Analysis of Edible Oil Industry
ANALYSIS OF PAKISTAN INDUSTRY

PRESENTED BY:
HUSNA BADAR(7164)
KOMAL SHAHDEV(756)
MISBAH SALEEM(4258)

SUBMITTED TO:
SIR AFTAB ABRO Institute of Business Management, Karachi

Table of Contents Brief history about the edible oil industry 8 Present Situation of edible oil industry in Pakistan 8 Consumption 8 Edible oil industry (3 segements) 8 Group 1(Premium Segment) 9 Group 2(Popular Segment) 9 Group 3 (Lower Segment) 9 Market share analysis of the overall industry 10 Branded versus unbranded 11 Analysis of the total market reveals that about 43% of the market is unbranded and the remaining 57% market is branded oil. 11 Market share information of tier 1 segment 11 Manufacturing process 12 The procedure that is adopted by all manufacturers of edible oil is given as follows. However organizations modify the processes to suit their requirements. 12  Step # 1: Blending of different oils in different quantities. 12  Step # 2: Refining the blended oil. 12  Step # 3: Packaging. 12  Step # 4: Marketing and Sales 12 Source of edible oil 13 Important facts regarding oil seeds 16 Categories of oil 17 Product 22 Pricing 23 Placement – distribution network 23 Promotion 23 Positioning – critical success factor 23 Competitive prices 24 Dalda FOODS PVT LTD 25 product: 26 Pricing 26 The price of Dalda is slower than Habib in spite of the fact that it is the market leader 26 Distribution 26 Promotion 26 Positioning of Dalda – critical success factor 26 Competitive prices 28 PORTER’S FIVE FORCES 32 Why porters five forces? 32 Are there any proprietary product differences in your industry? 33 Does the new comer face any problems in obtaining the necessary skills or people? 33 Are there any established brand identities in your industry? 33 Does your customer incur significant cost in switching supplier? 33 Bargaining power of Buyers 34 Are there a large number of buyers relative to the firm? 34 Is your buyer very aware and knowledgeable? 34 Is your buyer aware of the need for additional information? 34 What is the purchasing power of your consumers? 34 Is it easy for your buyers to switch? 34 Rivalry among firms 35 Is the industry growing rapidly? 35 The fixed costs of the business are relatively low portion of total cost? 35 Are their any significant product differences? 35 Are their any established brand identities? 35 Is the product complex and requires detailed understanding on the part of customer? 36 Threat of Substitutes 36 Bargaining power of Suppliers 36 Suppliers 36 Other stakeholders (government) 37 Political Factors 38 Government 38 Economic Factors 38 Socio cultural Factors 39 Technological Factors 39 In the edible oil industry, the environmental changes that can be foreseen are 41 ISSUE # 1 42 ISSUE # 2 42 ISSUE # 4 43 ISSUE # 5 44 ISSUE # 6 44 ISSUE # 7 45

LETTER OF TRANSMITTAL
April 22 2010
Mr. Aftab Abro
Analysis of Pakistani Industries
IoBM.

Dear Sir,
Here is the report based on “Edible Oil Industry”, which you had authorized and is ready for your perusal.

Through this report we got a chance to dot the analysis of edible oil industry and to evaluate the attractiveness of the edible oil industry.
If there is any clarification required we would appreciate a call from you to our group members.
Sincerely,
Husna Badar (7164)
Komal Shahdev (7564)
Misbah Saleem (4258)

ACKNOWLEDGEMENT

All praise is to Allah who makes everything possible in the universe and beyond.
First of all, we would like to thank Allah, who helped us with everything and made everything come together, then our parents and family who have always supported us in every good thing that we do. We are greatly thankful to our course instructor, Mr.Aftab Abro, who gave us clear concepts and a practical understanding for the subject. He made the course a valuable learning experience for all of us and made us grow as learned individuals. For taking out time and helping us in providing useful information for our project.
We would also like to thank our college; The Institute of Business Management, it has been a great learning place with different academic and extra-curricular experiences, all contributing to our growth as students. Lastly we would like to thank our fellow classmates for making this learning experience a thoroughly productive and enjoyable one. Hopefully this report will serve a good purpose. Thank you,
Husna Badar (7164)
Komal Shahdev (7564)
Misbah Saleem (4258)

EXECUTIVE SUMMARY

In this report we have tried to conduct an in depth analysis of the oil industry in Pakistan, focusing mainly on Habib oil along with its competitors Dalda and Soya supreme of Agro Processors & Atmospheric Gases. We have tried to derive the nature of competition existing in the edible oil industry and have observed that the competitive pressures in the industry are very intense. In the premium segment of oil industry, Dalda is the market leader having around 25% with Habib as its closest competitor, having a market share of about 20% and Soya supreme having a market share of 16%.these companies try to engage in head to head rivalry. We have also extensively analyzed the external factors in the industry and how it is affecting the companies within the industry. How the awareness of health, changing lifestyles, worsening economic conditions and environment affects an individual’s life forms the crux of this report. It is the prime responsibility of these firms to create health awareness among masses, which will in turn lead to their increased sales.
The report also focuses on the internal activities and value chain management done by Habib in making its brand improved and in creating a competitive advantage. Habib oil mills has constantly evolved, innovated and changed with times. It product line includes different oil variants and ghee thus offering a complete range of cooking solution for house hold as well as for industrial consumers .In order to gain a sustainable competitive advantage, the generic strategy used by Habib is broad differentiation. Finally a brief action plan for the implementation of the recommended strategies has been stated.

