Critical strategic analysis – acquisition of Weetabix by post holdings

Critical strategic analysis – acquisition of Weetabix by post

Abstract: This article presents a critical strategic analysis of the current strategic
change in the context of the acquisition of Weetabix by Post Holding. It covers the
corporate strategic position, stakeholder analysis, external analysis and industry
analysis. The company faces a series of critical challenges, some of which are
controllable, such as tastes against consumer preferences, others are external forces
over which it has no control, such as the unpredictable political situation in the UK
after Brexit. Post holding was advised to engage in innovative market research and
introduce new brands matching consumer preferences. It should develop various
shaped cereals and that can be eaten on the go, to keep up with the competition. Given
that Post Holding enjoys lower bargaining power of suppliers giving it an advantage of
negotiating quality inputs for lower prices; the company should use the opportunity to
cover the increasing wage bills resulting the changing UK labor law.
Keywords: Business Strategies, Acquisition of Weetabix by Post Holding,
Generic Strategies, Competitive Rivalry, Bargaining Power, PEST Analysis, Eternal
Business Factors.
The intent of this report is to strategically analyse and criticize the acquisition of
Weetabix by the Post Holding using different strategic analysis tools and techniques.
The current global business environment is characterized by the Dynamism and
Complexity with a far- reaching impact. With this complexity, managers are always
required to design and constantly revise strategies that help them to become
competitive and increase the market shares for their businesses. Acquisition is one
among these strategies where the acquisition of Weetabix by the Post Holdings is a real
example. This recently acquired Weetabix was a UK-based breakfast cereal business
company whose owner was a Chinese company named “Bright Foods”. According to
the strategic meaning given by Lee and Lieberman (2009), this strategy has paved a
way for Post holdings, a US headquartered company, to enter UK market. In this paper,
this acquisition strategy regarded by Post Holdings as a suitable way of gaining
competitive advantages in UK market, will be critically analyzed.

1.1.Business strategy, analysis and planning
Ramon & Joan (2009) defined Strategy as a “contingent plan of action designed
to achieve a particular goal”. Caves and Ghemawat (1984) point out that, a key
element of the strategy is this set of “committed choices” made by management. To
complement them, Porter (1996) argues that: “a strategy is the creation of a unique
and valuable position, involving a different set of activities”. Based on these authors’
definitions, business strategy refers to the creation of activity system that gives a
particular way for a company to compete. While strategic analysis is the requirement
to strategic planning and involves the researching of the business and its environment,
strategic planning is that process by which managers develop a shared vision of an
organization and future direction. Understandably this strategic analysis would be a
useful resource for Post Holding to develop a comprehensive strategic plan.
2.1.Strategic Position of the Company
Once a company has clearly defined its overall goals, the type of business in which
it wants to be involved and how the business will be managed, strategic positioning is
the next step. Chew (2009) defines this cooperate strategy as a process through which
a company defines where it is to be located vis-à-vis its target market and its
competitors. According toGalal (2013), strategic positioning is very important in
defining the company’s specific niche within its business domain. A real example is
where Weetabix being owned by a Chinese Bright Food Group didn’t find China, a
strategic business location due to Chinese preferring hot breakfast (like rice) over the
cold cereal breakfast. Due to this cultural factor, the company experienced a turnover
decline which forced it to focus on UK market and is expected to gradually succeed on
US market given the Western culture where people prefer fruit and cereal breakfast.
2.2.Porter’s Generic Strategies
According to Porter (2008), the success of business companies depends mainly
on the three Porter’s generic strategies: cost leadership, differentiation and focus
2.2.1. Cost Leadership Strategy
This generic strategy is taken by a firm that is aiming to lower the production cost
and become a low cost producer in a given industry. Being cost efficient gives a firm
to sell its products at an average or lower price and gain high market share over its
rivals. In this price war, the firm can earn relatively small profit per item and sell more
to get considerable profit while competitors suffer losses. In the vent that there is no
price war and as the industry grows, prices decline and only companies able to produce
cheaply will remain profitable longer (Porter, 2008). According to Porter: “The cost
leadership strategy usually targets a broad market”.

