Barilla Case Study: Principal Challenges And Oportunities In Business

Barilla Business Case Group 6 Principal challenges and opportunities for Barilla In the 90s the focus of big food companies was on aggressively conquering supermarkets’ shelf space with the aim of increasing the depth and breadth of consumers’ spending. The 21st century food purchasers, however, seem to possess profound nutrition knowledge. They consider the quantity of fats, sugars and preservatives. This situation creates a unique opportunity for Barilla to become the worldwide Ambassador of Mediterranean Diet by gaining First Mover Advantage in new geographical markets with meals and bakery solutions.While financial crisis and floating prices of commodities, affecting both consumers’ spending behavior and companies’ profitability, represent the biggest threats, as Ambassador of Mediterranean Diet, Barilla’s main challenge is to communicate Mediterranean values to its target markets: North America, with health and obesity-related diseases concerns, and Asia Pacific, with growing Western culture curiosity and per capita food spending.

Competitors The global external environment is complemented by multinational food giants such as Kraft, Unilever, Nestle, and American Italian Pasta Company in US and Hebei Hualong in China on local scale.While domestic players enjoy a price advantage, the multinationals Unilever and Nestle gain competitive advantage by customization while Kraft and General Mills exploit a strong diversified brands portfolio. By exploiting its R;C, Barilla should take a different approach: growing internally and not by M;A emphasis, undertaking a stealth positioning in its market by leveraging relatively stable R;C. Resources and Capabilities Exploiting key strengths is a more direct way of setting itself apart.

Its long history and heritage of representing the Italian gastronomy in the world, its values of “feed others as you feed your own children” encourage Barilla to promote Italian and Mediterranean way of eating. Moreover, Barilla’s superior R&D capabilities enable the company to improve continuously the nutritional profile of the products, thus becoming “the well-being company”. (Exhibit 1) Superior IT platform and advertising skills complement the favorable opportunities. However, Barilla is still lagging behind due to its relatively limited portfolio of products and weak distribution network, especially in Asia Pacific.Furthermore, it lacks ability to properly identify synergies in acquired brands, often leading to divesting them later on. Under all these circumstances, the relatively smaller Parma company should penetrate North America and Asia-Pacific markets, offering not ‘Italian products’, but Mediterranean eating experience where typical ingredients (oil, balsamic vinegar, rosemary, tomatoes etc) and convivial atmospheres are well integrated within the environment.

It is essential to create the brand identity in these markets as the Ambassador of Mediterranean Diet to differentiate itself. How can Barilla achieve this?Strategy 2011 – 2015 To allocate corporate resources to different markets and business units, values chain analysis is required. (Exhibit 3) Food processing In this model, food processing represents the most important phase, which covers the issues of where and what to produce. North American Business Unit’s aim is to sustain their success in pasta as the market leader and launch some of its bakery brands. To do so, products portfolio should be diversified with special focus on healthier varieties for both pasta and meal solutions (i.

e. gluten free pasta, fortified pasta with omega -3 and fiber, lower-fat sauces).Moreover, foodservice products should be launched to take advantage of the growing foodservice industry. Fruit snacks and nutritional cereal bars should complement the heatlhy image of Barilla. For Asia-Pacific, Barilla should continue food processing of its two BUs in its existing European facitlites and reach these markets through exporting. Once established the brand image as Mediterranean food provider there, it can start considering localization options to compete effectively against cheap prices provided by domestic players and strong multinationals.

Since the eating patterns in this region differ from the western style, offering meal solutions, in particular sauces, adapted to local tastes is crucial to be accepted by consumers. All in all, market penetration in these markets will depend on investments in the food processings of meal solutions. Retailing Another important phase is expansion into the retailing stage of the value chain. As representation of Italian / Mediterranean image through external channels is hard to achieve, Barilla should take a part in this phase by Barilla flagship stores and temporary corners in local retailers.By occupying the retail channel, Barilla will be able to directly communicate to its customers, avoid marketing distortion due to previous perception of Italian food, thus initially bypassing traditional retailers, educating on Mediterranean healthiness while integrating offerings with local tastes. In this way, the talented human resources of Barilla will be involved in front office activity.

Step 1) Opening up Barilla’s Flagship stores in North American (focus on USA) and Asian markets (focus on India and China) Stores will be divided into three sections: 1. In-store Mediterranean supermarketIt will offer both Barilla’s standard products (pasta, sauces and bakery) and Italian specialties, e. g. Parmigiano Reggiano, prosciutto di Parma, balsamic vinegar, Chianti. By paying certain fee, Italian producers can access foreign markets at lower cost.

