Dakota Growers Pasta A Case Study In Strategic Management

Industry and competitive analysis aims at developing insightful answers to seven questions: 1 . What are the industry's dominant economic features? . What Is competition like and how strong Is each of the competitive forces? 3. What is causing the industry's competitive structure and business environment to change? 4. Which companies are in the strongest/weakest positions? 6. What are the key factors for competitive success? 7.

Is the industry attractive and what are the prospects for above-average profitability? The Pasta industry's dominant economic features are market size and growth, the number and relative size of both buyers and sellers, whether sellers are vertically integrated, the extent of scale economies, changing technology, and whether the reduces of rival sellers are standardized or differentiated.

There were 13 major companies that milled durum wheat in the United States.

The use of lower cost technology had eased the way for new entrants into the pasta industry and had brought product innovation. The industry's revenues were valued at $2. 6 billion. There were four principal dry pasta market segments: ingredient (43 percent), private- and brand-label retail (37 percent of the market), food service (10 percent), and government bids (10 percent).

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Within each segment, there were both private- label and brand-label products.

Competitive forces help pasta producers identify and measure the strength of competitive pressures that exist, and gain understanding of the industry's whole competitive structure. Competitive forces shaping the industry are strong rivalry among producers, low barriers of entry, both suppliers and buyers have the power to influence the terms and conditions of sale, and consumers can easily switch to substitute products.

Factors that ultimately determine success are the degree of capacity utilization, product distribution capabilities, service capability, ability to provide consistent laity to customer specifications, and access to durum wheat. Key elements of Asp's strategy include implementing good marketing and market analysis, expanding production capacity and running at full capacity, providing good customer service, maintaining a strong financial condition, hiring skilled workers, and holding on to the competitive advantage.

CONTENTS Introduction 1 Responses to questions 2 References 13 Appendix A 15 Appendix B 19 Completed case tutor Appendix C 20 Individual reflections Peer Evaluation 22 Introduction This case report examines the Dakota Growers Pasta present strategy, its resource threatens, weaknesses, external opportunities, threats, competitive position, and strategic issues the company faces. According to Thompson and Strickland (2003), "Good company situation analysis, like good industry and competitive analysis, is a crucial prerequisite to good strategy-making. Our management team will evaluate this case and thoroughly understand the company's resources and competencies, to craft a better strategy that fits the company's situation and have a better approach to strategic issues. The company's competitive analysis will help us assess the strategic and financial merits of an acquisition. The basis for our analysis was derived from the following key points: What are the industry's dominant economic features? What is competition like and how strong is each of the five competitive forces?

What is causing the industry's competitive structure and business environment to Which companies are in the strongest/weakest positions? What strategic moves are rivals likely to make next? What are the key factors for competitive success? Is the industry attractive and what are its prospects for above-average profitability? "Good industry and competitive analysis is a prerequisite to good strategy making" (Thompson & Strickland, 2003, p. 12). Responses to each question were prepared after research with following references.

Scholarly Journal articles Articles from the internet In addition to this introduction, this case report includes: An executive summary Responses to the case questions Three appendices with partial copies of articles, completed case tutor, and individual reflections 1). What are the defining economic characteristics of the durum wheat milling and pasta production industry? What are the industry's standout features? An Industry's defining economic characteristics are based on following factors: Market size and growth rate

Geographic scope of competitive rivalry The number and relative sizes of both buyers and sellers Ease of entry and exit Whether sellers are vertically integrated How fast basic technology changes The extent of scale economies Experience curve effects Whether the products of rival sellers are standardized or differentiated Overall profitability According to Thompson and Strickland (2003), "The industry's economic characteristics are important because of the implications they have for crafting approaches a company can pursue" (p. 7). U. S. Pasta consumption has been on the rise at about a pound per year, reaching a axiom of 14 pounds per capita in 1994, and then decreasing slightly. The total U. S. Market for pasta was about five billion pounds in 1998. The market segments for pasta are: ingredient (43%), private- and brand-label retail (37% of the market), food service (10%), and government bids (10%). Within each segment, there were both private-label and brand-label products. There were 13 major companies that milled durum wheat in the United States.

The scope of competitive rivalry is primarily regional. Durum milling plants had traditionally been located near durum wheat reduction or in regions with favorable rail transportation access to North Dakota. Capacity was concentrated in Minnesota, North Dakota, and Midwestern states such as Missouri that were on a direct line to eastern North Dakota. Firms competed in this industry through five principal methods: 1 . Degree of capacity utilization (achieve lowest average cost production) 2. Product distribution capabilities 3.

Service capability 4. Ability to provide consistent quality to customer specifications 5. Access to durum wheat The durum wheat milling industry is at an early maturity position in the business life, which still gives it more room to grow. Imports represented about 10 percent of sales in 1998. Total domestic capacity was estimated at 3. 8 billion pounds per year. With the projected expansion, it was expected that the durum milling capacity would be greater 2 than pasta demand. The pasta products of rival producers are highly differentiated.

