Status, problems and prospects of micro-and small-Scale Laguna based juice makers

Date

2005

Degree

Bachelor of Science in Agribusiness Management

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Depositario, Dinah Pura T.

Abstract

This study focused on the status, problems and prospects of micro-and small-scale Laguna-based juice makers. The study aimed to present the structure. Conduct and performance of micro and small scale juice makers in Laguna. The problems existing in the business were also identified. It also attempted to provide recommendations for the business to attain their full potential, competitiveness and viability. Exploratory research design was used to acquire relevant yet unpublished information on micro and small-scale juice procedures. The juice business owners were identified through the listings of the Business Permits and Licensing Division of the of the municipalities and cities of Laguna. Descriptive design was used to present the juice manufacturing firms and explain the commodity involved in the study. Porter's Five Forces of Competition and Value Chain analysis were adopted as analytical frameworks of the study. The four major management areas of the business namely production, marketing, personnel, and finance were compared and evaluated. The study analyzed the current structure of the businesses by presenting the five forces of competition affecting the industry. The industry's dominant economic traits and drivers of change were also analyzed. the study also identified the basic procedures in juice-making and the main reasons why the owners ventured into the business. The study revealed that Laguna juice were not actually juice manufacturers but were reformulators of juices using fruit flavors. Most of the fruit flavors used by the Laguna juice makers were found to be mostly imported. Moreover, the primary material they were using was identified to be artificially made. The problems faced by Laguna-based micro to small-scale juice makers include: (1) stiff competition from the established big key players such as Zest-O and PhilBev; (2) escalating prices of sugar and fruit flavors; (3) the department of Education (DepEd) Memorandum No. 17 which species that food and drinks sold in public school canteens should contain vitamins and other necessary nutrients or has the Sangkap Pinoy Seal certification from the Bureau of Food and Drugs (BFAD); (4) lack of competence in terms of advertising and mass distribution; (5) insufficient working capital for purchasing raw materials; (6) difficulty in collecting receivables from market intermediaries specifically distributors; and (7) the efficiency of inexperienced workers. Some of the solutions resorted to by the business owners to solve these problems included: (1) changing their suppliers to address the escalating prices of raw materials; (2) borrowing from relatives to supplement their current capital; (3) direct distribution to retailers to save on marketing costs and to minimize having unreliable marketing intermediaries, and (4) close monitoring of new employees' performance. Mini-cases of a group firms and specific firms were presented to identify their distinct characteristics as well as practices. Mega Fruit Juice Drink represented the firms which operated at the micro scale level. Firm classified under this group used lower-priced equipment, utilized family members as laborers, and distributed their products to a narrow geographical scope and network (i.e. the barangay and/or municipal level with no regular market outlet). Meanwhile, Jovial was a top juice producer with export quality nata de coco as its major product line. The prices of the firm's products were also the lowest among micro and small juice business and big corporations. Jovial used guerilla strategy wherein it made intermittent moves capturing sari-sari stores (retail stores) where other players were not that visible. It practiced direct distribution to sari-sari stores which was not practiced by big players such as Zest-O and PhilBev. The case Patubas Corporation was also highlighted since it was the only firm that packed its juices in plastic bottles. Moreover, its primary products which included fruit wines, lambanog, and atchara were planned to be launched in the export market lastly, Philippine Morinda Citrifolia Incorporated (PMCI) was identifies as the only juice maker which exported its products. PMCI's had entered the United States market after it was accredited by the United States Food and Drug Administration (USFDA). The firm also had its own chemical analyst to monitor the company's production process. It can be deduced that Jovial is in the best position to compete with the current market leaders Zest_O and PhilBev. This is due to lower price and relatively acceptable quality of Jovial products vis-a-vis the market leader. Porter's Five Forces of Competition Analysis identified that the entry in the industry is easy since the juice making process is simply and investment costs are low. The rivalry among competing firms was assessed to be strong because of low product differentiation and intense competition posed by large-scale players. The threat of substitutes and buyer bargaining power were both strong since there were many competitively priced substitute products available in the market. Supplier bargaining power was weak since juice makers can easily shift to other cheaper source of supplies. S strategic map was derived to identify potential market niche which can be occupied by Laguna juice makers. The two variables used in the strategic map were prices of the juice (i.e. low, average, and high) and the firm's distribution network (i.e. narrow, average, and wide). The market niche identified in the strategic map was that of producing average-priced juice products marketed at the municipal and/or provincial level. For the purpose of conducting a comparison of the efficiency among juice makers, the players were divided into clusters. Groups A and B, both comprised of juice reformulators, were group according to their average monthly production (i.e., Group A - less than 10,000 liters juice production per month and Group B- 10,000 liters and above juice production per month). On the other hand, Group C was composed of the only firm which engaged in juice extraction from fresh noni fruits. Using Value Chain Analysis, it was determined that the primary cost-adding (and value-adding) activity among Groups A and B was materials purchase. This was followed by production and labor, profit margins, and marketing and distribution. Group b was identified t be more efficient in terms of materials in bulk. In the case of Group C, the sole fresh fruit extractor, the identified primary cost-adding activities were production and labor and profit margin. In comparing the value chain of reformulators (Group A and B) and manufacturers (Group C) firms engaged in the manufacture of juice from fresh fuits achieved higher profit margin than juice reformulators. This implies that potential profitability is higher from fresh fruit juice extraction than juice reformulation. The researcher formulated a strategis plan for micro-and small-scale Laguna-based juice makers with the aim of appealing to the market niche identified in the strategic group map. The core of the plan is the use of fruit puree as primary raw material instead of synthetic fruit flavor. The juice from fruit puree packed in a plastic bottles would be primarily marketed in public schools. By producing juices from puree. Laguna juice makers would be able to avoid the stiff competition presentes by big key players and would also no longer be constrained by the provisions in the DepEd Memorandum no 17. Installment collection scheme of receivables (i.e., 30% down payment with balance to be paid within a month) should be implemented as a policy to be followed by distributors to alleviate the difficulty in collection of receivables. If possible exclusive distributorship contract (for juice) should be arranged to guarantee a captive market and a continuous cash inflow. A Comparative analysis conducted confirmed the higher profitability of using a fruit puree compared to that synthetic fruit flavors. Recommendations were also formulated for support institutions to facilitate the achievement of the plan. The local government should reduce business fees to help minimize the expenses of micro and small scale business owners. The DepEd should also strictly monitor the observance of DepEd Memorandum no 17 which actually presented an opportunity to juice makers which will utilize fruit puree as primary material as there will be less competition from from substitute drinks which are carbonated and sugar-based in nature for the public school market. Lastly, Laguna-based financial institutions should offer attractive and fair credit terms and hassle-free credit appliction procedures for small and medium enterprises (SMEs), specifically juice makers as this would broaden their sources of capitalization.

Language

English

Location

UPLB Main Library Special Collections Section (USCS)

Call Number

LG 993 2005 M17 A86

Document Type

Thesis

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