CP Foods export strategies in Europe (09-01-07)
By Jon Fernquest[Introduction | Vocabulary | Article | Reading Questions | Answers]
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One of Thailand's most important exports to Europe is chicken.
CP Foods entered the European food market over a decade ago.
Every year Thailand gets a portion of the European Union's chicken import quotas.
Currently, Thailand does not export enough chicken to Europe to fill its quota.
CP Foods supplies a large percentage of Thailand's quota and is currently looking for ways to fill the unused portion of Thailand's quota.
In Great Britain, CP Foods works with a local joint venture partner to supply meat to a variety of restaurants including KFC and Burger King.
In Asia, innovative ready-to-eat products like wonton soup and curry rice are becoming popular in the urbanised Asian markets of Korea, Hong Kong, Taiwan, and Singapore.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. When do the new import quotas for the European Union come into effect?
2. When did CP Group start developing their food business in Europe?
3. Have they been involved in the European food market for a long time?
4. In what European countries does CP have offices?
5. How does CP do business in Great Britain?
6. How much chicken does Thailand export to the EU?
7. What fraction of EU chicken imports from Thailand come from CP?
8. Which European country is the principal market for CP chicken in Europe? How long ago did they enter this market?
9. What is the EU chicken quota for Thailand? Will Thailand exhaust its quota this year?
10. How does CP's exports to Japan compare to its exports to the EU? (Give calculation)
11. What strategy might CP use to obtain more chickens to fill Thailand's unfilled quota?
12. What percentage of the chickens raised in Thailand does CP raise?
13. What kind of ready to eat CP food products are popular in other Asian countries such as Singapore, Korea, Taiwan, and Hong Kong?
Bangkok Post Article: October 16, 2006
CPF confident on EU chicken quota
Firm now has strong presence in EuropeWALAILAK KEERATIPIPATPONG
Top poultry exporter Charoen Pokphand Foods (CPF) is confident it will obtain a large allocation of the chicken quota from Europe once the new import system comes into effect in March.
"Thanks to our extensive expansion since the early 1990s, our presence in Europe now is strong with branches spreading all over the union," said Pisit Ohmpornnuwat, president of CP Merchandising Co, a subsidiary of CPF.
"We have a strong distribution network, as our offices are all over Europe, including Germany, Spain, France, Italy, Belgium, Denmark and the United Kingdom."
In the UK, the firm has a joint venture with a local investor in Newmarket near Cambridge. It repacks cooked chicken from Thailand and supplies it to food outlets, including KFC and Burger King.
CPF started exporting only a small amount of chicken to Europe; about 1,000 tonnes to Holland and Germany. Now its chicken exports to the EU have grown considerably. In 2006, it sold 60,000 tonnes to the EU, accounting for half of the estimated 120,000 tonnes of Thai chicken shipped to the continent.
"The UK is our major market, which bought about 55,000 tonnes of chicken this year. Our reputation there is strong after we formed a venture six years ago and the plant has been certified," said Mr Pisit, a key marketing man of the group.
The EU has approved a quota of 160,033 tonnes for Thailand a year with 8% tax, and the EU will manage its quota, meaning that importers would select Thai entrepreneurs by themselves.
But the industry expects Thailand might not use up the quota and could fill between 130,000 and 140,000 tonnes at a maximum. With this amount, CPF estimates to take around 70,000 tonnes.
The volume is likely the largest the company could supply, as it has to sell the meat to other countries as well. This includes Japan, another core market, which plans to buy 35,000 tonnes of chicken from CPF this year.
These two markets absorb nearly all the output of cooked and processed chicken made from four CPF plants, about 120,000 tonnes per year.
As the firm may not be able to expand production capacity soon, it may start outsourcing to increase sales to the EU.
"We might follow the same pattern we did with the shrimp business by outsourcing supplies from many local shrimp farms," Mr Pisit said.
But the company might not outsource meat from its poultry plant in Turkey as the plant had yet to receive standards approval from the EU, said Prasit Chalongchaichan, senior vice-president of CP Merchandising Co.
Mr Prasit said that it was highly possible for the company to buy chicken from local farms or use more products from OEM (original equipment manufacturing) suppliers approved by the company.
The move indicates that CPF will not expand its operations to cover farming and slaughterhouses. The company raises about 5-6 million chicks per week, or almost half of the 13 million raised in Thailand.
"It could be enough. Our trend for the next five to ten years would be to turn to OEM," said Mr Pisit.
He said his mission now was to build CP as a global brand and increase distribution of its products, including frozen, semi-cooked and ready-to-eat meals, to up to 20,000 sites all over the world.
"We're aiming high to make it as global a brand as Coca Cola and Nestle{aac} in the near future," said Mr Pisit.
According to Mr Prasit, CP products such as ready-to-eat shrimp wonton soup and chicken curry with rice had been popular not only in Europe, but also in Singapore, Hong Kong and Japan.
To build the brand, CPF plans to use about 100 million baht for advertising in Hong Kong, Singapore, Korea and Taiwan.
