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Read the below case and answer the following questions in a 4 page paper.1). What determines the demand for Bail Sos cooking sauces in Malaysia? What are the differences between the factors affecting demand for Baik Sos cooking sauces and the demand for Baik Sos salsa?2). Using a SWOT (strengths, weaknesses, opportunities, threats) analysis, what was CFI-M’s situation in 2017?3). Evaluate the possible growth strategies using the product/market matrix concept for CFI-M’s salsa line. What is the difference in operating in operating income for the alternative strategies? 4). How should CFI develop the salsa market in Malaysia? How should CFI-M allocate its marketing investments?
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NOVEMBER 12, 2018
JOHN A. QUELCH
KATHERINE B. HARTMAN
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Cepuros Foods Malaysia: Finding the Secret Sauce
for Growth
After ending her weekly conference call with executives from the corporate headquarters of
Cepuros Foods International (CFI) in Singapore, Shelby Diaz looked out the window of her office in
Kuala Lumpur hoping for inspiration. As the country manager for Cepuros Foods International–
Malaysia (CFI-M), Diaz was responsible for developing and marketing CFI-M’s products. She needed
to increase the sales of CFI-M’s Baik Sos Salsa line of shelf-stable salsas by the end of 2019.
tC
Diaz had begun the call by explaining her plan to target new products to CFI’s existing salsa
customers with small increases to the marketing and communications budget. She had planned to
target customers who purchased the original salsa to try the new flavors. Her proposal was to
increase salsa sales 15% by increasing selling expenses by 7%.
CFI’s CEO, Bia Aati, interrupted her. He said, “The proposal lacks a long-term vision. The success
of the salsa line is essential to our revenue growth in Malaysia. We need an aggressive, mass-market
strategy with major investments in marketing and an ambitious sales goal.”
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CFI’s executive vice president of marketing, Chen Lee, disagreed. She said, “Growing revenue
through salsa sales is important, but a mass-market approach is too risky. Targeting our marketing
mainly to our current cooking sauce and salsa customers is more reasonable.”
Before next week’s call, Diaz had to decide how to revise her proposal. She remembered the
Ansoff’s matrix used in her MBA program and decided to use it to frame her recommendations. 1
Should she change the proposal to develop consumer demand in the mass market, increase consumer
demand among existing buyers, or convince them to follow her original plan?
Ansoff’s matrix is a 2 × 2 table that offers four different options for growth: market penetration, market development, product
development, and diversification. It can be found in H. I. Ansoff, “Strategies for Diversification,” Harvard Business Review, 35,
no. 5 (1957): 113–124.
________________________________________________________________________________________________________________
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1
HBS Professor Emeritus John A. Quelch and Ohio University Professor Katherine B. Hartman prepared this case solely as a basis for class
discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. Although based on real
events and despite occasional reference to actual companies, this case is fictitious and any resemblance to actual persons or entities is
coincidental. The authors gratefully acknowledge Chad Boeninger, Business Librarian at Ohio University, for his research assistance.
Copyright © 2018 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or
otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for educator review use only by KARN TWILLMANN, Lindenwood University until Nov 2017. Copying or posting is an infringement of copyright.
[email protected] or 617.783.7860
Cepuros Foods International
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919-513 | Cepuros Foods Malaysia: Finding the Secret Sauce for Growth
CFI was founded by Vivekasugha “Alif” Bin Gunnaalan in Singapore, where his parents had been
successful restauranteurs. After earning a degree in food technology, Gunnaalan first developed
products for global food companies. In 1987, he founded CFI.
Malaysia in 2018
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CFI specialized in the development, branding, and marketing of cooking and table sauces with
unique flavor profiles. By 2017, CFI had more than 50 employees and country offices across Southeast
Asia. (Exhibit 1 shows CFI’s income statement for 2017.) CFI partnered with local food
manufacturers and distributors to produce its sauces. In 2017, Singapore accounted for 48% of CFI’s
sales, with Indonesia (21%), Malaysia (12%), Vietnam (10%), and the Philippines (9%) accounting for
CFI’s other revenue.
Comprising two regions separated by the South China Sea, Malaysia contained multiple ethnic
groups who spoke 134 living languages. Its official language was Bahasa Malaysia; the official
religion was Muslim. Malaysia’s urban population was growing; more than one-fourth of its citizens
lived in the greater Kuala Lumpur area, known as Klang Valley. Exhibit 2 provides country statistics.
