Associated British Foods SWOT & PESTLE Analysis

Strength

1. Diversified Business Segments and markets: The Company is operating in five business segments across United Kingdom, Europe & Africa, The Americas, Asia Pacific. More than 60% of the profits and sales are from the regions apart from UK. For the Grocery segment Twinings and Ovaltine are the international hot beverage brands. In Europe Silver Spoon and Billington’s sugars, Kingsmill and Jordans and Dorset cereals are the prominent brands. Mazola in the US is the leader in corn oil and Capullo is selling premium canola oil in Mexico. In Australia KRC brands sells Ham, bacon and Tip Top Bakeries produces breads and baked goods. Revenue grew to £3,381m in 2017 from £3,097m in 2016.In the sugar segment factories in UK produce over 1MT of beet sugar annually whereas Azucarera in Spain has a capacity of 0.4MT annually. Illovo is the largest producer of sugar in Africa with production facilities in six countries. Revenue grew to £2,174m in 2017 from £1,636m in 2016. The segment’s operating profit increased to £223m in 2017 from £35m in 2016. Agri Business of British Foods operates at the agriculture industries heart and make use of its experience to add value to the supply chains of the food, drink and bio-fuel industry. Revenue grew to £1,203m in 2017 from £1,084m in 2016. It is the only business segment which registered a decrease in the operating profit from £58m in 2016 to £50m in 2017.Ingredients segment focuses on ingredients for food as well as non-food applications. The company manufactures enzymes, extracts, yeast, lipids and cereal specialties with facilities in Europe and the US. The Company operates in yeast and bakery ingredients production globally through AB Mauri and uses technology for dough conditioners and bakery mixes. Revenue grew to £1,493m in 2017 from £1,294m in 2016.

2. Growth of Primark in Retail Segment: Primark is a retail group of British Foods operating in the value fashion sector with over 315 stores in eleven countries. The company provides its customers high quality fashion at value prices, its tagline, “Amazing Fashion, Amazing Prices”. The company sources its fashion items internationally to reflect the season’s key fashion trends. Primark’s range includes women’s wear, menswear, lingerie, children’s wear, footwear, hosiery, accessories, and home ware. Primark is continuingly expanding its selling space and sales were particularly excellent over the summers leading to an increase in the market share. Due to the fall in sterling against the US dollar the manufacture and input cost increased but the cost to customers was not increased which provided best value in the high-end market. The merchandising and buying teams reduced the impact of the fall in sterling and therefore the profit margins reduced by less than expected. Through its store design, location, stock availability and on-trend fashion Primark constantly delivering values to its customers. It has added 1.5 million square feet of space across nine countries with a net addition of 30 new stores. Social media is being increasingly used to develop deeper relationship with its customer by providing awareness about the products. Total social media following is 10.7 million customers and Instagram reached a milestone of 5 million followers.

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Weakness

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Opportunity

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Threat

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Political

1. Impact of Brexit: In June 2016, people of UK voted to exit the EU which was an-European political and economic union with a single market. Since then it has been hailed as a first step towards improved economic growth by some and as a destructive step moving away from globalization by others. There is a lot of uncertainty around the future trade relationship between the UK and the EU. Since Associated British Foods has high dependence on trade it is vulnerable to a lot of uncertainty around Brexit. Due to a decrease in the value of Sterling against Euro the cost of input has increased substantially. The supply chain has been designed to work in no tariff borderless regime but the company may incur additional cost such as import/export duties, custom costs which may impact its profit margin depending on how the Brexit unfolds. The increased lead times due to the decrease in the speed and flexibility of supply chain may reduce responsiveness to the customers and may lead to additional inventory costs in supply chain. The company is re-examining its contracts with supplier to understand their post Brexit viability to minimize exposure to non-UK supplier. It is also trying to pass on selectively the cost inflation to the customer.

2. Introduction of Sugar Tax in UK: Government in UK has proposed imposition of the “sugar tax” to tackle the obesity crisis. Misconceptions surrounding the consumption of sugar have demonized it and people are now replacing it with products that contain more calories. The government motivation to bring out this law is around the thinking that reduction in sugar consumption would reduce obesity rates but solving obesity is not just about sugar it is also about the lifestyle, exercise and eating. AB sugar and Silver Spoon sugar processes the sugar cane and beet crop around the world and the introduction of the sugar tax could affect the revenues of the company as its major customers are the soft drink manufacturers. The sugar segment accounts for around 15% of the Associated British Foods overall sales.

Economic

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Social

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Technological

1. Use of Technology in day to day Operations: The Companies sugar business uses VR to train its employees for its safety programmes. The immersive training platform helps its 500 employees improve hazard awareness, increase their risk perception as well as help them make decisions related to safety. The company has also created a community website to help its employees share ideas and seek help from each other. It has 1,000 members in different operating functions developing innovations and solving problems. The Ingredient business is using ‘Authenticate” a web-based platform the helps to track all the supplier of ingredient to have a knowledge and assurance for all feed material required for manufacturing. It also helps the business to understand the source of their supply as it sources 2,200 types of ingredients from more than 550 suppliers from 35 countries around the world. ‘iSOYLscout’ is an app developed by the Agriculture business that helps make monitoring, recording and review of in-field problems much easier for farmers. It also helps to transfer the noted information quickly and easily through the cloud for monitoring and scrutiny later. It also helps farmers to share the information with their agronomist.

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Legal

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Environmental

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