Group Members

Mavesa Nelly brand

AGENDA
Company overview Venezuelan market Industry Background Organization Structure Consumer behaviour Key issues Market Segments of mavesa Nelly Brand Distrribution Cost Reduction Price strategy Marketing Mix Competitors Porters 5 forces SWOT PEST Recommendation

Mavesa Old Video

http://www.youtube.com/watch?v=V2dQr_hE UiY

Company Overview

Founded in 1949 by four partners Head office in Caracas Introduced Margarine as a first product Five distinct business units Margarine & Mayonnaise core products In 1997, listed in NYSE By 1999, Mavesa was a leading consumer product company in Venezuela

Venezuelan market

4th largest economy in Latin America 3rd largest oil exporter (income highly dependent on it) GDP and growth rate High Inflation Over valuated currency (Bolivar) Gradual devaluation of Bolivar.

This implies, decreased purchasing power of consumers.

Consumer behaviour- shift towards lower priced brands

MAVESA'S 1998 SALES MIX

Mayonnaise
8% 12%

Margarine
19%

Other Spreads Other Sauces Sea food Products Beverages

10%

6% 35% 7% 3%

Cleaning Products Other

Consumer behaviour

Frequency of Mayonnaise intake: 16times/month (500gm) Purchase of Mayonnaise: 71% by women. Low differentiation in product appearance and packaging Mayonnaise market growth rate: 2% per annum

Key Issue

Price Competition Distribution

Market Segments of mavesa

Household segment (77%)

Premium

Segment:

Products:

Mayonesa Mavesa Acquisition of LTO gave Mavesa Market share leadership Competitors: Kraft
Economy

Segment

Products:

Mavesas Nelly brand. (salad dressing) Brand positioning: Not only economy, taste as well.

Industrial Segment (23%)

Industrial Segment
Mayonnaise market:
High

consumption Variety of users in the segment

Overall Mayonnaise production: 11000 tons 90% of Mavesas sales attributed to 25 clients Growth rate: 16% in fiscal 97/98 Market share of Mavesa: Overall- 60%, Albeca30 %, 10 % regional Price sensitive market

Nelly Brand

Initially launched as flanker brand.

To

discourage new competitors To defend Mavesas premium brands.

No competition till 97 48% Market Share Good product, however did not have a good image Product characteristics:

Superior taste High Price Low brand Loyalty

Distribution:

Numeric distribution: 57% (Vs. 60% of Kraft) Weighted distribution: 84%(Vs. 90% of Kraft) Multiple channels Channel members kept % of stock as per their willingness.

Wholesalers & distributers preferred 2 premium brands and 2 economic brands that were leaders Small/medium stores - 1 premium Brand, 1 economic Brand Large supermarkets were less interested in stocking, more in variety for customers

Initial margin to all members: 11% + (Additional as a function of Volume, promos and financing)

Volume margin= 6% for Wholesalers, 11-18% for distributers, 10% for supermarkets, 3% for medium stores

SMALL / MEDIUM STORE

Servings to small/medium store:

75% by wholesalers 25% by distributers

Unavailability of necessary sales force to small/medium store:

270 members

Sales people=120 Merchandisers= 150

Sales force division:

Half carried products in spreads and sauces Half carried products in seafood, cleaning & beverage units

Cost Reduction

Product Cost Reduction

Raw

material costs offset by decreased oil content (vegetable and soy) of Nelly brand Replenish the void: Taste improved by employing garlic flavor. Attributed to 20% cost reduction.

Cost Reduction
Packaging Cost Reduction http://www.youtube.com/watch?v=mMxmJA39w B8

65%

cost reduction by using plastic for glass. Innovative packaging:

Flexipack

= Aluminium + Plastic Plastic is also beneficial for imprinting Produced in sachets (not stand alone) Flexipack popular in Columbia and Peru

Because of Low cost

Price strategy

Nellys low cost strategy vs. Mavesas premium brand

Lower the price; increase the volume. Phase 1

3 Phases:

Price wars between Mavesa, Kraft and LTO Mavesa acquires LTO Shifts in the strategy from Price to Production during 93-97 Kraft & Mavesa enjoyed considerable profits & price parity. Shift towards economic products in 99.