Malaysian Cuisine
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Malaysian cuisine represented a fusion of ethnic Malay, Chinese, Indonesian, and Indian cuisines.
Typical foods were strong, spicy, and aromatic, using herbs and spices from Southeast Asia. Rice was
usually eaten with meat and vegetable dishes, curries, and condiments such as Malay sambal sauce.
Proteins were often marinated with herbs and spices before being cooked, while vegetables were
usually stir-fried. Malays blended and sautéed ingredients such as lemongrass, shallots, ginger,
chilies, and garlic to make sauces and pastes. Examples of popular Malay dishes were nasi lemak
(rice steamed in coconut milk mixed with sambal, dried anchovies, peanuts, and boiled egg served in
a banana leaf) and beef rendang (beef stewed in coconut milk and spices). 2
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In 2017, consumer demands for halal (an Arabic term denoting “lawful or permitted under the
standards of Islamic law”) food ingredients were high. 3,4 The government’s Department of Islamic
Development (JAKIM) certified food products meeting halal standards; all certified food packages
carried a standard, government-issued logo. Halal certification was important even among nonMuslim consumers because it signified quality and was required for other food safety designations. 5
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Consumer demand for healthy foods was also high. In April 2017, Malaysia’s Department of
Health launched a Healthier Choices logo to promote healthy foods. Unfortunately for CFI-M, lowsodium soy sauce was the only condiment permitted to carry the logo. However, the government’s
healthy living campaign and consumers’ increased exposure to international health trends had
2
Spruce Eats, “Profile of Malay Cooking and Culture,” May 18, 2018. Retrieved from https://www.thespruceeats.com/.
In food, halal is the dietary standard prescribed in the Qur’an (the Muslim scripture). Halal foods are (1) free from any
ingredient prohibited according to Islamic law and (2) processed using equipment cleansed according to Islamic law.
3
4 UDSA Foreign Agriculture Service, “GAIN Report: Malaysia Retail Foods Annual 2017,” November 9, 2017. Retrieved from
https://gain.fas.usda.gov.
H. A. Dahlan and N. A. Sani. “Comparison and Challenges in the Implementation of Halal Food Laws in Malaysia, the
Netherlands and United States of America,” JUUM, 21 (2017): 53–62.
5
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Cepuros Foods Malaysia: Finding the Secret Sauce for Growth | 919-513
increased demand for fortified/functional, naturally healthy packaged foods that were healthier for
consumers. 6
Four other food trends influenced Malaysian cuisine in 2018. 7 First, an expanding middle class
and a more urban population were demanding quality food products at better prices. Second,
increased concern about food safety and health resulted in the growth of premium, high-quality, and
natural products. Third, there was more demand for convenience and indulgence in grab-and-go and
snack foods. Fourth, consumers increasingly wanted new flavors and innovative food profiles.
Malaysian Food Consumption
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Approximately half of Malaysians ate three meals plus small snacks every day. 8 According to a
survey of Asia-Pacific consumers, chocolate topped the list of popular snacks (69%), 57% of
respondents snacked on vegetables, while 43% snacked on chips/crisps. 9 In 2017, a survey of urban
households, a survey commissioned by CFI, reported that 82% of respondents prepared at least three
meals per week using meats, seafood, and vegetables combined with prepackaged sauces.
Malaysians frequently dined out at cafés and restaurants and ate street food sold in stalls, hawker
centers, markets, and small shops. 10 According to the Malaysia Food Barometer, 64% of Malaysians
surveyed ate at least one meal per day either outside the home or consumed food at home that was
purchased ready to eat (takeaway). 11
Malaysian Food Retail
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In 2016, total retail sales of food and beverages in Malaysia were US $16 billion. Smaller stores
such as provision shops, grocery stores, and specialty food stores held 56% of this market.
Supermarkets, supercenters, and department stores with supermarkets accounted for 43%. The three
largest chains were the Cold Storage Group, Tesco Malaysia, and AEON. The Cold Storage Group
operated 119 mass-market and 21 premium stores. Tesco targeted the mass market through 56
hypermarkets in major cities. AEON offered a full-scale supermarket inside its 37 high-end
department stores. Other premium supermarkets included Jaya Grocer, Village Grocer, Ampang
Grocers, and BIG.
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Many smaller food retailers were family-run. They targeted consumers who valued convenience.
