Part 1- Organizational Analysis: Ceylon Biscuits Ltd was founded in late nineteen sixties by under taking contract from Sri Lankan government and Care International (USA) to manufacture protein enriched biscuits for Sri Lankan school children as a mid day meal. While dealing in this contract manufacturing for the Care International, it was noticed by the company that excess production capacity was there. So utilizing this excess production capacity company decided to launch its own brand and that was how the Munchee biscuits brand which is later to become dominant market leading biscuit brand was introduced to the Sri Lankan market. Till late nineteen nineties Munchee was not the dominant biscuit brand in Sri Lanka. Till that time from the starting of the Ceylon Biscuits, the company was engaged in contract manufacturing for Huntley and Palmer of associated biscuits UK other than producing biscuits for Care International. From the beginning of new millennium, Munchee brand started aggressively invading the biscuits market of the Sri Lanka and now the company Ceylon Biscuits has become one of the largest privately owned group of companies of the Island. With the dawn of the new millennium, Ceylon Biscuits launched its diversification drive by setting up its wholly own subsidiary CBL Foods for chocolate, cake and jelly production and at the same time CBL took controlling share of Lanka Soy, Convenient Foods (Samaposha) and Cecil Foods 1
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Part 1- Organizational Analysis:Ceylon Biscuits Ltd was founded in late nineteen sixties by under taking contract from
Sri Lankan government and Care International (USA) to manufacture protein enriched
biscuits for Sri Lankan school children as a mid day meal. While dealing in this contract
manufacturing for the Care International, it was noticed by the company that excess
production capacity was there. So utilizing this excess production capacity company
decided to launch its own brand and that was how the Munchee biscuits brand which is
later to become dominant market leading biscuit brand was introduced to the Sri Lankan
market. Till late nineteen nineties Munchee was not the dominant biscuit brand in Sri
Lanka. Till that time from the starting of the Ceylon Biscuits, the company was engaged
in contract manufacturing for Huntley and Palmer of associated biscuits UK other than
producing biscuits for Care International.
From the beginning of new millennium, Munchee brand started aggressively
invading the biscuits market of the Sri Lanka and now the company Ceylon Biscuits has
become one of the largest privately owned group of companies of the Island. With the
dawn of the new millennium, Ceylon Biscuits launched its diversification drive by setting
up its wholly own subsidiary CBL Foods for chocolate, cake and jelly production and at
the same time CBL took controlling share of Lanka Soy, Convenient Foods (Samaposha)
and Cecil Foods so that the company has now in a position to offer diverse of products to
the food market of the Sri Lanka.
Vision of the Ceylon Biscuits Ltd is to become leader in confectionary in South
Asia with a global presence and recognition. As a privately owned group of companies,
CBL group has no clearly explicit mission. Instead what the company CBL does is
adapting set of marketing objectives, like increasing market share of a certain brand by
some percentage for achieving each year.
Today CBL group’s core business is food manufacturing and initially it was
limited to biscuits manufacturing. Then the company moved to manufacturing of
chocolates under the brand name of Ritzbury, and also manufacturing of cakes under the
brand name of Tiara and also wafer biscuits manufacturing under the same brand
Munchee and recently company ventured into production of instant jelly under the brand
name of Go Jelly. During the same period the company has taken controlling share of
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Lanka Soy, Samaposha and Cecil so now CBL is competing in fruit drinks market, Soy
product market and serials and snacks markets of the country.
In term of market share the flagship brand Munchee is holding over 60% market
share in the biscuit market of the country and cake brand Tiara is holding around 80%
market share by almost whipping out other competitors in the market. At the same time
other dominant brand Ritzbury is having 50% market share in the chocolate slab market
and over 70% market share in chocolate coated product market. So it can be concluded
that in areas of biscuits, cake and chocolate markets, CBL has been market leader in the
Sri Lankan market for past few years and most likely the company would be able to
maintain its dominance in the market.
Fig: 1 Munchee Biscuits market share in the market. (Source: AC Nielson retail audit)
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Fig: 2 Chocolate Slab market share of Ritzbury for year 2010 (Source: AC Neilson retail
audit)
When it comes to explain resources availability of CBL group, over 2000 work force is
employed by the group in their, Pannipitiya, Ranala, Minuwangoda, Ratmalana and
Kandy factories. Land area of Pannipitiya plant was fully filled with plant buildings and
no further building expansion is possible there. In Ranala plant, which is nearly a 13 acre
facility, only small land area is available for future expansion. In term of land area
availability, situation of premises such as Kandy, Minuwangoda and Ratmalana are also
more or less same as above. Therefore the group has invested in Seethawaka Industrial
Park and where group is going to set up their new production facility solely for exports.
