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Project #1 Olga Kononova BMGT495 I. Tobacco is a plant that grows in a wide range of soil and climate conditions. Its non-edible leaf is dried and used to produce cigarettes, pipe tobacco, cigars, chewing tobacco and snuff. Companies that manufacture and market cigarettes, snuff, cigars, chewing tobacco, and other tobacco products, are tobacco industries. UST Inc., through its subsidiaries, operates predominantly in the tobacco industry as a manufacturer and marketer of moist smokeless tobacco products, and also produces and markets premium wines. The Company operates primarily in the United States. The Company's principal smokeless tobacco products and brand names are divided into moist and dry categories. Under the moist classification, the Company's brands include Copenhagen, Skoal Long Cut, Skoal, Copenhagen Long Cut, Red Seal, Skoal Bandits and Rooster. The Company's products under its dry category include the brands Bruton, Cc and Red Seal. The Company markets its moist smokeless tobacco products throughout the United States, principally to chain stores and tobacco and grocery wholesalers. Approximately 35% of the Company's gross sales of tobacco products are made to five customers, one of which, McLane Co. Inc., a national distributor, accounts for 19.7% of the Company's consolidated revenue. The Company is a producer of premium varietal and blended wines. Chateau Ste. Michelle and Columbia Crest Varietal Table Wines and Domaine Ste. Michelle sparkling wine are produced by the Company in the state of Washington and marketed throughout the United States. UST Inc. also produces and markets two California premium wines under the labels of Villa Mt. Eden and Conn Creek. Approximately 60% of the Company's wine sales are made to 10 distributors, none of which accounts for more than 26% of total wine sales. Substantially all wines are sold through state- licensed distributors with whom the Company maintains satisfactory relationships. The Company's other operations include the international operation, which markets moist smokeless tobacco in select markets, and the cigar operation, which manufactures and markets the premium cigar brands Don Tomas, Astral and Habano Primero. II. Mission Statement. Today we are leaders on the smokeless tobacco market; one of our products is marketed to ‘‘smokers who can’t smoke’’. Our goal to increase operating efficiency and provide you best service through our Sales Tracing and Reporting System (STARS) . We also take care about your health, prohibit our seller to sell our product to not adult people. This statement does not clarify what technology they use, concerns for survival, growth and profitability and self-consept. III. Table1 External Factor Evaluation Matrix for UST, Inc. Key External Factors Weight Rating Weighted Score Opportunities 1.Internet Advertising 0.05 1 0.05 2. Global Expansion 0.15 1 0.15 3. Technological Development 0.20 2 0.4 4.Increased demand due to public banning of smoking 0.05 3 0.15 5. More social pressure to quit smoking, thus leading users to switch to alternatives 0.10 3 0.3 Threats 1. Legislation against the tobacco industry 0.15 2 0.3 2. Increasing competition 0.10 3 0.30 3. Bad media exposure from FDA 0.10 2 0.20 4. Environmental protection laws 0.05 1 0.05 5. Smokeless tobacco market is concentrated in one region 0.05 2 0.10 TOTAL 1.00 2.00 The EFE Matrix for UST Inc., illustrates that at least two main factors affecting industry, as indicated by the weight of 0.15(Global Expansion) and 0.2(Technological Development). UST was not pursuing strategies that effectively capitalize on this opportunity, as indicated by the rating of 1 and 2 respectively. The total weighted score of 2.00 indicates that UST is below average in its effort to pursue strategies that capitalize on external opportunities and avoid threats. b) Table.2. The Comparative Analysis of Financial Ratios UST, Inc. 1997 Chg, % 1996 Chg, % 1995 I. Liquidity Ratios Current ratio UST, Inc. 2.653 80.599 1.469 71.38 1.548 Quick Ratio UST, Inc. 0.734 25.68 0.584 15.41 0.636 NWC UST, Inc. 275325 91.17 144017 78.96 153847 II. Activity Ratios ACP UST, Inc. 