LIBBEY, INC. (Foodservice Division) Advanced Competitive Position
LIBBEY, INC. (Foodservice Division) Advanced Competitive Position Advanced Business Strategy – Final Assignment
Introduction: Libbey, Inc. is a 100 + year old glass tableware manufacturer headquartered in Toledo, Ohio. It is a publically traded company on the NYSE with the symbol LBY. They market into two spaces – retail and foodservice. This assignment will focus on their foodservice division. 1. In addition to their primary manufacturing facilities in Toledo, Libbey also owns glass manufacturing operations in Shreveport, Louisiana as well as Holland and China. Libbey also operates a ceramic tableware manufacturing operation in Monterrey, Mexico. With over 6,500 employees and global sales in excess of US$822 million, Libbey is the largest glassware manufacturer in the Western Hemisphere and one of the largest in the world. On the “bottom line” Libbey realized a gross profit of US$176 million with a net income of US$66 thousand or 8% for their fiscal year ended June 30, 2016. However, it should be noted that Libbey’s foodservice market sales volume is approximately 50% of their total sales volume worldwide. And while their total global sales (retail and foodservice combined) decreased by 3.5% during FY 2016, their overall foodservice sales volume was up a respectable 5.8% on a low US foodservice industry growth of < 0.5%. Incidentally, foodservice growth in the EU is flat and less than 1.0% in China. 2. In addition to their leadership position in glass and ceramic tableware manufacturing, Libbey also owns the Syracuse brand (ceramic dinnerware) and the World Tableware brand (stainless steel flatware and tabletop accessories). Libbey is also the exclusive marketer of Spiegelau Silverware and Nachtmann Glass, two prominent European manufacturers of premium tableware, in North America. It should be noted for purposes of this analysis that Libbey does not manufacture any of the brands they market to the foodservice industry worldwide beyond their own brands of glass tableware and one brand of ceramic dinnerware. Rather, Libbey must rely on global OEM manufacturers and a robust global supply chain to meet market demands. Libbey’s composite strategy for both foodservice product line categories for FY 2017 includes:
Expand around core foodservice business.
Invest in product development and innovation. Grow revenue.
Drive efficiencies.
Libbey has also indicated an interest in the potential acquisition of manufacturers of product categories related to their core foodservice business. -1-
Competitive Landscape: From a competitive standpoint, foodservice marketing efforts of Libbey must be viewed on two levels:
Their position as a global glass tableware manufacturer with a very limited number of competitors.
As a brand marketer of ceramic and stainless tableware products, supplied by OEM sources, with dozens of competitors worldwide.
1. Glass tableware manufacturing is a mature industry worldwide with few competitors. There are very few new technology advancements in the manufacturing process and the finished goods are not particularly subject to evolving changes in style. Furthermore, total global supply of all glassware categories to the foodservice industry worldwide is far greater than demand. In fact, many unleaded crystal manufacturers (a prominent glass category in foodservice) located in Europe have either closed completely or consolidated with similar manufacturers. Libbey’s principle competitor in the manufacture of soda lime (pressed) glass products (Libbey’s principal product), Arc International, France, has fallen on hard times financially and has been acquired by a private equity firm. Remaining global competitors include Pasabache, Turkey; Everyware Global (Anchor Hocking Glass), US; Bormioli Rocco, Italy; An Hui Deli Glass, China; and Vicrilla, Spain. All manufacture substantially lower volumes than Libbey. 2. Ceramic and stainless steel tableware manufacturing is virtually nonexistent in the US any longer. Homer Laughlin is the last remaining manufacturer and their focus is primarily on the retail market. There are no stainless steel flatware manufacturers remaining in the US any longer either. Former US manufacturers have continued to operate as brand marketers importing their product requirements from, literally, hundreds of small OEM manufacturers concentrated primarily in the Far East and South Asia. This OEM supply channel has led to dozens of importers substantially smaller than Libbey entering the market and competing in the same space where there is little brand loyalty. A second tier of competitiveness occurs against foreign (principally UK) brands marketing in Libbey’s strongest market, the US. These brands consist of Steelite International, Churchill China, and Dudson. There are other European brands as well but are less prominent. Nonetheless, the marketing efforts of these secondary brand manufacturers have created a “fog” in the market segment. As stated previously, all three of these product categories – glass tableware, ceramic dinnerware, stainless steel flatware and tabletop accessories are mature industries in a flat market. In fact, glass manufacturing, Libbey’s key category is in a slow decline. There is little brand recognition or preference either. And, while there is certainly design and styling differences product line to product line, the product is considered commodity. Finally, it should be noted the cost of new entry into glass manufacturing, Libbey’s unique manufacturing position, requires a very high capital expenditure. Therefore, Libbey is essentially sheltered in this category in two ways – an unattractiveness of market -2-
