1.

Corporate Background

PT Indofood Sukses Makmur Tbk (Indofood) is the premier convenience processed food producer in Indonesia with most of its products, including instant noodles, wheat flour, cooking oil, margarine, childrens foods and modern snack foods commanding a leading share of the market in Indonesia. Indofood also produces food seasonings and biscuits which makes Indofood, leading market share holder of flexible packaging in Indonesia.

Bogasari worlds largest floor mill, Currently Indofood is the worlds largest instant noodles producer with an installed annual capacity of over 13 billion processed packs and 23 manufacturing plants through out Indonesia (PT. Indofood, 2003). Indofood brands, distributed in Indonesia through one of their own division and internationally Indofood subsidies by the third party distribution agency. Specifically for instant noodles products, the well-known and trusted brands of Indofood include household names such as Indomie. Indofood continues to benefit from its significant competitive advantages in Indonesia. In 1998 the Joint venture between Salims Groups Food, First Pacific and Nissin Food Products Co. of Japan, the companys position in the market become stronger by making advances into international market share. Fig 1 shows percentage of consortium

Figure 1 Percentage of Consortium of Indofood Joint Venture

2.

Situational Audit
2.1 Market Analysis Globally, Asian downturn and resulting pressure on income have forced families to prune expenditures on even essential items such as food, which has led to an increasing shift of consumption of staple food from rice to noodles. As a result, sales of instant noodles have increased significantly. The global instant-noodle industry has estimated annual revenue of over US$3 billion, representing approximately 40 billion packets, across more than 100 countries. According to industry research, China accounts for approximately 37% of the market, followed by Indonesia with 23%. (First Pacific Company Limited Press Release, 1998). Meanwhile seen domestically in Indonesia, three categories dominate food spending. These are packaged foods, dried foods and bakery products. The combined sales value for all three was Rp.100 trillion in 2004. Instant noodles are the next largest categories after bakery, and noodle demand is expected to increase by about 3% (PT. Indofood, 2003). Table 1 shows the increase of per capita annual consumption of instant noodles in Indonesia for the past 7 years, which stands at 43 packets a year, and is forecast to grow 7% annually. (First Pacific Company Limited Press Release, 1998).

Cited in Fortification Basic, Instant Noodles: A Potential Vehicle for Micronutrient Fortification from http://www.mostproject.org/noodles.pdf.

2.2 Product Analysis Indofood owns the three major instant noodle brand names in Indonesia, Indomie, Sarimi and Supermi, with their particular values, benefits and attributes. Company produces a wide range of instant noodle products with prices which cover the low-end, mid-range and highend retail market segments in Indonesia. Indomie has the highest sales, which is accounted for approximately 44% of the Companys combine instant noodle sales which I will discuss more to on the second part of the assignment with 4Ps , Action Plan and strategy , while Sarimi and Supermi accounted for approximately 28% and 18%, respectively. (Indofood, 2004). The product mix of Indofood offers more than 100 varieties, including stir-fry style, soup noodles and egg noodles. But in the market, the majority of noodles are of the dry variety, which accounted for around 70% of total instant noodle sales. Soup-based instant noodles account for the remaining 30%, where onion chicken, chicken curry. All manufacturers concentrate production on these common flavors. Instant Noodles consist primarily of three ingredients: flour, seasoning and cooking oil. Products of instant noodles combine all the benefits of its attributes by quality for those three ingredients, variance of flavour and the flexible packaging. The Company also produces noodle seasonings and packaging internally.

2.3 Distribution Analysis Indonesia is archipelago, sum of 17000 islands and just in time distribution plays an important role of the business as usual for Indofood also because Instant noodle is convenience good and require piles of stocking their products in as many outlets as possible, in order to provide maximum brand exposure and consumer convenience. (Kotler et al., 2004). That is why in order to have utmost exposure, Indofood, keep distribution in-house. Distribution is one of Indofoods division besides instant noodles and others packaged foods products. Indofood use both traditional wet markets (grosir) to capture the extensive and wide coverage, both in rural and suburban areas, and also the modern retail outlets, which include mini markets and hypermarkets for big cities coverage of distribution (See Figure 2). .

Figure 2 Indofoods Distribution Subsidiary

2.4

Competitive Analysis Instant noodles categorized in oligopolistic in competitive structure, because there are few number of sellers among nine instant noodles companies in Indonesia with fifteen plants. However, the noodle industry is dominated by Indofood. Salim Group, which has gradually increased its dominance over the noodle market during the past twenty years. Salim companies now account for 80 to 90 percent of total production capacity (Warta Ekonomi, March 1992).