EDIBLE OIL INDUSTRY

* Brief history about the edible oil industry In 1972 the edible oil industry was nationalized and a ghee corporation of Pakistan (GCP) was established .Since 1988, private sector has also been allowed to enter this industry. With the passage of time most of the units which were previously controlled by GCP have been privatized (93-95%). * Present Situation of edible oil industry in Pakistan The cooking oil and vegetable ghee industry is another large manufacturing sector. A shortfall has been witnessed over the last two decades. This shortfall is made up through the import of cooking oil, which is added to the local production. Pakistan spends 2nd largest amount of foreign exchange on the import of edible oil which puts a lot of strain on the economy and it is still increasing. The gap is widening constantly as the population increases and standard of living improves. Vegetable oil is obtained from edible oil seeds grown especially for this purpose. Pure butter oil is produced in small units; many people prefer to use this instead of cooking oil or vegetable ghee. Vegetable ghee is formed when edible oil is hydrogenated. The market for vegetable oil and ghee is spread all over Pakistan. The manufacturing units are also widely distributed. The number of vegetable oil and ghee plants operational in the country is about 183 with a capacity exceeding two million tons. The edible oil market is about 2.5 million tones (65% of total oil industry), out of which Banaspati market accounts for 1.5 million tones and Edible oils for about 1 million tones. * Consumption Per capita consumption in 2002 was 15 kgs. Because of growth in population in increase in consumption it is expected that the per capita income of edible oil will reach 24kgs in 2010. * Edible oil industry (3 segements) The oil industry is subdivided into three segments according to target market i.e. according to preferences, buying habits, price structure, nature of product; income group . * Group 1(Premium Segment) Group 1compromises of 6 oil companies that have formed an oligopoly. This group includes Dalda, Seasons Canola, Habib, Soya Supreme, Eva, Foreign Brands * Brand loyalist in this segment account to 50%. * Consumers do not switch to other brands easily due to strong positioning. * They are not price conscious in-fact they prefer quality. * Upper class/health conscious people mostly contribute to this segment. * Consumers are willing to pay a high price for this product backed by a higher income group. * Group 2(Popular Segment) This group includes, Kisan, Kashmir, Manpasand, Sufi, Meezan and Rafhan * Upper middle/lower middle class mostly prefer such brands. * price conscious consumers form a major part of the segment * 5% of consumers are brand loyal. * They keep on switching to other brands due to price instability. * Group 3 (Lower Segment) This group includes Loose oil, Family, A-1, Gulab, Zaiqa and Sultan. * Consumers who are not at all health conscious add to this segment. * They are highly price conscious. * In this segment the product is more or less a commodity and there is no concept of branding. * This segment mostly covers poor people and rural consumers.

* Market share analysis of the overall industry The Pakistani edible oil industry overview of the major players is shown as follows by means of a pie chart:

The analysis reveals that most of the market is non-premium segment taken by a large number of very small regional brands, as shown above that the other small /non-branded market amounts to 69%.The analysis also reveals that Companies with national presence dominate the premium segment. Dalda is the market leader in the Banaspati and edible refined oil market in Pakistan with a significant market share position. The statistics of the total edible oil market with a clear indication of the market leader is as follows: * Dalda– 9% * Habib Cooking Oils – 7% * Soya Supreme – 4% * Tullo-3% * Seasons – 1% * Non branded/small local brands – 69% % (includes all those companies that either do not have a brand name as such, or they do have a name but it is not established)

* Branded versus unbranded * Analysis of the total market reveals that about 43% of the market is unbranded and the remaining 57% market is branded oil.

* * Market share information of tier 1 segment In the tier segment 1, Dalda is the market leader having around 25% with Habib as its closest competitor shaving a market share of about 20%.and Soya supreme having a share of 16% .The rest of the market share in this category is captured by the some local brands as well as some other companies in the market including Seasons canola, Eva and foreign brands.

FACTS ABOUT EDIBLE OIL Edible oil is the blend of various seeds oil. These seeds include: * Cotton Seed * Soya beans * Sunflower seeds * Castor seeds, etc. * Manufacturing process * The procedure that is adopted by all manufacturers of edible oil is given as follows. However organizations modify the processes to suit their requirements. * ------------------------------------------------- Step # 1: Blending of different oils in different quantities. * ------------------------------------------------- Step # 2: Refining the blended oil. * ------------------------------------------------- Step # 3: Packaging. * ------------------------------------------------- Step # 4: Marketing and Sales A variety of seeds are used in the manufacturing process which includes Soybeans, Cottonseeds, Ground seeds, Rapeseeds, Sesame seed, Linseed and Castor seed. The blend of the seed depends on the oil. The differentiation of oils/Banaspati is created by altering the proportions of the seeds that are added in producing the oil/Banaspati. * Source of edible oil The countries main source of edible oil is cottonseed. The major oilseeds include traditional crops like cotton, rapeseed, canola and mustard, and non-traditional crops such as soybean, sunflower and safflower. There are two kinds of crops: * Rabi crops: These include rapeseed, mustard, linseed, sesamum, sunflower and safflower. * Kharif crop: Under this category are cottonseed, groundnut and soybean. Their maturing period extends over three to four months. It should be noted here that cotton is cultivated for fiber and not for oilseed. The main edible oil consumed in Pakistan are: Palm Oil
Rapeseed and Mustard oil
Cotton seed oil
Soybean oil
Sunflower oil
Canola oil
EDIBLE OIL AVAILABILITY IN THE COUNTRY

Domestic production of edible oil has been fluctuating for the last couple of decades. These fluctuations are due to indigenous marketing, low support price and high cost of production which is making these crops non-profitable to the farmers. Only sunflower has shown some positive results in area and production compared to other oil crops. In domestic production, major share comes from cottonseed contributing 75% of local production. Rapeseed, mustard and canola contribute 15%, whereas sunflower, soybean, safflower and corn contribute the remaining 10%. Domestic production of edible oil during 1991-92 was 0.486 million tons which substantially increased to 0.646 million tons during 2000-2001 due to canola and sunflower plantation on a considerable area. Sunflower and canola are the two potential crops, which can fulfill some requirements of edible oil in the country. A comparison of the domestic production, import of edible oil and cost of import is given on next page.