and high cost of entry. In terms of where Libbey is with respect to the three “S” curves, cumulative revenues are flat to growing slowly; profit margins are flat; and the number of firms supplying the foodservice segment is declining. Internationalization Strategy: 1. Glass tableware is not an easily exported tableware product due to its (A) very high shipping cubes and (B) fragility. An exception has been the trading of higher priced unleaded crystal stemware from, principally, the Czech Republic, but this has been due to a combination of relatively high demand and the absence of manufacturing of this product in North America. In addition, prevailing market pricing allows for unusually high shrinkage due to shipping breakage. On the other hand, manufacturing of low cost, commodity, soda lime (pressed) glass is local. Libbey embarked on a program of glass manufacturing internationalization some 25 years ago with their acquisition of Royal Leerdam Glass in Holland and the construction of a glass manufacturing operation in China. These moves both represented a DFI strategy – acquisition and “greenfield”. This strategy has been successful in both EU and China. Therefore, going forward, Libbey can be viewed as sheltered industry within any global market they may choose to enter. Libbey’s DFI in Mexico with the acquisition of the Crisa ceramic dinnerware factory has had limited success in the US due to the saturation of many brands (private and national) and commodity ceramic tabletop products. The acquisition has been relatively successful as a brand in Mexico. However, it should be noted that Mexico is highly restrictive of similar imported goods from China, the principal country-of-origin for this type and range of product globally. 2. Libbey has not been successful in their limited global marketing efforts of their Syracuse and World Tableware brands. Again, the product is distinguishable only by design and styling, but can be easily copied by other low-cost manufacturers. Libbey has not made any further acquisitions of ceramic dinnerware manufacturers worldwide and no stainless steel tableware manufacturers whatsoever. Consequently, Libbey’s internationalization strategy can be considered dormant at this point in time. Furthermore, there is no indication in their stated strategy that this position will change anytime soon. Diversification Strategy: Libbey’s glass product line is primarily commodity and easily duplicated by their key competitor in the US, Anchor Hocking. Similarly, their ceramic and stainless steel product lines can be considered commodity and can be easily duplicated as well. But, nonetheless, Libbey has been successful in their DFI efforts to date. Furthermore, this success is against a backdrop of a very low growth to essentially flat global foodservice market. In my view, these circumstances and conditions point toward two potential diversification strategies – an expansion of markets geographically through additional DFI and -3-
an expansion of sales through an affiliation or acquisition of manufacturers of related product lines. World consumer markets are changing. As an example, in a 30 year period, China has expanded from a low cost, labor intensive export economy to a highly developed domestic economy in much of the country. In fact, manufacturers who relied on exporting to grow and sustain their businesses have now turned to supplying a domestic market. Prior to this market arc in China, similar events occurred in Japan and Korea as well as these two countries actually moved on from relying exports of consumer goods > marketing consumer goods domestically to high technology economies to a shift back to exporting high technology goods while importing lower cost, low tech consumer goods. These examples demonstrate an entire cycle of economic development. Interestingly, this arc is present in many other nations today. Therefore, it would be advisable for Libbey to conduct economic analysis of nations worldwide who may be pointed toward a growing consumer economy and target these countries for potential acquisitions (if present) or the deployment of “greenfield” investment in new glass manufacturing facilities. Libbey does not possess compelling market advantages beyond a very wide range of product and marketing programs for their ceramic and stainless tableware product lines. However, they do remain a prominent marketer due to their low sell price model achieved through significant economies of scale and remain relatively successful supplying the US foodservice industry. And while there are strong indicators that Libbey possesses the market knowledge to adjust to changing dining trends, there are only so many knives, forks, spoons, plates, and related products that can be sold. It can comfortably asserted that if Libbey is to grow with their present product range and mix it will only be because they knocked off some of a competitors market share. This is not an effective growth strategy. On the other hand, adding additional product categories marketable to the same customer base is. An example is melamine. The fastest growing dining out segment in the US is fast casual. Panera, Chipolte, Noodles & Company, etc. These operations rely on melamine as their principal product material. These manufacturers of melamine tableware are developing new manufacturing techniques enabling them to achieve new dimensions in shape and decoration. Another example is high clarity plastic drinkware for patio and poolside dining. These new plastic resins can achieve clarity similar to glassware. There are more product and material examples as well. But the point is this. By expanding their product base into entirely new materials, Libbey can reach new market players who may also be potential customers of their existing product lines thereby infusing new growth opportunities with these product lines as well. Stakeholder Analysis: Obvious primary stakeholders include nonunion employees, union employees, individual shareholders, and institutional shareholders. I would also argue that in a two-step distribution channel, distributors also have a substantial stake in the ongoing viability of Libbey as these distributors are resupplying, literally, thousands of tabletop installations throughout the United. However, I would not particularly consider Libbey’s end-user customers as especially key stakeholders due to their ability to readily substitute Libbey’s commodity products from alternative sources. Similarly, there are no unique -3-