CPF opened an office in Singapore a few years ago. It signed up the research house AC Nielsen and the marketing firm Ogilvy to conduct intensive research on retail outlets, consumer behaviour and product testing.
Now the business in Singapore was successful and it had become a model for CPF to expand in other Asian markets, said Mr Prasit.
"People might wonder why these markets, which have fine dishes, would buy frozen food. The answer is that everybody prefers good taste and high quality and our product matches the trend of smaller families living in condominiums."
Vocabulary
Charoen Pokphand Foods (CPF) - the food subsidiary of Thai conglomerate Charoen Pokphand (See Wikipedia)
allocation - portion of the total amount given to a person or for a special purpose (See Read Bangkok Post business words)
quota - an import quota, a limit on the amount of imports allowed from a country, less efficient than tariffs (See Wikipedia)
in effect - a law or rule is currently existence
comes into effect, takes effect - the law or rule officially begins
extensive - wide coverage, covers a lot (covers a wide range of details or or items)
subsidiary - a small company owned by a larger company (for example in another country, a "foreign subsidiary")
distribution network - the the system of transport and storage used to get a product from the factory to customers (See Wikipedia on distribution in marketing)
joint venture - when two companies join together to do a business, (Common in Foreign Direct Investment when a foreign firm joins together with a local firm) (See Wikipedia)
food outlets - food stores
grown considerably - grown a lot
the continent - continental Europe (France, Germany, Belgium)
reputation - when the public knows and remembers a name (for example a "good reputation" or a "bad reputation")
the plant has been certified - the company has passed the necessary health and cleanliness tests, the certificate shows they passed the tests
entrepreneurs - a business person who starts new potentially risky businesses (See Wikipedia)
a core market - one of the most important markets
absorb nearly all the market - the company can supply almost all the demand in the market
capacity - the maximum amount that can be handled
production capacity - the maximum amount that a factory can produce given the machines (capital) it already has (it can expand production capacity by increasing capital and buying more machines)
outsourcing - hiring (delegating) another company to do part of a company's business (companies that specialise in specific tasks can often do a better job with those tasks at lower costs, note that only "offshore outsourcing" means in a foreign country, "outsourcing" can mean hiring another company in your own country) (See Wikipedia)
Original Equipment Manufacturing supplier (OEM) - A company that builds products using components from other companies (marketing the final product under its own brand) (See Wikipedia)
"The maker of equipment that is marketed by another vendor, usually under the name of the reseller. The OEM may only manufacture certain components, or complete computers, which are then often configured with software and/or other hardware by the reseller." (Source)
slaughterhouses - large factory-like places where animals are killed, cut into pieces, and packaged for sale in markets and stores (See Wikipedia on slaughterhouses)
semi-cooked meals - (See Wikipedia on food processing)
ready-to-eat meals - (See CP Foods ready-to-eat products)
wonton soup - (See Wikipedia on wonton)
AC Nielsen - an international marketing research firm famous for the Nielsen Ratings which measured television audiences in the United States to determine how much advertising time was worth (See Wikipedia on AC Nielsen and Nielsen Ratings)
Ogilvy and Mather - a major American advertising agency headquartered in New York city (See Wikipedia)
research house - a firm that does research as a business
Answer Key:
1. When do the new import quotas for the European Union come into effect?
In March.
2. When did CP Group start developing their food business in Europe?
In the early 1990s.
3. Have they been involved in the European food market for a long time?
Yes, they have been involved in the European food market for over ten years.
4. In what European countries does CP have offices?
Germany, Spain, France, Italy, Belgium, Denmark and the United Kingdom.
5. How does CP do business in Great Britain?
In a joint venture with a local partner, cooked chicken from Thailand is repackaged and distributed to food outlets such as KFC and Burger King.
6. How much chicken does Thailand export to the EU?
60,000 tonnes.
7. What fraction of EU chicken imports from Thailand come from CP?
About half.
8. Which European country is the principal market for CP chicken in Europe? How long ago did they enter this market?
Great Britain. They entered the market by forming a joint venture six years ago.
9. What is the EU chicken quota for Thailand? Will Thailand exhaust its quota this year?
160,033 tonnes. Thailand will probably not exhaust its quota this year, exporting only 130,000 to 140,000 tones of chicken to the EU.
10. How does CP's exports to Japan compare to its exports to the EU? (Give calculation)
Exports to Japan are about half that of EU exports.
(35,000 tonnes / 60,000 tonnes)
11. What strategy might CP use to obtain more chickens to fill Thailand's unfilled quota?
Cp might outsource and buy chickens from other sources in Thailand or Turkey.
12. What percentage of the chickens raised in Thailand does CP raise?
38% to 46%.
(5-6 million / 13 million)
13. What kind of ready to eat CP food products are popular in other Asian countries such as Singapore, Korea, Taiwan, and Hong Kong?
Ready-to-eat and semi-cooked products such as "shrimp wonton soup and chicken curry with rice".