In return, Barilla will strongly associate itself with Mediterranean diet and strengthen its Italian food company image. Furthermore, prices will be equal to traditional supermarkets to avoid confusion in customers’ minds. 2. Restaurant ; Bar Professional Italian and national chefs will suggest, explain as well as repare delicious dishes with Mediterranean and local ingredients, delivering recipe brochures as well as offering Barilla breakfast section on the menu. A kitchen located on the street side, separated by the external environment only by glass window will drag passengers’ attention.

This concept is crucial in the US for customers to relate Mediterranean food with easy, relatively cheap, satisfactory and nutritional meal as opposed to unhealthy fast food culture. 3. Cooking school People will have chance to schedule online or in-store and learn more about Mediterranean food, with focus on ingredients’ properties and proper combinations.Local chefs will hold cooking lessons along with Italian ones to emphasize the integration of Mediterranean diet with national eating habits. The idea should be replicated throughout the 5 year period, covering the larger cities. (Exhibit 4) Step 2) Placing Barilla’s offerings with retailers Having accomplished awareness in the Chinese market, Barilla should approach Carrefour, as the largest international retail giant, occupying Shanghai, Shenzhen, Hong- Kong and Beijing, probably more predisposed to European producer such as Barilla.

Next best option is to go after the large domestic retailers there: Lianhua and Hualian chains in Shanghai. The best locations to launch the bakery products in India however, should be the “Kirana stores”, prosperous and understanding local population tastes. For the meal solution instead, it should consider corner demonstrations in Shopper’s Stop, Pantaloons and Westside as the domestic megaretailers in Kolkata, future Indian business hub, Bangalore, Delhi, Mumbai. Finally, Barilla should target the largest Amercian stores being Wal-Mart, Krogger, K-Mart or set up specialized bakery stores.Conclusion: Barilla’s multi-step geographical expansion model for 2011- 2015 is meant to accomplish the first big leap towards transforming Barilla’s image into the pieceful Mediterranean ambassador of nutritional diet abroad and successfully repositioning its products into a healthy, quick and relatively cheap meal solution.

====================================================================== Exhibit 1: Resources and Capabilities | Code| Importance as KSF| Relative strength| Resources| | | | Production Facilities| R1| 9| 9|Human resources| R2| 10| 8| Financial resources *| R3| 9| 5| Distribution network| R4| 10| 6| Brand equity| R5| 10| 8| Culture, history ; heritage| R6| 8| 10| Logistics ; IT | R7| 10| 8| Diversified portfolio (products, markets)| R8| 7| 6| Capabilities| | | | Marketing capability| C1| 10| 9| Manufacturing capability (efficiency, quality)| C2| 9| 8| R;D capability| C3| 10| 10| Recognition of strategic acquisitions | C4| 7| 5| Nutritional education| C7| 5| 8| Selection of suppliers| C8| 9| 10|Exhibit 2: Choice of Meal Solution and Bakery NA and Asia MEAL SOLUTION (Pasta + Sauces) + – USA-Atkins and anti-carbs diet viruses-Pathological obesity-Weak competition in the pasta premium segment. (Barilla Plus with Omega3). Main Competitors: De Cecco, Rummo-Growing demand for pasta and noodles (Cheap Meal Solution, after Economic Crises)-Growing demand for Cheap and Fast Meal Solutions-Using already built production facilities (No duties on imported goods)| -Strong competition in the low quality segment.Main Competitors:, ConAgra Foods, Inc. , American Italian Pasta, Campbell Soup Company, New World Pasta-Lack of “Pasta Culture”-Foodservice Competition (Pizza Hut and Domino’s Pizza)-Kraft and Nestle, as the strongest competitors in the Meal Solution segment-Demand is elastic to price| Asia-Upper class open to cuisine and healthy solutions- Largest globally market for pasta and rowing-Suitable combinations exist (Kissan spicy sauces in India)| -Lots of rules and regulations in Indian imports-Duty and tax structure -Unorganized markets-Misunderstanding of pasta-Strong competition from 5 times cheaper noodle products-Lack of proper advertising of pasta-Private lables competition| BAKERY + – USA- Weak competition in the “highly nutritional” snack segment (i. e.

