Part 1− Organizational Analysis:

Ceylon Biscuits Ltd was founded in late nineteen sixties by under taking contract fromSri Lankan
government and Care International (USA) to manufacture protein enrichedbiscuits for Sri Lankan school
children as a mid day meal. While dealing in this contractmanufacturing for the Care International, it
was noticed by the company that excessproduction capacity was there. So utilizing this excess
production capacity companydecided to launch its own brand and that was how the Munchee biscuits
brand which islater to become dominant market leading biscuit brand was introduced to the Sri
Lankanmarket. Till late nineteen nineties Munchee was not the dominant biscuit brand in SriLanka. Till
that time from the starting of the Ceylon Biscuits, the company was engagedin contract manufacturing
for Huntley and Palmer of associated biscuits UK other thanproducing biscuits for Care
International.From the beginning of new millennium, Munchee brand started aggressivelyinvading the
biscuits market of the Sri Lanka and now the company Ceylon Biscuits hasbecome one of the largest
privately owned group of companies of the Island. With thedawn of the new millennium, Ceylon Biscuits
launched its diversification drive by settingup its wholly own subsidiary CBL Foods for chocolate, cake
and jelly production and atthe same time CBL took controlling share of Lanka Soy, Convenient Foods
(Samaposha)and Cecil Foods so that the company has now in a position to offer diverse of products
tothe food market of the Sri Lanka.Vision of the Ceylon Biscuits Ltd is to become leader in confectionary
in SouthAsia with a global presence and recognition. As a privately owned group of companies,CBL
group has no clearly explicit mission. Instead what the company CBL does isadapting set of marketing
objectives, like increasing market share of a certain brand bysome percentage for achieving each
year.Today CBL group’s core business is food manufacturing and initially it waslimited to biscuits
manufacturing. Then the company moved to manufacturing of chocolates under the brand name of
Ritzbury, and also manufacturing of cakes under thebrand name of Tiara and also wafer biscuits
manufacturing under the same brandMunchee and recently company ventured into production of
instant jelly under the brandname of Go Jelly. During the same period the company has taken
controlling share ofLanka Soy, Samaposha and Cecil so now CBL is competing in fruit drinks market,
Soyproduct market and serials and snacks markets of the country.In term of market share the flagship
brand Munchee is holding over 60% marketshare in the biscuit market of the country and cake brand
Tiara is holding around 80%market share by almost whipping out other competitors in the market. At
the same timeother dominant brand Ritzbury is having 50% market share in the chocolate slab
marketand over 70% market share in chocolate coated product market. So it can be concludedthat in
areas of biscuits, cake and chocolate markets, CBL has been market leader in theSri Lankan market for
past few years and most likely the company would be able tomaintain its dominance in the market.Fig: 1
Munchee Biscuits market share in the market.
(Source: AC Nielson retail audit)2.
Chocolate Slab market share of Ritzbury for year 2010 (Source: AC Neilson retailaudit)

When it comes to explain resources availability of CBL group, over 2000 work force isemployed by the
group in their, Pannipitiya, Ranala, Minuwangoda, Ratmalana andKandy factories. Land area of
Pannipitiya plant was fully filled with plant buildings andno further building expansion is possible there.
In Ranala plant, which is nearly a 13 acrefacility, only small land area is available for future expansion. In
term of land areaavailability, situation of premises such as Kandy, Minuwangoda and Ratmalana are
alsomore or less same as above. Therefore the group has invested in SeethawakaIndustrialPark and
where group is going to set up their new production facility solely for exports.As company vision says,
CBL is targeting vast market opportunities in the subcontinental Indian region, the group has already
bought land in Bangladesh for its firstoverseas manufacturing facility.So far the group has been
operating as a privet limited company which is nowalmost 12billon Rupees Company, is in the process of
considering to become a publiclimited company as company has grown too big already and also huge
investments are indemand in order to make sizable presence in the IndianƒBangladesh markets.

