ABE’s Meat – An Analysis
By Ivan Lee, R080230
Situation Analysis
Abe’s or ABMPC is in the processed meat industry who owns the brand Abe’s Best. The brand is currently being sold only at the Philippine market and some parts of the Middles East (via an exclusive distributor) and has an 8% market share of the estimated P70 Billion processed meat industry of the Philippines. In 2010, Abe’s management team was contemplating of going global by introducing Abe’s Meat brand to markets in the Middle East, Asia and North America. The idea was to create Halal certified products that will cater to the many Filipino-Muslims working abroad, particularly in the Middle East and in United States of America. The management team first studied the target market of Filipino-Muslims in Mindanao and abroad as OFW’s. Second, the group studied the Halal operations and what investments and know-how they will need. Third, the group also studied their target markets of Malaysia, Dubai and California. They analyzed the Filipino-Muslim demographics and behaviour in these countries. Finally, they proceeded to study further the business concept of Halal certified meat products by analyzing the different factors that governs the industry as well as the financial outlook.
The Business Concept
ABMPC has been in the meat processing business in the Philippines for more than 30 years now. With an estimated 8% market share for the total processed meat industry of the country, ABMPC has about P5.6 Billion sales of the estimated P70 Billion total industry sales. Backed by advanced technology and excellent manufacturing technology (HACCP and Good Manufacturing Practices achievements), the company is looking for ways to grow its business. The company’s top management is currently looking into tapping the Filipino-Muslim in and out of the country as well as OFW’s as major opportunity growth groups for the company. In their opportunity seeking studies, they found out that there is a vacuum of supply for Halal certified processed meat products in some of the major countries heavily populated by Filipino-Muslim OFW’s like Saudi Arabia and Malaysia. They also found out that there is also another Abe’s brand that is also being sold in the US but is not the original one that they have created. Both opportunities seems to be too good to pass up for the Gomez family that they are contemplating on launching two probable business growth drivers for the company: a Halal accredited brand for Filipino-Muslims and Filipino-Muslim OFW’s and second, another brand (presumably called California) to satisfy the apparent demand of OFW’s is United States of America. The company basically wanted to grow global and they will ride the wave of Filipino OFW’s in doing so. The Halal accredited brand concept will be fuelled by investment in a Halal accredited manufacturing site while the CALIFORNIA brand will be fuelled by investment in a manufacturing plant in the United States. For both opportunities, the idea is to solidify ABMPC’s position as the third largest processed meat manufacturer in the country by fulfilling the need of global Filipino households to eat and enjoy its different Filipino-based processed meat products.
The Target Market
With the stated new goals of the company, ABMPC proceeded to study its market. For the Halal accredited processed meat, the group studied Filipino-Muslims in Mindanao, Saudi Arabia and Malaysia. The following results were recorded:
a.) Mindanao
a. Filipino-Muslims comprises about 5% of total population (about 4.5 Million people on an estimated 90 Million population), mostly found in Mindanao.
b. The biggest challenge facing ABMPC in Mindanao is in pricing since although the regional economy grew by 4.3 percent and a high employment rate of about 90 percent, the daily wage rate is lower compared to other regions of the Philippines.
c. An unstable political situation with rebellion groups dominating much of Muslim Mindanao.
d. Few local players in the region and none are Halal certified.
b.) Middle East
a. As a predominant Muslim region, trading to any of its countries must be treated that same way as a Muslim. This means that Halal certified meat products are the only ones that can be traded in the region since Muslims can only eat Halal certified products as per their belief and culture.
b. Saudi Arabia host the most number of Filipino migrant workers in the region with an estimated number of 1.5 Million OFW’s in the Kingdom.
c. Average daily rate is $6-$96 tax free, depending on nationality, skill and profession. This is about $150-$2,400 average monthly rate.
c.) Malaysia
a. One of South East Asia’s most successful economies.
b. Although a multi-ethnic and multi religious country, it is still a predominantly Muslim country. This means that Halal certified meat products are the only ones that can be traded in the region since Muslims can only eat Halal certified products as per their belief and culture.
c. Sabah region alone host about 500,000 undocumented Filipino workers.
d. Minimum monthly rate is at $400.
