FREE ESSAY ON STRATEGIC MANAGEMENT OF QUAKER OATS COMPANY

STRATEGIC MANAGEMENT OF QUAKER OATS COMPANY

Introduction
The Quaker Oats Company, officially formed in 1901, is currently undergoing massive
reorganization, which will dramatically change its position in the industry. Over the
last four years, Quaker Oats' returns have been consistently rocky. Quaker unloaded
Snapple, its ice-cream toppings and condiments business, and its frozen bagel business
1997. The company has turned to an emphasis on its high performing products such as
Gatorade and bagged cereals. Gatorade accounts for more than one-third of the company's
total sales and claims over 80% of the US sports-drink market. Quaker is also a leading
producer of granola bars, rice cakes, pancake mixes and syrups, and value-added grain
products (Rice-A-Roni). 
Industry Setting
Quaker Oats manufactures many different products from the sports drink Gatorade to Far
East Cous cous. Because of the great variety in their product lines, it is difficult to
find other companies that compete in all the same categories. However several large
companies compete in many of the same such as Heinz, Coca-Cola, General Mills, and
Bestfoods verifying the threat of rivalry is very evident and therefore requiring Quaker
to remain on top of their game. 
The threat of substitute for Quaker's products relates directly to their rivals who have
proven ineffective in producing adequate substitutes for products such as Gatorade.
Coca-Cola produces Powerade, Gatorade's biggest competitor, which only holds a very small
market share of the sports-drink industry. General Mills competes in the cereal, baking
products, and fruit bars areas and Bestfoods is mostly a general foods competitor.
Most of these companies are very well established and therefore Quaker concentrates on
them more then the threat of new entrants. 
Financial Overview
Over the last twelve months Quaker Oats has revenues totaling nearly $4.8 billion and
total earnings near $470 million. Financial ratios can often tell us how well a firm is
performing relative to its full potential and its competitors. Only the most critical
ones need be shown here. The Return on Equity indicates the overall operating efficiency
and the quality of management. The Return on Assets is a measure of how successful
management is at putting its assets to work to make profits. The Basic Earning Power
shows the proportion of Revenue to Total Assets and Profit Margin indicates how much
profit the firm makes after which all expenses are accounted. 
Relative to its larger competitors Quaker performs very well. This year Quaker has a ROE
of 251.3% second only to General Mills with 253.4%, but much better compared to 98.5% for
Bestfoods, 35.7% for Heinz 32.5%, and for Coca-Cola. The next ratio Quaker exhibits is a
11.3% ROA, weighed against 18.5% for Coca-Cola, 12.9% for General Mills, 10.0% for
Bestfoods, and 5.9% for Heinz. 
Quaker offers a very impressive 185% BEP while Coca-Cola shows only nearly half at 89%
and General Mills, Heinz and Bestfoods have 143, 141 and 111% respectively. The final
ratio is profit margin in which Quaker is very competitive with a profit margin of 9.9%
exceeding General Mills 8.6, Bestfoods at 7.6%, and Heinz at 7.0%, falling short only to
Coca-Cola at 15.8%. 
The industry average (total food producers industry) for each of these results also
verifies Quaker's competitive position. ROA is 6.2%, ROE is 24.9%, Profit Margin is 5.5%,
and BEP is 143%. Most of these numbers verify that Quaker is actually more successful
than the rest of the industry. 
Competing Markets 
Quaker has strong brands in Europe and Latin America, and Gatorade is also growing in
popularity abroad. In Latin America, they have realigned their infrastructure, and
consolidated and eliminated redundant positions. Morrison, the new CEO assigned in 1997,
began to heavily push to strengthen markets where opportunities for growth were high. In
particular, Quaker Oats made a real effort to tap into the expanding Gatorade market by
broadening the product line, improving packaging and pumping up marketing efforts. 
Technologies
Quaker has done a great deal to update and standardize the technology within their firm
by integrating all food and beverage facilities into larger, more efficient production
facilities. As Quaker's competitors within the industry become more technologically
advanced this drives Quaker to do the same.
Structure
The structure of Quaker Oats has been one of the most dramatic changes for the company. A
tightening of cost controls and elimination of $65 million in expenses through
restructuring actions was the result of the total overhaul of Quaker. They also reduced
their overall supply chain costs. Quaker consolidated the U.S. sales organization from 14
regional offices into six fully integrated Customer Business Centers. In 1998, despite
only moderate overall sales, net income rose significantly as the efficiency of new
structuring paid off. Substantial economies of scale were and continue to be the result
of the combined offices and producing more products all under one roof. 
Competencies
Although Quaker Oats has been concentrating on cutting costs by becoming more efficient,
they try to differentiate Gatorade as much as possible in the market. Quaker has
concentrated on a cost reduction strategy since the restructuring changes began in early
1997. They would not be considered to use a cost leadership strategy because they
emphasize the quality of their products more then trying to make them as cheap as
possible. For Quaker to make such a strong comeback so quickly after major restructuring
during 1996 through 1998 verifies that they have become very effective at managing their
organization and are able to concentrate on increasing their distinctive competencies.
Quaker could be thought of as a differentiator, especially when it comes to the Gatorade
line. Innovations such as an ergonomically designed sport bottle, the 20-ounce wide-mouth
bottle combined with the introduction of new flavors such as Frost Riptide Rush and
X-plosive all contribute to the large growth numbers both nationally and internationally.