components in glass, ceramic, or the grade of stainless steel Libbey consumes in their manufacturing or the OEM manufacturers supplying ceramic and stainless products to Libbey utilize in their manufacturing processes. Presumably, the same holds true in Europe and China as well. And while much of Libbey’s base product is commodity and, by definition, substitutable, changes in suppliers by end-user customers can be time consuming, result in some end-user pushback, and result in lower profit for distributor customers. But this point does not constitute a potential long-term successful strategy. Secondary stakeholders include public interest groups who may react to some evidence of industrial pollution emanating from the Libbey manufacturing facilities. Also, there is a populist political concept in America against the outsourcing of American manufacturing. I would argue this point as well. The types of jobs found in ceramic and stainless steel tabletop manufacturing are not the types of jobs we would want to grow in America due to their labor intensive and relatively low skilled characteristics. Nonetheless, this notion can serve as a distraction to institutional investors. I would also like to point out that, at one time in post WWII history, the U.S. government recognized glass and ceramic valuable sources of domestic employment and granted very high tariff protection to these categories. It simply didn’t work. No new manufacturing firms were formed and, in fact, in the ceramic and stainless steel flatware categories, manufacturing actually declined. Synthesis of Findings: The findings following this analysis are pretty simple and straight-forward: 1. At the end of the day, Libbey is a relatively large global manufacturing operation coupled with a moderately large (and highly competitive) brand management business relying on outsourced supply, operating at a profit (albeit a very low net profit) in a mature and flat industry, but with little opportunity for substantial growth through innovation. In fact, I can make a case for doing nothing in the glass manufacturing business other than maintaining market share and occasionally capitalizing on the missed steps and channel failures of competitors. In addition, Libbey has no substantial debt and their manufacturing operations are relatively modern. But this is not a sound strategy. 2. With respect to their ceramic and stainless steel tabletop brand marketing businesses, even though the outsourced supply chain can be fragile with changing economic conditions in predominantly developing countries; there remains a great deal of flexibility that would not be available if there was substantial DFI or other restrictive alliances in place. Therefore, in consideration of the many points outlined in each section of this analysis, my recommendation would be to:
Pursue the strategy for FY 2017 as outlined by their Board.
Continuing review of potential alternate material and product manufacturing opportunities world-wide, whether acquired, strategically aligned, or newly created (greenfield), which could provide financial synergies and contribute to a long term sustained growth. -4-
REFERENCES
Given the size of Libbey, their status as a public company and their prominence in the foodservice industry, there is surprisingly very little public information regarding their marketing and operational activity. On the other hand, as a public company, details of their financial condition are readily available in their annual report (10-K). Therefore, my references include a thorough analysis of their annual report, a review of limited literature, and personal interviews with executive management of Libbey as well as other closely related industry executives. Libbey, Inc. 2015 Annual report (for their fiscal year ended June 30, 2016). Bloomberg LLP. Online Market Watch Reports, an historical range. Carbonara, Joseph. “Vollrath Buys Traex From Libbey.” Foodservice Equipment Supplies Magazine, 29 April 2011. Bean, Russell L. “An Introduction to the Foodservice Industry.” North American Association of Food Equipment Manufacturers, Second Edition, 2005. Foley, William, CEO, Libbey, Inc., Toledo, Ohio. Personal Interview 2016. White, James, COO, Libbey, Inc., Toledo, Ohio. Personal Interview 2016. Keck, Allan, President, Trimark R. W. Smith Co., San Diego, California. Personal Interview 2016. Venetis, Tom, Executive Director, Allied Buying Corporation, Lombard, Illinois. Personal Interview 2016. Miles, John, CEO, Steelite International, New Castle, Pennsylvania. Personal Interview 2016. Kuzina, Paul, VP Brand Management, Steelite International (and formerly Oneida Ltd.), New Castle, Pennsylvania. Personal Interview 2016.
-5-
COMPETITIVE LIFE CYCLE
High
Low Emergent Phase (1950–1970)
Growth Phase (1971–2000)
Mature Phase (2001–Present)
1. The “Emergent Phase” of the modern foodservice industry in America dates to post WWII with the beginning of chain restaurant operations, increases in lodging facilities, and the increasing sophistication of institutional and industrial foodservice operations. These new facilities occurred fairly quickly. 2. The early success of these new variations in foodservice occurred, an increased number of similar operations opened and/or expanded rapidly. 3. A plateauing and extended period of slow growth ensured. 4. Since the early 2000 decade, there has been a “shaking out” in the industry. The growth of end-user operations have declined and the supply chain began to consolidate. Today, there is clearly an oversupply of commodity goods in a mature market.