As company vision says, CBL is targeting vast market opportunities in the sub
continental Indian region, the group has already bought land in Bangladesh for its first
overseas manufacturing facility.
So far the group has been operating as a privet limited company which is now
almost 12billon Rupees Company, is in the process of considering to become a public
limited company as company has grown too big already and also huge investments are in
demand in order to make sizable presence in the Indian/Bangladesh markets.
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When the organizational culture in the group is considered, within the group hierarchical
relationships are supposed to be maintained during decision making as well as daily
operations. There is presence of trade union (Inter Company trade union) in CBL
Pannipitiya of which employees are enjoying high bargaining power than other factories
of the group where there is no unionized environment available.
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Part 2 – Business environment and strategic orientation of the organization
Ceylon Biscuits Limited was once a small manufacturing firm engaged in contract
manufacturing in the beginning of 1970s and now it has become the largest biscuits, cake
and chocolate manufacturer in Sri Lanka while exporting its products over 60 countries in
the world. Throughout the journey of CBL from a small biscuits manufacturer to a
diversified leading business group in the country, one of major remarkable major strength
can be observed. That is strong corporate leadership of the chairman and the director
board. Under the farsighted corporate leadership of the company, the company has
aggressively expanded its operation, has achieved dominant market shares in its all major
product categories and also has invested heavily in new plants, factories, technologies in
order to sustain and improve current level of aggressive market performance of the
company.
During the recent history CBL, the group has won several awards giving
testimony to excellence performance of the company. Some of which can be mentioned
as follows.
Food Award of Excellence in Confectionary
Product Brand of the Year for four consecutive years
Brand of the Year for two consecutive years (Awarded by Sri Lanka Institute of
Marketing)
Winner of Gold for Innovative Brand of the Year (Awarded by Sri Lanka Institute
of Marketing)
Innovative Brand of the Year (Awarded by Sri Lanka Institute of Marketing)
Winner of Gold for Industrial Excellence in the Extra Large category at the
Annual National Chamber of Industries Achievers (CNCI) Awards
Gold Award in the Extra Large Category Exporter – Agriculture Value Added
Products (Awarded by National Chamber of Exporters)
National Award for Export Excellence (Awarded by Ministry of Trade and
Commerce)
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With those awards together with excellent marketing efforts of the company, Munchee
the flagship brand of the CBL group has become the strongest food brand currently in Sri
Lanka. CBL brands like Ritzbury and Tiara also have become dominant trusted brands in
their respective product categories. Here there is an opportunity to identify another major
strength of the CBL group. That is strong brand images of CBL products. The group
name CBL itself is becoming a trusted brand for quality in the Sri Lankan market
providing definite strength for the group to achieve its ‘crowning success’.
Well established sales and distribution network of CBL also can be considered as
strength of the company. CBL distributes its products through 60 agencies and 400
dealers located island wide and products are available in over 80000 sales outlets island
wide. Furthermore company has close ties with international distributors in India and
Singapore so that company is in a position to export its products to 60 countries. During
recent past CBL group has been able to widen market share of its product portfolio year
after year and efficient and well organized sales and distribution network of the group can
be observed as a major contributor of recent success of the company.
For some of products like Samaposha, Nutriline Rice Pops, Nutriline Serial Bars,
Cecil Fruit Drinks, company purchased raw materials such as grams, green grams, crown,
rice, peanuts etc locally. In order to source these agricultural raw materials in required
quality and quantity, company has set up farmers’ network in Ampara and Wellawaya
area. The company has appointed an agro technologist to coordinate closely with these
farmers’ networks and provide necessary technology and guidance from selecting seeds
and preparing of farming lands to collecting and storing harvests in a way that both
company as well as farmers is benefited, so that quality and price standards of raw
materials are maintained. This farmer network also can be considered as strength of the
CBL group.
In early days of the company, most of production machineries were reconditioned
machineries imported from the Europe. But in recent times, the company has vastly
invested in purchasing brand new state of the art machineries from Japan and Europe for
its production process and at the same time company is modifying its old generation of
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machineries in order to make them more efficient in terms of energy consumption and
production. This modernization of machinery and equipments and technological
innovation are also can be observed as strengths of the CBL group.
