TTACKING A DOMINANT COMPETITOR: A JOINT VENTURE STRATEGY BY NESTL & GENERAL MILLS Kelloggs (United States) dominates the worlds ready-to-eat breakfast cereal market. In 1989, Nestl (Switzerland) and General Mills (United States) agreed a joint venture to attack the market and established a new joint company, Cereal Partners (CP). The objectives of the new company were to achieve by the year 2000 global sales of US$1 billion and, with this figure, to take a 20% share of the European market. Background In 1997, Kelloggs was the breakfast cereal market leader in the USA with around 32% share in a market worth US$9 billion at retail selling prices. By 2002, the company was no longer market leader. Its greatest rival, General Mills (GM) had finally taken over with a share of 33% while Kelloggs share dropped to 30%. GM had achieved this important strategic breakthrough by a series of product launches over a 15year period in a market that was growing around 2 % per annum. However, by 2004, Kelloggs had regained market leadership again by 1% share point. This reversal was the outcome of some clever marketing by Kelloggs coupled with GM being distracted by the consequences of its acquisition of another American food company, Pillsbury, in 2003. Outside the USA, the global market was worth around US$ 8 10 billion and growing in some countries by up to 10% per annum. However, this was from a base of much smaller consumption per head than in the USA. Nevertheless, Kelloggs still had over 40% market share of the non-US market. It had gained this through a vigorous strategy of international market launches for over 40 years in many markets. Up to 1990, no other company had a significant share internationally, but then along came the new partnership between General Mills and Nestl. Development of Cereal Partners After several abortive attempts to develop internationally by itself, General Mills (GM) approached Nestl about a joint venture in 1989. A joint venture is essentially a separate company which is formed, with each parent company (General Mills and Nestl) holding an equal share and contributing according to its resources and skills. The joint venture then has its own management and can develop its own strategy within limits set by the parents. Nestl had also been attempting to launch its own breakfast cereal range without much success. Both companies were attracted by the high value added in this branded, heavily advertised consumer market. GMs proposal to Nestl was to develop a new 50 / 50 joint company. GM would contribute its products, technology and manufacturing expertise for example, it made Golden Grahams and Cheerios in the USA. Nestl would give its brand name, several underutilised factories and its major strengths in global marketing and distribution (e.g. relationships with powerful supermarket chains worldwide, like Tesco in the UK). Both parties found the deal so attractive that they agreed it in only 3 weeks. The joint venture was called Cereal Partners (CP) and operated outside North America, where GM remained independent. Charles Gaillard, previously head of General Mills domestic cereal business, was appointed as Chief Executive DN Officer of Cereal Partners and confidently took on his new position. Over the next 15 years, Cereal Partners was launched in 70 countries around the world. Products such as Golden Grahams, Cheerios and Fibre 1 appeared on grocery supermarket shelves. Cereal Partners used a mixture of launch strategies, depending on the market circumstances: acquisitions were used in the UK and Poland; new product launches in the rest of Europe, South and Central America, and South Africa, and existing Nestl cereal products were taken over in South-East Asia. To keep Kelloggs guessing about its next market moves, and to satisfy local taste variations, Cereal Partners also varied the product range launched in each country. By contrast with Kelloggs, Cereal Partners also agreed to make cereals for supermarket chains, which they would sell as their own brands. By 2004, Cereal Partners had reached its targets of US% 1 billion profitable sales and 20% of European markets. Cereal Partners was beginning to attack a dominant competitor, Kelloggs, worldwide, and Kelloggs was responding aggressively, especially in the USA where it had regained market leadership.

Question (20 marks)

Charles Gaillard was appointed as CEO of the newly formed Cereal Partners in 1989. Critically examine how the organizations strategy could have been implemented by him by using frameworks like McKinsey 7s for the organization.