Domestic production, import and value of edible oil

Year | Domestic Production (000 tons) | Import (000 tons) | Value of import (Rs. Billion) | 1999-00 | 607 | 1091 | 21.4 | 2000-01 | 642 | 1149 | 19.04 | 2001-02 | 646 | 1197 | 24.03 | 2002-03 | 665 | 1281 | 39.29 | 2003-04 | 678 | 1361 | 37.91 | 2004-05 | 842 | 1605 | 44.98 |

Increasing Gap between Demand and Domestic Production of Edible Oils

The gap between demand and supply has been filled with edible oil imports over the years. Pakistan’s edible oil import bill is increased by 1608 times between 1959-60 and 2008-09. Since 1999-00, the import bill grew by 11.1% on average annually till 2008-09 which is significantly less than 21.2% reported by Chaudhry Mahmood (1998) for the period of 1959-60 to1997-98. Problem of increasing imports persists as share of imports in total consumption is increase from 64% to 72% in this period which may have contributed to the increase in household food expenditures.

One policy to deal with the increasing import bill of edible oil could be the tariff policy. Shivakumar (2007) found in their study for India that tariff had significant impact on Banaspati and edible oil household consumption however consumption of oilseeds were not changed.

Table-1 compares the production of oil seeds and extraction of edible oil from different oilseeds in 2006-07 and 2007-08. Cottonseed accounts for 57.5% and 51.3% of total oil production in FY07 and FY08 respectively. Sunflower accounts for 27.7% and 31.7% in FY07 and FY08 and share of Canola increased from 7.4% to 9.96% in FY08.

* Important facts regarding oil seeds * Due to shortage of locally available seeds, imports of edible oil, palm oil and soybean oil have continued since the early 1970's, mostly from Malaysia. * During the 1970's, it was less than half million tonnes rising to one million tonnes by the end of the 1980's. * By the 1990's the imports ranged between 1 million and 1.4 million tonnes. * Between 1995-96 and 1998-99, increase in import was 5 % annually. * From 2000-2005 the increase in imports were 7 to 8% annually. * At this rate, by 2010 the import will exceed 2 million tonnes, putting extraordinary pressure on the balance of payments. The position can be summed up in the words of the report of the National Commission on Agriculture of 1988. "The past performance of oilseeds production stands in sharp contrast to the rest of the agriculture sector; gross output of all agricultural products has quadrupled since independence, but the production of oilseeds has stagnated. As demand in the past decade has grown by about 9 per cent per year, import of edible oil has climbed sharply. Import costs have grown to a level which, if left unchecked in the years ahead, will exert considerable pressure on the balance of payments". * Categories of oil * The first is “loose oil” which has no name on it and is sold in plastic bags. * The second category includes “brands”, which do have a name but are not established and occupy a very small share in the he market. * The final category of oils are called “branded”, under which only three brands are mainly included – Soya Supreme, Habib and Dalda along with various other brands, Types of customers in the edible oil industry:

Category of Oil | Category Specification | Customer Defined | A | Highly Refined & High Price oil | Health Conscious with medium to upper income class | B | Average Refined & Average Price Oil | Health conscious as well as price conscious with medium to lower income group. | C | Low Refined & Low Price Oil | Price Conscious with lower middle to lower income group. |

Selected 2 players out of the Edible Oil industry
The companies that we have chosen out of the edible oil industry of Pakistan are as follows. * Dalda * Habib Oil Mills (Habib)
The details of respective companies are also mentioned. We have chosen the following players because they have the highest market share in the market are well known by the industry and the customers.

HABIB OIL MILLS

Corporate Philosophy
Customers
HOM is customer driven. We strive to provide products and services of superior value to meet the expectations of our internal and external customers.
Innovation
HOM constantly strives to be creative and innovative in all its endeavors. All HOM employees are encouraged to bring forth new and better ideas for improved performance, whatever our responsibilities.
Ethics
HOM demands openness and honesty throughout its operations to engender trust, and integrity underscores everything we do. We believe that every activity must be able to pass the test public and internal scrutiny at all times.
People
HOM employees are all partners, working together in the pursuit of the mission and strategy. We strongly value teamwork, and we want every employee to be motivated to succeed. * Product
Habib Cooking oil and ghee is a premium quality product which enjoys a market share of 20% (second in the industry). The various products of this company are as follows: * Habib Cooking Oil * Habib Banaspati * Super Habib * Friyo (industrial use) * Handi Banaspati/cooking oil (regional brand) * Nayab Banaspati (regional brand)
Among the various oils/ghee manufactured by the company each of them has its own unique blend of oils and seeds. Habib cooking oil is a blend of Palm oil, Soya oil and Canola oil.
Habib Oil Mills are the pioneers in introducing pet bottles in part of the world. They are very particular that the best quality of oil/ghee should be provided to their customers. * Pricing
The pricing of the product was higher than the market leader Dalda but now both Habib and Dalda are priced same * Placement – distribution network
Habib as the best distribution network as far as effectiveness of distribution is concerned. The product is made available in all retail outlets that stock oil/ghee. * Promotion
Habib does not indulge much in promotional activities. This is because it feels that it has a solid customer base and all its customers are loyal towards the brand. For this reason any kind of promotion is not necessary for Habib to sell its brand in the market. At Habib they believe that “Consumer pull” should be the tactic for a good quality product. And that is what Habib primarily enjoys, that is the consumers themselves demand the product and in case of a shortage they refuse to purchase any other brand. * Positioning – critical success factor
Habib entered the edible oil industry in the year 1954-55. When they launched their product Habib Cooking oil/ghee the market for this kind of a product was already established and ready to accept any new entrant. The initial tough work of educating the market was already done by Unilevers. At the time of launching Habib, the management decided a different kind of positioning for their product. They said “Kyunkay yeh dil ka muamla hai”. The reason behind this is that Habib realized that now the customers are fully aware of the product features and its pros/cons. Thus the best method to attract people towards Habib was to make them realize that ghee affects the heart, and since a human heart has extreme importance so people should not settle for anything lesser in quality. They attached a lot of family values and traditions to their product claiming that Habib is a family product, a family ghee/oil.
The positioning adopted by Habib was yet another emotional strategy which created a point of differentiation from the market leaders – Dalda. Presently the scenario is that Habib has a market share of 20%. Inspite of the fact that there is no crucial difference between Dalda or Habib, yet Habib managed to develop a difference through their advertising and positioning strategies.

