China Resources Enterprise

1. China Resources Enterprise Strategic Analysis& Marketing Plan By Group H Jessica Choi, Phoenix Tiu, Janet Poon, Cathy Ho & Timothy Sargeant

2. Content • Problem • Business Level Strategy - Differentiation - Focused geographical - Recommendation • Corporate Level Strategy - Related- link - Acquisition- based Strategy - Recommendation • Conclusion

3. Problem • Low margins • CRE operating margin: 1.5% (2009 FY) • Sector average: 3.1% • Desire from investors for higher profit margin • Acquisitions currently a very important part of CRE’s strategy

4. Problem • CRE has yet to improve its margins through an acquisition based strategy • Should CRE continue acquisition based growth strategy or focus on fine-tuning their core business against the risks?

5. Beverage Analysis C’estbon Pacific Coffee

6. Beverage Analysis

7. Beverage Analysis • Five Forces • Rivalry with existing competitors “C’estbon”: Master Kong, Wahaha, Nongfu & Coca-Cola Pacific Coffee: Starbucks and Gourmet Master (Taiwan brand)

8. Beverage Analysis • Potential Entrants China beverage industry is attractive to the potential entrants Source: Canadean

9. Beverage Analysis • Bargaining power of customers “C’estbon”: HIGH Pacific Coffee: LOW • Bargaining power of suppliers Pacific Coffee: HIGH • Product Substitutes Carbonated drinks, energy drinks and tea

10. Beer Analysis

11. Beer Analysis • Customer-Focused • Royal- looking and extravagant • noble gold and jade inlaid and engraved vision • Focus shift from supply-driven to demandsmall bottles like imported beers

12. Beer Analysis

13. Strength • - 2ndlargest retail organization in China in Retail Asia Pacific top 500 awards • - Multi-format business platform Retail Analysis

14. Retail Analysis • Regional leadership on a multi-format business platform

15. Weakness • - Lower average sales per store compare to competitors Retail Analysis • Strength • - 2ndlargest retail organization in China in Retail Asia Pacific top 500 awards • - Multi-format business platform

16. Retail Analysis

17. Weakness • - Lower average sales per store compare to competitors Retail Analysis • Strength • - 2ndlargest retail organization in China in Retail Asia Pacific top 500 awards • - multi-format business platform • Opportunity • - Increasing urbanization of China has expanded the consumption market • Threat • - Keen competition from Carrefour, Tesco, Wal-Mart

18. Retail Analysis

19. Food Processing and Distribution Analysis

20. Awards in Food processing and distribution • Shanghai Ng Fung Shangshi Food limited Company 2009 "China's meat industry influence brand" 2010 2010 Shanghai World Expo Shanghai World Expo Park fresh pork supplier recommended by the government • Henan Cereals, Oils and Ng Fung Food Co., Ltd 2009 The top ten livestock enterprises2009 The industrial management of agriculture leading enterprise (Zhengzhou Municipal People's Government of Zhengzhou )2010 The export of key enterprises in Henan Province

21. Food Processing and Distribution Analysis • Five Forces • Rivalry with existing competitors: medium - The monopoly live cattle importer from China - Strong brand recognition & reputation - Competitors: Local farms(limited supply), frozen meat suppliers all over the world • Bargaining power of customers & product substitutes : medium to low - Monopoly in live cattle market in HK - Substitutes: local meats, chilled/ frozen meats • Potential Entrants: low - Monopoly in live cattle market in HK

22. Food Processing and Distribution Analysis Bargaining power of suppliers: Low • Numerous product sources(stable supply)

23. Food Processing and Distribution Analysis

24. Recommendation Integrated cost leadership and differentiation strategy : Increase efficiency+ further differentiation Increase efficiency: • Integrated value chain system: - Beverage: Manufacture the products by themselves rather than by OEM factories • Focus on core brand: - Beer: divest non-core beer brands (e.x扎西德勒, Singo) --- investing in core brand----efficient use of resource • Flexible manufacturing system(FMS): - Computer controlled process--- flexible quantities--- product variety with low cost ( production in Food, Beverage and Beer)

25. Recommendation • Benefits: - Lower operational costs - Allow quality tracking --- create value to customers - Widen operating margin ---higher investment return - Build core competence to ensure continual growth

26. Recommendation • Locating supermarkets in self-owned or partially-owned property development projects

27. Recommendation Further Differentiation: • Product quality improvement and innovation • Food: emphasis on its safe and high quality food products • Beer: increase product mix to meet variety seeking of customers

28. Recommendation - Beverage: Develop healthy drinks--- strength product portfolio --- offer health-conscious customers a wide range of products Source: China Food and Drink Report

29. Recommendation - Retail:

30. Recommendation • Benefits: • Customer loyalty: superior quality • Set a premium price • Food: justify high price • Drawback: • High cost : marketing research, new product development

31. Focused Geographical market: domestic Chinese market

32. Recommendation

33. Growing urbanization

34. Increasing GDP per capita

35. Recommendation

36. Corporate-level strategy • Related linked: SBU Form of Multidivisional Structure - share some resource in different business units

37. Beverage and Retail • Holders of Pacific Club Card enjoy discount in supermarkets operated by CRE - sharing of marketing resources

38. Food and retail • Development of self-owned retail stores and launchedmore than 120 meat counters and stores • Shanghai, Hangzhou, Nanning, Shenzhen and Ningbo, etc, • Leveraging the strong “Ng Fung” brand name and efficient supply chain

39. Recommendation • Development of centralized customer base system retail: membership card--- get customer profile & preference---used in product development for food and beverage • Centralized IT system - sharing of updated information and technology: R&D - monitor IT system: drive cost efficiency - economies of scope

40. Current Corporate Level Strategy

41. Examples of Key Acquisitions in 2010 • Acquisition of the Jialinshan project marked the Group’s expansion into the mineral water sector • Synergy: Diversifying product offerings • Acquired 80% interest in Pacific Coffee (Holdings) Limited from Chevalier Pacific Holdings Limited • Synergy: Differentiating retail markets • Acquisitions in meat processing sector • Synergy: Expanded operations in slaughtering, storage, trading and increased CRE market power

42. Acquisition-Based Strategy

43. Pursuit of Market Power

44. Learn and Develop New Capabilities

45. Learn and Develop New Capabilities • Acquisitions to create operational relatedness • CRE can leverage its existing primary activities • Distribution systems • Sales networks • Also facilitate their support activities • Purchasing practices • Bargaining power • Has potential to improve existing profit margin • Increased revenues • Decreased costs

46. Learn and Develop New Capabilities • Limitations to acquisitions to further operational relatedness • Organizational integration may fail to create synergies • Success is dependent on CRE’s ability to integrate acquisitions into a cohesive structure that will allow sharing of activities to take place efficiently • Important that HQ implements controls to foster sharing of activities between related divisions

47. Learn and Develop New Capabilities • Enhancing corporate relatedness through acquisitions • Transferring CRE’s core competences to an acquired business • CRE has expert local market knowledge and a sophisticated distribution system • Transferring core competences of core business to CRE • Possible targets should include companies that can transfer cost saving related core competences to CRE

48. Learn and Develop New Capabilities • Downside of pursuing a combination operational relatedness and corporate relatedness acquisition based strategy • Cost of organization and compensation structure could be expensive leading to further decrease in CRE’s profit margins

49. Risks of Acquisition Based Strategy

50. Keys to a Successful Acquisition