When the organizational culture in the group is considered, within the group hierarchicalrelationships
are supposed to be maintained during decision making as well as dailyoperations. There is presence of
trade union (Inter Company trade union) in CBLPannipitiya of which employees are enjoying high
bargaining power than other factoriesof the group where there is no unionized environment available.4
 Part 2 − Business environment and strategic orientation of the organizationCeylon Biscuits Limited was
once a small manufacturing firm engaged in contractmanufacturing in the beginning of 1970s and now it
has become the largest biscuits, cakeand chocolate manufacturer in Sri Lanka while exporting its
products over 60 countries inthe world. Throughout the journey of CBL from a small biscuits
manufacturer to adiversified leading business group in the country, one of major remarkable major
strengthcan be observed. That is strong corporate leadership of the chairman and the director board.
Under the farsighted corporate leadership of the company, the company hasaggressively expanded its
operation, has achieved dominant market shares in its all major product categories and also has
invested heavily in new plants, factories, technologies inorder to sustain and improve current level of
aggressive market performance of thecompany.During the recent history CBL, the group has won
several awards givingtestimony to excellence performance of the company. Some of which can be
mentionedas follows.•Food Award of Excellence in Confectionary•Product Brand of the Year for four
consecutive years•Brand of the Year for two consecutive years (Awarded by Sri Lanka Institute of
Marketing)•Winner of Gold for Innovative Brand of the Year (Awarded by Sri Lanka Instituteof
Marketing)•Innovative Brand of the Year (Awarded by Sri Lanka Institute of Marketing)•Winner of Gold
for Industrial Excellence in the Extra Large category at theAnnual National Chamber of Industries
Achievers (CNCI) Awards•Gold Award in the Extra Large Category Exporter − Agriculture Value
AddedProducts (Awarded by National Chamber of Exporters)•National Award for Export Excellence
(Awarded by Ministry of Trade andCommerce)

With those awards together with excellent marketing efforts of the company, Muncheethe flagship
brand of the CBL group has become the strongest food brand currently in SriLanka. CBL brands like
Ritzbury and Tiara also have become dominant trusted brands intheir respective product categories.
Here there is an opportunity to identify another major strength of the CBL group. That is strong brand
images of CBL products. The groupname CBL itself is becoming a trusted brand for quality in the Sri
Lankan marketproviding definite strength for the group to achieve its ‘crowning success’.Well
established sales and distribution network of CBL also can be considered asstrength of the company. CBL
distributes its products through 60 agencies and 400dealers located island wide and products are
available in over 80000 sales outlets islandwide. Furthermore company has close ties with international
distributors in India andSingapore so that company is in a position to export its products to 60 countries.
Duringrecent past CBL group has been able to widen market share of its product portfolio year after year
and efficient and well organized sales and distribution network of the group canbe observed as a major
contributor of recent success of the company.For some of products like Samaposha, Nutriline Rice Pops,
Nutriline Serial Bars,Cecil Fruit Drinks, company purchased raw materials such as grams, green grams,
crown,rice, peanuts etclocally. In order to source these agricultural raw materials in requiredquality and
quantity, company has set up farmers’ network in Ampara and Wellawayaarea. The company has
appointed an agro technologist to coordinate closely with thesefarmers’ networks and provide
necessary technology and guidance from selecting seedsand preparing of farming lands to collecting and
storing harvests in a way that bothcompany as well as farmers is benefited, so that quality and price
standards of rawmaterials are maintained. This farmer network also can be considered as strength of
theCBLgroup.In early days of the company, most of production machineries were
reconditionedmachineries imported from the Europe. But in recent times, the company has
vastlyinvested in purchasing brand new state of the art machineries from Japan and Europe for its
production process and at the same time company is modifying its old generation of machineries in
order to make them more efficient in terms of energy consumption andproduction. This modernization
of machinery and equipments and technologicalinnovation are also can be observed as strengths of the
CBL group.The company has established well organized product and process qualitymanagement system
for which company has received ISO 9001 certification. And further CBL Pannipitiya factory has met ISO
14000 environmental quality standards and alsoCBL Ranala factory is also working towards obtaining ISO
14000 environmental qualitymanagement system. Cecil, Samaposha and Lanka Soy factories are also
having ISO9001 certified quality management systems and also their products come with
SLScertification. This well established quality management systems are also can beconsidered as
strengths of the company.CBL group is highly engaged in research and development activities related
tobiscuits and chocolate manufacturing. CBL is in a process of offering local low cost andsame quality
equivalents of international market products coming under brand namessuch as Cadbury and Nestle etc.
Some of international products formulas are protectedunder patents and high royalties are to be made
for getting them for local use. So CBL isinvesting in R&D related to developing those product formulas
locally and these R&Dactivities can be mentioned as strengths of the company.As a summary, following
things can be observed as strengths of CBL group.• Strong corporate leadership• Well established sales
and distribution network • Strong brand images and “excellent sales force”• Well organized farmers
networks• Technological innovations• Well established qualityƒenvironmental management systems•
R&D capabilities• Setting up of a management information system