Marketing & Advertising
The advertisement message of Habib is also very effective and emotional.
The positioning used by Habib for their product is as follow:
“Kyun kay yeh dil ka muamla hai”.
The reason behind this is that Habib realized that the best method to attract people towards Habib was to make them realize that ghee affects the heart, and since a human heart has extreme importance so people should not settle for anything lesser in quality. They attached a lot of family values and traditions to their product claiming that Habib is a family product, a family ghee/oil. The positioning and adopted by Habib is yet another emotional strategy which has created a point of differentiation from Dalda.
Habib managed to develop a difference through their advertising and positioning strategies.
Promotional Activities:
Habib is rated low in promotional activates relative to its competitors because the management of Habib rarely indulges in any kind of promotional activities. The reason is that its management believes that Habib has a solid customer base and all its customers are loyal towards the brand. For this reason any kind of promotion is not necessary for Habib to sell its brand in the market. At Habib they believe that “Consumer pull” should be the tactic for a good quality product. And that is what Habib primarily enjoys, that is the consumers themselves demand the product and in case of a shortage they refuse to purchase any other brand.
Some of the promotional activities conducted by Habib include Ramadan Khazana. In Eid season they sometimes come up with an Eid offer called “Eidi Lakhon Ki”.
One of the recent promotional activities conducted by Habib is that they place convertor girls in supermarkets whose job is to convince the customer to buy their products.
In December 2008 they plan to come up with some new promotional activities. * Competitive prices
As far as competitive pricing is concerned, Habib used to charge more than Dalda. This was one flaw in its pricing strategy the but now both the brands are priced same. We know that Habib is striving to be the market leader so a suitable pricing strategy for Habib would be to set its prices lower than the market leader Dalda, which it is currently not doing.
Pricing strategy of Habib is as follows:
Habib is available at different prices in various localities of Pakistan at different prices.

Product quality
The management of Habib is very strict about quality control criteria. . It is evident form the fact that Habib is the First Edible Oil & Food Company to achieve ISO 9001:2000 (E) & ISO 14001: 1996 (E). Another milestone which has been achieved through continuous quality improvement and efforts of each individual of HOM in the shape of ISO 9001:2000 (E) and ISO 14001:1996(E) certifications. The achievement of the same shows an indication of continuous growth featuring Key parameters of Quality as well as Environment
"It is our policy to provide good quality products to customers at reasonable prices. We make all efforts to involve every employee of the company in the achievement of this objective." * * Dalda FOODS PVT LTD

Dalda as a brand has a strong heritage in Pakistan. It is synonymous with assured quality, which is why the business has been able to charge a premium over its competitors year after year. The Dalda is the market leader in the edible oil industry.
Dalda as a brand has a history of 50 years. Previously, Dalda was a brand of Unilever and contributed to 25% of the total revenue of Unilever. Dalda got separated from Unilever three years back and thus has embarked on a journey of its own. Divesting Dalda was part of Unilever’s international strategy to pull out of cooking oil sector from the South Asian region as part of their long term goals. The new directors who took over the company were former employees at Unilever and headed the Dalda brand. Their task was made easy as Dalda was already a household name and was a popular brand. They just had to maintain the quality and live up to the expectations.
Dalda is a premium quality that has the highest market share of 25%they are the price market leaders They are the innovators who introduce new product variants time after time. However not all their products have been a success like for example Dalda Melange was a failure product and could not sell.

* product:
The variants of the product Dalda are: * Dalda Cooking Oil * Dalda Banaspati * Dalda Melange * Dalda Planta Cooking Oil

* Pricing

* The price of Dalda is slower than Habib in spite of the fact that it is the market leader * Distribution
There is a supply chain manager who is responsible to dispatch products to warehouses, and then goods are transported to distributor, retailer and wholesaler. One distributor covers more than one area. Dalda has a network of 350 distributors across Pakistan that makes sure that product is available in every corner, village, town and city of Pakistan. Distributors are supplied the products using a dynamic replenishment model. The model is based among other things on preset safety stock levels, sales of retail outlets, promotional activities and competitor activity. * Promotion
The company does not believe in giving trade discounts on their product as they feel in this way control over the product is lost. However they have various sales promotion schemes like “khul ja sim sim” in which they distributed over 100,000 prizes. They also raised money for the Shaukat Khanum Memorial Hospital by increasing the price of their products and also making a note of the same on the tin/bottle that this is for a social cause. The most successful of the schemes was cross promotion with Lux which raised the volume of purchase by 30%! * Positioning of Dalda – critical success factor
UPL’s competitive marketing strategy is primarily drawn from the trust and emotive attachment of people to its established brands. The brand story for Dalda has revolved around the core of Pakistani society:” A mother’s love”. Whether it is an upscale urban family from Karachi or the more traditional eastern setup in the north, the mother symbolizes all that is pure. Dalda’s slogan “Jahan Maanta, wahan Dalda” became a synonym for this purity and quality and has been the platform for the brand for many, many years. The language may have changed, the pictures may have altered but the core of this message still rings true. This symbolism was of course established over the years with well-crafted and executed communication campaigns across the different medias, touching consumers everywhere.
Dalda has been in this part of the world since a very long time. It has developed a positioning of their product keeping in mind the importance of a mother in the life of a child. They have tried to tap the emotional side of a mother saying that if she loves her children, then she will give them the best which is Dalda. The English translation of the tagline “Jahan mamta wahaan Dalda” is “Mothers love is Dalda”. They have managed to utilize this strategy in a very effective manner as people have come to realize that it is only Dalda that provides high quality features thus making food tasty/delicious.
Marketing & Advertising:
Dalda marketing strategy is primarily drawn from the trust and emotive attachment of people to its established brands. The brand story for Dalda has revolved around the core of Pakistani society:” A mother’s love”. Whether it is an upscale urban family from Karachi or the more traditional eastern setup in the north, the mother symbolizes all that is pure. Dalda’s slogan “Jahan Maanta, wahan Dalda” became a synonym for this purity and quality and has been the platform for the brand for many, many years. The language may have changed, the pictures may have altered but the core of this message still rings true. This symbolism was of course established over the years with well-crafted and executed communication campaigns across the different medias, touching consumers everywhere.
Due to the fact that they have associated their brand with ‘Mamta’ since their establishment, their advertisement concept has been the most effective concept out of all.
Dalda has associated its image as a family’s possession where mothers pass Dalda to their daughters who are future mothers and are the foundation of another family. Thus, Dalda has been able to position itself as a family health need for which there is no compromise.
Promotional Activities:
Dalda stand first in promotional activities. the owners of Dalda strongly believe that promotional activities are the one of the most feasible alternatives to attract consumers and a huge budget is spend on theses activities. The Company does not believe in giving trade discounts on their product as they feel in this way control over the product is lost. However they had various sales promotion schemes like “khul ja sim sim” in which they distributed over 100,000 prizes. They also raised money for the Shaukat Khanum Memorial Hospital by increasing the price of their products and also making a note of the same on the tin/bottle that this is for a social cause.
When Dalda was under Unilever one of the most successful schemes was cross promotion with Lux which raised the volume of purchase by 30%.

