Shan Foods-Blue Ocean Strategy Case Study

Shan Foods- Blue Ocean Strategy

An Overview

Shan Foods was established as a cottage / home based industry selling the Recipe Mix mainly to friends
and family; then the demand grew and it grew so well that today it reaches Rs.3 Billion sales mark with
product distribution channel in 60 countries. Shan Foods is deeply rooted in Indian and Pakistani community in UK,
USA, Australia and Canada by frequently participate in social and cultural events. Shan Foods has very
clear-cut strategy to stay within the spice business and do not get into any other business risking the
potential growth opportunity. Shan Foods plays very safe game by limiting themselves to Karachi and
major cities and surrounding location but at the same time ensuring the customers get highest quality of
product and customer stays satisfied.

SHAN FOOD COMPETITIVE EDGE

Shan Foods always have aggressive strategy to sell as much as they can by setting price parity with the
cost and keeping market price in mind. High volume is always the key strategy. Shan Food has recently
launched a product line of Oriental Recipe. The new launch is a part of intensive strategy to compete with
local and international Recipe Mix brand, including those from Far East. One can see the strategy implemented by Shan is Think Globally, Act Locally whereby Shan is capturing middle class who can’t afford restaurant or prefer to eat home and Shan is directly competing with Knorr, a brand introduce by Unilever to offer such international cuisine Recipe Mix. Besides, further Shan tends to place the brand internationally by getting all international certification and winning award Superior taste Award by iTQi.

SHAN FOOD STRATEGIC PATH

Shan Foods like to concentrate on single range of product with Intensive Strategy, there is no aggressive
strategy to penetrate national market or diversified into other products, perhaps the market itself has
enormous potential with 50% local growth and huge potential oversees where India has been dominating
the world market for years with US$1.6 Billion exports (Indian Spice Board 2010). But still there is risk
involve for Shan to stay within same arena. Secondly, as compare to National Foods, Shan has limited
resource to grow fourfold as being a privately held company, it will have to get public in short term and
plan for magnitude growth to compete with International sellers and indulge into volume pack of 40 kg
bags for exports for repacking in importing country.

Blue Ocean Strategy: it states that the high growth and profits an organization can generate by creating new demand in an uncontested market space, or a "Blue Ocean", than by competing head-to-head with other suppliers for known customers in an existing industry. This is what we want to see how Shan used this strategy when it steps in to International Market. Shan foods have developed the new markets for its products using the market development strategy. They did so because they knew the opportunity of increasing demand of spices all over the world. That’s why they have moved in 4 continents of the world and competing with international rivals.

International Industry Analysis During the period from 2004 to 2009, the value of international spice imports increased, on average, by 1.9% per year, whereas the volume increased by 5.9%. In 2004, world trade in spices consisted of 1.547 million tons valued at USD2.97 billion. There was a growing trend towards the trade of processed spices during the period, which fetch higher prices. The increasing demand for value-added processing of spices such as capsicum and ginger offer business opportunities for the food and spice industries in international markets the major markets in the global spice trade are the United States, the European Union, Japan, Singapore, Saudi Arabia and Malaysia. The principal supplying countries are China, India, Madagascar, Indonesia, Vietnam, Brazil, Spain, Guatemala and Sri Lanka. Among the major spices exporters, Pakistan does not exist and enormous potential of the export market attracts the investors in this sector.

Global Scenario

India is the biggest player in Spicy as they have more farming land with optimize per yield capabilities and exports $ globally as they have access to local community world over as compare to Pakistan.

·          Source Food and Agriculture Organization of United Nation

·          Indian Imports: 1, 34,260 tons valued at Rs.591.40 crores (US. $.167.00 million)
(Spice Trade Board – Stats Import 2008-09)

·          India Exports US$1.6 Billion worth of spices - (Spice Trade Board – Stats Import 2008-09

International Trade Centre (UNCTD/WTO)-Report on World Spice Market 2004-2009

The demand for branded spices business has experienced a gradual change over the past years. As mentioned earlier the advent of technology has opened a new option of export for many potential investors. However this does not imply that the demand for spices business has been affected by technology because considering the associated costs and the subsequent pricing the affordability for spices by a large population of Pakistan becomes questionable.

Branded spices are facing competition from loose spices in terms of their prices. As the branded spices are 30% more expensive than the loose spices, because of the 15% GST. The packed spices industry has average growth rate of 22% annually. And according to the chairman grocers association of Pakistan the sales of loose spices have fallen substantially.