The company has established well organized product and process quality
management system for which company has received ISO 9001 certification. And further
CBL Pannipitiya factory has met ISO 14000 environmental quality standards and also
CBL Ranala factory is also working towards obtaining ISO 14000 environmental quality
management system. Cecil, Samaposha and Lanka Soy factories are also having ISO
9001 certified quality management systems and also their products come with SLS
certification. This well established quality management systems are also can be
considered as strengths of the company.
CBL group is highly engaged in research and development activities related to
biscuits and chocolate manufacturing. CBL is in a process of offering local low cost and
same quality equivalents of international market products coming under brand names
such as Cadbury and Nestle etc. Some of international products formulas are protected
under patents and high royalties are to be made for getting them for local use. So CBL is
investing in R&D related to developing those product formulas locally and these R&D
activities can be mentioned as strengths of the company.
As a summary, following things can be observed as strengths of CBL group.
• Strong corporate leadership
• Well established sales and distribution network
• Strong brand images and “excellent sales force”
• Well organized farmers networks
• Technological innovations
• Well established quality/environmental management systems
• R&D capabilities
• Setting up of a management information system
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Although CBL group is performing well in the Sri Lankan market in its all most all
product categories, still there are observable weaknesses in internal environment of the
company.
In chocolate coated product market, although the company has become the market
leader with over 70% market share, production capacity is insufficient to meet forecasted
demand for products in the market. In recent times, attempts for increasing chocolate
coated product production are being made with new investments for machineries and still
there are available sales losses due to this insufficient production capacity. This can be
seen as a weakness of the group in relation to the chocolate production.
Due to a court order of Indian trade court, two biscuits plants were operating in
CBL Ranala factory, have to be sent back to India and now dismantling of plants are
being done. Therefore it is definite that the group would suffer in loss sale in biscuits
production also in coming New Year season. So it is another weakness of the company.
Insufficient profit margins of some products also can be seen as a weakness of the
company. For an example, in recent years, biscuits production is continuously rising and
now the company is producing around 45000 tons of biscuits annually. Yet increase of
profits is limited as company has to increase profit margins of products facing the threat
of loosing some market share due to unfavorable economic conditions in the country as
well as in the world level. Furthermore the company is depending on single wheat flour
supplier and this can be considered as a weakness of the company.
Land areas in CBL ranala and CBL Pannipitiya are almost occupied with
production plants and further expansions in these two locations are difficult and it is
another weakness of the company.
Attention for efficient energy consumption and cost saving is low as in the present
context the company is continuously operating profitably. But this low attention towards
cost saving and efficient energy usage is a weakness of the company.
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As a summary following weaknesses can be mentioned.
• Dependence on single suppliers for critical raw material (eg: wheat flour)
• Insufficient production capacity of some product ranges.
• Dismantling and sending back two biscuits plants to India.
• Low profit margins of some products.
• Limited land availability in Ranala and Pannipitiya plants
• Unavailability of cost saving approaches
• Unavailability of energy saving approaches.
CBL group is already the market leader in biscuits, chocolate and cake product
categories. With the end of terrorism in north and east of the island, new market is
opening up for the company. So there is an opportunity to widen dealer network of the
company to north and east of the country and make use of market opportunities for
further production expansion. Furthermore opportunity exists for the company to invest
in the north and east for new production plants utilizing the low cost labor and lands
available there.
Indo Lanka free trade agreement also can be considered as an opportunity for the
CBL group. As the company vision says what CBL long term plan is to become the
largest confectionary manufacturer in the South Asian region. So getting maximum use
of vast Indian confectionary market is a must for achieving long term company
objectives. In current context CBL is not in position to compete with Indian
manufacturers in low price category. Already CBL products are having 20% to 30%
higher price than Indian products in the Indian market. Yet in terms of product quality
CBL products are much better than competitive Indian products. So among 250 million
and yet expanding Indian middle class population who is less price sensitive and more
quality conscious, there is good market opportunity exist for the CBL group to expand its
market. In order to get the maximum use of this sub continental market, exporting
products from the Sri Lankan plants through Indian dealers as what CBL currently does,
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would not be sufficient to have a competitive edge in long terms. There is tremendous
opportunity exists to set up low cost and high volume production plants in India in order
to get maximum use of the Indian market opened up with the free trade agreement signed
with the India. In recent past prior to the FTA signing, Munchee tried to start its first
overseas manufacturing plant by acquisitioning an Indian biscuits manufacturing
company and attempt was failed due to unfavorable Indian regulations regarding FDI in
India at that time. Now with the FTA these regulatory hassles are relaxed so the
opportunity can be utilized.