* Competitive prices
Considering the fact that it is the market leader, it still charges lower price than Habib therefore we can say that it has competitive prices. They prices of Dalda Cooking Oil and Dalda ghee are set comparatively with the price of competitors. The company still tries it best to resist the price increase as they are aware of the fact that the market is price sensitive
Product quality
Dalda is offering the most premium quality oil. Dalda’s slogan “Jahan Maanta, wahan Dalda” has become a synonym for purity and quality and remained the platform for the brand for many, many years.

GENERIC STRATEGY

Differentiation Strategy
Overall Low-cost Provider Strategy

Best-cost provider strategy

*
Focused Low-cost Strategy
Focused Differentiation Strategy

* At Habib we get the competitive advantage by providing buyers with a value they perceive as superior i.e. we basically provide a superior product line to our customers that is worth paying more.

* We can see that Habib’s differentiating strategy is successful because it creates buyers value in a way which is not at easily matched by rivals
The following evidences help us to conclude that Habib is using a broad differentiation strategy
Research and Development: Habib allocated a large budget to its R & D department. It has a strong research and development department which constantly tries to come up with new product variant, and tries to respond to the changing market trends and consumer preferences. They are expanding in a wide variety of products including Masala mixes. In order to reduce the environmental hazards they have made In-house improvement measures related to waste reduction at source and adoption of environment friendly processes. Thus their strong R & D serves as a differentiation attribute for them. For example: Habib’s research and development alters the texture and composition of same oil for two different regions of Pakistan. In Punjab as people prefer using thick oil whose texture resembles to ghee, the oil manufactured for Punjab is made thick and viscous. On the other hand the people of Karachi prefer using light oil so for them Habib manufactures light oil with less viscosity and thickness
Region wise product:
Habib Oil is not only catering to the major cities but also to the other cities and towns in the interior areas of the 4 provinces – It is almost available in 400 towns – they have region wise product which clearly emphasizes that they are broadly differentiating – For big cities they have brands like Habib Cooking Oil – Habib Banaspati Ghee, Super Habib etc and for the smaller towns and cities they have brands like Handi and Nayab.
Habib has come up with different products for different regions because they understand the purchasing power and preferences of the people from different places. By purchasing power here we mean that the standard of living of rich in a rural area and the standard of living of rich in Karachi are different.
The value Habib is being delivered through its wide product range and healthy products. Their target Market comprises up of the health conscious people who are aware about the major diseases like cholesterol and heart diseases which are caused by the use of Ghee. This is one very major point of differentiation and we see that the target market understand the value of the brand and is willing to pay the premium price for the brand and hence Habib is successful in this area.

Outbound Logistics:
Habib has highly skilled sales force that has extremely good communication and go to various hotels and restaurants in order to convince them to use Habib oil.Habib has a very good distribution network which differentiates it from its competitors – it caters to almost 400 towns with about450 distributors all over the country. Its well connected information system helps it to remain connected with its distributors.
Operations:
In the edible oil industry the processes which are used to refine oil are such that they produce a lot of pollution and waste substances that isn’t good for the environment. So in order to deal with this problem Habib Oil has differentiated itself and now it is using systems that do not cause harm to the environment. They have made huge technological investments in this area.
Habib Oil has also made production methods which are safe for the environment. This is being done as they are quite aware that how important it is to be socially responsible these days. Pros and cons: Pros: * When there is intense competition in the industry then its differentiating attributes helps it to stand out among the industry players and also helps it to maintain a good profitable growth. * Sometimes the differentiating factor is so unique that it becomes a symbol or creates a major association in the mind of consumers.

Cons: * One of the major cons of differentiation is that most of the features are easy for rivals to copy. * Sometimes in an effort to differentiate the company comes up with an attribute which is not perceived as valuable by the buyer and therefore he is not willing to pay the cost and hence the company has to face losses. * Over differentiating sometimes creates a product or a service that is not needed by the buyer.

* PORTER’S FIVE FORCES * Why porters five forces?
Two fundamental questions in developing a strategy are the attractiveness of industry and the company’s position within the industry. Therefore the essence of formulating competitive strategy lies in relating a company to its environment. Although the relevant environment is very broad, the key aspect of the firm’s environment is the industry in which it operates. The state of competition in an industry depends on porters 5 forces. The strongest force out of these becomes important from the point of strategy formulation. The strength of these forces also determines the profit potential of the industry.
Industry
Competitors

Potential
Entrants
Substitutes

Substitutes
Buyers
Buyers
Suppliers

Suppliers
Rivalry
High
Medium
Medium
High
Low

Threat of new entrants:
Is a lot of capital needed to enter the industry?
The industry is classified as labor intensive industry and there is not much use of extensive capital requirements. The machines that are used in the manufacturing process are quite inexpensive. In the processing stage the majority of processing units are pipes and vessels that are locally made. The content of local parts being used is high and the reason being that these parts can be easily manufactured in Pakistan. The machines required in packaging of the finished product also cost very less. * Are there any proprietary product differences in your industry?
There are no such proprietary product differences in the edible oil industry. * Does the new comer face any problems in obtaining the necessary skills or people?
The skill requirement for labor in the processing of edible oil industry is very basic. According to Habib oil the skill required is very nominal and types of employees are usually skilled or semi skilled. * Are there any established brand identities in your industry?
There are about some very strong branded companies existing in the market. The top players in the edible oil industry include Dalda, Habib oil, Soya Supreme. Some others include Rafhan corn oil. Kissan oil, Corroli, Tullo, Planta, Meezan and Seasons canola cooking oil. * Does your customer incur significant cost in switching supplier?
Buyers have the flexibility to fill their needs by switching brands because that does not require any significant cost. Therefore a new comer can easily get customers when he enters the market.
Therefore we can conclude that the Edible oil industry is such an industry where there are less entry barriers for any new entrant to come and make their place. For this reason the threat of potential entrants in this industry is quite high.

