Nata de Coco Management Case


Published on

A mang

Published in: Education, Business, Technology
1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Nata de Coco Management Case

  1. 1. LJRS Nata de Coco Production Rogel T. Gantuangco Dole Philippines
  2. 2. I. INTRODUCTION Nata de coco is a chewy, translucent, traditional Philippine dessert which is coconut gel-product from coconut milk by bacterial fermentation-prepared. It is high in fiber, good for thedigestive system, and it is low in calories and contains no cholesterol. In 1992, this dessert wasintroduced to Japan through its use in diet foods enjoyed by young girls. Moreover, "Japanesebelieved it protects the body against colon cancer," and it became "a boon for slimmers". Its peakmoment of popularity in Japan occurred in 1993. Nata de coco could be found everywhere at thattime. Many companies manufacturing nata de coco rivaled each other for new nata de cocoproducts. This paper will establish the details involved in the production, marketing and the overallperformance of the nata de coco product of LJRS Food Processing – a small-scale businessenterprise involved in a nata de coco production. The brand aims to increase its sales in the localmarket excluding its already stable production for Dole Philippines Inc. demand. The brand also wants to expand its distribution channel. Currently, the brand is sold onlyin two supermarket in General Santos City and in the Polomolok Public market. Ironically, LJRSbrand is not available in groceries in Polomolok; it is dominated by competitors from as far asLaguna. If successful, the brand will launch another variants, another products like kaong andother similar products.II. GENERAL BUSINESS CONDITION The Philippine coconut industry is optimistic that coconut exports will grow further inmarkets where the Philippines has preferential trade agreements with, according to the UnitedCoconut Associations of the Philippines (UCAP), a confederation of associations andorganizations involved in the various activities of the Philippine coconut industry. Industry reports show that exports of coconut products have been consistently rising withan average growth rate of 8% over the period of 2007-2010. In 2010, total exports of coconutreached US$1.6B and accounted for 20 percent of world market share, the highest among keysectors identified in the Philippine Export Development Plan (PEDP). In 2010, 21.3% of Philippine coconut exports revenue went to markets where thePhilippines has free trade agreements with, namely ASEAN, China, Korea, Japan, Australia andNew Zealand. In the first quarter of 2011, the Philippine coconut shell charcoal exports to Japanhas already accounted for 60.7 percent of total market share while total glycerin exportsaccounted for 69.8 percent, both figures based on volume. This is a remarkable increase over 2010s total market share in Japan of 57.5 percent and56.8 percent respectively. The same growth trends are also apparent for the volume ofoleochemicals in markets such as China (from 31.5 percent in 2010 to 39.6 percent in the Q1 of2011) and Korea (from 4.3 percent to 12.4 percent for the same period). Sixty eight out of 79provinces in the Philippines are coconut areas, with 3.6 M hectares or 26 percent of totalagricultural land planted with coconut trees. More than 50% of total Philippine supply ofcoconuts is sourced from Mindanao. Philippine coconut product exports consist of coconut oil, desiccated coconut, coprameal, oleochemicals, virgin coconut oil, coconut shell charcoal, activated carbon, glycerin, soap, 2
  3. 3. nata de coco, coconut milk powder, alkanolamide, shampoo, liquid coconut milk, macapuno andcoconut water, among others. For nata de coco, the industry flourished in Laguna, Batangas, Quezon, Iloilo, Cagayande Oro, Cavite and many other places in the Philippines. Through the years, nata de coco enjoysthe fair share of the local and international market but it was only during the last couple of yearsthat nata de coco had a surprising boom in the export market.III. The Business Unit LJRS Food Processing is a family-owned small-scale enterprise started about 10 years ago. It started as a contract grower of Dole Philippines, Inc. as a supplier-grower of nata de coco. The periodic production is solely based on the demand provided by the company; production planning is based on this projected demand. Currently, the brand has 16 workers involved in the production, packaging and deliveryof the finished product. The brand utilized the resources from relatives and neighbors. For rawmaterials, the brand bought grated coconut coconut. The sugar and glacial acetic acid, suppliedby the son-in-law, is being bought at Php1860 per 50-kilogram and Php1860 per 30-liters,respectively Two years ago, the family-owner saw an opportunity in expanding to the local market (neighboring town and cities) through processing those nata de coco cubes and slabs that did not pass the quality requirements of Dole. This new scheme generated additional income for the business from the rejections that previously was sold at a lower price in the neighborhood. LJRS able to produced nata de coco in bottle in 8, 12, and 24 ounce displayed in the supermarket shelf in one mall in General Santos. It also produced nata de coco in plastic pouch and in ordinary plastic in the wet space in the mall’s supermarket. However, there was no specific planning as to how much to produce and where to