Business objectives Shan takes pride in its practices regarding client and customer interaction as derived from Islam. Their strong connection and respect for Islam drives the company’s core values. Therefore they have agreed upon not to accept anything but the best in raw material from the suppliers as Islam teaches to entertain our Islamic brothers similarly as we would treat ourselves. Driving from the same concept of Islam Shan Foods also provides quality to its utmost limits in the products that it offers. It is the main reason for their how cost as Shan Foods has the latest technology which is one of its kind in south East Asia. The V-look technology and the coal grinding technology is only an example to their dedication to provide nothing but the best to their consumers. It’s the world class quality that brings the blind trust of the consumers on Shan products that it will not only be hygienically prepared but would be secure from any harmful ingredients that loose spices offer. Value proposition of Shan Foods is to be receptive towards innovation and experimentation in food and in life, while remaining a brand that will provide the highest quality products to its customers and will never comprise on this idea. Shan food considers all major food brands, packed and loose, retailer’s brands, ready to cook or raw food as its potential competitor. The direct competition is with National Foods, Mehran, and Shehzan, Ahmeds, Young’s and the like.

Marketing objectives As the strong connection of the Shan Foods owners with Islam, the company does not believe in advertisement heavily on any advertisement medium. Since the product offerings are seasonal the company does advertise in Ramadan and come with its advertising campaigns. Shan advertisement does not show any celebrity or prominent figure to drive sales; rather it just compromises of show-reel showing hands with background music and rotating dishes. The company also conducts BTL activities and holds up demonstrations of cooking with its Spices and product offerings on different venues. All the marketing strategies are customer centric or customer oriented so that it can leverage on already well-developed consumer goodwill for the company. Shan due to its consumer centric marketing strategies and with market intelligence has started targeting teenagers as they are the future decision makers in households. Shan is aiming to educate and persuade the teenage population with innovative campaigns and with demonstrations to provide them complete information on not only Shan Foods but also regarding the superior quality that if offers to them. This is a very strategic move as when the time will be right, Shan usage will increase many folds because these teenagers will then already be loyal to the Shan product offerings.

Following gives a picture of what Shan Foods has achieved to date and some of its major targets for the future:

• Quality control since 1981,
• Quality assurance system since 2000,
• Food safety management system since of 2007,
• Total quality management target if 2010,
• Third party lab certification target of 2012,
• ISO 22000, the ISO version of HACCP (Hazard Analysis and Critical Control Point)

Instructor Note

Shan Foods through all this time has been known for its wide range of daily products it offers. Not only by that; is Shan Foods known for its quality. Shan Foods is considered as free from all sorts of mixings in spices, people through the time has praised its quality products. Mr. Sikandar (CEO and founder) has emphasized on quality from the day one. Shan Foods ought to replenish and acquire the best quality supplies available in the market, Because of the nature of the business Shan Foods have to acquire the best and delivers the same with fresh, aromatized, healthy and safe spice packets for daily households.

SWOT ANALYSIS SHAN FOODS

Strengths

• Shan food has a very strong heritage and legacy behind it which has given it a strong goodwill in households.
• Shan foods enjoys an approximately 50% market share in the recipes mixes category.
• Shan foods are a leading exporter of food items from Pakistan providing it an opportunity to tap the large global market which helps it to expand at a rapid pace.
• Shan has a wide range of products and SKU’s available consolidating its presence in various niches and keeping its customers loyal to the brand.

Weaknesses

• Shan is not present in Jams and marmalades, Ketchups categories like National foods thereby loosing an opportunity market. Many loyal Shan customers purchase National products in these categories which is causing loss of potential sales.
• Shan has a low market share outside Karachi in the Punjab market where National enjoys market leadership. This is due to weak distribution of Shan products in Punjab market which is causing loss of potential sales.

Opportunities

• Shan can vertically integrate to produce its own raw materials which will not only reduce costs but will also provide it more control over the quality of input.
• Shan currently has a very low advertising spend in the FMCG industry. It can deploy brand activations and other innovative campaigns to switch customers from the loose/ unbranded segment to Shan products.
• Shan can also horizontally expand its scope like national foods and enter the other related food categories where it can tap its loyal customers with minimal extra efforts.
• Instead Shan has entered in to global market, more than sixty countries but still there is huge portion for Shan to develop its market and capture the international market share.

Threats

• The biggest threat to Shan is the high inflation in Pakistan coupled by a global recession which is putting pressure on the profits and sales.
• The prevalence of counterfeit products is also threat to Shan causing loss in goodwill and potential sales.
• The emergence of newer brand with deep pockets can also damage Shan’s market share due to heavy advertisement while keeping the product quality close to that of Shan.
• As Shan is now playing in the Global Market so all the global competitors can be the biggest threat for Shan foods because they can better understand their culture and trends.

Companies & Competitors Market Share of Branded Spices

Company	Market Share 2006	2007	2008	2009	Growth
Shan	1.2	1.68	2.352	3.3	40%
National	1.2	1.5	2.5	3.2	40%
Chef’s	0.45	0.63	0.882	1.2348	15%
Others	0.15	0.21	0.294	0.4116	5%

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