Analysis of Kri Kri Milk Company

abbreviation of Kri Kri Milk CompanyKRI KRI S.A. company was created in 1950 from George Tsinavo and is activated in the draw industriousness. The company ab initio dealt with ice cream that was first interchange by hawkers using ice and salt for cooling and sold in each neighborhood in the city of Serres, Greece. In 1963 when the first electric freezers where introduced KRI KRI expanded and developed a market opportunity. Few years later, in 1968, the company developed further and transferred the companys facilities to new in camera owned premises. The company ceremonious there its first automatic drudgery line for milk and other convergences based on milk such as yogurt and ice cream. That was the first sign of the beginning of a new era of the companys lifecycle.In 1997, the company expanded by participating in a three year investment programme arising about six million Euros and modernized throughout the equipment and the factory facilities. The investing programme i mprover and improved the performance and set the foundation st whizz for future development.Nowadays, KRI KRI has a hygienic expanded network all over Greece and aims to strengthen its activities and development prospects in Greece as well as Balkan.KRI KRIs factory located 5km from the center of Serres and occupies about 50 squargon meters plot. The premises are composed by two different factories, one for ice cream and one for producing dairy products such as milk, which encloses modern mechanical equipment with new ecological technology. The company has been certified match to ISO 9001200 for its producing processes on all product range. Further much, the company has established and applied the HACCP system according to Hellenic Organization for Standardisation under the supervision of the Minister of Development in Greece for all of the products in order to thoroughly safeguard consumers health and safety. For this purpose KRI KRI has established a quality control laboratory equipped with technological dent and staffed with scientific personnel properly trained.The IndustryThe milk industry consisted in its major component by large industrial companies which defend the largest market share. These companies concord developed a distinguished brand names and trade marks, new technological equipment and facilities. The industry does not offer many entrance opportunities to new companies and has full(prenominal) barriers to entry.The DemandThe demand of the milk products is basic in peoples diet and irreplaceable. The milk products is one of the principal source of food and the demand does not affected much from price variations so the demand can be characterised by low volatility in price. Furthermore, the income in consumers wallet does not affect the quantity that is unavoidable to cover the consumers basket and is unrelated with the desired quantity, so the demand can be characterised by low volatility in quantity. In addition, the substitutes pro duct of milk has low substitutability to affect the milk industry. The milk industry had established an oligopoly and the milk prices are determined by large companies with low intervention by the Greek government. In the last decade, the only threat that the milk industry has encounter was the unexpected deceases that affect the animals and the raw material, which shocked the consumers confidence for milk products and have as a result the decrease in the consuming.The SupplyThe main distribution channel of the milk products are the supermarkets and the mini markets. Large companies have established a well synchronised and efficiency distribution channels throughout Greece while the few small companies in the industry have a topically limited target group to provide their products. Both categories of companies even if their activities are locally limited or national ensured that such a susceptible product as milk delivered in very good conditions and on time.Financial Indicators of the MarketFinancial indicators of the companies in milk industry should be taken into contemplation in order to analyse and comprehend the financial position of the industry. On the 15 largest companies of the milk industry the average gross margin of the last 5 years was 26,12%, the net profit margin was 2,99% and the EBITDA index was 12,16%. The return on equity index was 6,26% and the return on capital employed was 2,50%. The general runniness index was 1,71 while the cash flows symmetry was 0,35. The average operation capital of the 15 largest companies the last 5 years was 4.543.754 euros.Competitive analysis Porters fiver-forces modelPorters five forcesIn order for a new company to enter, remain and expand a market it would be useful to analyse the industry and particularly sign on on the five basic points that are proposed by the Porter and show the attractiveness of the industry under consideration.Entrance of new competitorsAccording to industry analysis, the milk ind ustry seems to offer more opportunities to the already existed companies while it is quite difficult for a new company to enter the industry. The industry analysis indicates that there are risque barriers to the market. Specifically, this sector does not offer many entrance opportunities to new companies due to the fact that it requires great investing amount to technology while the existent products are trade in from large well-developed companies that are high competitive. Moreover, the susceptible products of milk demands high coordination treatment throughout the life-cycle of occupation from the raw material to the concluding distribution. Additionally, the existing distribution channels that have been established from the companies are the results of investment through a long time period. So, a new company that figure to enter the milk market has to face the already well-established names in order to achieve high market share.Substitute productsAnother factor that should be analysed is the degree of products substitutability. The milk products are essentials in peoples diet and irreplaceable. In this industry there are few substitutes such as the soya milk, powdered milk, juices or other beverages but the substitutability is very low to affect the milk industry.Bargaining Power of SuppliersThe bargaining power of suppliers of raw materials is complex but it is considered as low. The majority of milk companies sign contracts between farmers in order to absorb their milk while the companies control the production process through established production requirements in farming lifecycle such as the raw material required to feeding procedure, the existence conditions of living and the reproduction of the animals. So, the bargaining power of suppliers is limited in the milk