Strategy analysis and diagnostic

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Nutritional supplement market is essential for NUMICO’s survivability and future growth. It could become a new core business with a dominating position.

- NUMICO’s strategy final objectives are :

- To compensate original’s core business decrease by creating a new source of income in a related business : nutritional supplements

- To develop internationally NUMICO’s brands : acquiring Worldwide American implanted companies are an efficient way to access new markets for NUMICO’s core business products (baby food), and then to create growth with old and decreasing products.

- To enter and dominate a long term attractive business by eliminating quickly every big competitors, which will ensure NUMICO a several year comfortable dominating position on the growing nutritional supplements market.

To conclude with this question, Nutritional supplements market is essential for NUMICO’s survivability and future growth. It could become a new core business with a dominating position.

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Making good use of matrices described in CH 07 (7.2 + 7.5 + 7.7 + 7.8), explain why NUMICO failed this diversification and why NBTY had been successful after purchasing REXALL SUNDOWN from NUMICO

Ansoff Matrix :

Before strategic decision to buy companies, NUMICO was on a market development strategy; indeed, it was focused on specialisation and development of his core-businesses (which are manufacturing and sale of baby foods and clinical nutrition distributed in Europe) in order to increase its market shares. But, the spends on R&D being very high, they had to internationalize further ro recover the costs…

Then, to increase their distribution channels, their market shares and thus recover the costs of R&D, they decided to focus their strategy on diversification; this diversification strategy brought up sport nutrition, personal care products, vitamins and other nutritional supplements from its subsidiaries. The problem is that NUMICO is not specialized on this type of products, it’s not its core business, and they have a lack of experience on how to sale these kind of products. As a result, these products drives NUMICO to an unrelated diversification strategy which weighs the company’s performance; indeed, there is no relationship between baby food and personal care products.

Moreover, NUMICO uses too many distribution channels: its products are distributed in many type of shops (supermarket, small retailers, specialized shops, internet, brand shop...). For example, you have to use sports magazines and communicate on performance improvement for specialized shops to reach athletes while you must use TV or radio advertising for supermarkets to reach crowd. But NUMICO lacks of knowledge and experience on how to communicate to reach each channel’s target. This drives NUMICO to a poor marketing strategy which will lower sales.

Then, after the strategy implementation, the company is on a « stuck-in-the-middle » strategy, not in a successful diversification strategy, because NUMICO hasn’t a clear strategic position: it plays on both food market and pharmaceutical market. As its position is not clearly defined, NUMICO stays between those two markets and cannot focus its ressources on one of those two choices. As a result, NUMICO faces difficulties to dominate one market and loses time and money struggling on each front.

As NUMICO doesn’t chose between pharmaceutical and food market, its has to face twice more competitors. On each market there are tough companies that are completely focused on their market (as DANONE on food market or NOVARTIS on pharmaceutical market). NUMICO has not enough ressources to face all those companies and loses ground on each front day after day. Sales suffer from such a situation.

Parental developper matrix:

NUMICO adatped a parental developper structure because they wanted to facilitate the communication between these three companies which hadn’t the time to know each other (one year of interval between their acquisiation by NUMICO), and NUMICO wanted to follow very closely their strategy and use its own capabilities as a parent to develop subsidiaries’ SBU.

Nevertheless, NUMICO’s parent developer position was another reason for the diversification strategy failure:

NUMICO’s purchase rhythm was too fast: it didn’t take time to learn how markets they infiltrated and companies they bought worked so they lacked of expertise while their subsidiary needed help. This would make NUMICO in trouble if their subsidiaries faces managerial troubles and NUMICO won’t be able to play its “parental” role and solve the crisis.

NUMICO had no expertise on the new market it penetrated, it exploited each company's strength, as distribution channel, but didn’t offer the subsidiaries support to grow. NUMICO, as a parent, had to support its subsidiaries’ development by using its own capabilities to develop subsidiaries’ SBU. The major problem here was that NUMICO had no experience on these markets, so NUMICO was unable to support its subsidiaries’ development. The structure chosen by NUMICO seems unadapted.

BCG Matrix:

Before the strategic decision, NUMICO had star products: indeed, between 1994 and 1997, their turnover increased of 57%, so they are gaining market shares on a relative growing market.

As we said before, R&D being a huge expense for NUMICO, they needed to obtain bigger market shares by buying competitors, and transform cash cows products into stars products to increase income and growth share, it was the objective of their strategy.

But the diversification strategy was disturbed by external factors:

There were too many competitors on a decreasing market, so it was impossible to turn star products into cash cows. Turning a product into a cash cow requires growth and scale savings. As the demand collapsed, everybody’s market share decreased, there was no growth and it was hard to realize scale savings.

Cash cows expected from cash cows were also necessary to repay loans contracted to buy companies. As the market was downsizing, cash cows became less important than expected, and NUMICO had to face financial problems due to loan reimbursement.

Increase of the foreign exchange risks between EUR and USD weighed bills and lowered NUMICO’s income. This situation destroyed profits and enhanced NUMICO’s financial