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WEAKNESS

PAKISTAN FOODS Overview: Pakistan Foods is a startup company indulged in the confectionary and bakery businesses and also having 12 retail outlets in the posh areas of Lahore. It was started by Ahmed and Imran who previously used to work together at Gourmet Pakistan. Ahmed was the CEO while Imran was designated as CFO. To start up a company like this was not very easy. Both Ahmed and Imran brought in their own equity of Rs. 5 million each which helped Pakistan Food to secure a further debt financing of Rs. 25 million from Faysal Bank Limited. Pakistan Foods has a total of 120 employees out of which 25 were working in various managerial positions as administrative and functional managers, while the remaining are non-managerial staff that includes over the counter sales force, support staff and production workers etc. Operations: Pak Foods has three manufacturing units responsible for providing end products to the retail outlets. These include the Kot-Lakpat Unit, responsible for all bakery items like, pizza's, patties, breads, buns etc. The Sunder Unit, responsible for production of all dairy products including ice cream, milk and yogurt etc., and the Green Town unit that is responsible for producing all sweet and confectionery items like pastries, cakes etc. Fresh Raw material like fruits, dairy items, chicken and meat etc. are brought in every morning at around 4 a. m. by the fleet of 25 delivery vans which are owned both by the company and its suppliers, to provide fresh ingredients to the three production units of Pakistan Foods. For freshness and quality Pak Foods has a contract with Veg-Co to be its sole supplier of fresh fruits and vegetables purchased directly from the vegetable and fruit market in the wee hours of the day. Other materials are supplied from renowned wholesale suppliers like Metro, CSD canteens etc. Before any item can be sent to the inventory room, they are inspected and checked by the In-QC inspection department, where the quality assurance staff checks for any defected items. If such items are found they are immediately returned on the spot to the suppliers. Using an intelligent delivery tracking system, deliveries of raw materials are made twice in one day i.e. at 4 a.m. and at 4 p.m. Given the external environment dynamism, the company has created a strategic plan for the next 3 years, where its main strategy is first to sustain their business and then by its third year of operations, to grow by expanding in other cities of Pakistan. The good news is that Pakistan Foods advances in the area of technology it possesses. Furthermore confectionary items do not require a very high tech state of the art technology for its production and processes. The Environment and Industry: Pakistan is currently facing a very high inflation ratio touching almost 17%. With very few barriers to entry, many confectionary bakeries and restaurants are opening up in the vicinity of Lahore and adding fuel to fire, there are 100's of existing competitors like Gourmet foods, International Bakery, Kitchen Cuisine etc. exerting high competitive pressures on businesses. Due to such pressures the price rages offered by competitors for their products is fluctuating constantly day by day. One reason for such fluctuations are the increasing or decreasing fuel prices currently and the commodity prices of raw materials like oil, sugar, wheat etc. Some analysts expect that the growth potential of this industry is somewhere in the range of over 15% p.a. and if companies strategize correctly, they can expect to have an average of 200-250% profit potential but for this they would have to take extreme measures to manage their operational productivity and overall capacity utilization effectively. Based on a recent survey conducted by Gallup Pakistan, the confectionery industry is only operating at 50% capacity. One of the main reasons for this is that there are very few entry barriers for new potential entrants and therefore new entrants are constantly entering in the industry as need for technology and branding is not a very significant issue for industry players. Industry analysts believe that although this industry looks to be a simple one, there are several critical factors that cannot be overlooked. For example customer service stands out to be the most predominant factor for the success of any bakery or food operations. Similarly number of outlets, return on investment and the number of manufacturing units a company has, all fall after customer service in importance. Competition: With lower threats to entry and not very high tech production processes required, many bakeries are operating in the market where Pakistan Foods competes. Two of these notably are Kitchen Cuisine and Gourmet Bakers. For selected data on competitions please see Exhibit 2. Gourmet Bakery: Although Gourmet Bakers has larger number of branches, customer service has been declining consistently. According to a latest survey by Gallup Pakistan, Gourmet was rated as the worse customer service providing company. Adopting a low cost leadership strategy Gourmet has placed tight controls in its two manufacturing units situated at Kot LukPat and Factory area Gulberg. Kitchen Cuisine: Adopting a more focused strategy, Kitchen Cuisine started with a single factory unit and it still maintains that unit without any additions till date. According to the survey by Gallup Pakistan by Kitchen Cuisine was rated as the 2nd best customer service provider. One reason for this was that due to its lesser number of branches, it was able to devote considerable managerial time on customer services. But this meant a lower market share of Kitchen Cuisine being at only 3%. This although was not a very big concern for Kitchen Cuisine's management because according to them, the same industry analyst who listed other critical factors for the industry were also quoted by saying "although market share in this industry may be important, it ranks as the least important factor identified. Pakistan Foods-Business Functions at a glance: Pakistan Foods believes that good marketing can