Kerry Group Case Analysis

The Kerry Group began over thirty years ago in the south west region of Ireland. Beginning as a dairy and ingredients plant the company has now flourished into a global leader in the food ingredients and flavor products area. Kerry Group is headquartered in Tralee, Ireland and through its manufacturing, sales, and technical centers around the world, employs over 20,000 people. The company supplies over 10,000 food, food ingredients and other flavor products to customers in over 140 countries.

Kerry Group also has manufacturing and sales facilities in over 20 countries. When Ireland joined the EEC or European Economic Community in 1973 many small dairies began to merge in order to compete with the larger dairy producing companies. Kerry also participated in the mergers with help from the milk suppliers of the County. Kerry acquired the State owned milk processing company along with its creameries. The Group also held a 42.5% stake in the NKMP Company for a total of 1.5 million Euros.

At the same time, six of the eight independent Co-ops, which owned the other 42.5% stake, were acquired and became a new subsidiary of the Kerry Co-operative Creameries Ltd, which began trading in 1974. Kerry began as the smallest of six agricultural co-ops, a position that was soon to change.

As Kerry began growing they developed some key values in the SWOT (strengths, weaknesses, opportunities, and threats) analysis that are the backbone for the success of the Kerry Group. The major strength of the Kerry Group is procurement. Procurement allows Kerry to use available global resources in specialty ingredients, seasonings, coating systems, sweet ingredients, nutritional systems, and specialty proteins; by doing this they are able to acquire the highest-quality raw materials.

Another strength of Kerry is technological development. Through technological development Kerry is able to develop flavors and gain an advantage over the competition. Kerry gains this technological advantage through research and development and acquisitions. The weaknesses of Kerry Group include the firm infrastructure. The Group's debt-to-equity ratio is inordinately high for a company of Kerry's size. Another weakness is in Kerry's Human Resource Management division. Management encourages the employees to think "Kerry" or in sense be "Kerryized," if employees do not follow this style of thinking they are let go. This type of HRM does not promote a high sense of creativity.

The opportunities of the Kerry Group include rivalry and suppliers. Rivalry is low for the company. Kerry does not compete with one particular firm head-to-head across their entire product line. Also, Kerry owns most of their suppliers which allows the company to control cost and production; this in turn creates a huge opportunity for Kerry. And finally there are the threats for Kerry Group, which also include rivalry, as well as new entrants and substitution. We believed that rivalry was also a threat for the Kerry Group because many of Kerry's competitors are actual buyers. Reverse integration could occur, which means that buyers begin making the product themselves. Another threat for Kerry Group is new entrants.

The barriers to enter this kind of industry are very low. And the final threat for Kerry Group is substitution. Unfortunately, there are many alternatives to the products that Kerry offers. Kerry has to keep evaluating there SWOT analysis in order to stay abreast of the situation and remain a competitive force. Over the years Kerry Group began expanding its business, not only in the dairy industry but into the food ingredients and flavor areas. In order for the business to grow successfully the company had to implement a strategy. So, in the early 1980's the company began a five-year corporate plan.

The company decided they wanted to be a leader in the food business. In order for this to be a success a management structure was put into place along with a top-rate research and development sector. Kerry's strategy was simple. The company developed and equation for growth which was, strategy x capability x capital=sustained profitable growth.

The organization believed then and still today that if one of the elements of the equation is missing that the end result will be zero profit growth. With the strategy the company developed in the early 1980's the company began acquiring new businesses and entering new global markets. With these new business ventures came success and the company decided to go public in 1986. With this move the Kerry Group acquired a first mover advantage by becoming the first co-operative corporation to become a publicly limited company. Kerry Group plc is listed on the Dublin and London stock exchanges.

The company has a current market capitalization of over 3.4 billion euros. As stated, in the early 1980's Kerry Group began acquiring new businesses. By acquiring new businesses this allowed Kerry to diversify and reduce risk. In 1987-88 the Group acquired the first overseas firm, Beatreme Food Ingredients, a division of Beatrice Corporation located in Jackson, Wisconsin.

This began the move to Kerry's first food ingredients manufacturing plant. The Kerry Group initially developed its European food ingredients business in the dairy, confectionary, and convenience food center from the Listowel plant in Ireland and the Wadersloh plant in Germany. With the acquisitions of Eastleigh Flavors and Tingles Ltd. in 1993, the Kerry Group became a leading supplier to the greater Europe snack food and food processing industries.

In 1994, Kerry Group acquired DCA, a company that specialized in the manufacturing of food ingredients for the baking, food processing, and food services industry. Because DCA had operations in five countries it made Kerry Group a world leader in the food ingredients business.

Even though Kerry Group continues to acquire many new businesses and spread into new markets, the company may have a problem because they finance their new business ventures mostly by using debt. Initially the company began acquiring dairy companies, but eventually because of the government sponsored disease control program Kerry had to look for acquisitions out side of the milk products business.

The company reduced their reliance on dairy products by diversifying into more "value-added" activities; such as meat processing plants and food ingredient plants. Acquisitions from the period of 1988-98 cost the Kerry Group over 800 million Irish pounds with the vast majority being funded through debt, roughly 660 million Irish pounds.

As reviewed in the SWOT analysis the debt to equity ratio at the end of 1998 was over 500%, a huge amount of debt for a company of Kerry's size. Why does Kerry Group finance many acquisitions through debt? The reason is that the rules of the PLC (publicly limited company) state the Kerry Co-op had to maintain a minimum of 51% controlling interest in the PLC. Kerry Group could have acquired many companies through the use of equity, but because of the 51% rule Kerry had to finance their acquisitions through debt.

With all of the acquisitions occurring, Kerry had to make sure they had a corporate strategy that was leading the company in the right direction. A corporate level strategy is defined as specific actions the firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in several industries and product markets.

The Group developed a strategy to diversify and grow the company focusing on differentiated or "value-added" food ingredients and consumer food products. Through related-linked diversification Kerry Group continues to emphasize growth by acquisition. Many would wonder if Kerry Group's corporate strategy works internally. We believe that it does. There are two main divisions of the firm, food ingredients and consumer food products, both of which are extremely closely related. If the firm implements its strategies successfully the different divisions will be able to produce economies of scope that are complementary to one another.

We believe that the business level strategy of Kerry Group is focused differentiation. The reason is because Kerry is focused on quality and constantly tries to come up with new technology to enhance the flavors of food products. Through acquisitions they are acquiring new technologies which lead to rapid innovations. This in turn leads to a sustainable competitive advantage in technology. The Kerry Group has also managed to develop some non-equity strategic alliances with many of its retail partners in selected markets. In addition to these factors the Group is committed to being a leader in its selected markets through creativity and superior customer service.

The Group is continuing to focus many efforts to expand its presence in global food and ingredients markets and its consumer foods businesses in Europe and abroad. The Kerry Group has recently put into action plans to purchase a specialty foods company in China that is expected to reach an additional 1.3 billion new customers. This venture will be a huge step for Kerry Group because it will be completely localized (a multi-domestic strategy), in that all business operations are expected to be turned over to the new facilities in China by the end of 2006.

Today, Kerry has emerged into a leader in the food processing and ingredients business, reaching its goal set in the early 1980's. The group has five basic areas of business; which include Kerry Ingredients, Kerry Bio-Science, Kerry Foods, Kerry Agribusiness, and Mastertaste. If Kerry group continues to build from their corporate and business level strategies and continues to evaluate their SWOT analysis they will stay ahead of the competition and continue to remain a leader in the food ingredients and processing sector.