Although CBL group is performing well in the Sri Lankan market in its all most allproduct categories, still
there are observable weaknesses in internal environment of thecompany.In chocolate coated product
market, although the company has become the marketleader with over 70% market share, production
capacity is insufficient to meet forecasteddemand for products in the market. In recent times, attempts
for increasing chocolatecoated product production are being made with new investments for
machineries and stillthere are available sales losses due to this insufficient production capacity. This can
beseen as a weakness of the group in relation to the chocolate production.Due to a court order of Indian
trade court, two biscuits plants were operating inCBL Ranala factory, have to be sent back to India and
now dismantling of plants arebeing done. Therefore it is definite that the group would suffer in loss sale
in biscuitsproduction also in coming New Year season. So it is another weakness of the
company.Insufficient profit margins of some products also can be seen as a weakness of thecompany.
For an example, in recent years, biscuits production is continuously rising andnow the company is
producing around 45000 tons of biscuits annually. Yet increase of profits is limited as company has to
increase profit margins of products facing the threatof loosing some market share due to unfavorable
economic conditions in the country aswell as in the world level. Furthermore the company is depending
on single wheat flour supplier and this can be considered as a weakness of the company.Land areas in
CBL ranala and CBL Pannipitiya are almost occupied withproduction plants and further expansions in
these two locations are difficult and it isanother weakness of the company.Attention for efficient energy
consumption and cost saving is low as in the presentcontext the company is continuously operating
profitably. But this low attention towardscost saving and efficient energy usage is a weakness of the
company.
 As a summary following weaknesses can be mentioned.• Dependence on single suppliers for critical
raw material (eg: wheat flour)• Insufficient production capacity of some product ranges.• Dismantling
and sending back two biscuits plants to India.• Low profit margins of some products.• Limited land
availability in Ranala and Pannipitiya plants• Unavailability of cost saving approaches• Unavailability of
energy saving approaches.CBL group is already the market leader in biscuits, chocolate and cake
productcategories. With the end of terrorism in north and east of the island, new market isopening up
for the company. So there is an opportunity to widen dealer network of thecompany to north and east
of the country and make use of market opportunities for further production expansion. Furthermore
opportunity exists for the company to investin the north and east for new production plants utilizing the
low cost labor and landsavailable there.Indo Lanka free trade agreement also can be considered as an
opportunity for theCBL group. As the company vision says what CBL long term plan is to become
thelargest confectionary manufacturer in the South Asian region. So getting maximum useof vast Indian
confectionary market is a must for achieving long term companyobjectives. In current context CBL is not
in position to compete with Indianmanufacturers in low price category. Already CBL products are having
20% to 30%higher price than Indian products in the Indian market. Yet in terms of product qualityCBL
products are much better than competitive Indian products. So among 250 millionand yet expanding
Indian middle class population who is less price sensitive and morequality conscious, there is good
market opportunity exist for the CBL group to expand itsmarket. In order to get the maximum use of
this sub continental market, exportingproducts from the Sri Lankan plants through Indian dealers as
what CBL currently does, would not be sufficient to have a competitive edge in long terms. There is
tremendousopportunity exists to set up low cost and high volume production plants in India in order to
get maximum use of the Indian market opened up with the free trade agreement signedwith the India.
In recent past prior to the FTA signing, Munchee tried to start its firstoverseas manufacturing plant by
acquisitioning an Indian biscuits manufacturingcompany and attempt was failed due to unfavorable
Indian regulations regarding FDI inIndia at that time. Now with the FTA these regulatory hassles are
relaxed so theopportunity can be utilized.When CBL Natural Foods (Cecil) is considered, it is a company
mainly engagedin production of bottled fruit drinks mainly for the Sri Lankan market. Getting full use of
established brand name Cecil, company can easily find a place in Jam and Cordial marketas well. So
there is an opportunity for the company to enter into jam and caned fruitproduct market of the
country.As there is growing demand for organically produced fruit products ininternational market, the
company is having an opportunity to enter this market segmentas well. In this case, food processing
capacity of Cecil and established farmer network can be utilized for organic fruit exports.As a summary,
following can be seen as opportunities existing for the company.• Opening of north and east market
after the war • Free Trade Agreement with India.• Relaxing of Indian regulation related to direct foreign
investments.• Growth in Sri Lankan economy• Unexplored market opportunities in Jam and cordial
markets in the country.• Growing demand for organic fruit products in international market.