* Bargaining power of Buyers * Are there a large number of buyers relative to the firm?
There are a very large number of buyers of edible oil as it is a basic food commodity and therefore it is required by every household and family. * Is your buyer very aware and knowledgeable?
The consumer is basically illiterate when speaking of knowledge about the edible oil industry, they have no knowledge regarding the processes used in manufacturing and the fact that how important it is to consume an oil which has undergone proper refining, blending, heating and boiling. * Is your buyer aware of the need for additional information?
There are some health conscious people who are trying to be more aware and more knowledgeable consumers so that they can make a right decision of choosing that brand which is best for health. Majority of them are not aware and are not even interested. * What is the purchasing power of your consumers?
As far as purchasing power of buyers are concerned there are two types of buyers. One category includes those who have low purchasing power and this category constitutes the major segment of edible oil consumers .They prefer to buy loose unbranded edible oil. These buyers are targeted by the unbranded oil manufactures. As their purchasing power is low they have a high power over the edible oil firms
The other category includes consumers having high purchasing power (premium segment/tier 1). This segment is targeted by branded oil manufactures. The users of branded oil have low price sensitivity and therefore their power is low over the firms. Habib caters to these kind of buyers. * Is it easy for your buyers to switch?
The users of branded edible oil are hard- core loyal, they won’t switch because of the price differentials but they may switch because of the quality. However it is very easy for the buyers of the unbranded oil to switch as they are very price sensitive and are not all concerned with the brand. They just go for the company which is offering them the lowest price.
Conclusively We also know that the buyers of edible oil cant investigate or confirm that the manufacturing processes used by the company were following quality control criteria or not. Therefore theses branded buyers from the point of view of the ultimate consumers remain uneducated about the oil manufacturing processes, thus the power is not that strong. But we also observed that the buyers are getting health conscious with the passage of time therefore we can conclude that the buyer power is moderate. * Rivalry among firms * Is the industry growing rapidly?
The industry is not growing rapidly because it’s almost on the maturity stage. * The fixed costs of the business are relatively low portion of total cost?
The machines that are used in the manufacturing process are quite inexpensive. The machines required in packaging of the finished product also cost very less. The fixed costs out of total cost are not a very significant portion. * Are their any significant product differences?
The manufacturing process used by all the oil manufactures is very similar and there is no such product difference with respect to features or ingredients. * Are their any established brand identities?
There are about 13 large and medium sized firms competing on the basis of quality, price and marketing. These include Dalda, Planta, Habib, Soya supreme, Seasons canola, Sundrop, Kissan, Corolla, Pure cooking oil and Rafhan cooking oil.
There is a great deal of rivalry persisting among the top players of the industry – Dalda, Habib and Soya Supreme. All of them are struggling to either become the market leaders (Habib and Soya Supreme), or if they already are the market leaders then to maintain their current position (Dalda).
The companies also engage in head-to-head rivalry with each other through price wars and advertising. Habib for example some years back ran a campaign against Dalda Melange that it is mainly a deception and is not really ghee cum oil. Habib fiercely attacked the product, by advertising that oil should be very smooth and if it is not smooth and dilute, then it cannot be oil. Dalda Melange was very thick and thus this led its customers to believe that Dalda Melange is actually ghee and not oil. In order to counter this argument, Dalda Melange responded by saying that their product is “itna refined jitna zaroori hai”.
Besides, there are also companies that simply copy/imitate the market leaders and continue their business safely. For instance, Soya Supreme follows the “risk-free-texture”, that is they introduce products that are similar to oil/ghee that have been launched by either Habib or Dalda and are selling in the market, thus avoiding any kind of risk associated with the product. * Is the product complex and requires detailed understanding on the part of customer?
No, the edible oil is a very basic product and there are no such technicalities involved in its usage. Therefore it is a very simple product and does not require and detailed understanding.
Conclusively we can say there is a great deal of rivalry going on in the edible oil industry. * Threat of Substitutes
There are no direct substitutes of oil/ghee; as such in this market thus the threat of substitutes is quite low. However, a few of them that can be potential substitutes include the following: * Butter/margarine * Desi ghee * Flora margarine has been recently introduced in the market – this product claims that it is for the health conscious consumers and also claims that food can be cooked in it therefore we can say that it is a emerging substitute of cooking oil * Bargaining power of Suppliers
Suppliers of the industry can be categorized in to Domestic and Foreign Suppliers
The foreign suppliers usually import at a lower price than the price demanded by local suppliers. For this reason the power of local suppliers is low over the firm. * Suppliers
Suppliers of the industry can be categorized in to Domestic and Foreign Suppliers. * Domestic Supplier
The local supplier can be divided into two categories. 1) Agriculturist: Provider of cotton oil seed, maize, etc for oil extraction. 2) Provider of other supporting raw material to companies which includes supplier of chemicals, flavors, tense, tin and plastic bags used in packaging of oil.

* Foreign Suppliers
This includes supplier of imported seeds. Following are the names of some countries though are regular supplier of oilseeds: * U.S.A., * Argentina, * Vietnam, * Germany, * Nether land, * Brazil, * South Korea, * India, * Bulgaria, * Ukraine, * Poland and Australia

* Other stakeholders (government)
Government has established Pakistan Standards Institute (PSI) to monitor the standards that are specified and are met or not. These standards are relating to the level of refining or the type of packaging that is appropriate. However, government is not all that strong to impose their rules/standards on the organizations, and companies tend to break the rules/regulations frequently in order to save costs at the expense of the lives of the consumers.