According to this Cost Leadership strategy, Weetabix and Post Holding can enjoy
cost advantages by improving process efficiencies, avoiding unnecessary costs, finding
access to low cost inputs and making optimal outsourcing and combining more
production stages. Once rivals are not able to reduce prices at the similar level, then
the company will maintain a competitive advantage based on this strategy.
2.2.2. Differentiation Strategy
Differentiation refers to setting a firm’s service or product unique, distinguishing
the brand from all other brands. This approach helps firm to develop products or
services that offer unique attributes, meeting customers’ demands and considered by
customers to be better than products/services of the competitors (Quickmba, 2010).
Weetabix has successfully used differentiation strategy over the recent years by
focusing on creating the unique value for their customers and focusing the right market
with the right product to gain the breakfast cereal market. Rogers (2017) argues that
Weetabix has been able to create different brands with unique value on their market
Building on Porter’s strategy statement, there is no doubt that the value added by
this uniqueness of their product can allow the company to charge even a higher price
(Lasitha, 2008). Therefore, due to the uniqueness of their products making difficult for
customers to find substitutes, the company could also make a slight increase of the
price and pass along the costs to customers, should suppliers decide to increase the
inputs prices.
On the other hand, change in customers’ tastes and imitation by rivals are some
of the risks associated with differentiation strategy. Lasitha (2008) also argues that
firms with focus strategy can easily pursue a differentiation strategy in their market
2.2.3. Focus Strategy
Porter’s focus strategy calls firms to focus on a narrow market segment where
they can either achieve a differentiation or cost leadership advantages. By focusing on
the needs of a specific group, firms gain strong customer loyalty which discourage
rivals from competing. As discussed above, a firm can choose to pursue a
differentiation focus strategy which has been the case for Weetabix. In order to gain
international market, Weetabix has used a differentiation focus strategy which helped
it to bit its competitors. Allchin ( 2012) gives an example is where Weetabix achieved
70% of cereal sales in Kenya through creating a small value transactions by using
cheaper distribution system, mainly bicycles in delivering sachets of few biscuits to
small shops in rural villages.
This focus strategy normally allows a company to adapt its product development
strengths to its niche market which is well studied and known. Porter (2018) also argues
that “A firm using a focus strategy often enjoys a high degree of customer loyalty, and

this entrenched loyalty discourages other firms from competing directly”. Contrary,
due to focusing on a narrow market segment, the approach can lead to the firm’s
reduced bargaining power with its suppliers resulting lower volumes.
2.3.Bowman’s Strategy Clock model
This model seems to be an extension of the above discussed Porter’s generic
strategies. It discusses the strategic positioning of a company to gain a competitive
position on the market by moving on the customer value map. On the value map, West,
Ford and Ibrahim (2015) talk of the customer desired value and the perceived value in
a product/service. These authors try to relate the price that the customer is willing to
pay and the value he or she perceives in a product or service.
Likewise, Weetabix has been trying to stand out from the competitors by creating
unique value for their customers. Although it required the company to invest in market
research by strengthening its R&D team, it was at least able to offer useful and
productive insights for their marketing campaigns. The success of this market research
is reflected in the company’s innovative strategy, according to which the introduction
of Breakfast on The Go beverages was the result of a research conducted on its Nestlé
competitor in 2014. Again in UK, ‘Weetabuddies’ was a campaign that mobilized
children to eat fruit with breakfast cereals, which campaign lead to a 14% increase in
the company’s sales (Talking Retail, 2016). Happen (2017) also agrees that
“Weetabix’s innovation capabilities enabled them to fast track the product
development process to about 11 months”.
2.4. Stakeholders analysis
John M. B (2003) defines stakeholders as individuals, groups or organizations that
need to be taken into account by business leaders. Similarly Walker, Bourne and
Shelley (2008) explain that “stakeholders are the groups and persons who have interest
in an organization”. To complement them, Shawn (2017), points out that although
stakeholders have interest in the organization, they are not to be confused with
shareholders who have an ownership interest in the company. Both Post and Weetabix
had both internal and external stakeholders. While the external stakeholders are not
involved in the firm’s operations, the internal stakeholders are those individuals or
groups involved in the company’s activities such as employees, investors or
shareholders. Typical examples of external stakeholders of these companies would be
customers, suppliers, government and the whole public. In all cases stakeholders are
either involved in decision making or simply affected by the outcome of those
decisions. Eric and Manuel (2011) reflect on the choice of a particular business model
which, in reality, refers to a particular mode of competitiveness, to a certain particular
of the company, mode of operation and to the creation of value for the stakeholders of
the enterprise company.