For the USA processed meat:
a.) All major store food group indexes have risen over the past year.
b.) US economy accounts for almost 24 percent of the world economy with a growth rate of 1.6 percent .
c.) A debt crisis with a new debt limit just approved at the nick of time but with the consensus that federal spending be cut by $2.4 Trillion or more. This crisis shifted the buying and food consumption pattern not only of the Americans but also people around the world. Examples are bigger percentage of people eating at home instead of outside and channel choice for groceries.
d.) Filipino Americans are the second largest the second largest Asian American population numbering about 3.1 Million strong. Most leave in Southern California followed by San Francisco Bay Area and in no particular order, Chicago, Atlanta, Houston, Las Vegas, Phoenix, Washington DC, New York and Seattle.
e.) Prevalence of Filipino stores in these areas where there are a good number of Filipinos.
Halal Operations
Halal is an Arabic term which means allowed, lawful, legal or permissible under the Islamic Law. Moreover, it is considered as a quality control system that emphasis hygienic and disease-free preparation of foods from farm to plate. It is a certificate of compliance of the religious requirement observed by all Muslims worldwide. The following conditions must be met for accreditation:
a.) Does not contain any component or raw materials from animals that is not Halal.
b.) Does not contain any ingredient that is considered filthy.
c.) During its preparation, processing or manufacturing, the tolls or equipments used must not be contaminated with product containing ingredients considered filthy.
d.) Follows the “Zabihah” slaughter procedure
With these requirements, ABMPC will need to provide a new manufacturing plant and procedure for its planned Halal accreditation and brand.
CALIFORNIA Operations
In the late 90’s, the Gomez family already thought of introducing Abe’s brand in the United States to satisfy Filipino’s there of its products. However, the plan was shot down when they realized that the trademark “Abe’s Best” was already being used by a registered Filipino company under the name Quesada Food Corporation – which is in no way connected with ABMPC. Now, after more than 10 years, the plan was being revived by the Gomez Children despite the rejection of ABMPC’s board, mainly on the strength of it being a family owned corporation. The main driver here is because of the pressure that consumers in the US are not really buying the original ABMPC “Abe’s Best” brand. With this, ABMPC will need to create a new brand that will enable them to register and do business in the US but at the same time, harp on the strength as being the one true original “Abe’s Best” brand.
Factors Involved
ABMPC listed several factors that are critical for them to enter the international market:
a.) Foot and Mouth Disease. This dreaded virus decimated swats of hogs worldwide and in an effort to contain its spread, quarantine, isolation and export bans were implemented by national and international governments. In the Philippines, Luzon was hit and was banned by OIE to export to any other countries. In June 2011, the banned was lifted allowing Philippine meat producers to begin again exporting their products. However, as are still wary of the dreaded disease that despite the suspension of the ban, a continued effort to resist importing from countries affected persist.
b.) Halal Accreditation – A must for ABMPC for them to be able to sell to Muslims, Halal accreditation is an integral part of the company’s present and future growth strategy.
Financial Outlook
ABMPC has net income of P56 Million for the year ended 2010. For their planned Halal facility, total investments will amount to P68.7 Million with P46.9 as initial investment. This will have an ROI by 2nd year with an estimated net income of P23 Million in the first year. First year revenue is at P300 Million and a 20% growth in the 2nd year and a 10% growth on the 3rd year. Growth in second year will be fuelled by entrance and success of the company in entering international markets. For their planned US facility, total investments of $1.3 M or P57.2 Million with an estimated 10 year ROI. Sales are projected to be at $1.4M in the first year and a net income of $11,198. Second year sales growth is projected to be at 20% with net income to be at $98,455.
Conclusion
With the said study, ABMPC felt confident of the opportunity in the Filipino Muslim and OFW markets. Despite the heavy investments and the projected 10 year ROI for their US facility, they still proceeded with the projects. The Halal facility was slated to be audited by September 2011 for compliance to customary laws. In February 2011, ABMPC also purchased a plant at Riverside County, California to be the company’s processing facility in the States.
Problem Analysis
After a seemingly exhaustive market study by ABMPC, they are determined to push through with their planned international expansion that will drive their future growth. The Halal accredited brand being eyed for Filipino-Muslims in Mindanao and OFW’s in Muslim regions of the world is driven by the possible demand of Abe’s Best products while the planned US expansion, although is also driven by a possible demand in the market, is more driven by the pressure to be present in the market so that they can offer the real Abe’s Best products. However, some experts, including one Professor Saguinsin, are advising them for further study of the market demand. Is the company ready to go international? Is ABMPC capable of supporting two simultaneous investments for business growth – operationally and financially? Are these the right move of ABMPC to answer their need to sustain their position in the industry?