When it comes to consider threats facing the CBL group, major threat is coming withIndian free trade
agreement. With this FTA, there is a threat of entering of Indian bigbiscuits manufactures into the Sri
Lankan market. Actually this threat is substantial as SriLankan per capita biscuits consumption is as high
as 2.5kg, one of the highest in Asianregion. One recent attempt was made by strong Indian biscuits
brand Britania and wasfailed.For some product categories like wafer biscuits, chocolate slabs, company
hasengaged in a price competition with competitors in the Sri Lankan market. So in despitewith the fact
that production volume of those categories continuously rising, it can not beobserved that significant
growth in profits. Therefore this price competition can beobserved as another threat.CBL group is
mainly focusing on a demographic segment which is young crowdunder age 35. CBL marketing and
advertising is paying their major attention in thisparticular segment. So there is a possibility for another
company to come to market as anew entrant focusing on another market segment where CBL is not
paying muchattention currently. So it is another threat existing in current context.Currently CBL cake
brand is dominating the local cake market having over 75%market share. This share has been achieved
due to superior hygienic condition, 6 monthlong product expiry date and importantly efficient sales and
distribution which make sureavailability of the product everywhere in the country. But the taste of the
product madeaccording to an Italian formula is not matching with the local customer taste. As there
isno other equivalent alternative the CBL cake is dominating the market. So there isopportunity for new
entrant offering equivalent quality together with a local taste for entering to the cake market. So it is
another threat appearing in the path of CBL.Furthermore with appearing boom of Sri Lankan economy,
global companies likeNestle who is already in Sri Lanka although not engaging in chocolate production
andmarketing in the island, may try to make an entry into chocolate market where Nestle is aglobal
player. It would be a threat for CBL’s chocolate barnd − Ritzbury.

As a summary CBL is facing following threats.• Free Trade Agreement with India. (possibility of Indian
big players entering to thelocal market)• Price competition for some product categories in the local
market.• Space for new entrants to invade market focusing particular market segments.• Taste of Tiara
cake is not going well with the local taste.• Big global players like Nestle currently in the country may
venture into chocolatemarket.Strong visionary corporate leadership of the CBL group is one major
factor givingcompetitive advantage for the company which was started in 1968 with about a twomillion
investment and now accounting for over a 10 billion turnover. Selection of strategies, making
investment wisely and building up of the efficient sales anddistribution network, island wide by the
corporate management are definite causes for achieving competitive advantage by the company.Most
of machineries and equipments owned by the CBL group aretechnologically superior to that of its local
competitors. With the dawn of newmillennium CBL started its drive towards, technological upgrade of
its plant andmachineries and in the context of Sri Lanka, now the company is having more efficientand
modern machineries than its rivals reducing its production costs thus givingimportant competitive
advantage for the CBL to enjoy over industry average profitmargins.Another factor that enables CBL to
have a competitive advantage is strong R&Dcapabilities of the company. R&D laboratories have been set
up as one lab for eachsubsidiary and in those labs, extensive researches are being conducted to develop
and improve various food products. Specially developing formulas locally, for productsavailable in
international market are done in CBL laboratories.Strong marketing team referring internally as
‘excellent force’, which has beenable to build the strongest brand name in Sri Lanka for four consecutive
years, is another strength that gives competitive advantage for the company. And also the strong
brandnames they built are strengths giving the company a competitive advantage.Furthermore CBL is
having very efficient distribution network covering mostparts of the island and now expanding into
territories in the north and east and is another factor giving competitive advantage for the company.
Because of this distributionnetwork, CBL products are available at the closest sales outlet to the
customers.When it is summarized following factors are leading the company to have
competitiveadvantages• Strong brand images in the market and superior marketing capabilities• Strong
corporate leadership• Technological superiority• Strong R&D team• .Island wide distribution
system.CBL is currently producing 45000tons of biscuits annually and daily production of cakeis over
10tons and daily production of chocolate is around 10tons as well. Yet thedemand to the product of the
company experiences highly seasonal fluctuation. So thereare times where the company is unable to
supply the demand. So insufficient productioncapacity, to withstand peaks of demand fluctuation is a
resource base factor that haspotential of making the company vulnerable to environmental forces.
Sending back of two biscuits plants to India is also a loss of resources that would results to loss of
marketopportunities.13

Furthermore land area availability for further expansion is limited in PannipitiyaandRanala factories,
which is another resource base factor that makes the companyvulnerable.Currently the company is
making huge capital investments for new plants andbuildings targeting further expansions of the
production. Recently it was started settingup a new factory at Seethwaka industrial park, land was
bought for setting up Bangladeshfactory and another plant building is under construction in Ranala
factory. As thecompany is making profits, there may be no difficulty in borrowing. But recently
thecompany experienced cash for problems in first time in the new millennium. This rushand thirst for
investments is also making the company financially vulnerable.Organizational structure of the group is
pyramidal and the relationships within theorganization are hierarchical. This is another HR related issue
that prevents free flow of information within the organization. Especially in industries like food
manufacturing,tacit knowledge of floor level employees is vital and this organizational structure
doesn’tpermit ways for tapping the tacit knowledge related to production processes.

PESTEL ANALYSIS:

POLITICAL:With the ending of the war in north and east territories, new market opportunities arearising
in the north and east. So there can be optimistic about future possible growth dueto this expansion of
market opportunities. Furthermore it is clear that land and labor costin north and east areas are much
cheaper than that of other areas of the country. So thereis an opportunity for moving production
facilities into these areas for a low costproduction in the future.