industry and the large companies that purchase large quantities of raw material has a competitive advantage in terms of trading commodity prices and kickoff suppliers.. The bargaining power of the suppliers is unconcernedly and does not affect the milk industry, so can be characterised as low.Bargaining power of CustomersThe main customers of the milk industry are the super markets and the mini retail markets which both have high bargaining power. Both markets have a strong bargaining power especially the super markets through the large turnout that the premises offer, the mass final consumer that covers their needs has as a result to made large volume of gross sales through them. Mini markets have quite big supplier power due to the fact that are larger in number, almost in every neighborhood, they serve the final consumers in a more extensive market hours and the milk products are their primary trading consumer attraction. Furthermore, in order to attract more final customers through super markets and mini markets, companies have to be competitive and attractive. So, the main objective is to advertise their products in order to gain customers acceptance. This can be confirmed from the large amounts of investment in advertising and promotion campaigns that the majority of the milk companies spend.The competitionThe last but not least factor according to Porter that affects the entrance in the milk industry is the competition. The Greek milk market is highly controlled by few large milk production companies. This has as a result the creation of an oligopoly among the companies while they try to retain or expand their share in the market by enhancing their brands through advertising, various discounts offers and by exploiting the benefits from exclusive distribution in mini retail markets. The created oligopoly is the main characteristic of milk industry and this point out that the competition is considered as low.SWOT AnalysisKRI-KRI S.A.S STRENGTHSVery strong financial positionStrong contracts with suppliers and associatesTechnological industrial and manufacturing facilitiesOrganized distribution network channelsProducts with Popular Tr ademarks and strong taste perception of Greeks for domestic productsTight quality control, awards and certifications, brand name, recognizable firm (ISO, HACCP certifications)W WEAKNESSESNo use of options to outweigh the potential risk of interest rates substandard money spent for marketing and advertisement.O- OPPORTUNITIESBalkan countries cropLiving standards produceThe gradual acceptance of biologic products by consumers.T- THREATSUnexpected deceases that affect the animals and have as a result the decrease in the consumingGreek crisisCompetition from importsSO STRATEGYExpansion of the distribution network to Romania, where there are greater growth opportunities (S4+O1).WO STRATEGYIncrease advertisement to attract more customers in refined products through the growth of living standards (W2+O2, 3).ST STRATEGYRestructure of the company to become aggregate quality producer through tight control and cooperation with certificated farms (S6 + T1).WT STRATEGYAdvertisement to commen d on the origin and quality of its products instead of the imported ones (W2+T3).Combined StrategiesProposed scenarios tetrad scenarios were established from the above swot analysis matrix and the situation of the milk industry has been considered.SCENARIO 1SCENARIO 2SCENARIO 3SCENARIO 4CURRENT GROWTH advertisementEXPANSIONFINANCIAL CRISISSALES GROWTH RATE1,33%3,00%7,00%-2,00%FIXED ASSETS (AT COST) GROWTH RATE13,79%4,50%7,00%-2,00%TOTAL DEPRECIATION/FIXED ASSETS AT COST5,79%5,79%5,79%5,79%COST OF GOODS sell/SALES54,27%55,00%40,00%63,00%ADMINISTRATIVE SELLIG EXPENSES/SALES28,82%30,00%15,00%18,00%Table 1 Proposed scenariosFirst scenario. Basic Case Current growth ratesIn this scenario would be examined how the companys equity economic value would be affected if will continued its activities with same sales growth as the average of past 5 years, the fixed assets growth rate, cost of goods sold/sales and administrative and change expenses.Second scenario. Increase of advertisementAdve rtisement and promotion campaign in milk industry plays a significant share that determines the sales ratio growth. In this scenario we suppose that the company emphasises to increase its advertisement expenses that would lead to increase the sales growth up to 3%. We assume that the administrating and selling expenses rise up to 32% while the cost of goods sold per sales remain in 55%. Also, we decrease the fixed assets at cost growth rate at 4,50% in order to balance the past years involution of fixed assets growth rate.Third scenario. Expansion to BalkanBalkan countries have been demonstrated high gross domestic product rate such as Bulgaria with 6,2% in contrast with Greece that the International Monetary Fund forecasted that would slightly increase from negative ratio to 0,80% gross domestic product. Considering the development in the past and forthcoming years in Balkan the third scenario supposes that the company expands in Balkan markets. Moreover, KRI KRI S.A. has already made the first expansion step in Balkan and has already begun to organise distribution network among Balkan region. Finally, KRI KRI S.A. has access to Balkan because its facilities located no more than 100 kilometres from Balkan borders such as with Bulgaria, Serbia and Yugoslavia. This scenario is realistic and possible considering that the short distance from Balkan countries satisfied the demanded requirements in order to ensure the initial quality of the products. So we suppose that the sales growth rate would be increase up to 7% and similarly the fixed assets at cost growth rate would be up to 7%. Due to the mass production and the optimum production capacity we suppose that the cost of goods per sales and the administrating/selling expenses per sales would be decreased down to 40% and 20% respectively.Fourth scenario. Financial CrisisIn the last scenario we consider the on-line(prenominal) financial crisis in Greece that already had occurred. The milk industry does not af fected so much from the income of the consumers but in the current condition we supposed that the sales growth rate would be decreased down to -2%. The fixed assets growth would be decreased as well as the financial crisis would affect negatively the investing expansion to new fixed assets or even worse may forced a necessary extinction of fixed assets. So, we suppose that the fixed assets at cost growth would be down to -2%. Finally, the decreasing in sales growth and the low volume of production would have as a result an increasing to cost of goods sold and administrative/selling expenses per sales ration up to 62% and 40% respectively.