Contraction
In 1997 Quaker Oats addressed the issue of costs being too high and began to emphasize a
very cost reduction type strategy as opposed to a cost leadership strategy. Realizing
Snapple Beverages was suffering significant losses for a substantial period of time it
was sold off. Snapple in addition to the other areas mentioned earlier were not making
money for Quaker Oats and had inefficient production processes that were not worth
reinvesting to fix. This lead to removing a layer of executive management from the
Company's International and U.S. & Canadian operations, and realigning domestic and
international business leaders into direct reporting relationships with the Chairman. 
Expansion 
While Quaker is cutting back in many areas they continue to expand rapidly with the
Gatorade line. Very near future growth plans for Gatorade include building a new North
American Beverage Division manufacturing facility in Indianapolis that will add 200
additional jobs to the 230 people presently employed. This $115 million project is
planned to begin in January 2001. 
Vision
Quaker wants to tackle the $10 billion active thirst market and therefore are making many
more changes over the next few years. It will concentrate its efforts on streamlining its
manufacturing that expects to cut costs and increase profits substantially over the next
few years. Unfortunately, part of this process includes eliminating as many as 1200 to
1400 jobs in North America of which these savings will be used to promote Gatorade using
intensified advertising and marketing. Many plant closures will take place because
Quaker's food and beverage organizations are integrating into a lesser number of more
efficient plants. 
The ultimate goal is to lower operating costs by removing the inefficient assets and
reconfiguring the company's food and beverage warehouse and delivery systems. Quaker
anticipates about a $40 million savings in operating costs in 2001, increasing to $60 to
$70 million beginning in 2002, and totaling between $225 and $250 in pretax saving of
which they will be reinvesting between $230 and $245 million in expanding U.S. and
Canadian productions capacity of Gatorade. Assets in North American food operations are
expected to reduce by as much as $50 million, or 10%, but this would be compensated by
the expected beverage operations expansion. 
Environmental Changes
Companies will continue to emphasize streamlining their supply chain over the next few
years putting undue pressure on Quaker to remain competitive. The customer demands faster
delivery and convenience. In addition, many Asian countries have begun to regain the
handle on their economies and therefore show great potential for Quaker to capitalize on
the opportunity.
Adaptive Strategy
In the last few years, Quaker has become more a efficient manufacturer as evidenced by
steady increases in its gross profit and operating margins...while we have improved our
supply chain capabilities and costs, we are convinced that we can accomplish even more.
Quaker intends to further rationalize their operations making themselves more
cost-competitive producers and distributors. As the world is constantly moving towards
that of a global business Quaker Oats moves towards being a more efficient transnational
company by increasing their presence in the Asian and Latin American countries.
Recommendations & Conclusions
Recommendations can be kept fairly limited due to the nature of Quaker's momentum at the
present time. Quaker has eliminated many of the inefficient businesses within their
company while keeping their most profitable Gatorade and bagged Cereal divisions moving
ahead at an successful pace. They have intentions of streamlining their production
process for each component of their company duplicating that of the Gatorade line. Quaker
should possibly try to target new markets with Gatorade such as young children or the
elderly population. Expansion has been successful in the Latin American countries, but
increased marketing and promotional efforts could have great results. These kinds of
efforts could prove very successful in the Asian countries also now that the crisis has
leveled out a bit. 
One could expect the years ahead for Quaker Oats only to get better as they continue to
tighten efficiency, particularly in Asian markets where the company had previously
experienced some losses. As we move into the next millennium Quaker Oats strives as an
industry leader, very motivated to continue their success by heavily concentrating on the
most critical areas of their business and pushing for ultimate efficiency of their
operations.
Bibliography
References
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Sixth edition, The Dryden Press, New York
2. Dow Jones Interactive, [WWW],
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(1999, December 10)
3. Hill, C., Jones, G. 1998, Strategic Management: An Integrated Approach, Fourth
Edition, Houghton Mifflin Company, New York
4. PRNewswire (1999) Quaker Announces Supply Chain Reconfiguration; Targets $60-$70
Million in Savings in 2002 and Beyond [WWW] http://www.prnewswire.com/ (1999, December
8)
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Strengths to Target Accelerated Profitable Growth [WWW] http://www.prnewswire.com/ (1999,
December 9)
6. PRNewswire (1999) Quaker Oats to Build New Gatorade Facility in Indianapolis [WWW]
http://www.prnewswire.com/ (1999, December 9)
7. Quaker Oats Homepage, [WWW], (1999, June 18 - last update), Available:
http://www.quakeroats.com (1999, December 8)
8. The Quaker Oats 1998 Annual Report, Quaker Oats, 1998