ECONOMIC:For the last five years Sri Lankan economy is in a growth trend and over 6% annualeconomic
growth was recorded. For the current year (2011) 8% economic growth isforecasted. It is expected that
with the ending of the war in the country growth would beaccelerated. This growth in national economy
is highly favorable for food manufacturingindustry and biscuit market alone would be expected to
expand by 10% annually for coming years. Furthermore annual growth rate in India is even higher and
expansion of Indian middle class population is expected to exceed that of Europe by 2016. So with
thefree trade agreement with the India, CBL is having tremendous growth opportunitieslocally as well as
regionally.
SOCIAL:With dedication for excellent quality control and food hygiene CBL has established in themarket
as trusted brand for quality. CBL products coming under brand names such asMunchee, Ritzbury and
Tiara are widely accepted in the market and also are recognizedas brands of the year for few
consecutive years. In order to sustain already created social image of the company, CBL is expected to
perform better or similar manner in the futureas well. In the local society also there is a growing concern
over natural or organicallyprocessed food products. Therefore in the future, this social tendency should
beconsidered.Currently target market of the CBL is young crowd in the market. Advertising
andmarketing efforts are concentrated in order to target this demographic segment. Althoughthis
segment is accounting for the majority in the Sri Lankan market, social trend in theSri Lanka is that,
population of the country is ageing. Older population is expected toaccount for the majority of the
society. So company should be conscious to addressrequirement of this emerging market segment as
well.

TECHNOLOGICAL:CBL is in a process of upgrading the level of technology of its production

machineries.Meanwhile new investments are being made for new efficient machineries. CurrentlyCBL is
enjoying technological superiority over its fellow competitors in the local market.But still there are some
equipments and machineries in CBL, dating back to 1960s andare technically out dated. So in order to
supply future demands of growing market,further technological upgrade is desirable for the
company.Now company has set up an ERP system in Ranala factory and its operation beingmonitored.
Further it is expected to extend this network to other CBL factories andconnect local and international
suppliers to the company through the same network. Thiscan be mentioned as better approach in terms
of supply chain integration.

ENVIORONMENTAL:Food manufacturing business is not an environmentally hazardous industry. Yet as

CBLfactories are located in highly residential areas such as Pannipitiya, Ratmalana,
RanalaandMinuwangoda in Colombo district, high attention to be paid for factors such as soundlevels,
effluent treatment and solid waste disposal. Recently CBL Ranala factoryexperienced some issues with
its neighborhood regarding night time sound level andeffluent water disposal.Obtaining ISO 14000
environmental management system certification by CBLPannipitiya factory is a vital step towards
conducting the factory operation in anenvironmentally friendly manner. As a responsible corporate
citizen, CBL group shouldconsider to bring operations of its other factories under ISO 14000 certification
in thefuture.

LEGAL:The group is conducting its business according to government regulations and alwaysfollowing
proper legal procedures of the country in the event of doing its businesses.
Part 3 − Industry Analysis:Direct customers of the CBL group are 60 agencies and about 400 dealers
appointed bythe company and CBL is not directly selling its products to the general public.
Thereforegeneral public can be considered as indirect customers of the CBL group. Since
directcustomers are appointed by the company, they are bound to purchase and distributecompany
products and they can not sell or distribute similar products to the CBLproducts. So direct customers
appointed by the company do not enjoy any bargainingpower.But the general public who can be
considered as indirect customers of thecompany is having very high level of bargaining power as there
are another 50 smallscale manufacturers dealing in biscuits manufacturing alone. Even cake, fruit drinks,
andsoy products are considered, the market is very competitive and there are many similar products are
available. Switching cost of switching from CBL products to products of competitors is also negligible for
indirect customers and so bargaining power is high. Onthe other hand price sensitivity of the general
public is also high. Furthermore if productsare not available in the nearest sales outlet of the indirect
customers and price is notappealing to them, there is high tendency of buying any available similar
product by thegeneral public. Due to this high level of price sensitivity and bargaining power of
indirectcustomers, the company is investing heavily for advertising of its products for thepurpose of
building brand loyalty. Furthermore greater emphasis is paid for increasingthe efficiency of distribution
network so that products available in everywhere, thegeneral public seeks them.As a company engaged
in the confectionary business, the company is consumingwheat flour, sugar, fat, palm oil and milk
powder in bulk quantities. Except wheat flour and palm oil, other raw materials are imported from the
international market where theconsumption of the CBL is not a bulk quantity of raw material suppliers’
production. Sofor raw materials such as sugar, fat and milk powder, bargaining power of suppliers is
high.