PEST ANALYSIS
Forces outside the industry in the mega environment are significantly primary relative in a sense, since outside forces affect all firms in the industry, the key is found in differing abilities of firms to deal with them. The Pakistani environment has made a major impact on the procedures and strategies of the local firms as well as the multinationals operating here, as they have to formulate their tactics according to the customer psychology and culture that are prevalent in this country. Some major environments that affect the edible oil industry are discussed below: * Political Factors
As Pakistani environment is not very stable every time there is something or the other happening that rejuvenates the already existing problems. Secondly Government policies changes every now and then, which further give, rise to these problems.
Sometimes Govt. allows imports, which is a bad signal for the local manufacturers but a good point for the foreign manufacturers. All these things together make problems to the sale of the local products manufacturers because due to this instability nobody wants to create any trade relationships with Pakistan

Thirdly because of the political instability in Pakistan especially during the past decade and the rapid changes in government without even completing their tenure, a negative image has been created in the minds of the investors coming from abroad. * * Government
All the laws applicable to Pakistani industry are applicable to Edible Oil Industry also government of Pakistan has established some supporting organizations for the development of different industries of Pakistan, such as Export Promotion Bureau and Federal Board of Statistic. These governmental bodies help the edible oil/ghee manufacturers in supplying information regarding the oil trends in various parts of the world. They provide data relating to those countries that have demand for oil/ghee but a shortage in the local market, and about those countries that are the largest exporters of oil/ghee and pose a threat to the Pakistani market. * Economic Factors
Pakistani economy keeps on fluctuating with the passage of time. In Musharaf’s era we could see stabilizing of economy and gradual removal of trade barriers, thus helping the Pakistani business enterprises as well as the MNC’S to enjoy the benefits of rapid growth. The accelerated growth in GDP coupled with the positive economic environment of the country had enabled the edible oil manufacturers to reap the benefits of increasing their production every year. This had also impacted the edible oil industry in the sense that the buying power of people had improved. At present Pakistani economy is again facing a downturn. From the last year the economic conditions are getting of worse and the economic crises in the country is affecting everybody. The GDP this year has declined to 5.8% and the country witnessed terrible inflationary pressures with Food inflation registered 15.49 percent growth during the period under review. Non-perishable food item prices increased 14.76 percent whereas perishable food items recorded 21.30 percent increase in their prices. In such a situation the lower income strata and the middle income strata are founding it almost impossible to make their both ends meet. Only the purchasing power of higher income strata are not affected much. Additionally the government has increased the sales tax that worsen the situation because through this price of the single tin of oil increases. * Socio cultural Factors
It has been seen that the health awareness among masses is also increasing day by day; therefore people are shifting from oil to ghee. Previously a large chunk of the population was hard core loyal of ghee/Banaspati. Under no circumstances were they willing to settle for a taste less than what was produced by ghee. however this major segment of loyal ghee lovers have been transforming into a minor segment with a majority of people shifting from ghee to oil .majority of the population has now become health conscious individuals who prefer oil and have discarded the use of ghee/Banaspati in preparation of food, due to health related reasons. Thus there is a huge demand for oil this part of the world. For the small segment that prefers using ghee, the manufacturers have launched extensions of their brands that is to produce oils as well as ghee.
Besides, the increasing trend in population has also ensured that the sales of the oil/ghee continue at a steady or rather increasing pattern. * Technological Factors
Pakistan is not very advanced while talking on the technological aspect. However during the last decade we have seen a rapid growth in the technology that has impacted every industry. Office automation systems have become a necessary part of office operations. Production has also become easy, quick and accurate with the help of technology. With the advance in technology the expectation of the people has increased. . The Local manufacturers face the problem of adopting new technological advancements because they don’t have enough resources available with them to acquire new and mechanized machineries very often. Multinationals get benefited from their parent company with respect to technology and resources.
The basic techniques used in production of edible oil are rather similar for all the companies. The difference lies in the projection of the brand by the company and the image that they want their brand to acquire in the consumers’ minds. In most of the companies having branded oils, automated methodology is adopted to manufacture the oil. A few oil manufactures have acquired ISO 9000 certification and some are passing through the implementation phase, other still lag far behind. The management of major oil companies alike Dalda and Habib are keen to take environmental initiatives but most of the unbranded manufactures don’t have the resources to do so.
Since it is perceived that environmental protection calls to large extent for technological investments with low or nil payback, it is natural that most of the companies tend to postpone the environmental protection act as long a possible. There is an intense need for new methodologies so we can reduce the environmental hazards.
Some of the dangerous environmental hazards include: * Wastewater – this is generally caused directly from processes, mainly from neutralization of oil. Wastewater results in pollution load and concentration on the atmosphere.

* Solid waste – solid waste generations from the oil mills are mainly in the form of spent earth, filter cloth, and spent catalyst. Though most of this is used in by-products, however, the carbon oil extracted from theses elements can be harmful to the surroundings.

* Soil contamination – this can be seen around oil storage tanks in oil mills due to spillage on uncovered ground. This also poses the risk of contaminating the ground water.

* Air emissions – major sources of air emissions are generator exhaust and emission from the gas cracking unit. From both the sources carbon monoxide is emitted in high concentration.

* Noise emissions – industrial equipment and machinery create high noise levels during operation. The main noise sources in edible oil industry include: steam ejectors, tin can manufacturing unit, gas cracking unit, boiler building, hydrogen compressor and ammonia compressor. The noise levels from some of the above sources are higher than the permissible limit given by ISO 14000
There can be in-house improvement measures related to waste reduction at source and adoption of environment friendly processes. At the same time, a number of cleaner production technologies also need to be implemented in order to minimize the level of pollution as well as increase the efficiency of energy use.