According to the last data in 2004, there are 7 players which count on the competition market of Indofood. In terms of specific brands, processed food, sources reported that Indofood currently accounts for about 70% of the instant noodles market, the details can be seen in Table 2 and Figure 3. In addition, Indofood capturing 20% of the global market share and Nissin 10% (First Pacific Company Limited Press Release, 1998)..
Table 2 Market Share of Indofood among the Instant Noodles Competitors in Indonesia Producers Market Share Indofood 70% ABC 10% Wings Group 5%-8% Sentra food 5-6% Nestle Less 3 % Nissin Mas Less 3 % Unilever Less 3 % Source: Grassroots SM Research, November 2004

6% 8%

2% 2% 2%
Indof ood A BC Wings Group Sentraf ood

10% 70%

Nestle Nissin Mas Unilever

Figure 3
Approx im a te ly % of Insta nt Noodle s Ma rke t Sha re s in Indone sia

Source: Author Estimates According to Grassroots SM Research, November 200

2.5Macro-environmental Situation
2.5.1 Political and Legal

Over the past year and so during Suhartos era, Indofood enjoyed being monopolistic on the import of wheat and process food market and instead of paying taxes to government authorities, they get the milling fee from government, and controlled 80% of the flour market, dominated 90% of the instant noodle market at that time .(Indofood, 2003) But after March 1999 the government signed Law No. 5 Year 1999 pertaining to The Antimonopoly Act The law forbids oligopolistic practices, price fixing, and price discrimination (The USASEAN Business Council, 2003). The law also forbids individual companies from controlling more than 50% of the domestic market and two or three companies from controlling a combined 75% of the market. In addition, in order to protect domestic industries from foreign competition, government lowering the tax tariff and creating non-tariff barriers for import products, especially in wheat commodity. It bring due to the increase of number wheat flour price which might be affect to the noodles industry. In May 2001, the Ministry of Industry and Trade issued Decree Number 153/2001 on the Mandatory Application of the National Standard of Indonesia (SNI) for Fortified Wheat Flour. Both imported wheat flour and domestically produced wheat flour must follow SNI. Thus, Indofood instant noodles have to be more aware to the raw material quality and health consciousness (Hardinsyah and Suroso, 2002).

2.5.2

Economic and Demographic

Based on data during 2004, the economic grew at a rate of 5%, relying heavily on the continuation of private consumption responsible for over 70% of GDP. The tsunami disaster may cut Indonesia's 2005 GDP growth by 0.1-0.4%. The World Bank revised its forecast for Indonesia's 2005 GDP growth to 5.4% from 5.0. Furthermore, Indonesia's economy will continue to expand and could reach 6% during 2006-2009 (Mabico Financial Company, 2005). It generally considered necessary to make an impact on the current level of unemployment and to improve prospects for 30 million people or 27.1% of population still living below the poverty line. In Indonesias US$ 153 billion economy new investment is currently still low compare to others Asian countries which estimated at 13% of GDP (Indofood Annual Report, 2005). In addition, the chief demographic factors behind the market trend, particularly in Indonesia. Indonesia is the forth densest country in the world with 234 million populations, which has large purchasing power. Consumer market is dominated by young population (55% less than 25 years old). Demographic health indicators also have improved over the last three decades. More details information about economic and demography environment can be seen in Figure 4 and Appendix 1.

Figure 4 Indonesia Demography Profile of 2003

2.5.3

Social

The Indonesian processed food industry encompasses most types of processed food found in a developed market. The urban middle class, who comprise 20 percent of the population of over 205 million, are the main consumers of processed food . (Voboril et.al, 1999). Culture that readily accepts the taste of fresh noodles is already a part of the traditional diet, and lifestyles that are rapidly becoming more oriented to convenience foods. Moreover, the affordability of instant noodles for a large proportion of the population and the average Indonesia household spent almost 60% of its monthly budget on food, which is dominate by prepared food after rice as main staple food (Indofood Annual Report, 2003). In addition, life in busy Indonesia cities is clearly no different than any where-else. More working mothers mean less time for cooking, and new retails formats, particularly the hypermarket, are helping the patterns of food spending. It makes instant noodles is one of the choices for them and their families. However Based on the scientific data indicate that several population subgroups do not meet the national Recommended Dietary Allowances (RDAs) for various nutrients. New scientific knowledge on nutrient needs to prevent diseases and promote optimal health, and developments in food labeling have spurred the review of the current RDAs used in Southeast Asia countries. (Health, Food & Health, 2004)