Palm oil and wheat flour are purchased locally. Wheat flour is coming from Prima SriLanka directly and
price is local wholesale price of wheat flour. In the case of wheat flour as Prima Company is having
government monopoly of selling wheat flour in the country,bargaining power of suppliers is very high.
Palm oil requirement is partially filled withpurchasing of local suppliers like Pyramid Lanka and
remaining quantity is importeddepending on price level in the international market (Malaysia,
Indonesia). So in the caseof palm oil bargaining power of local suppliers is limited. If the price level of
local palmoil suppliers is high then company is having option of importing from the international
market.Other raw materials like peanuts, green grams, grams etc are sourced throughfarmer network
set up in Ampara and Wellawaya areas. Here price level is mutuallyagreed in a way that both parties are
benefited.In areas like printed packaging and corrugated cartoons, the company ispurchasing bulk
quantities from local packaging companies like Expack, Modernpack and Star packaging etc. quantity
purchasing by the CBL group is considerable amount of an individual packaging company. So, bargaining
power of packaging suppliers is nothigh.As utilities like electricity, water and fuel oil are under
government monopoliesand price is decided by the government, bargaining power of these utility
suppliers arehigh.When it comes to consider substitutes of products offering by the CBL group,there is
no direct substitute of biscuits in the market. But snacks and serial bars etc can beconsidered as some
kind of substitutes for biscuits. Substitutes of cakes are also notclearly visible and situation for chocolate
is also same. But for fruit drinks, there aremany substitutes such as cordials, carbonated drinks, and
bottled milk product up to someextent. But the competition created by these substitutes is almost
negligible for productssuch as cakes, biscuits and chocolates. But for fruit drinks, carbonated beverages
act as a strong substitute.

Problem here is instead of direct substitute products of biscuits, cakes, chocolatesand fruit drinks,
there are direct substitute brands are available. So customers are havingthe option of choosing some
other biscuits brand instead of Munchee, some other cakebrand instead of Tiara, or similarly some other
chocolate brand instead of Ritzbury. AsSri Lankan customers are highly price sensitive presence of these
substitute brands is athreat for CBL brands, and this is leading to a price competition in the market. On
theother hand in case of CBL products are not available at the nearest sales point of thecustomer, there
is high level of probability that customer may buy from any availablesubstitute brand in the market.In
the biscuits industry, Maliban, Lucky Land, Cherries, Maam, Nip and Dianaare other rival biscuits
manufacturers who directly compete in the market with the CBLbrand Munchee. Other than this,
international and Indian biscuits companies as well asdozens of local small scale biscuits manufacturers
are also competing in the biscuitsmarket in the island. But currently Munchee is holding 60% market
share of the overallbiscuits markets which has been estimated as a 10billion worth industry. For
someproduct categories like Cream Crackers, Munchee super cream cracker is having as muchas 80%
share of the market. Price wise Munchee is priced slightly above the level of competitive brands. But
with efficient distribution network and extensive brand buildinginvestments, Munchee has been able to
dominate the biscuits market in the island.Current trend in the biscuits market in Sri Lanka is that
Munchee is continuing itsexpansion of the market share while Maliban is still loosing the ground. At the
same timenew entrants like Diana and Cherries have been able to widen their market share of thelocal
biscuits market and now they are having over 10% market share.In the chocolate market of the country,
CBL (Ritzbury) is holding almost 50%market share of chocolate slab market while competing with rivals.
Local chocolatemanufactures like Edna, Kandos and Diana are major competitors in the local market
andfurthermore imported chocolate brands like Nestle and Cadbury are also competing in themarket. In
chocolate coated product market Ritzbury is having over 70% market share of the local market. Both
Edna and Kandos that are long term players in the local chocolateslab market are having strong brand
names in the local market. Both Diana and Ritzbury19

