Harvard Case - Almarai Company: Milk and Modernization in the Kingdom of Saudi Arabia
"Almarai Company: Milk and Modernization in the Kingdom of Saudi Arabia" Harvard business case study is written by Kristin E. Fabbe, Safwan Al-Amin, Esel Cekin, Natalie Kindred. It deals with the challenges in the field of Business & Government Relations. The case study is 31 page(s) long and it was first published on : Nov 21, 2018
At Fern Fort University, we recommend Almarai pursue a multi-pronged strategy focusing on innovation, international expansion, and sustainable growth. This strategy leverages Almarai's existing strengths in operations strategy, corporate social responsibility, and government relations while navigating the dynamic landscape of Saudi Arabia's economic development and globalization.
2. Background
The case study focuses on Almarai, a Saudi Arabian dairy company that has become a national icon. Founded in 1977, Almarai has grown from a small dairy farm to a vertically integrated food and beverage giant, dominating the Saudi market and expanding into the Gulf Cooperation Council (GCC) region. The company's success is attributed to its strong leadership, efficient operations, and strategic partnerships with the Saudi government.
The case study highlights the challenges Almarai faces in a rapidly changing environment. The Saudi government is pursuing ambitious economic diversification plans, aiming to reduce dependence on oil and attract foreign investment. This has led to a focus on infrastructure and urban development, technology and analytics, and innovation across industries.
Main Protagonists:
- Almarai: A Saudi Arabian dairy company with a strong market position and a commitment to domestic production.
- The Saudi Government: A key stakeholder in Almarai's success, providing support through government contracts, tax incentives, and infrastructure development.
- Foreign Investors: Attracted by the Saudi market's growth potential, foreign investors are seeking opportunities for foreign direct investment and joint ventures.
- Consumers: Saudi consumers are increasingly demanding higher quality, diverse, and sustainably produced food products.
3. Analysis of the Case Study
Strategic Framework: We employ Porter's Five Forces analysis to understand the competitive landscape and identify key opportunities and threats for Almarai:
- Threat of New Entrants: High barriers to entry due to government regulation, infrastructure requirements, and Almarai's strong brand presence.
- Bargaining Power of Suppliers: Moderate, as Almarai has established relationships with key suppliers and can leverage its scale to negotiate favorable terms.
- Bargaining Power of Buyers: Moderate, as consumers have limited choices in the Saudi market, but increasing demand for higher quality and diverse products could shift the balance.
- Threat of Substitute Products: Moderate, as consumers have access to imported dairy products, but Almarai's focus on local production and strong brand loyalty provides a competitive advantage.
- Rivalry Among Existing Competitors: Moderate, with several regional players competing in the Saudi market. However, Almarai's dominance and focus on innovation and sustainability provide a distinct edge.
Key Opportunities:
- Economic Diversification: The Saudi government's focus on economic growth and foreign investment presents opportunities for Almarai to expand its operations and enter new markets.
- Technological Advancement: Leveraging technology and analytics can improve efficiency, enhance product quality, and create new revenue streams.
- Sustainable Growth: Meeting the growing demand for environmentally sustainable products can attract environmentally conscious consumers and enhance Almarai's brand image.
Key Threats:
- Government Regulations: Changes in government policy and regulation could impact Almarai's operations and profitability.
- Economic Volatility: Global economic fluctuations and financial crises can impact consumer spending and demand for dairy products.
- Competition: Increased competition from foreign companies and local players could erode Almarai's market share.
4. Recommendations
- Innovation and Product Diversification: Almarai should invest in research and development to create new products and expand its product portfolio. This includes exploring innovative dairy products, plant-based alternatives, and value-added products targeting specific dietary needs.
- International Expansion: Leveraging its strong brand and operational expertise, Almarai should strategically expand into new markets within the GCC region and beyond. This could involve joint ventures, acquisitions, or establishing new production facilities in promising markets.
- Sustainable Growth Strategy: Almarai should prioritize sustainability across its operations, focusing on reducing its environmental footprint, improving resource efficiency, and promoting ethical sourcing practices. This can enhance its brand image, attract environmentally conscious consumers, and meet increasing regulatory requirements.
- Strategic Partnerships: Almarai should actively seek partnerships with government agencies, technology companies, and international organizations to facilitate innovation, access new markets, and enhance its sustainability initiatives.
- Government Relations: Maintaining strong relationships with the Saudi government is crucial. Almarai should actively engage in business and government relations to influence policy decisions, secure government contracts, and access support for its growth plans.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Mission: Almarai's core competencies in operations strategy, innovation, and brand management provide a strong foundation for growth. This strategy aligns with Almarai's mission of providing high-quality dairy products to consumers in the region.