When CBL Natural Foods (Cecil) is considered, it is a company mainly engaged
in production of bottled fruit drinks mainly for the Sri Lankan market. Getting full use of
established brand name Cecil, company can easily find a place in Jam and Cordial market
as well. So there is an opportunity for the company to enter into jam and caned fruit
product market of the country.
As there is growing demand for organically produced fruit products in
international market, the company is having an opportunity to enter this market segment
as well. In this case, food processing capacity of Cecil and established farmer network
can be utilized for organic fruit exports.
As a summary, following can be seen as opportunities existing for the company.
• Opening of north and east market after the war
• Free Trade Agreement with India.
• Relaxing of Indian regulation related to direct foreign investments.
• Growth in Sri Lankan economy
• Unexplored market opportunities in Jam and cordial markets in the country.
• Growing demand for organic fruit products in international market.
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When it comes to consider threats facing the CBL group, major threat is coming with
Indian free trade agreement. With this FTA, there is a threat of entering of Indian big
biscuits manufactures into the Sri Lankan market. Actually this threat is substantial as Sri
Lankan per capita biscuits consumption is as high as 2.5kg, one of the highest in Asian
region. One recent attempt was made by strong Indian biscuits brand Britania and was
failed.
For some product categories like wafer biscuits, chocolate slabs, company has
engaged in a price competition with competitors in the Sri Lankan market. So in despite
with the fact that production volume of those categories continuously rising, it can not be
observed that significant growth in profits. Therefore this price competition can be
observed as another threat.
CBL group is mainly focusing on a demographic segment which is young crowd
under age 35. CBL marketing and advertising is paying their major attention in this
particular segment. So there is a possibility for another company to come to market as a
new entrant focusing on another market segment where CBL is not paying much
attention currently. So it is another threat existing in current context.
Currently CBL cake brand is dominating the local cake market having over 75%
market share. This share has been achieved due to superior hygienic condition, 6 month
long product expiry date and importantly efficient sales and distribution which make sure
availability of the product everywhere in the country. But the taste of the product made
according to an Italian formula is not matching with the local customer taste. As there is
no other equivalent alternative the CBL cake is dominating the market. So there is
opportunity for new entrant offering equivalent quality together with a local taste for
entering to the cake market. So it is another threat appearing in the path of CBL.
Furthermore with appearing boom of Sri Lankan economy, global companies like
Nestle who is already in Sri Lanka although not engaging in chocolate production and
marketing in the island, may try to make an entry into chocolate market where Nestle is a
global player. It would be a threat for CBL’s chocolate barnd – Ritzbury.
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As a summary CBL is facing following threats.
• Free Trade Agreement with India. (possibility of Indian big players entering to the
local market)
• Price competition for some product categories in the local market.
• Space for new entrants to invade market focusing particular market segments.
• Taste of Tiara cake is not going well with the local taste.
• Big global players like Nestle currently in the country may venture into chocolate
market.
Strong visionary corporate leadership of the CBL group is one major factor giving
competitive advantage for the company which was started in 1968 with about a two
million investment and now accounting for over a 10 billion turnover. Selection of
strategies, making investment wisely and building up of the efficient sales and
distribution network, island wide by the corporate management are definite causes for
achieving competitive advantage by the company.
Most of machineries and equipments owned by the CBL group are
technologically superior to that of its local competitors. With the dawn of new
millennium CBL started its drive towards, technological upgrade of its plant and
machineries and in the context of Sri Lanka, now the company is having more efficient
and modern machineries than its rivals reducing its production costs thus giving
important competitive advantage for the CBL to enjoy over industry average profit
margins.
Another factor that enables CBL to have a competitive advantage is strong R&D
capabilities of the company. R&D laboratories have been set up as one lab for each
subsidiary and in those labs, extensive researches are being conducted to develop and
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improve various food products. Specially developing formulas locally, for products
available in international market are done in CBL laboratories.
Strong marketing team referring internally as ‘excellent force’, which has been
able to build the strongest brand name in Sri Lanka for four consecutive years, is another
strength that gives competitive advantage for the company. And also the strong brand
names they built are strengths giving the company a competitive advantage.
