Bellamy’s Marketing Report Tutoring Service

Introduction

Bellamy’s was founded in 2004 as a Tasmanian based producer and seller of a range of organic food and formula products for infants, toddlers and babies. It offers the infant formula, snacks, cereals, toddler milk, rusks, ready to eat baby food pouches and pastas (Bllomberg, 2020). The company is listed on Australian Stock Exchange and operates in Fast Moving Consumer Goods (FMCG) sector in Australia (Bllomberg, 2020). It is by far Australia’s largest organic infant formula producer with its operation at 8 number of locations in Australia (Bllomberg, 2020).  The company supplies its products to supermarket chains, pharmacy chains and independent stores in Australia. It also sells its products directly to customers through online sales portal (Bllomberg, 2020). Moreover, it also exports its products to international customers in Singapore, Hong Kong, China, New Zealand, Vietnam and Malaysia. It has its international offices in Shanghai and Singapore (Bllomberg, 2020).

Bellamy’s is operating in baby food market in Australia that has witnessed a positive CAGR of 13.4% in 2013-18  (KEN Research, 2019). The market is at growth stage of its lifecycle in Australia as Australian consumers are moving more towards healthy chemical free nutrtion and organic baby food (Euromonitor, 2020). The major domestic competitors of Bellamy’s remained to be Bubs Organic, A2 Milk Co. Bio Bambino, Holle Baby Food and Rafferty Garden.  More than half of the market (65.0%) is captured by the international players like Danone Group, Nestle SA, Kraft Heinz and PZ Cussons (KEN Research, 2019) due to their huge global presence and brand name  (KEN Research, 2019). However, the basis of competition in the current market had been aggressive marketing, competitive pricing, distribution channel competition, innovation and diversification in Portfolio  (KEN Research, 2019).

Problem Identification

According to Spardlin (2012), most companies fail to define the exact problems in their operations that must be resolved during development of new products and before expanding into new markets. Without rigor, the companies can miss on the opportunities, waste resources and end up pursuing the failed innovation initiatives that do not best align with their strategic goals (Spardlin, 2012). Similar problem happened with Bellamy’s. It failed to understand the main reason of its staggering sales in China despite of rebranding its product line for including Omega 3 and GOS (probiotic) for addressing changing customer demands during 2019 (Gray, 2019a).

Bellamy’s have been selling its products in China, but has had trouble getting the required Chinese approval for its infant formula to be sold in retail outlets in China. Many factors had contributed to falling shares of Bellamy during 2019 as its full year profit squeezed by almost half to reach $21.7 million (Sydney Morning Herald, 2019). The company had to face falling revenue by 19% during 2019 particularly because of lower birth rates in China, stiff global competition in infant formula market and strict regulatory changes in Chinese market (Gray, 2019).

For over two years, the company had been blaming the regulatory regime of Chinese market and lower Chinese demand as contributory factors of its crumbling share prices and squeezing profits in infant formula industry. Surprisingly, when on one hand Bellamy’s was facing demand challenges for its products, the two major competitors Bega Cheese and A2-Milk enjoyed top earnings in Asian markets including China. This re-affirmed that the Chinese market and Asian countries had strong consumer demand for infant formula while signaling that the demand related problems faced by Bellamy’s were specific to that company only.

The deeper analysis revealed that Bellamy’s had been facing cost related issues because of bad links between itself and its suppliers  (Robins, 2016). Moreover, Bellamy’s had been facing company-specific challenges like under-investment in marketing relative to its competitors, poor distribution and product discounting due to which its brand image got tarnished in developing nations like China  (Robins, 2016). Its cheap pricing strategy is also creating a consumer perception of inferior quality Bellamy’s products. Moreover, its over reliance on unpaid and unofficial online sales agents in China has caused its sales to drop for over past five years. It can be said that the factors attributing to Bellamy’s failure in its Chinese market voyage include its poor distribution and faltering pricing strategy (Robins, 2016).

SWOT Analysis

SWOT analysis is a useful technique through which organization’s internal and external environmental sources of influences can be identified. It includes the systematic and detailed examination of internal and external factors that affect the business at some time. The box below shows the weighted and Active SWOT analysis for Bellamy’s.