Phase 2:

Phase 3:

Marketing Mix
Product Product portfolio divided into five distinct business units. Premium & Economy brand. Margarine & Mayonnaise: Core products Appearance & packaging Place: Price Low pricing strategy Product cost reduction Packaging cost reduction

Promotion

Multiple channel distribution

Mayonnaise channelled through wholesalers and distributors

Initial margin of 11% to all channel members.

Additional Volume discounts

Issues pertaining to competitors strategy

If Kraft adopts aggressive marketing strategy, it can cannibalize Mavesas market share in the premium segment.

Heinz entry into economic segment:

Not

much of a concern in terms of market share May result in price wars in economic segment Consumer behaviour shifts towards economic segment.

Mavesas acquisition of LTO brand

Acquires LTO in the year LTO was the international marketer, processer and distributer of food products. Contemporary Consumer behaviour:
50%

consumers loyal to Mavesa and Kraft Choice of preference depended on promos

Competitors

In 1948, LTO by Conservas Lau (Premium segment, Acquisition) In 1960, Kraft by Kraft (Premium segment) Albeca (main competitor), DWilliams, Heinz, Kraft ( main competition in distribution, economy segment) Hellmanns: North American brand. Failed because of not adapting to consumer behaviour and following American strategy in Venezuela.

Porters 5 forces
THREAT OF NEW ENTRANTS Krafts entry-big competition Domestic regional companies Customers can easily switch (low switching cost) Introduction of new brands(14) Before company was able to pass on o consumers (INPUT PRICE VARIATION) Strained economic development Consumer are price sensitive Available of more choices High consumption Less product differentiation Low price sensitive exited Quality of the competitors product is better Industry is growing (HOUSEHOLD ECONOMY) Small or equal competitors and less clear market leader Intense competition

BARGAINING POWERS OF SUPPLIERS BARGAINING POWER OF BUYER

THREAT OF SUBSTITUTE

INDUSTRY RIVALRY

SWOT Analysis
Strength Listed on NYSE in 1997 and Caracas Stock Exchange in 1992. Market leadership in management talent. Market leader in 34 categories of products. National distribution network is a key strength. Opportunities 2 Market segments: Household segment comprises of 77% Industrial segment comprises of 23% Consumer buying behavior of Mayonnaise: 16 times a month by both adults and children over 12 Used in all the meals of the day. Weakness Nelly did not have a strong brand image. No brand loyalty for Nelly Price for sub segment products of Nelly is not among the lowest. Huge Sales force is required as mavesa has a broad product portfolio which costs a lot of money. Threats Large multinational competitors such as KRAFT and HEINZ. High inflation and gradual devaluation of the Bolivar resulted in decreased sales. Lower-priced substitutes.

PEST Analysis
GATT and WTO member Trade reforms initiated in 1989 (entailed fiscal adjustments, tightening of monetary policy) No basic trade law in Venezuela (implemented through series of laws, decrees and regulations) Political turmoil and unrest

3rd largest oil producer/ 4th largest exporter Economy dependent on oil Over valuation of Bolivar (currency) Enormous natural resources Vulnerable economy to external shocks High Inflation & gradual devaluation of Bs Largest Producer/Exporter of Aluminium, steel & cement

R&D in food sector Innovation in design and packaging

Age distribution

0-14 years: 29% 15-24 years: 18.8% 25-54 years: 39.4% 55-64 years: 7.1% 65 years and over: 5.6%

Recommendations

Instead of reducing price give incentives to wholesalers. New brand image of product to retain customer loyalty. Keep investing in R&D to improve packaging and testing. Improve distribution in small and medium store through wholesalers. Increase promotion discount to wholesalers.