Strategic management is a critical part of every business. It is considered to be the designing and execution of the objectives and initiatives comprised of the strategies, laid out by the organization’s stakeholders. In other words, for confirming the wise procedure of decision-making, the strategies of the business must be in place for supporting the operations as well as functions of the business (Dauda, Akingbade and Akinlabi, 2010). Strategic management hence involves evaluating the goals of the business, objectives, and vision of the organization and the plans. Strategic management is considered to be very important as with a well-thought strategy, the business can draw a clear and long-term objective. These objectives are essential as they are comprised of a distinct idea that can help in moving forward that can enhance the overall growth of the business. Besides this, the main task that takes place in the procedure of strategic planning is forecasting future trends that can support the business in building strategies (Theriou, 2015). The purpose of this report is to discuss the present position and strategies of the selected company that is Dairy Farm International Holdings Ltd has adopted in order to survive in the market and how it is using strategic management effectively into its operations. The report is comprised of different aspects like the current position analysis of the company, strategies, and goals that have been built by the organization with the help of a different framework. In the end, the report is providing recommendations for the organization that can support it is growing in the coming future.
Dairy Farm International Holdings Limited is a retail company in Hong Kong. The Jardine Matheson Group’s member is considered to be the main pan-Asian retailer who is also performing a key role in the handling and wholesaling of products like personal hygiene and food in China and the Pacific region. Jardine Strategic is the publically registered business that holds the 78% stake in the business (Reuters, 2019). The company is listed on the stock exchange of London, along with the secondary listings on the stock exchanges of Bermuda and Singapore. Under the food segment, the operations of the company are divided into four segments that are convenience stores, hypermarkets, and supermarkets. The company is involved in the health and beauty business under the brand names of Rose Pharmacy, Wanning, and Guardian. The segment of Home furnishing is majorly involved in the business of the household products dealing under the brand name of IKEA. In addition to this, the restaurant segment of the company is a chain catering business in which it operates a business with the associated company that is Maxims’ Caterers Limited. Due to operating in different segments, the company adopts different strategies to successfully run all the business divisions and earn a profit. The company is involved in hiring different expert employees at this all divisions such that they can provide specific and precise services to the customers. For example, in the health and beauty segment, the company has divided the sections for different services like lips, nails and face sections where experts provide suggestions and demos of how to use a specific product to the customers (Dairy Farm, 2017).
The company is said to be one of the well-known organization in the market which operates under different segments of the market under the different brand name. The financial performance of the company is stable as revealed by its financial statements. The revenue of the company in the year 2017 was USD 11289 m and in 2018 it increased and reached USD 11749 m (Morningstar, 2019).
The market analysis of the Hong Kong retail industry is representing the from the two consecutive years that is 2015 and 2016 the Hong Kong retail market was declining but in 2017, it has regained the track and continued to post strong current value growth in 2018, supported by the recovery in inbound arrivals (Euromonitor International, 2019). Besides this, the entire Asian market majorly India and China are undergoing a huge transformation which is creating growth opportunities for the retailers in these markets. Some of the key trends in the market ate changing customers, the rise of China and India, the transformation of fashion retailing, growth of digital commerce, and modernization of grocery retailing (Euromonitor International, 2018).
The retailing industry is highly competitive due to easy entry and exit opportunities for the new businesses that get attracted by realizing the possibility of growth within the market. The Dairy Farm International Holdings Limited operates its business under intense competition from some of the close players like Wumart Stores, Inc., Auchan, J Sainsbury Plc., ACME, President Chain Store Corp., etc. (Zoom Info., 2019). All these competitors of the company are well-known brands that have covered the market through their effective operations and strategies.
Key Performance Indicators
A key performance indicator is said to be the set of measurable dimensions that are utilized to evaluate the long-term performance of the business. KPIs majorly support in defining the strategic, operational, as well as financial achievements, in comparison to the competitor’s performance operating in the same industry (Alzubaidi, 2016). Some of the key performance indicators of Dairy Farm International Holdings Limited are explained below:
Corporate developments – As the business has undergone several transformations that resulted in significant corporate developments in 2018. This comprised the investment by the company in Rose Pharmacy and Robinsons Retail in the Philippines. In November of the same year, Dairy Farm got involved in the partnership with Robinsons Retail, who is the third-largest retailing business, with a 20% interest in the business. Robinsons Retail performed extremely well with strong financial performance in the year and this new partnership helps both the businesses in placing themselves at the advantage of growing the opportunities. Besides this, in December, Dairy Farm finished its acquisition of acquiring the remaining 51% of Rose Pharmacy and presently company holds a 100% stake within the business. This has enabled the company to move towards the next phase of development (Dairy Farm, 2018).