2.5.4 Facing the

Technological challenges of the new economy, the Research and

Development (R&D) become crucial for seeking the opportunity and improve the strength. It states that Technological developments come out of the research effort (Jain, 2000, p.133). Indofood has to work extensively with the National Analysis and Testing Units of accordance with ISO 17025. Progress continues to be made on HACCP certification as well as upgrading certification under ISO 9000 for Indofood operating units (Indofood Annual Report, 2002). Innovation for new diversification products also need to supported by technological innovations in todays competitive market of instant noodles. The communication and

information development is also essential, such as embracing day to day distribution database to be implemented for IT needs with the SAP software. Moreover, the numbers of spreading business units and manufactures require the new system to provide information customer services centre, process and tools. ILSI South East Asia Region has to understanding and adoption of new technologies to improve health, nutrition and food safety, specifically for the processing food company in South East Asia.

3.

SWOT Analysis

3.1 Strength Indofood's established brand names and commanding market shares. Indofood's product range includes some of the best-known household brand names in Indonesia such as Indomie, the metaphor for instant noodles. For almost 37 years in the Indonesian market instant-noodle products always be the leading market since it has formed in 1968, which the 90% market share is the highest as compared to its competitors Indofood's in-house capabilities and Network. The integration of Indofood's businesses provides strong protection against price fluctuation in any one element of the production process. For example, within the noodles business, Indofood's activities include process flour, palm oil plantation observatories to process the noodles, producing the seasoning, packaging for the seasoning and noodles, and operating a nationwide in-house distribution network. See fig 5 shows all in-house capabilities for Indofood.

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Plantations Seasoning Palm Oil Noodle s Wheat

Cooking oil

Flour Packaging

Distribution

Market Place

Figure 5 Supplies in Indofood Instant Noodles Processing as Major Strength

Indofood's ability to expand regionally and globally. Drawing on First Pacific's experience in marketing goods across Asia and Nissin Food's worldwide expertise in the food business, Indofood have more capability to accelerate its expansion into regional markets. Moreover, Indofoods instant noodles last year, the company exported products to more than 35 countries, which accounted for approximately 15% of revenues and it is expected that there is room to significantly increase this proportion. (Indofood Annual Report, 2005). Indofood's strong cash flows. Since its inception, Indofood has delivered strong cash flows at the operating level, and has continued to do so over the course of the economic crisis. Operating profit is approximately three times that required to cover interest payments on debt, and approximately 30-40% of net earnings is normally paid out as dividend. Moreover, the company's heavy investment in recent years in enhancing production capacity and efficiency such as introducing Information Technology in noodle business to make the rigorous distribution more effectively means that capital expenditure is likely to be modest over years ahead. 3.2 Weaknesses

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The excess of new products investment. Indofood has stakes of new products and brands, especially with in Indomie. Since 2000, they launch new 52 regional flavours. Causes, they can not maintain the sales in the market. Less awareness to the consumers preferences. With holding the biggest market share leader, sometimes existing consumers are less aware of Indofoods products and preferences which make these ranges of products do not have longevity. Instant Noodles as Processing Food. Consider to the health awareness for consumption of food, instant noodles in general and Indomie, in particular, instant noodles is an instant processing packaged food contained the preservatives. Indomie has difficulties in capture the consumer with highly health conscious consumers because of the nature of their product. Particularly in rural areas the preferences of instant processed food is less as they prefer to cook rather than doing instantly.

3.3 Opportunities Modern retailers as new opportunities. Despite the continuing strength of traditional outlets, the modern retail sector continues to grow strongly, especially in the major urban markets, see Appendix 2. 25% of retail food sales are modern retail outlet chain such as Carrefour, Giant, and Makro, in Jakarta compare to 20% average Indonesian local departmental stores such as Matahari, Hero (United States Department of Agriculture Foreign Agricultural Service, 2003, p.2). These modern outlets are the backbone of Indofoods growth as well as sales in existing future. The restructuring of operations. The management of Indofood has redefined the operations, changing from a past focus on divisional profitability to core product profitability. It impact to better coordination, tighter supply chain management and lower working capital needs are expected to begin to be evident in improvements in both sales and margins.

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Changed social-family values in Indonesia. It is resulted from the fact that many women are more independent economically. Thus, efficiency in preparing food is the most favourable in daily life. Therefore, Indomie Indofood instant noodles are the best choices to serve.