market the finished product. The production for the market outside Dole is solely based on the rejects that was accumulated. It does not consider producing more from the prime produced. It was also tied up with the contract in a specific mall; it cannot display in other malls in General Santos with the same product label. Moreover, the volume of delivery just relies on the purchasing order sent by this mall. The owner doesn’t have the specific data on the market demand and trends.IV. The Product Nata de coco is a chewy, translucent, traditional Philippine dessert which is "coconut gel-product from coconut water by bacterial fermentation-prepared”. In 1993, the Philippines saw aboom in the demand of this product in Japan. During that time, Japanese people, especiallyyoung considered nata de coco a popular dessert, however, its popularity declined because theirinterest moved to another trendy dessert (Bank Indonesia, 2011). 3
  4. 4. Moreover, nata de coco still has its integrity as a dessert in the Philippines and it still hasits market share for the local market. However, it is not a prime commodity of the Filipinos.When situation arise, nata de coco is the least to purchase. With nata de coco product, coconut farmers continuously earn a stable income. Besidesfrom coconut milk sale, farmers and local dwellers can also get extra income from salary theyearn from nata de coco companies. In other words, households get a lot of benefit from theexistence of nata de coco business, not only because of salary aspect but also morefundamentally because of improvement of employment in the region. LJRS presently has 40workers involved in the production and packaging of nata de coco items. Farmers have becomecoconut milk suppliers.V. Product Costing and Pricing DOLE Philippines, Inc. offers a stable rate on the nata de coco supply. LJRS enjoyed this scheme. However, the price given by Dole is not as flexible as the price of the raw materials. When the prices of raw materials fluctuate, the owner takes the blow. For its product outside Dole, the strategy is to price the items a few cents lower than the competitors. However, in the future, the owner will review this practice in pricing. Accordingly, consumers might view their product as substandard to others because of the lower price. The computation below show the estimated investment cost considering the cost of utensils, packaging materials and the cost of raw materials or ingredients. Estimated Investment Cost (based in 2009 prices) A. Estimated Cost of Utensils Weighing scale 199.75 1 straining cloth 25.00 Stainless/enamel kettle 800.00 Fermenting basin or Jar (@Php61.75/basin x 30/hr x 8 hrs) 14,820.00 Total 15,844.75 B. Estimated Cost of Packaging Materials Sterilized glass jar with cap - P12.94 12.94 Cap sealer (100 pcs/P25.00) – 0.25 0.25 Total 13.19 C. Estimated Cost of Raw Materials/Ingredients 1. Nata de Coco grower 1 kilo fresh coconut, grated 51 400 ml of glacial acetic acid 108 2 kgs of refined sugar 71.5 24 liters tap water (Hauling) 2.86 2 liters nata starter 41.67 Total for 1 kilo raw nata de coco 275.03 2. In Heavy Syrup 3/4 kg. refiner sugar 26.81 0.1% citric acid 0.99 Total for 1 kilo raw nata de coco 27.8 4
  5. 5. Computations on the next page show the estimated product cost with the following assumptions: • For every 10 days, the average harvest of Nata de Coco is 20 kilos. • Nata de Coco production is twice a month, totaling 4 working days/month for the production of Nata de Coco grower (2 working days) and Nata do Coco in heavy syrup (2 working days). A. Direct Cost Raw materials/ingredients 4,799.52 Packaging material 12,372.22 Labor cost (P382/day x 4 days) 1,528.00 Total Direct Cost 18,699.74 B. Indirect Cost Water (P220 consumption/22 days x 4 days) 40.00 LPG (P500/22 days x 4 days) 90.92 Contingency cost (10% of Direct Cost) 1,476.41 Total Indirect Direct Cost 1,607.33 C. Production Cost A+B (production cost of approximately 938 bottles) 20,307.07 D. Product Pricing Production cost per 12 oz. bottle 21.65 20% mark-up of the Production Cost 4.33 Suggested Market Price 25.98 Market Price per 12 oz. bottle: from P28.75 to P36 Currently, LJRS has no pricing strategy. The owner just based the price on itscompetitors. Current price for its products is considerably lower than its competitors. For the 8oz. variant, for example, LJRS is lower by 16% against its nearest competitor.VI. The Market and Marketing Channel LJRS enjoyed a stable demand from its growing-contract with DOLE Philippines, Inc.The production planning is based on the demand data supplied by the company. It does not incuradditional cost for over-production and/or under-production. And for the other market (outside 5