What differentiates a pasta producer is access to durum wheat, rail transportation, service capability, ability to meet customer specifications, and full utilization of capacity. In this industry the optimal goal is to achieve the lowest average cost production. 2). How is value added in the durum wheat milling and pasta industry? A value chain identifies "the separate activities, functions, and business processes that are performed in designing, producing, marketing, delivering, and supporting a place during the production process add value to the chain.

Durum Product- Here producers supply the durum wheat. Dakota Growers Pasta is a cooperative. The producers are the owners adding value to the value chain because they don have to buy the durum product. Semolina Product- Durum wheat is milled into semolina flour. Value is added in this stage by further processing of the flour. Other products created include: Granular First clear flour Second clear flour Semolina/durum flour blends Mill Pasta Production- Dakota Growers Pasta has its own vertically integrated pasta production process.

It consists of a grain elevator, a mill, four pasta production lines, and a warehouse to store finished goods. This helps add value to the value chain because of the costs savings it brings. Distribution- Dakota Growers Pasta distributes to the private-label and ingredient market segments and also distributes its own branded pasta. It also distributes to the food service industry. Retail Sales- The bulk of Dakota Growers Pasta's sales are the retail private-label and ingredient market segments.

In 1997, approximately 50% of its business was retail, 25% was in food-service, and 25% was in ingredient market segments. 3 What does the industry's value chain look like? 3). How strong is competition in the industry? As Thompson and Strickland (2003) reported, "The state of competition in an industry is composite of five competitive forces:" (p. 80) Rivalry among producers of pasta Firms in other industries offering substitute products Bargaining power of suppliers Potential of new entrants

The competition is relatively strong in the pasta industry due to the following reasons: Competition in making high quality pasta in a wide range of shapes and flavors Competition for supermarket shelf space among branded pasta Competition in price, quality, and brand name reputation and appeal Competition in pasta flavor, attractiveness and appeal of packaging, production efficiency, and the use of Italian-sounding names Pasta buyers have many choices and they have low switching costs Demand for pasta is increasing Industry profits are quite attractive What competitive forces make the industry attractive?

Unattractive? The competitive structure of the industry is attractive from a profit-making standpoint when: There are no good substitutes Both suppliers and buyers are in weak bargaining positions Entry barriers are high Rivalry among producers is moderate Producers have a strong market position and strategy 4 The competitive structure of the industry is unattractive from a profit-making Low barriers of entry bring more competitors into the industry Both suppliers and buyers have the power to influence the term and conditions of sale in their favor Pasta buyers can switch to substitute products easily

What is the overall effect of the industry's five competitive forces? "The five competitive forces is a powerful tool for giving the strategy makers the competitive insights they need to build successful enterprise--ideally one that enjoys a sustainable competitive advantage" (Thompson & Strickland, 2003, p. 93). These competitive forces help producers of pasta identify and measure the strength of the competitive pressures that exist, and gain understanding of the industry's whole competitive structure. 4). What are the industry's key success factors? What factors ultimately determine the success of rival milling and pasta firms?

The industry's key success factors are: Changing lifestyles Increased attention to healthy eating Increased availability of pasta sauces Increased number of Italian restaurants When the number of households with two working parents increased, this led to changes in where and how meals were prepared and eaten. According to Thompson and Strickland (2003), "Meals that were healthful, easy, and relatively quick to prepare had become commonplace, and pasta fit that description" (p. C-118). The quality and variety of choices available also improved with plenty of ready-made sauces to compliment the pasta.

The growth in the food-service sector of the pasta industry was fueled by the increase of Italian-style restaurants. Consumers were eating out more often and Italian food had become mainstream. Another key success factor was breaking up the dry pasta market into four principal segments of ingredient, private- and brand-label retail, food service, and government bids. Also having the pasta production chain divided into the three different stages of durum wheat, semolina flour, and pasta product, ensures things are done correctly with a focus on quality.

In the durum milling industry, having durum milling plants located access is a key success factor. Vertically integrated firms and having a large degree of capacity are success factors in the dry pasta industry. 5 Factors that ultimately determine the success of rival milling and pasta firms are: Degree of capacity utilization Product distribution capabilities Service capability Ability to provide consistent quality to customer specifications Access to durum wheat Due to their supply management agreements with their customers, American Italian Pasta Company had almost 100 percent capacity utilization.

Access to favorable rail transportation also helped APPC achieve low distribution costs. With electronic data interchange (DEED') systems, APPC and Heresy's Pasta Group were able to provide marketing services to their customers. APPC had been able to achieve success through access to high-quality durum wheat allowing them to provide consistent quality at low average cost. 5). How has Dakota Growers Pasta chosen to compete in the milling and pasta production industry? What are the key elements of Asp's strategy? Dakota Growers Pasta's organizers created a cooperative structure.

They realized that co-pop structure would benefit durum growers by 1 . ) belonging to a producer-owned cooperative in which delivery rights and obligations were attached to ownership, members would know that they had a buyer for their durum, and 2. ) ownership would allow them to share in the incremental value added to their durum by processing it into semolina and pasta. -GAP has made an effort to maintain a diversified customer base in order to limit its reliance on any single customer. -GAP has concentrated its manufacturing efforts in the private store brand label segment of the retail sector.