Magnolia - Full Report

San Miguel Corporation: THE MAGNOLIA GROUP

Section II: Organizational Growth Opportunities

2.1) Environmental Opportunities Social-Cultural Force Consumers indicate that they buy the product in order to satisfy their impulse urge of ice cream. Despite the impulse urge to buy ice cream, consumers take a number of things into consideration such as occasion/purpose, taste/flavour, fondness and refreshment. 2.2) Distinctive Competencies Market Share Leadership Since it was first founded in 1890 and incorporated in 1913, San Miguel Corporation manufactured, distributed, and sold food products, beverages, packing products and animal feed throughout the Philippines and since then, became the largest publicly held food and beverage company. In 1993, it was rated number 27 in the top 100 emerging market companies and even generated 4% of the country’s gross national product and contributed to 7% of the government’s tax revenue. In 1925, San Miguel bought the trademark “Magnolia” when it purchased a small ice cream plant in Manila, and that is how they started becoming a leader in that market. At the time, Magnolia was the only dairy manufacturer that had its own dairy farm and that provided a number of advantages for them in terms of producing its product. This meant that they were able to dictate their supply and never had problems with any supplier. This also meant that their 3 major line offerings (Bulk Ice Cream, Single Serves and Soft Serve ice cream- with wide variety in each one) were being managed to Magnolia’s own requirements. With 77% market share, Magnolia was indeed the market leader. With interesting from foreign companies and continued competition domestically, Magnolia now had to find ways to maintain their dominance and continue being the market leader in the Philippines. 2.3) Success Requirement Magnolia’s success requirement is to maintain its competitive dominance in this rapidly changing industry where barriers to entry include strong brand loyalty, large capital requirements in manufacturing, selling and distribution and strong economies of scale. Magnolia also needed to focus on the consumer buying force (impulsive buying), expansion of capacity to meet market demand, and attaining international quality standards.

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San Miguel Corporation: THE MAGNOLIA GROUP

2.4) SWOT Analysis SWOT Analysis SWOT Analysis Framework of Magnolia. Internal Factors

Strengths  

Management Marketing

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Offerings

Consumer

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Technology

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Opportunities

Legal/Regulatory Industry/Market Structure

Threats

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Competition

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Finance

External Factors Economic

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Manufacturing R&D

Weaknesses

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Internal Factors i.

Strengths

Management- has done a great job in keeping Magnolia ahead of its competitors and we can see that from their 77% market share. By first acquiring a dairy farm ( one of the most advanced and modern in Asia) and having a product line of 3 offerings, Magnolia was able to establish itself as a market leader and made it difficult for its competitors to keep up. Magnolia with its extensive geographical spread is able to ship from different various locations unlike its competitors who only ship from Manila. As thus, inclement weather does not pose a threat to maintaining a steady flow of products to consumers. In that regard, it shows how well management has done. Marketing- In terms of marketing, Magnolia communicated their products to the consumers very well. Through, trade promotions (raffles with prizes for example), consumer promotions (“buy one get one free”, free gift items with minimum purchase) and advertising (media and free signage), Magnolia was able to get its brands awareness up to where they wanted and therefore that is why we see the strong market presence. Manufacturing-This is one of the key reasons why Magnolia is a market leader. Magnolia manufactures and distributes its products. With the added advantage of a dairy farm and having a vast geographical spread, Magnolia dictates its supply to consumers and guarantees that all of the requirements of its 3 product lines are met. With 6 manufacturing plants

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San Miguel Corporation: THE MAGNOLIA GROUP

already, Magnolia had already started making major capacity expansion plans by the beginning of 1993 that was expected to double the current capacity. R&D- In an industry that demands constant innovation and diversification, Magnolia. has made sure that it has kept ahead of its competitors because of its extensive research to predict market trends and even to some extent, become trend-setters as well. By providing different flavours and carrying out research to find out what consumers like, Magnolia has been able to become so dominant in the market. Finance- Due to their strong market position and low manufacturing costs, Magnolia has ensured that its finances are maintained well and this can clearly been seen at how well they’ve been able to expand their offerings and manufacturing plants within the Philippines. Offerings- Due to constant innovation and research, Magnolia has made sure that it constantly offers the customer something different. Their broad product line and different flavours constantly mean that consumers get satisfied at the variety of options. External Factors ii.

