Market Share .80 .10 .60

Industry Growth Rate (%) +15 +1 +10

P0.933

9.16

.40

-20

P10.202

100

-

-

HIGH MEDIUM LOW

48 | P a g e

MEDIU

LOW

The matrix above shows that URC is on the Quadrant 2 which indicates that there is a high relative market share of URC in a high growth industry considering that brand segments that it has and the market shares URC invest from it. This suggests that it needs stable improvements and further innovations to remain its position in the market. Specifically, the preferred strategies under this Quadrant are: Forward, Backward and Horizontal Integration, Market Penetration, Market Development and Product Development.

6.4 Internal-External Matrix From the table mentioned in the previous number as basis for the formulation of BCG matrix, said table will also be used to determine the Internal-External Matrix. DIVISION

BCFG Packaging Agroindustrial group Commodity Foods Group TOTAL

Sales (in millions) P24.680 P0.315 P2.287

% Sales

% Profits

83.95 1.05 7.63

Profits (in millions) P7.809 P0.130 P1.330

Industry Growth Rate (%) +15 +1 +10

EFE SCORE S 4 3.3 3.8

IFE SCORES

76.54 1.27 13.04

Relative Market Share .80 .10 .60

P2.270

7.57

P0.933

9.16

.40

-20

3.7

3.2

P29.987

100

P10.202

100

-

-

-

-

TOTAL IFE RATING – 3.35

49 | P a g e

3.8 2.9 3.5

High (3.0-4.0)

Strong (3.0-4.0)

Average (2.0-2.99)

Weak (1.0-1.99)

I

II

III

QUADRANT II

QUADRANT I Market development Market penetration Product development

Medium (2.0-2.99)

IV

V

Low (1.0-1.99)

VII

VIII

From

the

QUADRANT III

TOTAL EFE RATING - 3.7

VI IX

STRONG COMPETITVE POSITION

QUADRANT IV

above

matrix, URC

is in the first

cell.

This

indicates

that

the

external

internal and SLOW MARKET GROWTH

factors that

affect the divisions are strong hence the strategies recommended for URC are Forward, Backward and Horizontal Integration, Market Penetration, Market Development and Product Development. Those who are in the cell 1, 2 and 4 are recommended to use thee Grow and Built Strategies. For cell number 3, 5 and 7 are recommended to use Hold and Maintain Strategy while those in the cell number 6, 8 and 9 are recommended to use Harvest or Divest. 6.5 Grand Strategy Matrix On this matrix there are two dimensions to look at, namely: competitive position and market growth. Since URC as stated from the previous matrixes has a high competitive position in the market as it is the 4 th player among the top 20 Manufacturing Companies in the Food and Beverage Industry. Along with this is the annual growth rate of the company that exceed 5% compared from the 2014 market growth.

RAPID MARKET GROWTH

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WEAK COMPETITVE POSITION

Is evident that the above matrix shows that URC is in Quadrant I which means that it has excellent strategic position that it should concentrate then on current markets or products most especially with its plan of expansion internationally. It also suggests that URC should take risks aggressively when necessary.

7. Quantitative Strategic Planning Matrix KEY EXTERNAL FACTORS

External Opportunities Downsizing of the consumer prices Families in NCR spend more on food Growth of Filipino shoppers’ spending on grocery food items Philippines’ Real GDP will grow by about 6.5% per year Economic Growth of the Philippines in 2013 Modern grocery retailers remain the key distribution channel for packaged food

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WEIGHT

0.20 0.10 0.15

MARKET PENETRATION AS TAS 4 0.80 4 0.40 3 0.45

MARKET DEVELOPMENT AS TAS 3 0.60 4 0.40 4 0.60

PRODUCT DEVELOPMENT AS TAS 1 0.20 4 0.40 4 0.60

0.10

4

0.40

4

0.40

3

0.30

0.10 0.15

1 4

0.10 0.60

3 4

0.30 0.60

2 4

0.20 0.60

Threats Consistent government intervention and dominance 0.05 2 0.10 2 0.20 3 0.15 Filipino attitudes toward spending 0.10 4 0.40 3 0.30 4 0.40 Technology as the greatest driver for future growth 0.05 4 0.60 4 0.20 4 0.20 KEY INTERNAL FACTORS Internal Strengths URC generated sales growth by 14% 0.50 4 0.20 4 2.0 4 2.0 Branded Consumer Food Segments (BCFG) of the 0.05 4 0.20 4 0.20 4 0.20 company in its international sales increased by 7.8% URC has audit and nomination committees 0.10 2 0.20 Strong financial position in the market 0.06 4 0.24 4 0.24 3 0.18 The company has funded non-contributory defined 0.05 2 0.10 2 0.10 2 0.10 benefit retirement plan for up to P147million pesos in 2014 The company’s operation in the Philippines, 43 million 0.06 4 0.24 3 0.18 4 0.24 pesos were spent on R&D activities Internal Weaknesses The company has invested to about 218 million pesos 0.04 4 0.16 3 0.12 3 0.12 in wastewater treatment facilities in the Philippines Majority of the company’s debts are denominated in 0.08 3 0.24 2 0.16 2 0.16 foreign currencies Small capitalization in its developments 0.06 4 0.24 2 0.12 3 0.18 Total Attractiveness Score 2 5.47 6.89 6.23 Rating score: 4=highly attractive, 3=reasonable attractive, 2=somewhat attractive, 1=not attractive, 0=no relation

The three strategies listed in the matrix are Market Penetration, Market Development and Product Development. These are the strategies accumulated from SWOT analysis and have been recommended by other strategies formulated from other matrixes mentioned earlier. Based on the QSPM, it is evident that Market Development got the highest among them.

