Business Strategy of Associated British Foods Assignment

Business Strategy of Associated British Foods - Assignment Example In relation to the study the company which has been selected is Associated British Foods, an international public limited company that has its headquarters in London. The company was established in 1935 and is the leading British supermarket chain as far as production of sugar and baker’s yeast is concerned. The company has five strategic business units: Sugar, Agriculture, Retail, Grocery and Ingredients. The grocery division stocks both branded and own label products. Brands that fall under its grocery division include Mazola, Ovaltine, Ryvita, Jordans and Twinings, Silver Spoon, Tip Top and Kingsmill. The company’s retail division (called Primark in UK and Penneys in Ireland) has a global presence with over 215 stores covering a total area of 6.9 million square feet. The retail division’s outlets are located in Belgium, Germany, Ireland, the Netherlands, Portugal, Spain and the UK. In 1963, the company acquired the British supermarket giant, Fine Fare which it sold later in 1986 in order to acquire British sugar. As of 2009, British Sugar fulfills the sugar requirements of more than half of UK. Finally, in 2007 ABF acquired an Indian food business. The company provides employment to more than 97,000 people and operates in more than 44 countries. UK contributes to around half of the company’s sales and profits. ABF has been rigorously diversifying into other markets than Sugar since early 2000s which is a crucial aspect of its strategy. ABF acquired ‘Twinings’ in 1964 to broaden the range of national and international marketing resources available. (Whittington, R. and Mayer, M., 2002). To date Twinings has been an asset in the company’s portfolio as it enjoys strong brand loyalty and has had a pull effect which has increased sales of other brands within ABF’s portfolio (Whittington, R. and Mayer, M., 2002).ABF further diversified into the food business with the intention of providing one-stop convenience shopping to customers; the company had realized that customer buying habits and trends were changing (Whittington, R. and Mayer, M., 2002). One of the most important reasons however was the instability of earnings from sugar sector due to its seasonal nature, coupled with the anticipated EU reform (Bertin, O., 2002). Another crucial aspect of ABF’s strategy has been its diversification and growth strategy. The company has, over the years, expanded to sectors beyond sugar which is a conscious and well-thought out strategy based on strong reasoning. Firstly, the highly debated EU sugar reform intended to cut surplus in sugar beet production by slashing prices by an exorbitant 43% which would adversely affect the company’s earnings (Bertin, O., 2002). Secondly, sales from the sugar business were subject to seasonal fluctuations which had to be recovered from non-seasonal businesses so the diversification to other lines such as retail, ingredient and grocery was well just ified for ABF. (Bertin, O., 2002).Thirdly, world markets had become very unstable especially in the years following 2000 because of which its sugar line was capable of being harshly affected (Cherney and Elena, 2001). Furthermore, its sugar industry was highly dependent on the local UK economy for raw materials and output which made it undesirable for the company due to the country’s history of slow recovery from economic recessions so its diversification was justified. (Cherney and Elena, 2001). Therefore, it is evident from the reasons mentioned above that the company was formally employed in the sugar industry; however, it spread its operations to other unrelated sectors such as grocery, retail and ingredients (Austen and Ian, 2007). A key aspect of ABF’s diversification strategy has been its geographic diversification. In 2006, it got hold of Illovo; a South Africa based company which it has used as a means of penetrating deeper into the South African sugar market and could