Fruit Snacks, Yoghurt)-Increasing demand of healthy snacks (i. e. igh levels of sodium content)-Pathological Obesity-Unserved Healthy Breakfast Segment -Italian “appeal”| -Mature industry. Main Competitors: Sara Lee Bakeries, CSM bakery, Frito-Lay, General Mills, ConAgra Foods, Kraft Foods, Yamazaki baking Co. , Bimbo (Biggest competitor in the Bakery Segment)-Main competitors in the nutritional segment: Kraft Food| Asia-Opportunity for launching snacks associated with Barilla’s healthy image-Rising concerns of healthy products| -Already established presence of customized offerings by Nestle and Unilever-No culture of “light breakfast” |Exhibit 3: * Timeline for North American market (USA) * Timeline for Asian- Pacific market Period| Event| Description| 04/11 – 12/12| Marketing campaign through retailers| Temporary Barilla’s corners in important supermarketsCooking demonstration Special offers | 09/11 – 03/1205/13 – 11/1311/14 – 05/15| Project Barilla Store| Identify the location for the first Barilla Store in AsiaHire an architectDesign the storeNegotiate with the owner of the building (rent or buy? Check local building regulationsIdentify the most suitable construction companies| 03/12 – 09/1211/12 – 05/1405/15 – 11/15| Building Barilla Store| Obtain authorizations to buildHire a construction companyBuild the interiors of the store| 09/1205/1411/15| Opening Barilla Store| Opening ceremonyInvite pecial guests| 06/12 – 11/1201/14 – 06/1407/15 – 12/15| Advertising Barilla Store| Pre-opening advertisingPost- opening promotion and special offers | 06/13| Launch of Bakery products| Bakery products in North America| 06/13 – 12/14| Marketing bakery products through retailers| Temporary Barilla’s corners in important supermarketsSpecial offers| Exhibit 4: Competitive environment Exhibit 5: Expected Revenues throughout the 5 year period Revenues Years 1 2 3 4 5 In-store Supermarket Restaurant ; Bar Cooking school In the first two years the restaurant ; bar will be major revenue sources for a typical Barilla’s store.During the first year the cooking courses will probably face losses, mainly due to lack of knowledge and expertise of foreign customers, lower per capite food spending also for supermarkets despite the frequent purchases from the chefs.

This lack of cash generation will not be a concern, given the strategic function of the store as building awareness and the profits coming from the restaurant. After the first year we expect a slight drop in supermarket’s revenues because traditional retailers will begin carrying Barilla products for two years, which will be restored afterwards due to increased brand awareness.This moment highlights the transition from a situation in which meditarranean food experience was seen as an exclusive product to one in which people start to use mediterranean ingredients in everyday life. Exhibit 6: Shifting revenue pools Restaurant ; Bar Cooking school Supermarket YEAR 1 YEAR 3 YEAR 5 ——————————————– [ 2 ]. Scientists all over the world have recognized the key role of eating habits in preventing and fighting chronic diseases and the supremacy of the mediterranean diet characterized by an extremely low presence of saturated fats.In addition, population in Western countries is aging at a fast pace: this contributes to a higher demand for healthy products.

[ 3 ]. Hindustan Unilever is the official name of the brands of the food multinational in India [ 4 ]. offering Mediterranean eating experience where typical ingredients (such as oil, balsamic vinegar, rosemary, tomatoes) and convivial atmospheres are well integrated within the environment [ 5 ]. Barilla has 6 R&D centers globally and actively encourages customers’ new product ideas through competitions and blogs on its website. 6 ].

Barilla has 54 facilities in 10 countries in integrated supply chain management system and uses advanced IT platform (Sap, Manugistic and Dassault Systemes’ ENOVIA Matrix One) [ 7 ]. Evene though offering 1000 brands in 125 countries, much inferior w. r. t. Global competitors Unilever [ 8 ].

It has recently divested of Lieken, the German brand [ 9 ]. According to the National Restaurant Association (NRA), restaurant industry sales are expected to reach $565,900 million in 2009, reflecting a growth rate of 2. % over 2008. Barilla supplies cereals, snacks, pastries, breads, and cakes to the foodservice sector. The group could thus benefit from growing foodservice sector by expanding its product offerings and geographic reach in the US. [ 10 ].

Smaller producers of Italian specialties will use Barilla’s channel to access distant markets. Their transportation and transaction costs will be significantly lowered by joining Barilla’s distribution channels.