Opportunities

Economic- Consumer spending is not bad and there’s potential for more growth. The impulsive buying guarantees that consumers are willing to spend on Magnolia’s ice cream and the different purposes and occasions mean that ice cream is a product that can be bought for different reasons and as thus more beneficial to Magnolia. Technology- As we have seen in recent times, technology has become a big part of society today. As times goes on, Magnolia may want to incorporate more technology into the manufacturing to reduce production and labour costs. iii.

Threats

Competition- Despite their strong position in the market, Magnolia has to be very weary of the threat that the competitors pose. With foreign companies such as Nestle, Haagen- Dazs and Mars interested in the chance to move to the Philippines, Magnolia might find itself fighting with stronger brands from abroad. With a number of competitors domestically such as Selecta, Coney Island, and Presto, Magnolia has been able to fight them off with all three sharing a market share of less than 30% all together. Consumer- With growing interest from more recognizable brands abroad, consumers may be swayed to buy from them and this could very well hurt Magnolia in terms of market share. BMR 3134 – STRATEGIC MARKETING

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San Miguel Corporation: THE MAGNOLIA GROUP

Legal/Regulatory- In terms of legal rules and regulations, the barriers of entry are quite high as certain rules and regulations make it quite hard for foreign investors to enter the market making life much easier for Magnolia. With the country encouraging more foreign investors though, it may soon change and Magnolia might itself competing with foreign companies for market share. Industry/Market Share- Like I mentioned before, Magnolia has been doing quite well with its domestic competitors by having a market share of 77%. This means that they are the dominant brand in the market. In recent times though, foreign companies threat to come in and compete with magnolia, putting their dominance at risk.

Marketing Mix Analysis a. Product Strategy Magnolia is very much considered as product-orientated. Looking at the market, you get to understand why such a product requires a lot of innovation and constant improvement. By providing frozen desserts and snacks on 3 product lines (on wide variety), Magnolia have to keep coming up with new ideas (flavours, etc.) to stay ahead of its competitors. Magnolia who also believe in research, are able to predict trends and even become trend-setters themselves by finding out what consumers like and supply that to them. b. Pricing Strategy The pricing strategy implemented by Magnolia is price skimming. Magnolia was the Philippines’ first and only name in ice cream and frozen confections and as such, made sure that it became a market leader even as other competitors were coming up. Due to its early dominance, Magnolia placed its prices higher than competitors because they knew that consumers were still going to be able to buy their products due to its strong position in the market. c. Channel Strategy In terms of channel strategies, Magnolia has a vast geographical spread other than its competitors who ship from on Manila. Magnolia has a diary farm (one of the most modern and advanced in Asia) as well as 6 manufacturing plants that with expansion plans will be able to double Magnolia’s production capacity.

60% of Magnolia’s products are sold

through retail stores, 30% through food outlets and the remaining percentage through other means.

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San Miguel Corporation: THE MAGNOLIA GROUP

d. Communication Strategy In terms of communication, Magnolia uses 3 types of activities to communicate their products. Through, trade promotions (raffles with prizes for example), consumer promotions (“buy one get one free”, free gift items with minimum purchase) and advertising (media and free signage), Magnolia was able to get its brands awareness up to where they wanted and therefore that is why we see the strong market presence. In recent times with the introduction of social media a lot more companies have started using them as platform and Magnolia has as well.

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San Miguel Corporation: THE MAGNOLIA GROUP

Section IV : Budgeting 4.1) Financial Budget THE MAGNOLIA GROUP Pro Forma Income Statement Year (in Million)

2016

2015

2014

Sales

99330.59

94600.56661

90095.78

Total

1102.5 551.25 500 330.75 2484.5

1050 525 500 315 2390

1000 500 500 300 2300

Total Total Marketing Expenses

1653.75 2756.25 4410 6894.5

1575 2625 4200 6590

1500 2500 4000 6300

1788

1788

615.7803 2403.7803 85606.78631

628.3473 2416.347 81379.43

29799.18

28380.16998

27028.73

69531.42

66220.39663

63067.04

Marketing Expenses Advertising TV Ads Radio Website Print Ads Sales Promotion Sample Demonstration

General and Administrative Expenses Depreciation on building and 1788 equipment Labor 603.4647 2391.465 Total Contribution 90044.63 Less: Fixed Costs Net Profit before (income) Tax

We estimate the Fixed cost will be 30% of Sales We estimate the Net Profit increase by 5% every year Labor Cost will readuce by 2% every year due to the advance of technology (On Appendix)

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San Miguel Corporation: THE MAGNOLIA GROUP

4.2) Special Budget Magnolia marketing Plan Inputs Magnolia "Going" Marketing Spending (2014 Nov - 2016 Nov) Year (in Million) Advertising TV Ads Radio Website Print Ads