- External Customers and Internal Clients: The recommendations address the evolving needs of Saudi consumers, who are increasingly demanding higher quality, diverse, and sustainable products. It also considers the needs of Almarai's employees and stakeholders.
- Competitors: The recommendations aim to differentiate Almarai from its competitors through innovation, sustainability, and international expansion, creating a competitive advantage.
- Attractiveness: The recommendations are expected to generate positive returns on investment through increased market share, new revenue streams, and enhanced brand value.
- Assumptions: The recommendations are based on the assumption that the Saudi government will continue to support economic diversification and attract foreign investment. It also assumes that Almarai can successfully navigate the challenges of international expansion and maintain its commitment to sustainability.
6. Conclusion
Almarai has a unique opportunity to capitalize on the growth potential of the Saudi market and the global demand for dairy products. By pursuing a strategy of innovation, international expansion, and sustainable growth, Almarai can solidify its position as a leading food and beverage company in the region and beyond. This strategy requires a commitment to continuous improvement, strategic partnerships, and a proactive approach to managing the challenges of a rapidly changing environment.
7. Discussion
Alternative Options:
- Focusing solely on the domestic market: This would limit Almarai's growth potential and expose it to greater risk from economic volatility and competition.
- Adopting a purely export-oriented strategy: This would require significant investment and could face challenges related to trade barriers and market access.
Risks and Key Assumptions:
- Government policy changes: Changes in government regulations could impact Almarai's operations and profitability.
- Economic instability: Global economic fluctuations and financial crises could impact consumer spending and demand for dairy products.
- Competition: Increased competition from foreign companies and local players could erode Almarai's market share.
Options Grid:
| Option | Advantages | Disadvantages | Risks |
|---|---|---|---|
| Innovation and Product Diversification | Increased market share, new revenue streams, enhanced brand value | Requires significant investment, potential for product failure | Competition, consumer acceptance |
| International Expansion | Access to new markets, diversification of revenue streams | Increased operational complexity, cultural differences, regulatory challenges | Political instability, economic volatility |
| Sustainable Growth Strategy | Enhanced brand image, attract environmentally conscious consumers, meet regulatory requirements | Increased costs, potential for reputational damage | Consumer skepticism, regulatory changes |
| Strategic Partnerships | Access to resources, expertise, and new markets | Potential for conflicts of interest, loss of control | Partner performance, strategic misalignment |
8. Next Steps
- Develop a comprehensive innovation strategy: Identify key areas of focus for product development and research, including plant-based alternatives, value-added products, and sustainable packaging.
- Conduct market research: Identify potential target markets for international expansion, assess market size, competition, and regulatory environment.
- Develop a sustainable growth plan: Establish clear goals and targets for reducing environmental impact, improving resource efficiency, and promoting ethical sourcing practices.
- Strengthen government relations: Engage in active dialogue with government agencies to understand policy changes and secure support for Almarai's growth plans.
- Establish a dedicated team for international expansion: Recruit and train personnel with experience in international business, cultural sensitivity, and regulatory compliance.
By taking these steps, Almarai can position itself for continued success in the dynamic and competitive market of the Middle East and beyond.
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Case Description
With SAR 14 billion ($3.7 billion) in 2017 revenues, Almarai was Saudi Arabia's largest dairy producer, distributor, and marketer, with a large portfolio of branded dairy products, juices, bakery goods, and infant formula and a sales presence across the Gulf region, Jordan, and Egypt. Almarai employed some 42,000 people across its operations, from its massive dairy farms to its processing plants to its vast sales and distribution operation that reached over 100,000 outlets. Notwithstanding its diverse portfolio, the core of Almarai's business was (1) sales of branded fresh/chilled dairy products, (2) in Saudi Arabia, (3) distributed through the traditional retail channel made up of thousands of small neighborhood shops called bakalas. In October 2018, all three of these focal points were under pressure. Under the economic-restructuring programs of Saudi Arabia's new crown prince, Mohammed bin Salman, new taxes and subsidy cuts were squeezing household budgets. Concurrently, changes to other government policies were causing expatriates-who made up about a third of Saudi Arabia's population and were a key consumer of Almarai's dairy products-to leave the country in droves. This case finds Almarai's management team, led by soon-to-retire CEO Georges Schorderet, debating how the company can defend and grow its position in Saudi Arabia while also finding new sources of future growth (e.g., bringing its production model to new markets with fragmented dairy sectors or entering new product categories such as fish or ice cream). The decision of how to move forward will be based on an assessment of Almarai's strengths, how they can be best used to drive future growth, and how relevant they will remain in a market that is changing so dramatically.
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