Criteria of Evaluation & Rating:

1. Importance: This score will show the importance of strengths, weakness, opportunities and threats for the organization in its industry. A number from 0.01 (not important) to 1.0 (very important) will be assigned to each SW and OT. The sum of weights will equal to 1.0 for each S, W, O and T.
2. Rating: This score will indicate that whether the factor is major or minor for the company. A score scale of 1 to 3 will be given where 1 would mean “minor strength/weakness” and 3 would indicate a “major strength/weakness”. Moreover, 1 would mean “minor probability of opportunity/threat” and 3 would mean “major probability of opportunity/threat”

Key Objectives to be Achieved

Following key objectives are to be achieved from proposed position below;

• Mass distribution with stronger presence in tier 1 and 2 cities
• Heavy brand marketing for creating consumer pull
• High marketing budget on promotions, instore promotions and point-of-sale displays
• Taking control of distributor relationships for optimizing supply chain network
• Prioritizing geographic regions and establishing focus
• Taking control of key accounts and pricing in China
• Strengthening the offline team and establishing sales units in North, East, West and South China.

Current Position & Proposed Position

Despite of China being the leading baby food sales market, Bellamy’s failed to entice strong growth and sales (see figure 1 below). As seen from above, the major issues with Bellamy’s were in terms of its poor distribution strategy in China, low marketing budget and poor product portfolio (Bellamy’s Organic , 2019).

Currently, the company is investing only 4% on marketing channels with heavy dependency on Daigou traders in China (Morgan, 2017). On basis of the identified opportunities and strengths above, the following strategies are developed. 

• Using Online and Online-to-Offline marketing strategy in China

Bellamy’s is recommended to invest almost double (8%) of its revenue on marketing campaigns including online and online-to-offline strategies. It would use O2O for enticing consumers within a digital environment to make purchases from physical stores established in China (Bellamy’s Organic , 2019).  Running extensive marketing strategy would drive demand from both offline and online customers in China effectively (see figure 3 below for major e-commerce landscape in China). All the channels (Daigou, flagship stores, e-commerce, social communities and marketplaces) will be used for increasing its presence in Chinese market (Bellamy’s Organic , 2019). Using O2O strategy will be beneficial because according to survey by Kantar Apparel, 90% of offline transactions involved online browsing and 60% of online transactions involved offline browsing in China (Bellamy’s Organic , 2019).

• Shift to Active Role in Chinese Distribution

It is recommended to Bellamy’s for moving away from passive distribution strategy to controlled one over next 3 years. Currently, the company has a general distributor (Daigou) who owns and controls account relationships, pricing & promotions and customs and logistics. Due to this, Bellamy’s sales already dropped as bad relations with Daigou traders are shifting customers to A2 Milk (New Zealand based competitor). By transiting to more active role, Bellamy’s will initially control key accounts and pricing & promotions while the general distributor like Daigou and market places will control logistics, customs and secondary accounts. After a few years of this active management, the company would be suggested to eliminate the general distributor and control all aspects of offline management. This will give Bellamy’s the power to negotiate prices and manage demand in China directly (see figure 4 below for proposed model).

Conclusion

Despite of being the global leader of organic baby food provider, Bellamy’s need to make certain changes to its supply chain. It needs to make contracts with local milk pools for reducing costs. Moreover, apart from above recommendations, it should shift from single source supplier (Bega Cheese Ltd.) to competitive sourcing. Currently, Bellamy’s has 12 contractual packing and manufacturing facilities across Australia with TMI as its major manufacturing partner. (Bellamy’s Organic , 2019) In order to improve its growth and development in future, Bellamy must secure other suppliers as well. This will not only reduce its cost, but will also allow it to increase its availability. Moreover, by resetting the logistics network and gaining contracts with 3PLs, it can improve its trading and logistics chain. Purchasing blending and canning units like Camperdown has already given Bellamy’s an advantage for upgrading its production processes  (Bellamy’s Organic , 2019). Yet, developing partnerships with organic milk pools like Fonterra and ACM can support its organic processing abilities. Moreover, it should also consider developing products outside baby category range like “ready to go” drinks for all-ages.