are new entrants to the chocolate market. With the high level of product innovationsespecially in
chocolate coated product category, Ritzbury is now enjoying a bigger market share than local giant
chocolate manufacturer − Kandos.Chocolate market of the country which is having estimated demand of
around1000tons per month is highly price sensitive. Furthermore major players of the market arehaving
excess production capacities also. So there is a price competition in the industry.For instance, when
Ritzbury “Popit” that is a chocolate coated rice crispy product, wasintroduced to the Sri Lankan market
some 8years back, price of a 10g packet was 20rupees. After some 8years, still the same packet goes to
20rupees. Originally the profitmargin was 250% and now it is around 17%. Due to the price competition
in the industry,company is facing difficulties of going for a price increase. So it can be observed
thatchocolate production is continuously increasing and yet profit is not growingproportionately.Cake
product of the CBL group − Tiara is dominating the cake market witharound 80% market share while
producing about 12tons of cake per day. As Tiara is theonly cake which can be kept as long as 6month
period even without a refrigerator, in themarket there is no other cake brand capable of same level of
value to the customers. Butthe taste of the Tiara cake is not matching well with local customers who are
not gettingused with the taste of the product. Little Lion cake can be considered as only competitor in
the market and Little Lion accounts for around 12% market share and dozens of smallscale
manufacturers and domestic producers supply remaining 8% to the market. Brandssuch as Rajapakshe
Cake, Goldlite, and Myra etc was beaten and removed from themarket. So the competition for the Tiara
cake is not high as there is no other brand givingsame value to the customers.Cecil fruit drinks was came
under CBL control recently and it is still not a widespread product around the country. It is considered to
have 10% share of the fruit drink market of the island. Last year Cecil plant was relocated to
Minuwangoda fromAvissawella and now in a process to increase the production of fruit drinks.
Dominantplayer in the local fruit drink market is Smak. Although the Name of the brand Smak has
become a synonym for fruit drinks in the Sri Lankan market, they are only having 34%market share in
the fruit drink market. Insufficient production capacities and insufficientdistributions have limited
possible success of strong brand name of Smak. The gap of themarket is filled by dozens of regional
small scale fruit drinks manufactures. Furthermorethe giant global player Coca−Cola is also trying to
enter Sri Lankan fruit drinks marketwith its brand name called Minute Maid. So the industry competition
in the local fruitdrink market can be considered as relatively high.Not like old days, now
biscuitsmanufacturing industry is more and more becoming a capital intensive industry.
Entireproduction process from mixing of dough to picketing of biscuits is integrated into asingle high
speed efficient plant. Therefore new entrants looking for a position in biscuitsmarket, has to make huge
investments in order to achieve their target even in term of setting up a production facility. Tiara cake
plant of the CBL, is located inside a bacteriafree specially air conditioned room having very high level of
air quality, is state of the arthigh tech production plant capable of producing 14tons of cake per day. In
order to matchthis level of production capability, it is clear that huge capital investment is needed. For
the chocolate industry is also the situation is more or less is same to that of biscuits andcake industries.
Therefore in terms of capital investment required, barriers for newentrants for entering into the market
are high.Next barrier is present in terms of distribution network. If somebody is investingheavily for a
mass production biscuits or a cake plant, efficient and large distributionnetwork covering the entire
island is also needed. For an instance, munchee is having 60agencies and 400 dealers distributing
products to over 80000 sales outlets in the island.Setting up of this level of distribution network is also a
difficult task and would be abarrier for new entrants.Obtaining product formulas necessary for biscuits,
cake or chocolate production isalso a barrier for new entrants. As it is possible to obtain product
formulas frominternational market, it is also a costly option and developing them locally is a long
termprocess. But for fruit drink industry which is not a capital intensive industry, barriers for new
entrants is relatively low and further it can be seen that many small scale players areoperating regionally
in the fruit drinks market.

Part 4 − Strategic Analysis:

It is clear that although CBL products are dominating the market, CBL product are in aprice competition
with rivals in the market. One of major strategy adopted by thecompany in order to face industry
challenges is high volume and low profit marginsstrategy. So the company is mass producing its
products through capturing the biggestmarket share and continuously pressing harder to increase its
market share while keepingprices of products in line or slightly higher to the competitors and thus CBL
has been ableto achieve high sales volumes while continuously capturing market share of
competitors.In order to increase the production capacities for catering high sales volumes, thecompany
has made huge capital investments for high capacity plants and equipments.The company has relied
heavily on advertising for positioning in target marketsegments and widening the market share of
products.
Seeking opportunities in newmarket segments is also being done. Furthermore value innovation is
playing crucial rolein CBL strategy. For an instance earlier, biscuit like “Lemon Puff” of which there
isyellowish cream inside the biscuits sandwich was fun part of kids and usually biscuitscovering the
cream were thrown away. But Munchee considered this customer insightinto consideration and the
result was Munchee Real Lemon Puff of which biscuits part isalso having the taste of lemon cream and
biscuits don’t have to be thrown away. Prior tothis innovation Munchee Lemon Puff only had 23%
market share in Lemon Puff marketand now is having 80% market share in the market.In chocolate
market in the country also earlier perception was chocolate meanschocolate slabs. But Ritzbury
introduced chocolate coated product such as chocolatecoated wafer (Chit Chat), chocolate coated
peanut (Go Nut), chocolate coated biscuits(Chunky Choc) etc in to the Sri Lankan market. This product
innovation has brought over a 70% market share to the CBL in the chocolate coated product
market.Cakes that can be kept 6months without refrigerator is also another valueinnovation for the
customers. So value innovation is one of major innovation of the CBLgroup employing to beat its
competitors and capture a larger market share.22