Is the company ready to go international? This question needs to be answered because most their planned investments will aim to generate sales via the international market – mostly OFW’s abroad. How receptive will the Filipino abroad will be with Abe’s Best brand will be the key to their success internationally. This means that they will have to take into consideration not only Filipino brand competitors but also foreign processed meat companies. They will also have to consider the trivialities and the difference in operations on a global chain as oppose to their current local operations.
Is ABMPC capable of supporting such ambitious expansion program operationally and financially? This question needs to be answered because they are embarking on an international expansion program where they have little to experience yet. Operationally, they need to be ready and should consider manpower, global supply chain, marketing efforts and distribution channels. If they are not operationally capable, without the right people to handle their planned expansion, their seemingly opportunistic and good plan will be a waste of capital. Financially, they need to consider the cost it will take for them to expand on a simultaneous global product as well as the time it will take them to sustain these operations as they wait for their markets to grow. If they are not ready to do so, they will just end up losing money sustaining the international operation which is definitely higher than what they are used to in their current local operations.
Are these the answer to their vision for the company? ABMPC should ensure that they have all of their alternatives covered before proceeding with their planned investments considering their stated vision for the company.
Alternatives Generation
With the said goal of sustaining and solidifying their current position in the industry as the third largest player, ABMPC have the following options:
a.) Proceed as planned. The creation of a Halal brand to cater to Filipino-Muslims and the California brand to cater to the Filipino market in the US will be the cornerstone of future growth of ABMPC.
b.) Consider cutting back on the planned expansion. Consider one option first to give ABMPC focus in growing that particular market.
c.) Consider exporting to US instead of setting up a factory there as Professor Saguinsin suggested. This will enable ABMPC to test market first prior to making bigger investments.
d.) Continue to study the international market for now and instead of an international expansion, consider tapping the Filipino-Muslims in Mindanao first. ABMPC can both test market their Halal brand first in the local market and at the same time, build on a loyal customer base first before expanding.
Option A presupposes that the market studies made by ABMPC are enough for them to justify making huge investments and enter the international market. They will do so in a big way with two simultaneous investments both locally and in the US that will allow them to pursue their international business operations. Operationally and financially, ABMPC will need to get ready by hiring and training new personnel, creating their operation process flow especially since this is the first time that they will be going for international markets, creating a marketing campaign to introduce the two new brands and creating a global supply chain that includes sourcing, producing, delivery and selling.
Option B advocates focus on a key growth area rather than two. This will lessen impact of a possible failure for ABMPC and at the same time, will allow them to concentrate on growing one market and one new brand instead. This will also allow them to learn and craft a supply chain for global operations which is very important considering that they do not have a present international operation as big as the planned ones. Consider Halal brand first as it has two available markets for ABMPC – local Filipino Muslims and OFW Muslims abroad.
Option C and D advocates caution in an international expansion and instead, advocates using other methods of introducing and test marketing the products first before proceeding with any big financial investments. ABMPC can consider repacking and marketing their products first in the US via distributors instead of investing in a factory in the States. This will give them time to test market their product first and how effective they can communicate with their target market there. ABMPC can also consider tapping on the Filipino Muslims in Mindanao first for their Halal brand before going international. This will allow them to test market it and at the same time build on a loyal customer base. Both plans will also allow them to access the international market albeit on a smaller scale that they are currently planning.