  6. 6. Dole), the production is also based on the purchasing order sent by the mall. It only deliveredwhat is ordered to them. However, as mentioned above, nata de coco, is not a prime commodity of the Filipinos.This product is popular during holidays and gatherings, but not part of their daily consumption.But aside from the stable order from Dole, the owner does not engaged in any market studyabout the demand and trends of this product. In its mall display, the owner rent a shelf space in the supermarket section for the bottlednata de coco. In addition, it also has a space in the wet section. It only incurred additional costfor one worker involved in stock replenishment. This worker then gives feedback as to thesituation of the shelf space. For the raw materials needed, LJRS owner tapped its relative as a supplier. For the gratedcoconut, the suppliers were the in-laws of the owner at Php32 per kilo. For the sugar and glacialacetic acid, the supplier is the son-in-law. And for the nitrate-free water, it is provided free-of-charge from DOLE Philippines, Inc.VII. Competitors Within General Santos City and Polomolok, LJRS have three competitors: Tita Ely’s, CDOand Genrev, also the owner of the Smartbuy brand. Smartbuy brand is of low-quality, low-priceproduct of Genrev and is the closest competitor in terms of price with LJRS. LJRS only caters KCC and Gaisano Mall and Polomolok Public Market. Theircompetitor, on the other hand, has a dispersed area of distribution. On pricing, to have acompetitive advantage, LJRS lowered its price against the competitors. See below thedistribution channel of LJRS and its competitors. Price comparative on different variants. 6
  7. 7. Supermarkets Groceries Public market Producer Pol. GSC Pol. GSC Pol. GSC LJRS X X CDO X X X Tita Ely’s X X X Genrev X X X Samrtbuy X X X Distribution channel of LJRS and its competitors.VIII. Financial Performance In 2011, the income from the volume delivered to Dole comprised 80% of the brand’s netincome. Only 20% of its earnings came from outside market. The brand aims to increase its salesin the local market excluding its already stable production for Dole Philippines Inc. demand.IX. ReferencesBank Indonesia. Lending Model Information System for Small-Scale Enterprises. 12/26/2011.Coconut Gel (Nata De Coco). Retrieved from, July 20, 2012EntrePinoys Atbp. Starting a Business in Nata de Coco Production. de Coco Boom and the Philippines. Retrieved from 12/22/2011Nata de Coco Production in the Philippines. 8-1-0-1426#ixzz1mQVhG7mE. 12/26/2011.PCIERD – DOST. Government to help improve the Nata De Coco Industry. 01/06/2012.PCIERD – DOST. Philippine Council for Industry and Energy Research and Development. Retrieved online at 7
  8. 8. United Coconut Associations of the Philippines, Inc. ( UCAP ). Performance of the RP’s Top Non-Traditional Coco Exports in November 2007. Retrived from is Nata de Coco? _production_in_the_philippines/8-1-0-1426#ixzz1mQVhG7mE 8
  9. 9. 7. SWOT Analysis The coconut industry despite being tagged by some as a “sunset” industry is still thrivingwith full of potentials but beset by many weaknesses. There is availability of good clones andtechnologies with established marketing system, export facilities, and processing plants.However, the industry has a basic supply and quality problem given the minimal areas planted togood clones, senile trees, lack of fertilization, plantings in marginal lands and lack of gooddrying facilities at the field level. There are many things going for the industry since the crop has many productpossibilities with multiple stakeholders. The traditional products from coconut have been addedwith opportunities in several value added products like virgin coconut oil, geotextiles,oleochemicals, and alternative fuel. 5- 23 While the country is the largest exporter of coconut products, it is still a price taker giventhe competition from the other vegetable oilseeds. This puts pressure on farm prices and incomesas most farms do not practice intercropping thus the reliance on coconut for their livelihood.Table 5.3.3. COCONUT INDUSTRY: SWOT Analysis STRENGTHS WEAKNESSESInputs1. Availability of good clones 1. Only 1% of the areas are planted with clones 2. No irrigation system in coconut areasFarm Production2. Favorable climate in most areas 3. Senile trees (30% of stands)3. Availability of technologies 4. Only 1% of the farms apply fertilizers4. Unique lauric structure of coconut oil 5. Plantings in marginal lands 6. Intercropping in only 30% of the landLogistics5. Established marketing system 7. High assembly/freight costs due to poor roadsa and fragmented, small holdings6. Export facilities 8. Multi-layered marketing channels 9. Scattered/unclustered ports mean costly ocean freight.Milling7. Presence of many mills 10. Underutilized mills/old technologies8. Presence of refiners 11. Underutilized refineries 12. Shortage of raw materials 13. High assembly costs 14. Low quality copra 15. Scattered factories mean costly local 9
  10. 10. freightOther Value Adding9. Many product possibilities 16. Cost of raw materialsInstitutions10. Multi-stakeholders 17. Frequent changes in DA/PCAleadership11. Organized industry associations 18. Lack of program support; too dependent on coco levy resolution19. Politization of management overcoco levy companiesOPPORTUNITIES THREATS1. Stable and growing export and 1. Poor global image in supply reliability domestic markets2. Good prospects for value added 2. Perception of government inactionproducts (VCO, geotextiles, etc)3. Alternative fuel (coconut methyl 3. Competition from other tropical oils 4. Development of rapeseed and cuphea 4. Low domestic oil consumption vis a with high lauric content vis growing population5. Renewable source of vegeoilbased applications vs depletingmineral oil reserves5. Zero Asean tariff/ GATT withoutpromised safety nets in place6. More stringent sanitary and phytosanitary(SPS) standards7. Unregulated cutting of treesSource: CFA-UA&P5-EntrePinoys Atbp. Starting a Business in Nata de Coco Production. Coconut Associations of the Philippines, Inc. ( UCAP ). Performance of the RP’s Top Non-Traditional Coco Exports in November 2007. Retrived from 10