17.39 (14,88) 20.43 (9.37) 19.19 APP UST, Inc. FAT UST, Inc. 0.395 6.18 0.372 5.3 0.375 Total Assets Turnover UST, Inc. 1.695 (- 0.17) 1.698 1.92 1.663 Inventory turnover UST, Inc. 0.829 (8.6) 0.907 (10.28) 0.924 III. Debt RatiosDebt Ratio UST, Inc. 0.47 (27.69) 0.65 (24.8) 0.625 Debt to Equity UST, Inc. 0.228 (35,59) 0.354 (32.94) 0.34 Times Interest Earned UST, Inc. 95.46 (19.09) 117.99 (57.11) 222.6 IV. Profitability RatiosGPM UST, Inc. 0.81 (1.21) 0.82 (0.73) 0.816 Operating Profit Margin UST, Inc. 0.537 (4.28) 0.561 (3.76) 0.558 Net Profit Margin (NPM) UST, Inc. 0.313 (1.57) 0.318 (4.86) 0.329 ROI UST, Inc. 0.530 (1.85) 0.540 (3.1) 0.547 ROE UST, Inc. 1.02 (37.8) 1.64 (30.14) 1.46 Earnings Per Share UST, Inc. 2.366 (4.28) 2.472 (35.93) 3.693 c) Table 3 Internal Factor Evaluation Matrix for UST Inc. Key internal factors Weight Rating Weighted score Internal strengths 1. Great sales tacking and responding system(STARS) 0.10 4 0.40 2. Increased in sales 0.15 3 0.45 3.Leader in the smokeless tobacco market 0.05 4 0.20 4.Highest profit margin and return on assets 0.10 4 0.40 5.Introducing new products 0.10 4 0.40 6.Good product planning 0.10 3 0.30 7. Good image (discourage the use of its products by minors) 0.05 3 0.15 8. Good diversification 0.10 3 0.30 Internal weaknesses 1. Increased expenses 0.10 1 0.20 2. Most properties located in one area 0.05 2 0.10 3. Decreasing net earnings 0.10 1 0.10 Total 1.00 3.00 The firm’s major strengths are STAR, introduction of a new produce, highest profit margin and return on assets, leader in the smokeless tobacco market as indicating be rating 4. The major weaknesses are location and earnings. The total weighted score of 3.00 indicates that the firm is above average in its overall internal strength. c) Table 4 A competitive Profile Matrix UST Inc. Conwood Pinkerton Critical Success Factors Weight Rating Score Rating Score Rating Score Advertising 0.20 4 0.80 4 0.80 3 0.60 Product Quality 0.15 3 0.45 3 0.45 3 0.45 Price Competition 0.10 3 0.30 3 0.30 4 0.40 Management 0.10 3 0.30 3 0.30 3 0.30 Financial Position 0.10 3 0.30 3 0.30 3 0.30 Customer Loyalty 0.10 2 0.20 1 0.20 1 0.0 Global Expansion 0.20 1 0.20 1 0.20 1 0.20 Market Share 0.05 4 0.20 3 0.15 2 0.10 TOTAL 1.00 2.75 2.70 2.45 5. SPACE Matrix for UST Inc. Financial Strength Rates The current ration 2.65 is higher than required, and than total industry average(0.87) 4.0 The leverage ratio is low the required and than in industry (UST 0.89 Industry 1.28) 1.0 The UST net earnings was 439,138 down to 6% 2.0 Net sales increased to 2.18 % 2.0 9.0 Industry Strength Growth potential 3.0 Financial stability 4.0 Capital intensity 4.0 11 Environmental Stability Inelastic demand -6.0 High barriers to entry into market -5.0 Stable market -4.0 -15 Competitive Advantage The UST has large custom base -4.0 The UST has good advertisement -2.0 -6.0 Conclusion ES Average is –15/3=-5 IS Average is + 11/3=3.6 CA Average is –6/2=-3 FS Average is +9/4= 2.25 Directional vector Coordinates: x-axis: -3 + (+3.6)=0.6 y-axis: -5 +(+2.25) = -2.75 The UST should pursue Competitive Strategies. Competitive strategies include backward, forward, and horizontal integration; market penetration; market development; product development; and joint venture. 6. Strategy Matching (10%) What are some possible strategies that match external factors (threats and opportunities) with internal factors (weaknesses and strengths)? Which of the company's current strategies appeared? What is an underlying grand strategy or strategy theme? 7. A QSPM for UST Inc. Critical Success Factors Strategic Alternatives Market development Product Development Joint venture Weight AS TAS AS TAS AS TAS Opportunities 1. Increasing differentiation of the products 0.10 4 0.40 4 0.40 4 0.40 2. Increasing demand of the products 0.15 4 0.60 4 0.60 4 0.60 3. Increasing area of tobacco growth 0.10 4 0.40 4 0.40 4 0.40 Threats 1. Tobacco control 0.15 2 0.30 2 0.30 1 0.15 2. Possible stock of the product 0.10 1 0.10 1 0.10 1 0.10 3. Unstable partners 0.05 1 0.05 - - 1 0.05 4. New unknown market 0.10 2 0.20 - - 1 0.10 5. Low value of the dollar 0.10 1 0.10

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