Decision Analysis
With their stated goal of maintaining their current position in the processed meat department, ABMPC may be aspiring too big beyond what they can currently handle with their planned expansion. Although they seem to have done an exhaustive market study on select cities, they haven’t done one critical factor yet which is to market test both their capability to operate at that level and to test market their products. These two I think is very critical for the planned investments of ABMPC since we are talking about them going international which is a totally new business environment. Operationally, the company will be stretched thin in terms of manpower and new plants envisioned to support their international exposure will require new people who will have to undergo training first. Also, they do not have any key personnel with any background in international business development which means that they will go in blindly. Marketing new brands will also become a challenge for them since ABMPC’s core strength is essentially the consumer’s familiarity and loyalty with their products. Supply chain on a global level will also be a new area for them and any mishaps here will mean that their plants will suffer and fixed cost pile up. Financially, with net income running at P57 Million in year ending 2010, ABMPC is in a favourable position. But they will also have to consider that the investments they will be doing add up to almost $1 Million dollar which is also a huge sum of money with most of the investments coming in the form of internally generated cash. This will deplete company cash reserves which will haunt them during build up time (the time it will take for them to launch their new brands in the international market until it takes off at an acceptable level) and if they fail in their business strategy. Their estimated Halal facility will have an ROI of 2 years but this only accounts for minor tweaks in their current operations. Since Halal accreditation has a very stringent requirement, including supposed new investments for facilities that will not and cannot be used for any non-Halal accredited production (During its preparation, processing or manufacturing, the tolls or equipments used must not be contaminated with product containing ingredients considered filthy), investments may require more than just tweaking of the current operations and rather, new investments on buildings, equipments and tools. Their estimated California brand ROI, on the other hand, will run to 10 years which is very long for the company to recoup without a solid lead that they will actually succeed in marketing a whole new brand in a new market.
With this, the best option for ABMPC to take is a combination of C and D. ABMPC will build up its Halal accredited brand and cater to Filipino Muslim first. They can build up a loyal customer base as well as test market the product in a smaller scale than initially plan. If successful, they can immediately go international by carefully choosing the right countries to market the said product. ABMPC can also optimize their current plant production and test market the planned California brand by using excess capacity to sell via distributors in the United States. This way, they can verify the findings of their study and from there, build on the brand for future US operations if proved to be a success. The following are reasons as to why this is the best course of action for ABMPC:
a.) Current study is good in paper. However, investments like the one being planned is a huge risk for the company that test marketing the prospective brand may be needed to assess and verify findings.
b.) There are no Halal certified meat processors in Mindanao region that caters to the needs of the Filipino-Muslim population.
c.) People in Mindanao are not really poor because they have a lot of natural resources.
d.) Mindanao demands for processed meats are not being met.
As the factory in the States has been already bought, ABMPC should consider the cost of operating the said plant versus making it idle for the mean time. If putting the plant idle will cost the company more, then they should consider disposing it, renting it or proceed to introduce CALIFORNIA brand there to minimize losses.
Action Analysis
In pursuing this strategy, ABMPC will need to consider all aspects of their business because in the long run, going international will be their goal. The following are the action steps that ABMPC will need to do:
a.) Craft a long term plan for the company that will consider itself going global. This means looking into its operations, human resources, product development, marketing and supply chain. ABMPC should have a clear path to take on how it can transform itself into a global company and work earnestly to achieve it. Timelines should be given as the end goal is to really pursue the Filipino-Muslims and OFW abroad.
b.) Consider what to do with the newly bought plant in the United States. Bottom line is, that will be a weight that will drag the company. Consider all options as to how to minimize the cost of that property.
c.) Ensure that their new facilities for Halal production be accredited as this is the only way they can start selling to Muslim regions here and abroad.
d.) Optimized production at current facilities and consider repackaging excess quantity to the States for test marketing it.
e.) Look for distributors and start evaluating them in countries and cities that ABMPC is studying: United States, Saudi Arabia and Malaysia. Consider other nearby countries with high concentration of Filipino OFW’s like Dubai, Qatar and Hong Kong.
f.) Consider brand names and how to market the new brands:
a. Halal brand can be ‘Abe’s Best Halal Foods’ which continues to harp on its Abe’s Best brand. However, consider changing the packaging for the Halal food so that it can easily be differentiated from its normal Abe’s Best brand. Consider hiring Robin Padilla as the product endorser as he is known to be a devout Muslim with mass appeal.
b. CALIFORNIA brand can be ‘the Original Abe’s’ to build on its strong brand name and at once differentiate it from the current “fake” Abe’s Best brand selling in the States.
g.) Consider performance measures to evaluate test marketing the products outside the country. Performance measures should be unbiased and measureable versus bottom line sales so that when they finally go into the international markets full blast, they do so confidently.
h.) Re-evaluate their policy of not taking out loans during for investing activities. This is to hedge against them running out of cash reserves for working capital requirements.
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