2016

2015

2014

Total

1102.5 551.25 500 330.75 2484.5

1050 525 500 315 2390

1000 500 500 300 2300

Total Total Marketing Expenses

1653.75 2756.25 4410 6894.5

1575 2625 4200 6590

1500 2500 4000 6300

Sales Promotion Coupons Demonstration

 We estimate TV Ads cost by 1000 Million per year with increase 5% per year  We estimate Radio cost by 50 Million per year with increase 5% per year  We estimate Print Ads cost by 30 Million per year with increase 5% per year  We Estimate to build Official Website that will cost 150 Million for three years  We Estimate Coupon and Demonstration Cost increase 5% per year (On Appendix)

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San Miguel Corporation: THE MAGNOLIA GROUP

Section V: Marketing Audit 5.1) Strategic Aspects As we studied the case we know that Magnolia offers dairy products such as ice-cream, milk, cream, yogurt and some non-dairy products such as fruit juice. Magnolia was doing all right but it can be better since more innovative new products, flavors, and packages were expected by consumers. Magnolia’s competitors entered the market by a prestige and premium image and having the wider offer of product choices. Magnolia lack of product line to get more market share as it is only focus in dairy products. Diversification of products offered by Magnolia is needed to get more market share and continue to dominate the dairy products market in Philippine and compete with its competitors. 5.2) Operation Aspects Based on the case, Magnolia was doing great in the product’s research and development. Magnolia studied the consumer buying behavior of ice-cream and applied the result of the research on its products, such as the product availability, visibility and desirability. This is the key to success in the industry. As the market leader in the industry, Magnolia continues to develop and improve the flavors, quality and packaging of its products to create new attraction in the market. 5.3) Recommendations We recommend that Magnolia can produce the chocolate energy bar like what Mars was producing since Magnolia is a professional and leading manufacturer in dairy industry. With its well reputation in the industry, the new product shall be accepted and get famous easily among consumers. Other than that, Magnolia also can start to create its new product line such as cookies, biscuits, carbonated drinks and energy drinks. This would help to expand its market share in food and beverage industry and continue to dominate in other industry. Moreover, Magnolia can collaborate with some fast food franchise such as McDonald’s and KFC in order to supply these restaurants its dairy product. This can be a win-win situation because Magnolia can probably gain more acknowledgement and market share from this collaboration as people will start to purchase healthy dairy beverage while purchasing fast food instead of carbonated drinks. Magnolia can introduce their healthy beverage such as Magnolia Yoghurt Smoothie and Magnolia Low-Fat Milk to these fast food franchises. In this situation, these fast food franchises will create a healthier image to consumers that change the consumers’ mind that beverages provided in fast food restaurant are always unhealthy and not bringing any benefit to them. BMR 3134 – STRATEGIC MARKETING

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San Miguel Corporation: THE MAGNOLIA GROUP

Section VI Latest Development Magnolia Nowadays, Korean pop culture or also known as K-Pop has definitely taken the world by storm. Last few months has been crazy for the YouTube viewer because the phenomenal hit Gangnam Style became the first video to reach a billion views. As of November 2013, Gangnam Style has been viewed over 1.834 billion times on YouTube. Magnolia Ice Cream Group product manager Jen Chang sees this phenomenal wave as chances to come out with new product offering. So, last September, Magnolia has introduced to the market its new product offering which is Korean-Inspired K-Pop ice cream bar (Image: 1) and it is not an ordinary ice cream bar because it is smooth and creamy and also has a rich, fruity taste. This new product line is targeted at the younger generation because of the crazy K-Pop phenomenal that’s happening now. Magnolia also believe that Magnolia K-Pop is for anyone who is eager to try more contemporary ice cream offering from a well-loved and trusted brand. Magnolia Launches K-Pop ice cream bar that featuring strawberry, honeydew, banana and mango flavors.

(Image: 1) Other than that, a few months ago Magnolia has also introduced their new flavors to the market. First flavor is Mangoes & Cream that come with a quote “tropical temptation” (Image: 2). Second flavor is Classic Caramel that come with a quote “trick and creamy naturally” (Image: 3). BMR 3134 – STRATEGIC MARKETING

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San Miguel Corporation: THE MAGNOLIA GROUP

(Image: 2 & 3) As for the latest promotion from Magnolia, they are giving free one or two boxes of Crispy Wafer Cones (Image: 4) for every purchase of 1.5L or 3L tub of Magnolia Ice Cream.

(Image: 4)

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