Mgt 482 - Business Strategy Report for Quaker Oats

Business Strategy Report for Quaker Oats

Strategic Management (MGT 482)

May 23, 2002

Abstract

Organizations use strategies to impact their performance against competitors in their respective industries. The process by which managers choose a set of strategies for the enterprise is the strategic management process. (Hill & Jones, 2001, pg. 4) This report will discuss a business strategy report for Quaker Oats Inc.

Business Strategy Report for Quaker Oats

The Quaker Oats Company was officially formed in 1901 when several American pioneers in oat milling came together to incorporate the company. In Ravenna, Ohio, Henry D. Seymour and William Heston established the Quaker Mill Company and registered the now famous trademark. The Quaker Oats Company is based in Chicago, Illinois and is now a division of PepsiCo. As indicated in figure 1, Quaker's star products consist of Gatorade, Quaker Oatmeal, ready to eat cereals, grain based snacks, and Golden Grain products, such as Rice-A-Roni. (See Figure 1)

"The first component of a strategic management process is defining the major goals of an organization." (Hill & Jones, 2001, pg. 7) There are three guiding principles or "mission and goals" guiding Quaker Oats, " Simplicity- To succeed, our energy and resources must be concentrated on the areas where we can produce the greatest value. Innovation- To flourish, we must be an idea-rich organization, where innovation and creative spirit thrive in all aspects of our business. Passion- To win, we must have an uncompromising drive for success, individually and collectively." (www.QuakerOats.Com)

An analysis of the organization's external operating environment is the second component of the strategic management process, which includes, opportunities and threats.

Quaker has opportunities to target new markets with its product, Gatorade. Young children and the elderly population are not currently target markets for Gatorade products. Quaker has been successful with expansion in Latin American countries, but increased marketing and promotional efforts could produce greater Latin American results. These efforts could also prove successful in Asian markets, where Quaker previously experienced some losses.

Possible threats to Quaker exist in their competition. Gatorade's chief competitor is Powerade Sport's drink, a Coca-Cola product. Coca-Cola is a large company with consistently proven marketing strategies. Coca Cola has the distinction of being an American icon and shows no signs of faltering in the near future. General Mills is a top competitor in the cereals, baking products, and fruit bars. Bestfoods is a general foods competitor. These companies are well established and Quaker concentrates on them as a greater threat than new entrants to the food arena..

Changing consumer need is also a potential threat to Quaker Oats Inc. If consumers needs for sports drinks or Quaker's other products diminish or if science offers new and better drink supplements, grain bars, or cereals Quaker's sales could suffer.

As for an internal analysis of Quaker's strengths and weaknesses, some of Quaker's strengths are the company's collection of " Star" brands. Gatorade, Quaker Oats, Quaker Rice Cakes, Chewy Granola Bars, and Rice-A-Roni are leaders in each of their respective categories. Quaker is also a leading manufacturer of pancake syrups and mixes with its Aunt Jemima brand. Quaker is among the four largest manufacturers of cold cereals with popular brands like Cap'n Crunch and Life.

Quaker's other strength is its merger with PepsiCo in August of 2001. The merger made Quaker a wholly owned subsidiary of PepsiCo and created a $25 billion food and beverage company focused on the rapidly growing consumer demand for convenience.

A possible weakness for Quaker exists in its 2001 energy management agreement with Enron Energy Services. Enron Energy Services, a subsidiary of Enron Corp. filed for bankruptcy earlier this year and had received negative press from the media after losing

millions of dollars for shareholders and employee's.

Quaker and Enron entered a ten-year, multi-million dollar energy management agreement, which covers 15 U.S. Quaker facilities located in 11 states and two facilities in Canada. Through the agreement, Enron will manage the supply of electricity and natural gas and will provide operations and maintenance on energy assets.

Quaker has started implementing many functional strategies for the organization's continued success. Quaker has been concentrating on cutting costs by becoming more efficient, they try to differentiate Gatorade in the market as much as possible. While Quaker has cutback in many areas they continue to expand rapidly with the Gatorade line. Plans for Gatorade include building a new North American Beverage Division manufacturing facility in Indianapolis. The facility will add 200 additional jobs to the 230 people presently employed. Construction on the $115 million project began in September 1999.

The structure of Quaker Oats has been one of the most dramatic changes for the company. An elimination of $65 million