8. Objectives and strategy recommendations A. Strategy Objectives From the abovementioned recommended Mission and Vision of the company, it is clear that it wants to become the leading company in the snack foods industry. From the market analysis, it is on the fourth place among the leading companies. The leading companies compete in different segments of the market. Hence the following are the suggested strategies recommended for the company: 1. Invest in diverse markets using the existing products lines This strategy enables the company to use their products in coping up with diverse markets. Being on the fourth place in the market, the market opportunities for the company is limited as the big three or the leaders in the

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market have popularity than URC. With its divers product segments it should try to reach out new markets for the products of the company to be known. 2. Build bigger networks through reaching out to the grassroots This enables the company to invest their products not only to the existing groceries but ultimately to the stores built through self-proprietorship. These stores are indirectly the biggest market of the company. Expanding abroad is a good move for the company but it should first build strong relationships to the grassroots of the market which is the small enterprise. 3. Create a brand segment that caters natural food products Nowadays, people are health conscious as stated from the PEST analysis of this paper. People not just buys food products having the most convenience but most especially those foods that are healthiest. This should be a move that the company should take into consideration. Food preferences of the people may vary in terms to snack foods which the company offers that is why the company is advised to invest also in natural food products. Building a reputation in food and beverage industry not only entails the convenience that one company can offer but also building the trust and confidence of the customers. B. Recommended Strategies Market Penetration In this strategy it suggests that the company should introduce new marketing and sales promotion and make them engage in the products that the company offers. Through this strategy the firm can have an increased market share and can be defensible against other competitors in the industry. Product development In developing product this strategy enable the company to increase the sales and entice the people to purchase their products and services offered. It can also diversify and offer new set of products that could help the prevention of substitute products entering the market. Market Development The firm needs to expand and introduce new products and services for people to engage and patronize their products. They need to develop strategies to combat the hindrance that the market have and come up with a good possible idea that could help the company reach the leadership in the industry. 9. Strategy Evaluation, Monitoring and Control

Area of Objectives CUSTOMERS: MARKET SHARE

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BALANCED SCORE CARD Measure or target Time expectation

Primary responsibility

Increase the number of

Marketing Manager, Sales

ALWAYS

units sold by the end of the

Manager,

Finance

and

CUSTOMER

year Increase the number of

SATISFACTION

returns by the end of the

Manager, General Manager

CUSTOMER

year Reduce issues regarding MONTHLY

Marketing Manager, Sales

SATISFACTION MARKET SHARE

the products Increase market share in

Manager, General Manager Marketing Manager, Sales

MONTHLY

ALWAYS

the target market

Accounting Marketing Manager, Sales

Manager,

CUSTOMER

Increase

customer

SATISFACTION

satisfaction to the products

ALWAYS

Finance

and

Accounting Marketing Manager, Sales Manager, General Manager

and services FINANCIAL: ASSET UTILIZATION

Increase working capital by

ALWAYS

Finance, General Manager,

REVENUE GROWTH

the end of the year Increase profitability in the

ALWAYS

Operating Manager Finance, Marketing,

new customers by the end REVENUE GROWTH

of the year Quarterly growth of sales

Operation ALWAYS

Finance, Sales Manager, Operations,

General

Manager PROCESSES: INNOVATION

New

development

of ALWAYS

products will be introduced OPERATION

in the grassroots market Purchase price on raw

Operations,

Sales

Manager, Finance ALWAYS

materials will be reduced

Sales Manager, Marketing Manager,

Finance,

and

Operations EMPLOYEES: EMPLOYEE

Recognition of the top

SATISFACTION

employees

EMPLOYEE

achievement Give incentives

SATISFACTION

employees who is well

for

dedicated in their jobs

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ALWAYS

their to

General Manager, Human Resource and Finance

ALWAYS

General Manager, Human Resource and Finance

List of Tables TABLE 1. Global growth forecast by the International Monetary Fund TABLE 2. Percentage Distribution of Families by Main Source of Income, Philippines and NCR: 2012 TABLE 3. Percentage Distribution of Families by Income Class, Philippines and NCR: 2012 TABLE 4. The Spending Habit of Filipinos TABLE 5. Regional GDP Growth and Supply Side: Distribution to GDP Growth TABLE 6. Industry Sector Growth: Supply and Demand Side TABLE 7. Q1-2015 Nielsen Consumer Confidence Index TABLE 8. Food and Beverage Industry Outlook Survey TABLE 9. Top 20 Food and Beverage Manufacturers in the Philippines based on Gross Revenues TABLE 10. Small, Medium and Large Enterprises by Sector and Region TABLE 11. Historical URC Price Data

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10. Appendix

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11. Bibliography A. www2.urc.com.ph 61 | P a g e

B. www.unversalrobina.com C. Ehrich, Kristine R. and Julie R. Irwin (2005), “Willful Ignorance in the Request for Product Attribute Information,” Journal of Marketing Research, 42 (August), 266-277. D. Arcury, T. A. & Johnson, T. P. (1987). Public environmental knowledge: A statewide survey. Journal of Environmental Education, 18(4), 31-37 E. Regulation of food and drugs in the Philippines. F. Kintanar QL, Santero EC. G. Kaohsiung J Med Sci. 1999;15 Suppl:S79-85. H. http://www.lawphil.net/statutes/repacts/ra1992/ra_7394_1992.html I. http://www.gov.ph/2013/08/23/republic-act-no-10611/ J. http://www.lawphil.net/statutes/repacts/ra2000/ra_8976_2000.html K. http://www.lawphil.net/statutes/repacts/ra1963/ra_3720_1963.html L. http://www.congress.gov.ph/download/basic_16/HB00743.pdf M. http://www.congress.gov.ph/download/basic_16/HB00206.pdf N. IMF, World Economic Outlook Update, January 2016

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