They carried fresh products, some branded products, and a small number of popular imported foods
and beverages. Local households demanded these products at competitive prices. 12
6
Euromonitor International, “Packaged Foods in Malaysia,” November 2017. Retrieved from Euromonitor Passport database.
Fronterra, “Fronterra Unveils Key Food Trends Set to Shape Malaysia in 2018,” May 31, 2018. Retrieved from
https://www.fonterra.com/content/fonterra/my/en/news-and-media/latest.html.
7
J-P Poulin, L. Tibere, C. Laporte, and Mognard, “Malaysian Food Barometer: Food, Cultures, and Health,” 2014.
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8
Nielsen, “Snack Attack: What Consumers Are Reaching for around the World,” September 2014. Retrieved from
http://www.nielsen.com/.
9
Euromonitor International, “Consumer Lifestyles in Malaysia: Country Report,” March 7, 2018. Retrieved from Euromonitor
Passport database.
10
11
J-P Poulin, L. Tibere, C. Laporte, and Mognard, “Malaysian Food Barometer: Food, Cultures, and Health,” 2016.
UDSA Foreign Agriculture Service, “GAIN Report: Malaysia Retail Foods Annual 2017,” November 9, 2017. Retrieved from
https://gain.fas.usda.gov
12
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919-513 | Cepuros Foods Malaysia: Finding the Secret Sauce for Growth
Attracted by lower prices and sales promotions, urban consumers tended to shop at larger food
retailers such as supermarkets and supercenters. 13 Most offered in-house brands, which were often
priced 10% lower than comparable products to attract price-conscious customers from lower- and
middle-income groups. 14
Malaysian Sauces, Dressings, and Condiments Industry 15
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In 2017, the sauces, dressings, and condiments industry in Malaysia was an estimated $257.8
million, with 5.6% year-over-year sales growth expected between 2018 and 2022. Sales by category
included cooking ingredients ($83.2 million), pickled products ($7.6 million), table sauces ($144.3
million), tomato pastes and purées ($2.3 million), and a variety of others ($20.4 million). Pasta sauces
recorded the highest volume growth (14%) due to aggressive price promotions with paired products.
Sales of mayonnaise increased by 12%, with leading brands investing in media advertisements.
Food companies also offered a variety of packaged cooking sauces. Curry was the most popular
(27%), followed by tom yam paste (23%), bean paste, rendang, and fried rice. In 2017, rendang saw
the strongest growth among cooking sauces. It was widely accepted by Malay consumers; however,
traditional preparation required multiple steps, so consumers preferred to buy packaged rendang.
In 2017, Nestlé (M) Bhd was the industry leader with Maggi (12.5%); it promoted using in-store
sampling, price discounts, and investments in digital media. Lee Kum Kee (6.1%), Adabi (6.0%), and
Lady’s Choice (4.0%) had the next highest shares. Many consumers chose international brands due to
their quality, wide availability, and frequent price promotions. Store brands available through major
supermarkets typically provided greater price discounts than name brands did. Brands also relied on
seasonal price promotions to maintain market share.
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Analysts predicted that several trends would shape the industry. First, consumers would continue
to demand smaller package sizes. Second, growth opportunities would come through marketing
campaigns, price promotions, and bundled sales. Third, sales of pasta sauces would grow rapidly;
companies would launch new variations coupled with celebrity endorsements, advertisements, and
free gifts. Fourth, marketing campaigns such as advertisements through YouTube, social media,
brand endorsements, free gifts, price promotions, and participation in local events would increase.
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Cepuros Foods International–Malaysia (CFI-M)
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CFI-M outsourced manufacturing and distribution but was responsible for marketing, sales, and
communications. The office included Shelby Diaz, the country manager; two marketing and
promotion specialists; and two salespersons.
13 Euromonitor International, “Consumer Lifestyles in Malaysia: Country Report,” March 7, 2018. Retrieved from Euromonitor
Passport database.
14 Euromonitor International, “Consumer Lifestyles in Malaysia: Country Report,” March 7, 2018. Retrieved from Euromonitor
Passport database.
15 Euromonitor International, “Sauces, Dressings and Condiments in Malaysia,” November 2017. Retrieved from Euromonitor
Passport database.
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Cepuros Foods Malaysia: Finding the Secret Sauce for Growth | 919-513
Target Market
CFI-M’s primary target market was upper-income, urban households living in the Klang Valley
region of Malaysia. These households typically were dual-income and relatively price insensitive.