Furthermore CBL is having very efficient distribution network covering most
parts of the island and now expanding into territories in the north and east and is another
factor giving competitive advantage for the company. Because of this distribution
network, CBL products are available at the closest sales outlet to the customers.
When it is summarized following factors are leading the company to have competitive
advantages
• Strong brand images in the market and superior marketing capabilities
• Strong corporate leadership
• Technological superiority
• Strong R&D team
• .Island wide distribution system.
CBL is currently producing 45000tons of biscuits annually and daily production of cake
is over 10tons and daily production of chocolate is around 10tons as well. Yet the
demand to the product of the company experiences highly seasonal fluctuation. So there
are times where the company is unable to supply the demand. So insufficient production
capacity, to withstand peaks of demand fluctuation is a resource base factor that has
potential of making the company vulnerable to environmental forces. Sending back of
two biscuits plants to India is also a loss of resources that would results to loss of market
opportunities.
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Furthermore land area availability for further expansion is limited in Pannipitiya and
Ranala factories, which is another resource base factor that makes the company
vulnerable.
Currently the company is making huge capital investments for new plants and
buildings targeting further expansions of the production. Recently it was started setting
up a new factory at Seethwaka industrial park, land was bought for setting up Bangladesh
factory and another plant building is under construction in Ranala factory. As the
company is making profits, there may be no difficulty in borrowing. But recently the
company experienced cash for problems in first time in the new millennium. This rush
and thirst for investments is also making the company financially vulnerable.
Organizational structure of the group is pyramidal and the relationships within the
organization are hierarchical. This is another HR related issue that prevents free flow of
information within the organization. Especially in industries like food manufacturing,
tacit knowledge of floor level employees is vital and this organizational structure doesn’t
permit ways for tapping the tacit knowledge related to production processes.
PESTEL ANALYSIS:
POLITICAL:
With the ending of the war in north and east territories, new market opportunities are
arising in the north and east. So there can be optimistic about future possible growth due
to this expansion of market opportunities. Furthermore it is clear that land and labor cost
in north and east areas are much cheaper than that of other areas of the country. So there
is an opportunity for moving production facilities into these areas for a low cost
production in the future.
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ECONOMIC:
For the last five years Sri Lankan economy is in a growth trend and over 6% annual
economic growth was recorded. For the current year (2011) 8% economic growth is
forecasted. It is expected that with the ending of the war in the country growth would be
accelerated. This growth in national economy is highly favorable for food manufacturing
industry and biscuit market alone would be expected to expand by 10% annually for
coming years. Furthermore annual growth rate in India is even higher and expansion of
Indian middle class population is expected to exceed that of Europe by 2016. So with the
free trade agreement with the India, CBL is having tremendous growth opportunities
locally as well as regionally.
SOCIAL:
With dedication for excellent quality control and food hygiene CBL has established in the
market as trusted brand for quality. CBL products coming under brand names such as
Munchee, Ritzbury and Tiara are widely accepted in the market and also are recognized
as brands of the year for few consecutive years. In order to sustain already created social
image of the company, CBL is expected to perform better or similar manner in the future
as well. In the local society also there is a growing concern over natural or organically
processed food products. Therefore in the future, this social tendency should be
considered.
Currently target market of the CBL is young crowd in the market. Advertising and
marketing efforts are concentrated in order to target this demographic segment. Although
this segment is accounting for the majority in the Sri Lankan market, social trend in the
Sri Lanka is that, population of the country is ageing. Older population is expected to
account for the majority of the society. So company should be conscious to address
requirement of this emerging market segment as well.
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TECHNOLOGICAL:
CBL is in a process of upgrading the level of technology of its production machineries.
Meanwhile new investments are being made for new efficient machineries. Currently
CBL is enjoying technological superiority over its fellow competitors in the local market.
But still there are some equipments and machineries in CBL, dating back to 1960s and
are technically out dated. So in order to supply future demands of growing market,
further technological upgrade is desirable for the company.
Now company has set up an ERP system in Ranala factory and its operation being
monitored. Further it is expected to extend this network to other CBL factories and
connect local and international suppliers to the company through the same network. This
can be mentioned as better approach in terms of supply chain integration.
ENVIORONMENTAL:
Food manufacturing business is not an environmentally hazardous industry. Yet as CBL
factories are located in highly residential areas such as Pannipitiya, Ratmalana, Ranala
and Minuwangoda in Colombo district, high attention to be paid for factors such as sound