To give strong competition to the players, Wumart Group has to get involved in the Strategic partnership with the Dmall.com which is an online and off-line incorporation solution for the retailers involved in the brick and mortar. Wumart Group is one of the close competitors of Dairy Farm. Within a year of the partnership, Wumart has changed the DIY and home products retailer into financially stable operations by providing customized services for domestic or local consumers (Zhuoqiong, 2018).
Operating Performance – The sales in 2018 by the subsidiaries of the Group were US$ 11.7 billion which is a 4% increase from the sales in the year 2017. Basic operating profit of the subsidiaries of the Group was US$ 426 million in comparison to the 2017 operating profit of US$ 367 million (Dairy Farm, 2018). The Health and Beauty and Convenience store segment of the group is contributing a major portion in the sales of the business, whereas disappointing results are shown by the Hypermarket and Supermarket division. However, IKEA is slightly ahead of these businesses.
The Ansoff Matrix is said to be the tool of strategic planning that offers a framework for supporting the management of the business to device their strategies for future growth. This tool was named after a mathematician that is Russian American Igor Ansoff, who created this concept. This matrix is sometimes also called a Product market matrix. This strategic planning tool concentrates on the growth and it is the most broadly utilized model of marketing (Bullough, 2012). It is utilized to assess the opportunities for the businesses to augment their sales by reflecting the alternative blends for the new markets in contradiction of services and products with the use of four strategies that are market penetration strategy, diversification strategy, product development strategy, and market development strategy. The Ansoff Matrix strategies are explained in detail below along with the explanation of strategies adopted by Dairy Farm International Holdings Limited Company for the growth.
Market Development Strategy
Market development is the strategy of growth that recognizes and creates new market segments for the existing products offered by the business. This strategy helps in targeting the non-buying customers in the existing targeted market (Stephens, Gabriela Balan and Callaghan, 2010). Besides this, under this strategy, the business also targets a new customer segment in the new segment. As discussed above, the company is getting involved in different strategic partnerships to grow its market and business. The company has got into a partnership with Robinsons Retail in order to operate a combined business in the Philippines. In addition to this, the company has acquired a 100% stake in the Rose Pharmacy in the Philippines (Dairy Farm, 2018).
Market Penetration Strategy
In consideration of the market penetration strategy, the business exerts its maximum efforts to grow in the existing market by the use of its existing offerings. In other words, the business tries to augment its market share in the existing scenario of the market. This is comprised of augmenting the share in the market in the existing segments of the market that are targeted by the business (Eppstein, Grover, Marshall and Rizzo, 2011). It could be attained by vending more services as well as products to the targeted existing customers or by identifying new consumers in the same market. Here, the business desire to increase its sales for its existing products offered in the existing market by the use of more aggressive distribution and promotion strategies. In order to strengthen the strategic position, Dairy Farm International Holdings Limited has focused on increasing growth in its existing market that is China and Hong Kong by adopting the market penetration strategy.
China is considered to be the fastest and largest growing consumer market across the world and the health, convenience, and brand trust is reflecting a growing market potential for Dairy Farm there. The company is focusing on reviewing and revising its approach, by effectively defining the store size, location, product range, and space as it believes that there are increasing opportunities for the business to attain the growth in the coming period (Dairy Farm, 2018).
The business is at the fortune position in its home market that is Hong Kong as the company has successfully placed its some of the strong brands with an effective track record performance. Some of them are IKEA, 7-Eleven, Wellcome, and Mannings holds high brand presence, reputation, and awareness among the target audience. The company is maintaining its strength in the market by just increasing the intensity of the promotion and distribution channel (Dairy Farm, 2018).