3.4 Threats The Indonesia political situation. The political situation in Indonesia is uncertain for these recent years. Even, Indonesia has lead by new presidents, but the terrorist attack still being threats for Indofood as company on the whole, Economic situation is still in healing process and the purchasing power for normal Indonesian is still is not as high as been expected in recent year of time even on staple food utilization. The new competitors. Indofoods performance was slipping in the first and the second quarter but showed some stabilization in the third quarter because of Indofood facing fierce competition from companies like Wings. (Permatasari, 2004). For year ahead, Indomie facing numbers of competitors which most persistent in the lower-price segments. For instance, sources noted that some companies are experimenting with new flavors, and smaller brands, such as Alhami (Olagafood), a local brand that has made remarkable sales achievement in Medan, Indonesias third-biggest city, by undercutting Indofood on price as well as by embracing an Islamic image for its noodles and boasting that its noodles are (HALAL), or permissible for Muslims. Another potential threats competitor is Mie Sedap (Wings Group), which is offering the new kinds of various flavours in low price. The Imports Wheat. The local producers of wheat flour faced threat due to the abolition of the import duty in 1998. After that, the prices get increase from year to year. The import wheat not just impact to the price domestically, but also the competition of the quality. Eventually, it will effect to the price maintaining by the upstream division flour industry (PT.

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Bogasari-Indofood) on a regular basis offer to Indomie as one of Indofoods instant noodles the biggest in-house suppliers. (Permatasari, 2004)
.

4.

The Wheat Prices, Health Consciousness and Competitors As Major Issues

Since the anti monopoly law and import new regulation, the price of wheat get higher for each year because of effect the import wheat product. This has serious implications for Indofood, whose primary products are instant noodles and flour. Sales from these two products contribute to 34 % and 24% respectively of the company's total income. Prices have already risen about 5% in 2004, and are expected to increase another 5 to 10% through the end of the year. The higher prices are expected to tamper demand growth, and only a modest increase in use is forecast for 2004/05. Approximately 75% of the Indonesias domestic flour production is made up of high protein flour

(protein content >12%) that is used for instant noodle and bakery products (Zemany & Alam, 2004). It also forecasted by Indofood that the modest price will persist in 2006.

Furthermore, the benefits of healthy eating and good nutrition have gained immense publicity in the recent past. It become an issue for Indomie to be more health food fortified product in lowered price, from its all the raw material until the finishing process of the instant noodle. As a result of high price of production cost and new regulation, growing numbers of competitors in more competitive price, Put Indofoods market share slipping from 80% in 2003 to 70% in 2004. But Indomie still captured the market share upto40%. (Zemany & Alam, 2004). However, it was the lowest market share for Indofood over the course of 37 years as market leader.

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5.

The objectives

5.1 Financial Objectives The Short-Term Objectives 1. The net sales are expected to slightly increase minimum of 1-2% in the end of 3rd Quarter marketing year plan 2005- 2006, in order to achieve at least Rp. 6135.823 Billion sales 2. To increase the sales volume at least 3% or 7.40 billion packs or in 3rd quarterly year in March of 2006, in order to reach. Specifically, Indomie still remain with 40% sales of Indofoods instant noodles. 3. Gross profit still maintaining in slightly increase for a year ahead in 2005-2006, of 2% annually. 4. operating margin uptil 9% where in 2003 the operating margin was 11.8% refer Appendix 3 Table 3 Short Term Financial Projected Objectives

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3rd quarter 2003 Net Sales (Bn Rp.) Sales Volume (Bn Packs) Gross Profit (Bn Rp.) 4525.00 7.28

3rd quarter 2004

4348.4
7.23

1112.00

1115.00

Projected 2005-2006 % Increase 4435.00 2.00 7.40 3.00 1130.00 2.00

The Long Term Objectives 1. Keep maintaining the sales growth of minimum 2% annually with 2-4% increase in sales volume through after the uptrend demand of Instant Noodles especially during Hari Raya. 2. A minimum of 3% return on equity and return on Assets for the year ahead with On-going debt management. 3. To increase the earning per share since it dropped to the record in last year, up until 10 % in Jakarta composite index of Jakarta Stock Exchange to attract the investor in Indofood. 5.2 Marketing Objectives 1. To increase the market share from 70% in 2004 and 2005 to 75% in 2006. 2. To maintaining Indofood position as the market leader in instant noodles industry with more specified the segment and target market. It support by the distribution division to expand regionally in urban and rural areas. 3. Improve the consumer awareness with the steady ongoing process, especially for smart choice for healthy food. 4. Start from the mid year of 2005 to 2006 will be the first full year of using coordinated sales, aggressive promotions and advertising with smarter media management to localize Indofood brand messages making them relevant to customers, right where they live.

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