They preferred premium products that were halal certified and made with high-quality, natural
ingredients. Due to their busy lifestyles, CFI-M’s customers relied on the convenience of preparing
meals using packaged products rather than making meals from scratch. They typically had global
travel experience and often sought innovative, unique, or international flavor profiles.
Brands and Product Lines
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CFI-M sold three lines of products marketed under the name Baik Sos, which translates as “good
sauce.” The brand was known for being healthy; it did not use monosodium glutamate (MSG),
artificial coloring, or artificial preservatives; was halal certified; and had a reputation for using only
high-quality ingredients.
CFI-M offered two brands of cooking sauces. The Baik Sos Sihat line was positioned as superpremium. Its packaging used a high-gloss design with a black background; bright yellow, red, and
white text; and a picture of a finished dish spanning the upper-right hand side. Available sauces
included Malaysian Masak Merah, Malaysian Nyonya, Malaysian Hoi Sin, Indonesian Rendang, and
Thai Green Curry. The manufacturer’s suggested retail price (MSRP) was RM8.29. 16
The Baik Sos Riang line was positioned as premium. Its packaging used a more traditional design
with a blue-and-white pattern background, yellow and white text, and a picture of a finished dish in
the middle. Sauces available were marketed as classic Malaysian, including Rendang, Satay, Pajeri,
Chicken Curry, Meat Curry, and Spicy Tomato. The MSRP was RM4.99.
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In 2016, CFI-M introduced a single, shelf-stable salsa under a new brand: Baik Sos Salsa. Inspired
by Mexican-style salsas common in the United States, the salsa blended chunks of tomatoes and
onions with lemongrass, ginger, chilies, and garlic. It was marketed as a healthy, mildly spicy
topping to flavor chips, papadum (i.e., a thin, crisp, disc-shaped dough), vegetables, and rice.
Packaging promoted it as “the first and only Malay-fusion salsa.” It accounted for 6% of CFI-M’s total
sales revenue. Baik Sos Salsa was priced as a premium product with an MSRP of RM6.99 and had the
highest gross profit margin of any of CFI-M’s products.
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Although there was no other packaged salsa sold in Malaysia in 2017, salsa was known there
before CFI-M sold it. In 2014, Mission Chips debuted its tortilla chips and engaged a popular chef to
demonstrate how to make five salsa-like dips at home. 17 By 2018, there were more than a dozen
Mexican restaurants serving chips and salsa in Kuala Lumpur. Malaysian cuisine also had several
popular dipping sauces, including hoisin, plum sauce, chili sauce, sambal, and peanut sauce. CFI-M
believed that salsa was most like sambal, a hot sauce or paste made from chili peppers and other
ingredients. A wide variety of packaged sambal pastes were available across Malaysia and were often
used as a dipping sauce or topping. Traditionally, sambals were used as an all-purpose condiment.
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Baik Sos products were packaged using vacuum-sealed, plastic pouches with zip closures. Recipes
and nutrition labeling were provided on the back. In Malaysia, this packaging signified product
16
One RM = approximately $0.25.
17
Sweet Spot, “Mission Tortilla Chips and Recipes for Dips,” July 12, 2014. Retrieved from http://thesweetspot.com.my
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919-513 | Cepuros Foods Malaysia: Finding the Secret Sauce for Growth
quality and offered storage space savings. 18 Common packaging allowed CFI-M to standardize
production and distribution variable costs across product lines. Among premium cooking sauces,
Baik Sos was the top seller in two of the largest premium supermarkets in the Klang Valley.
For 2018 and 2019, CFI-M forecasted 3% annual growth in its annual revenue, with the same
variable cost percentage and annual 3% growth in fixed cost projections for its cooking sauces and
salsa if it did not introduce a new line of salsas. Exhibit 3 provides CFI-M’s income statement for
2017 and forecasts for 2018 and 2019. Variable costs provided include raw materials, production,
packaging, and distribution.
Production and Distribution
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Bina Food Industries produced CFI-M’s foods. It transformed raw ingredients into ready-to-sell
products for CFI using CFI’s food quality standards and recipes. Because CFI-M’s products used
halal certification standards, its average costs were slightly higher than CFI’s corporate average.
Bina also warehoused and distributed products for CFI-M through its food distribution division.
Offering more than 50 brands across 100 product categories, Bina specialized in domestic food
products and had strong relationships with food retailers. Because CFI-M produced all products
through Bina, CFI-M enjoyed discounted rates for food distrib …
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