Diversification Strategy
Diversification is considered as the corporate strategy that is used by the business to take entry into the new market or industry that is presently not targeted by the business, by creating a new product for the customers of the new market. This strategy of the Ansoff Matrix is considered to be one of the riskiest ones as the organization holds no experience of the new market and does not have an idea about if the product or service will be successful or not (Rothaermel, 2013). Dairy Farm International Holdings Limited manages a diversified business by expanding business in varied segments such as health and beauty, restaurants, convenience stores, supermarkets, and Hypermarkets. In addition to this, the company operating a business in the home furnishing segment under the brand name IKEA, which is one of the leading and specialized businesses in its stream (Financial Times, 2019). The adoption of the diversification strategy has supported the company in mitigating the risk of changing trends and demand in one business segment. Besides this, diversification has supported the company in gaining a competitive advantage in the market against its close competitors (Chong, 2018).
Product Development Strategy
The product development strategy is used by the business to design or produce new services and products for targeting the existing market to attain growth. This is comprised of extending the range of the product accessible to the existing market of the business (Hoyer, Chandy and Singh, 2010). As discussed above, the Food business of the Group is dealing with some issues that require essential and major solutions and quick actions. This requires a central re-engineering of the company’s food offer and the customer proposition along with the major validation of the space of its General Merchandise, by transforming the Hypermarkets to the huge stores of food format over time. In the Southeast Asia region, the main issue is in the company’s Giant brand and specifically the Hypermarkets in Singapore, Indonesia, and Malaysia (Dairy Farm, 2018). In the past, the company underinvested in its Hypermarkets and today they require a correction of resizing and reshaping its offering, to confirm that it fits for encountering the modern customer’s demand and maintaining the pace with the increasing middle class.
BCG matrix is said to be a framework that is created by the Boston Consulting Group for evaluating the brand portfolio’s strategic position of the business and it’s potential. It categorizes the portfolio of the company into four groups depending on the attractiveness of the industry and competitive position. The two specified dimensions reflect the profitability of the portfolio of the company in consideration of cash required for supporting the specific unit and cash generated by it (Madsen, 2017). The main aim of this analysis is to support in understanding which of the brand in which the company needs to invest and which the company needs to divest. The four groups of the BCD model are explained below along with the analysis of the brands of Dairy Farm International Holdings Limited that lies in these groups.
Dogs: Dogs are the category of brands that holds a low share in the market in comparison to their competitors and operating in the market that is growing slowly (Pruschkowski, 2018). In general terms, their business segments are not considered to be worth to be reinvested by the company as they make negative or low cash returns. There are no brands of Dairy Farm International Holdings Limited that lie in this category of the BCG Matrix.
Cash Cows: Cash cows comprise those brands that are highly profitable for the business and must be drained to offer as much possible cash they can provide. The cash generated from these brands must be invested in the brands that lie in the star category to support their future growth (Griffin, 2007). As per the growth-share matrix, businesses must not invest in the brands in the cash cow segment to persuade growth but to support them such that they can uphold their present share in the market. The business segment that lies in this category is health and beauty with the brand Mannings in Macau and Hong Kong and Guardian in Southeast Asia. These brands are offering increased sales and profit is reflecting double-digit growth. In addition to this, the convenience store business segment of Dairy Farm International Holdings Limited also lies under this segment with the brand 7-Eleven (Dairy Farm (2013). In 2018, the convenience store of the company generated strong sales and profit.
Stars: The brands that lie in this category operate in the industries with high growth and uphold high shares in the market. Stars are considered to be cash generators as well as cash users. They are considered to be the primary units in which the business must invest its cash since they are the ones who are expected to be the cash cows and make positive cash flows. The home furnishing brand of Dairy Farm International Holdings Limited that is IKEA, lie in the star category of the BCG Matrix. IKEA has generated strong growth in its sales in the market and in spite of getting negatively influenced by the fluctuations in the currency rates, increasing cost of goods, and pre-opening expenses for the new retail stores, the profits of the company were little ahead.