With regards to the acquisition of Weetabix by Post holdings there is a number of
stakeholders involved from both Weetabix and Post Holdings. The stakeholders of the
Post Holding were acquiring Weetabix while the stakeholders of the later were selling
the shares, especially the Bright Food, which according to BBC (2017) have the largest
share. Both the China and UK governments are players in this process in the event that
they all wanted to ensure that the deal is completed lawfully. While the deal may affect
the investors’ returns, employees were also affected by the decision because some
could possibly lose their jobs, be promoted or changed the positions, which at the same
time affect their salaries. Suppliers and other people or agencies that had contract or
worked directly with the company were affected by this decision.
Decision which
affected their jobs
→ Losing jobs,
→ Moving up or
down in position,
→ Change in
employment sector
→ Change in Salaries
Observer, to insure the deal is
lawfully transacted
of both Weetabix and
Post holdings.
This are regarded as
decision makers
Acquisition may affect their
investment returns(based on
performance of a new company)
Table 1: Key Stakeholders in the Weetabix acquisition deal
This chapter will use different strategic analysis tools to discuss different factors
that affect the Post Holding acquisition of Weetabix.
3.1.PEST Analysis
3.1.1. Political
United Kingdom is known of its political stability which the company will be
enjoying in serving its clients. However, since the UK has voted for Brexit but didn’t
complete the procedures, the company has to look carefully and suspiciously at the
UK’s political future situation. On the other hand, the UK government has recently
amended its employment law by increasing the minimum wage per employees aged
groups (Minimum Wage UK, 2017). Hence, the company will be urged to abide by
this new law which may affect its production capacity as per the below trend:
“Science and Education” Scientific Journal April 2021 / Volume 2 Issue 4 678
Minimum Wage UK, 2017
According to the data above, there has been a remarkable annual increase in the
minimum wages for employees in the UK, which is imposed by the UK government
and over which the company has no influence. In terms of business strategies, the
company has to react by reducing its production cost. It can do so by either choosing
to source cheap raw materials or reducing the all cases, the company will
be affected by the change in the UK labor law which is seen to annually increase the
payment bills.
3.1.2. Economic
Weetabix and post holdings are one drop in a huge economy of UK and USA.
Chu (2017) has indicated how the two countries are on different levels of economic
growth. While the USA is growing at 2.7%, the UK economy, in addition to its
increasing inflation of 3%, is a bit steadier with 0.4% growth rate. With such variations
in economic trends, the company will need to find out ways of increasing its sales, even
in front of slow economies. To increase its market shares, the company may choose to
open outlets in different places (even outside the UK and USA) in order to reach as
many people as possible. It can also choose to produce low cost packaged materials,
improve the quality of the produce or simply bring in new items.
3.1.3. Social
Some of the social factors that influence businesses and that have to be taken into
account before acquisition, are the culture and customers preferences. In some
countries, especially the third world, breakfast is regarded as an optional meal.
However, in some other cultures, people would choose cooked food as breakfast.
Fortunately the US and UK people, where Post Holding and Weetabix are respectively
located, prefer cereal breakfast which increases the likelihood of the deal to succeed.
Morgan (2017) argues that unlike Chinese customers, the UK and US Customers have
higher taste for breakfast cereals.
£7.05 £6.95 £6.7 £6.5
£7.5 £7.2 £6.7 £6.5
2017 2016 2015 2014
Minimum Wage in GBP
18-20 Under 18 Apprentice Under 18 Apprentice