It can be observed that company is well aware about its value chain. Company is doingsome backward
integration of its value chain. Earlier agro products were purchased fromwholesalers and now the
company has set up a farmer network and products are directlypurchased from farmers. As a company
which consumes big amount of flexible packingmaterials, the CBL has set up close ties with plastic and
flexible packaging manufacturerslike Modernpack.The company has completely outsourced distribution
of its products. Distributorsand agencies are doing distribution of CBL products in the island. Export
distribution isalso done through export distributors in India and Singapore. So the company has
notengaged in non core operations. For an instance, the company does not have its ownvehicle fleet or
intermediate warehouses. Entire transport of finished products is carriedout by
distributors.Furthermore the company is in the process of value chain integration and alreadyan ERP
system has set up in the Ranala factory and further expansion of the ERP systemcovering the entire
group of companies is in progress. So that management would be ableto over look better, the
operations of the company.Generally it can be observed that the CBL group is following two
genericstrategies explained in the literature. One is the company trying to achieve cost leadershipin the
industry. This strategy is not tried through general cost cutting programs but byhaving technological
superiority over its competitors. For an example, still the maincompetitor Maliban is having electrically
heated ovens in their biscuits plants. Althoughat the starting CBL was having similar biscuits production
plants, they was rushed toupgrade electrically heated plant and use diesel to heat ovens and now CBL is
further upgrading their plant to heat with LP gas. Switching to diesel or LP gas mean cost savingis
tremendous. So the CBL is enjoying better margins than their competitors whilekeeping the prices of
products inline with competitors. Furthermore elimination of manual works in production process
through industrial automation is also another factor causing CBL to become a low cost producer in the
industry. Setting up a farmer network

and making direct purchases from farmers are decisions further strengthen CBL positionas a low cost
producer.Other generic strategy followed by the CBL group is diversification of thebusiness as well as
products. Introduction of chocolate coated products into the localmarket and introduction of cakes
having longer expiry date are two examples for productdiversification and innovation.CBL group is in
the process of business diversification also. Originally CBL wasa local biscuits producer. Then they
entered in to chocolate manufacturing. And cakemanufacturing was started next. After that jelly
production was started. Later controllingshare of Samaposha and Lanka Soy was taken. Then entry into
fruit drink market wasmade by acquiring the fruit drink company − Cecil. This shows how the
businessdiversification went on. And also CBL has expressed its intension of entering into thereal state
market in the county also. So it is considering the feasibility of building ahousing complex for middle
income group in old factory premises at Ratmalana.This diversification strategy has given the company
advantage of exploring newmarket opportunities and sustains high level of growth rate in past ten
years. As companyhas been able to grow continuously and make profits, business reengineering
approachesare not in consideration at the moment. Balance Score Cards are only employed tomonitor
sales progress and BSC has not been implemented into manufacturing andoperations areas.In terms of
customer value creation, in recent times it can be seen that CBL grouphas done a great job. CBL is
striving to maintain an international level of product qualitywhile keeping the cost attractive to the local
customers. Case of Tiara cake can be shownas a best example for better customer value creation. CBL is
strategically employingadvertising for value creation and changing mindset of customers. For an
example, earlier Cream Cracker was a product associated with ‘get well soon’ perception in the
societyand mostly consumed by over 35years population. But now Cream Cracker is used for ‘small
hunger’ and widely consuming by age less than 35years segment as well. So in24

this way as a part of corporate strategy, as the market leader in the biscuits, cake andchocolate markets
in the island, CBL group is trying to position on all market segmentswhile paying special attention to the
young crowd segment. Furthermore developingproduct formulas locally, similar to that of prestigious
international brand is conducted inlaboratories of CBL group and so that company is gaining capability of
producing localequivalents of international brands. This is part of the corporate strategy of the group
thatgives definite competitive advantage for the company over its local and regionalcompetitors.As the
vision of the company targets, becoming the leader of confectionarymanufacturing would be a long
journey for the company. One prerequisite for achievingthe target is huge capital investments in sub
continental India. As a privately ownedcompany this would be a really difficult task and so the company
now has correctlyidentified and expressed openly its intention of going public in the near future. This
canbe mentioned as a farsighted alignment of corporate strategy with long term
companyobjectives.Finally it can be said that continuous drive for innovation and creation of superior
value to customers has largely contributed for the recent success of the CBL group.Another important
factor notable in the success story of CBL is, correctly understandingthe power of advertising in the
event of building a brand. Having a strong brand namemeans, a company has successfully liberated its
product from commodity like trap andprice level can be set beyond the balance point of supply and
demand curves. CBL isheading to that direction.

Reference

:1.http:ƒƒwww.muncheelk.comƒ

2. AC Neilson Retail Audit, 201025 Strategic Management Practices at Munchee