Question Marks: Question marks include those brands that need much closer attention to the business. They have a low share in the market in the quickly developing markets covering a huge amount of the cash and making losses. The brands in this category hold the potential to increase their share in the market and push them in the star category brand, which provides the possibility that they later become a cash cow (Hiriyappa, 2015). The business segment of Hypermarket and Supermarket of the company lies in this category of the BCG Matrix. The sales of these segments were low and profit diminished in the year 2018 in the Southeast Asia region. The business of this segment has low sales in the Hong Kong region which reduced the profitability of the company.
The SFA Matrix is introduced by Kevan Scholes and Gerry Johnson as a tool that is used for analyzing the strategic possibilities of the business. The full form of the matrix is suitability, feasibility, and acceptability (White, Gumley and Mitchell, 2011).
Suitability – It is concerned with evaluating whether the adopted strategy addresses the opportunities and threats experienced by the business, by understanding its strategic position.
Acceptability – This aspect of the matrix is related to identifying whether the outcomes of the predictable performance of the planned strategy encounter the stakeholder’s expectations (Butler, Hare, Walker, Wieck and Wittkowski, 2014).
Feasibility – This element of the matrix is related to identifying whether the selected strategy can work in the organization’s structure.
The strategic position analysis of the Dairy Farm International Holdings Limited has highlighted that the Supermarket and Hypermarket segment are underperforming and hence lies in the category of a question mark of BCG Matrix. Hence, to increase the sales and profit of these business segments, the Ansoff Matrix in the above report has highlighted that the company was selected to go with the product development strategy. Under this strategy, the company will reshape and redesign its products that are offered at the supermarkets and hypermarkets of the company. The below table is highlighting the suitability, acceptability, and feasibility of the selected strategy.
|
Strategy |
Suitability |
Acceptability |
Feasibility |
|
Product Development Strategy |
The product development strategy will be suitable enough for the business as the development of new products allows the opportunity to cover new customers. The threat of failure of the supermarket and hypermarket can be overcome by redesigning the stores of the company as it can provide a new experience to the customers. |
The employees of the company are skilled who will positively work on developing products. The customers even accept the new products and new designs of the stores as it will provide a new experience. |
Product development strategy is feasible for the company as the entire Group has strong financial stability. Besides this, the profit that is generated from the health and beauty and convenience store can be invested in the supermarket and hypermarket segment |
Conclusion
The above report has provided a detailed analysis of the strategic position of Dairy Farm International Holdings Limited that it has gained through its different brands. The company is involved in operating business in diverse segments such as health and beauty, convenience store, supermarket and hypermarket, and home furnishing business. In all the segments, the company is doing excel, except for the hypermarket and supermarket segment. These segments of the company are undergoing declining sales and profit due to its traditional planning and products. In addition to this, the BCG Matrix analysis has identified that the supermarket and hypermarket segment of the company lies in the question mark category. To improve the performance of this segment, the company has adopted the product development strategy of the Ansoff Matrix. The company is planning to redesign its stores and products offering such that it can provide a new experience to the customer and enhance its brand image. But, in the recommendation, the report has suggested the company get into a strategic alliance by adopting the joint venture with any of the known organizations of the Asian market such that it cannot just provide financial support but also non-financial support like better planning skills, human resource, and goodwill.
From the above analysis of the report, it has been identified that the Supermarket and Hypermarket segment of Dairy Farm International Holdings Limited is undergoing issues and its sales and profits are declining due to poor planning of the business that is done in the past. Hence, in order to overcome these issues and challenges, the company has planned to adopt a product development strategy. However, according to the analysis, it is known that the brand reputation and share in the market have declined that has been covered by other key players that could only be covered through adopting a strategic alliance. A strategic alliance is said to be an arrangement between two businesses for executing a mutually beneficially business or project. The contract that executes between both the businesses is considered to be less complex as well as less binding. Under the strategic alliance, the company can get into the joint venture with any of the known organization that is operating in the same segment or other. This will help the company is using the goodwill of other companies to improve its reputation and again gaining the trust of the customers. For example, the company can initiate a joint venture with the Lawson convenience store chain of Japan which is very famous in the Asian region (Lawson, 2019). With the joint venture, the stakeholders, as well as shareholders, will get better services and products. Lawson and Dairy Farm International Holdings Limited, both have strong financial status and can invest a huge amount in the development of the business. This will help shareholders in gaining increased returns and stakeholders’ better services.
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