* In the edible oil industry, the environmental changes that can be foreseen are

* Firstly, the regulations of World Trade Organization to have liberal import policies. These regulations may affect the local industry. * Growth is the main trend concerning the edible oil segment, which is growing at a rate of 12.4% per year. * Catering to the needs of diverse, demanding and aware consumers and the employees, so as to keep them satisfied and to keep them from running away or switching. * Moving with the ever-changing technological advancement and adopting the new technology rapidly. * Foreseeing changing customer attitudes, trends and tastes, so as to remain alive in the market. * To be the pioneers and innovators of any new product, which caters to the mass market of the Pakistani population

ISSUES OF EDIBLE OIL INDUSTRY * ISSUE # 1
Substandard processing and product
Due to the fact that there are no such strict government regulations on the edible oil manufacturers, a lot of local oil manufacturers are using substandard processes. The packaging machines used in the edible oil industry are quite cheap. This has encouraged the small investors to invest in this market/industry and produce low quality Product. The producers generally purchase the packaging equipment, while the other process is done in a substandard manner. That is, the manufacturers just boil/heat the oil on a normal stove, without undergoing any kind of refining or blending and using the packaging machine to pack the oil/ghee sell off their product. These sellers are selling this low quality, least refined oil at a market price or slightly lower than the markets rates prevailing in the mark. This has hindered good reputable companies to sell there product in the market because the customers are not so literate. The cost of production of these companies is very high because they are fulfilling the standards determined by the Pakistan Standard Institute. The customers don’t really know that the companies though are selling at a slightly lower prices are not selling the right product.
Recommendations
The players of the Edible Oil Industry need to educate the public/consumer that why are they charging a high amount as compare to loose and low brands. The companies have to create market awareness, as already discussed that consumers are becoming health conscious. This can be a company effort or combine efforts of the premium quality edible products, may be via Pakistan Banaspati Association. This kind of a strategy can avoid easy entrants in the industry .this will also discourage the local manufacturers who do not follow the quality specifications. * ISSUE # 2
Dependence on imported oil
(Low production of edible oil seeds, high amount of foreign exchange is invested in importing crude oil and increasing crude edible oil prices).
A very important aspect here to mention is that until 1970,s we were self sufficient in edible oil production but after that the share of imported oil has been increasing rapidly to meet the growing demands .Pakistan spends second largest amount of foreign exchange on the import of edible oil (average 700 million $ per year) and 70% our demands requirements are met through imported oil. Our local farmers are hesitant to cultivate oil seeds because they are not sure that whether their product will be sold in the market at the right price or not, because the imported edible oil price is lower than local oil price. This indicates that are edible oil manufacturers are largely dependent on imported oil which is not good and economically viable in the long run.
Recommendations
The edible oil industry is agro based and Pakistan being an agrarian economy lacking in oil seed cultivation seems to be a shocking thing. There is a strong need for the government to Pakistan to protect the local suppliers of oil and farmers and provide subsidies to them so that they cultivate the oil seeds in sufficient amount and thus we can at least we can again try to become self sufficient in our edible oil production and save our foreign exchange. The government already knows the importance of this matter. The government has taken various steps regarding this issue and formed certain association to encourage the production of oil seeds. But the current situation (Data form SBP annual report, Economic survey and other sources) reflects that issue is still unresolved.
The government needs to consult industry specialist of our country and other countries though can assist the government to come over with this issue. The Pakistani farmers and manufacturers also have compromise on some of their benefits in order to get a long term gain for the country.
ISSUE # 3
Counterfeiter brands
Because of the fact that edible oil sector is unorganized and entry is easy there are Counterfeit oil brands existing in the industry. These counterfeiters copy the product of existing market leaders and sell them with inferior quality. These counterfeiters just by charging a little low price are playing with the lives of consumers. This also affects the sales of the original companies.
Recommendations
The companies should try to create brand awareness and make the consumers knowledgeable about these counterfeiter brands, so the consumers don’t get fooled by these counterfeiters. * ISSUE # 4
Environmental hazards
The Edible Oil Industry has created great hazards to the environment. This issue is already in the notice of the government but the government is not taking any action right now. The companies have certain important responsibilities towards the environment and need to take concrete measure in order to gain long term benefits.
Recommendation
It is recommended that in-house improvement and adoption of cleaner technologies be undertaken immediately. The in-house improvement and adoption of cleaner technologies have the potential to reduce the pollutant.
Environmental Management Systems (EMS)
Edible oil mills in Pakistan should implement Environmental Management Systems (EMS) in their industries for a better, environment Friendly management. The companies need to hire management though have experiences in some what same area, because the release of gasses during the process is the normal phenomenon in many industries, for example Textile Industry. * ISSUE # 5
Unaware consumers
The consumers don’t know have the proper knowledge about the storage and usage of the edible products, thus creating an unethical stance for the organizations in this industry.
Recommendation
The consumers should be educated about how to store a product. Some precautionary measures should be communicated either through advertisements or print material on the package or tin. The ads should also tell the consumers that Banaspati (Ghee) should not at all be consumed by the heart and blood pressure patients but none of the organizations teaches this to the consumers. Mostly consumers get to know about this from their doctors. The reason the company needs to educate their consumers because the companies, otherwise, are damaging the trust of innocent consumers. We have the example of cigarette industry who clearly state in their advertising as well as on their cigarette packets that how important the health issues are. * ISSUE # 6
Market saturation
The edible oil industry seems to be very saturated with about 183 small and medium size enterprises operating. There are about 10 big players with Dalda, Habib and Soya Supreme Being the top three.
Recommendations
The best way to differentiate is to be exceptional in value addition. Only making the oil tin or package more attractive is not enough. The companies should try to communicate that how their particular brand of oil is of a greater value as compared to other brands by mentioning the health benefits which the consumers would get by using the product. This can be ensured through heavy promotional campaigns and bright new selling ideas. * ISSUE # 7
Smuggling
Smuggling is also an important factor which affects this industry. Government estimates that .87 million tones of oil is smuggled into Afghanistan every year and 0.05 million tones is smuggled to Iran as well.
Recommendation
The companies can export oil to the areas where oil is being smuggled .if the demand of local people in the smuggled areas will be fulfilled in the right way they wont need to smuggle oil for Pakistan. Also the Recent developments in Afghanistan have allowed the oil companies to export their oil to Afghanistan. This was only possible due to the improved road link.