be the key for success; therefore Pakistan Food is indulged in aggressive marketing. For Example it delivers flyers and pamphlets to houses near its locality and advertises on the local cable channel as well. Pakistan Foods believes in aggressive advertising especially on social media and therefore has hired a company under the name of Ad Vision specifically to make its presence felt in social media. A fully functional HR department oversees all recruiting, selection, compensation, benefits and training of its works force. There is a formal induction process for all managerial positions; a proper pay roll system using ERP Module of HR is in place which calculates all salaries, incentives and compensations. As far as purchasing is concerned, production machinery used for the operations was imported from China and Italy. All customized packing materials are ordered from Package's Limited and supplies like flour, sugar, creams, coco etc. are purchased from a wide range of suppliers and wholesalers like Metro. Some dry raw materials are purchased in bulk and stored at the factory ware houses, while other materials are procured on daily bases given the fact of perishability. Although the business is not very high tech, but still it uses the state of the art mixing and cooking ovens along with dough making machines which they imported recently. Pakistan Food's entire chain of retail outlets have latest Point of Sales computerized billing systems, and are linked though the WAN internet so that management can track sales of each store. High speed internet connections are provided at the retail outlets and at the factory floors, all connected with computers and ERP that link the POS terminals and the machines working in the production area to give updated real time information on production runs, costing, inventory etc. Most of the sales are conducted over the counter, when customer walks into the bakeries of Pakistan Foods. Each customer is assisted in their purchasing by a sales person till the time of billing at the Point of Sales (POS) terminals, where the items are scanned for payments. Customer service at Pakistan Foods is of prime important. The company believes in the fact that the "customer is always right and if any customer comes with any complain regarding the products, the company policy is to immediately replace the items with no questions asked. Due to this factory Gallup Pakistan rated Pakistan Foods to be #1 in Customer service, leading all other competitors. To keep its business progressive, the company currently undergoes both product R&D, by adding new product lines and extensions, and process R&D which helps them to identify new ways of producing efficient bakery and dairy products at lower costs. The production process is semi-automated, where most of the items are made by workers putting the right amounts of ingredients into the machines and ovens to make products like bread, buns, cakes, pizzas etc. These are then manually packed in customized packaging and loaded on delivery trays which are then checked for quality by the Out-QC Department for quality inspection where items are randomly selected and tested for quality, hygiene, freshness and weight. Once passed through the Out-QC, items are sent to the shipping department. Production runs start at around 6 p.m. for the next day, and by 4 a.m. all freshly cooked items are sent to the shipping department, where they are loaded on the company owned refrigerated delivery vans to take the freshly cooked products to the 12 retail outlets well in time before the early customers start to walk in. The company uses a hub and spoke method of delivery and covering all the retail outlets. As the company is breaking out of its infancy stage, it has to invest a lot in marketing advertising and machinery therefore the Return on Investment is only 2% right now. For other financial details, please see Exhibit 1. Most of its cash flows are tied in purchasing stock and hence the company finds many problems in terms of on time payments to suppliers and salary and wages given to employees. The only assuring factors for Pakistan Foods is its very high inventory turnover ratio, which is a breath of fresh air for the company. Because of this fact, Pakistan Foods has been able to maintain its market share at 6% which the companies finds an attractive situation given its new start. A key breakthrough for the company was its successful promotional campaign, that competitors are trying to imitate. This promotion offered at Pakistan Foods is in the shape of a very robust customer's loyalty program. Each new customer is offered to get a loyalty card made when they shop for the first time at Pakistan Food. Every sales gives the customers a certain amount of points e.g. If they shop for Rs. 1000 they get 10 points. Once the customers have accumulated enough points, these can be redeemed at any outlet though cash back incentive which can be used to pay for the purchase of the items at the store. Given this situation, Pakistan Foods maintains strict checks on product quality with inspections being conducted at various stages and adherence to freshness of products. All this results in good quality products, but considering the market, there are other competitors providing equivalently good and in some cases better quality products to the market. As Lahore's are food lovers, they keep on switching brands and keep trying out new offers provided by various competitors. Given the nature of perishability and product freshness, the plants only operate at 60-65% utilization. According to the management the current underutilized capacity of production plants will come in handy to feed the expected future growth and expansion plans of Pakistan Foods. The Future: Being extremely optimistic, the management of Pakistan Foods believes that given the potential of future growth due to expansion of the city of Lahore and high population growth rates, plus shifting of people from other cities like Karachi & Peshawar due to security reasons the market is full of potential. If Pakistan Foods maneuvers strategically, it has no doubt to perform par-excellence