On the other hand, Weetabix has been experiencing a decline in its turnover due
to the decline in the breakfast cereal market in the UK. According to Williams (2015),
due to the decline in the consumption of breakfast cereals, the company had
experienced a turnover and pre-tax decline of respectively 4% and 7% in 2014. In this
regard, the company needs to take a more strategic action to maintain its clients and
increase its sales with different breakfast options in line with customers’ preferences.
3.1.4. Technological
Both UK and US are known of their developed technology. When it comes to a
breakfast cereal company, it brings in packaged food and snacks. Today many people
are used to ordering takeaways so that they can eat on the go, instead of taking time to
sit and eat in a restaurant. Similarly Post Holding and Weetabix are advised to keep up
with the technology that helps them to produce different snacks that can be eaten as
breakfast everywhere. The strategy would be one step to increasing their market shares
and regaining the recently lost market in the UK. This is agreed by Maskan (2016) who
sees technological completion in the production of various snacks which, according to
him, are favorite to most consumers.
3.2.Porter’s Five-Forces Model of Industry Competition
The current tool developed my Michael Porter and commonly known as “Fiveforce” model will help us to understand the competitive environment of the Post
holding and Weetabix. A better understanding of external competitive forces is a prerequisite for a company to both anticipate and profitably influence competition by
adjusting business strategies. The five forces are: the threat of new entrants; the
bargaining power of buyers; the bargaining power of suppliers; the threat of substitute
products and services and the intensity of rivalry among competitors in an industry
(Porter, 2008). Since these forces influence a firm’s competitiveness on a market,
determining its profit potential, they can help managers decide whether their business
should stay in or out of that industry.
3.2.1. Competitive Rivalry
This force analysis the strength of different competitors in a given industry.
According to Porter (2008), a market looks unattractive when there is high exit barriers
with a huge number of competitors or few firms that are nearly equal in size and
resources, offering undifferentiated products. The breakfast cereal market faces
intensive competition in the global and western context whereby, according to Wood
(2014), US counts more than four companies namely Kellogg, Post, General Mills and
Quacker (PepsiCo) occupying around 85% of the cereal market. This competition
forces Post holding to act on an opportunity to improve their position. Since
competitive market is often marked by price competition, Post Holding is expected to
introduced new brands, focus on marketing and improved customer care in order to
gain different market and increase their market shares.
3.2.2. Bargaining Power of Suppliers
The ability of a supplier to raise the price normally depends of a number of factors
such as the number of suppliers vs. number of active firms, uniqueness of their
goods/services and the ability of a firm to switch from one supplier to another
(switching cost). For this particular industry, the bargaining power of suppliers is low
because wheat and grains, main raw materials, are quantitatively produced in both US
and UK (Newswire, 2017). Weetabix (2017) has itself confirmed that it is able to
control the quality of its raw materials by sourcing wheat from farmers within 50 miles
of their production facilities. In this regard, suppliers are not expected to influence the
profitability of the company.
3.2.3. Bargaining Power of Buyers
Apart from the influential power of suppliers, this force examines customers’
ability to bring down the price of a product. Given different cereal brands available in
supermarkets and grocery stores in both US and UK, the bargaining power of buyers
is likely to be higher because buyers have many options and can choose to switch to
other brands, if they think the price is high (Schultz, 2012). Drakakis (2017)
recommends to increase their sales by working closely with in-country wholesalers.
3.2.4. Threat of New Entrants
The threat of new entrant examines difficulties of a new competitors to enter a
market and erode the profitability of established firms. It reflects a number of factors
such as government policies, economies of scale of existing businesses, access to raw
materials and distribution channel, capital requirements, and so on. Given that
Weetabix and other existing competitors have strong brand identification and customer
loyalty, big portion of the market share and better understanding of customers’ needs,
the threat of entry is considered low because new companies, willing to enter this
industry, will be required to spend a lot in order to overcome existing customer
loyalties. Arguably big competitors, like Weetabix, can engage in innovative market
research and introduce new brand that cover the changing consumer preference
(WholesalerManager, 2017).
3.2.5. Threat of Substitutes
This force examines the likelihood of consumers to switch from one product for
an alternative product able to satisfy their needs. According to Mars (2013),
“Substitutes limit the potential returns of an industry by placing a ceiling on the prices
that firms in that industry can profitably charge”. On breakfast cereal market the threat
of substitute is very high since consumers may choose alternatives such as fast food,
fruits, bread or yogurts being available at lower prices (Topper, 2015). A clear example
is where consumers in china preferred hot breakfast, especially rice, over Weetabix’s
cold cereals (Wade, 2017).
Weetabix, a UK based producer of breakfast cereals and drinks, was recently
acquired by Post Holdings, US based consumer packaged goods holding company.
With its differentiation strategy, Weetabix produces a number of unique products for
specific markets. The well-known example are the Weetabuddies which are meant for
children. However, the company confronts different external forces over which it has
no control, such as unpredictable political situation of UK after the Brexit. On the other
hand, the company is faced with controllable forces such as the changing consumer
preferences and tastes. Since the company can’t change customer behaviors and given
the high market competition, it is obliged to engage in innovative market research and
introduce new brands matching consumer preferences. An example is where
consumers choose breakfast on the go, hence the company needs to adopt technology
helping it to produce well packaged cereals. With more than 78 top global breakfast
cereal companies striving to capture largest market share, Post holding should develop
various shaped cereals and that can be eaten on the go, to keep up with the competition.
Lastly, given that the company enjoys lower bargaining power of suppliers giving it an
advantage of negotiating quality inputs for lower prices; the company should use the
opportunity to cover the increasing wage bills resulting the changing UK labor law.
This work was carried out as part of the author’s learning path at the University of
South Wales in the United Kingdom, which is why the author would like to thank the
entire academic team for this opportunity and more particularly Dr. Rajeev Bali for his
consistent supervision and advice on the project and Leonidas Stergiou, my fellow
student who remained closer to inspire and added his incredible contributions.
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