-6-
INTERNATIONALIZATION
International Trade
High
International Industries
Global Industries
Low Sheltered Industries
MultiDomestic Industries
Low
High Foreign Direct Investment
The global business model of Libbey is very interesting in that they touch each of the quadrants. They are an “International Industries” through their global trading of all of the their market categories. They are a “Global Industry” through their direct foreign investment in Mexico, Holland, and China. Their position as a “Sheltered Industry” is least pronounced although I could argue the national attitudes regarding domestic manufacturing in China could lend favor to their manufacturing presence there. And they are certainly “Multi-Domestic” as they do have to tailor their product lines to local foodservice market demands. Therefore, the challenge of Libbey’s globalization program is to maintain an appropriate balance that delivers the greatest cumulative profitability.
-7-
DIVERSIFICATION TYPES
Low
7%95%
> 95%
Single Business
Dominant Business
____________________________________________________________________________________
High
Shared Value Chain
Related
Unrelated
Libbey clearly possesses a “Shared Value Chain”. In fact, their entire global marketing model is based on the sale of related product categories to a common foodservice market. While their global business is dominated by their glass manufacturing focus and could be considered a “Dominant” business, I will argue this focus does not restrict the potential of market expansion in their other product categories. In addition, Libbey has the ability to adjust (balance pricing within their three primary categories sold to a single market thereby making their company a more competitive supplier in each of their categories versus a single category competitor.
-8-
STAKEHOLDER MAP – LIBBEY, INC.
Primary Stakeholders Nonunion Employees:
Long-term, stable employment potential. In house training and educational support. Internal job mobility.
Union Employees:
Board representation. Collaborative contract negotiation and settlement. Pro-union management.
Individual Shareholders:
Transparency of financial affairs. Frequent contact via webinar and other media. Accessibility to public affairs information.
Institutional Shareholders:
A record of financial transparency. Open dialogue with the investment community. Financial plan information and “signals”.
Distributors:
Stable marketing programs. Market collaboration. Clarity of market channel participants.
Secondary Stakeholders: Environmental Protection:
A proactive effort to comply with EPA and other environment controls.
“Buy American” Proponents:
A record of job expansion in the United States.
END
-9-
Introduction: Libbey, Inc. is a 100 + year old glass tableware manufacturer headquartered in Toledo, Ohio. It is a publically traded company on the NYSE with the symbol LBY. They market into two spaces – retail and foodservice. This assignment will focus on their foodservice division. 1. In addition to their primary manufacturing facilities in Toledo, Libbey also owns glass manufacturing operations in Shreveport, Louisiana as well as Holland and China. Libbey also operates a ceramic tableware manufacturing operation in Monterrey, Mexico. With over 6,500 employees and global sales in excess of US$822 million, Libbey is the largest glassware manufacturer in the Western Hemisphere and one of the largest in the world. On the “bottom line” Libbey realized a gross profit of US$176 million with a net income of US$66 thousand or 8% for their fiscal year ended June 30, 2016. However, it should be noted that Libbey’s foodservice market sales volume is approximately 50% of their total sales volume worldwide. And while their total global sales (retail and foodservice combined) decreased by 3.5% during FY 2016, their overall foodservice sales volume was up a respectable 5.8% on a low US foodservice industry growth of < 0.5%. Incidentally, foodservice growth in the EU is flat and less than 1.0% in China. 2. In addition to their leadership position in glass and ceramic tableware manufacturing, Libbey also owns the Syracuse brand (ceramic dinnerware) and the World Tableware brand (stainless steel flatware and tabletop accessories). Libbey is also the exclusive marketer of Spiegelau Silverware and Nachtmann Glass, two prominent European manufacturers of premium tableware, in North America. It should be noted for purposes of this analysis that Libbey does not manufacture any of the brands they market to the foodservice industry worldwide beyond their own brands of glass tableware and one brand of ceramic dinnerware. Rather, Libbey must rely on global OEM manufacturers and a robust global supply chain to meet market demands. Libbey’s composite strategy for both foodservice product line categories for FY 2017 includes:
Expand around core foodservice business.
Invest in product development and innovation. Grow revenue.
Drive efficiencies.
Libbey has also indicated an interest in the potential acquisition of manufacturers of product categories related to their core foodservice business. -1-
Competitive Landscape: From a competitive standpoint, foodservice marketing efforts of Libbey must be viewed on two levels:
Their position as a global glass tableware manufacturer with a very limited number of competitors.
As a brand marketer of ceramic and stainless tableware products, supplied by OEM sources, with dozens of competitors worldwide.
1. Glass tableware manufacturing is a mature industry worldwide with few competitors. There are very few new technology advancements in the manufacturing process and the finished goods are not particularly subject to evolving changes in style. Furthermore, total global supply of all glassware categories to the foodservice industry worldwide is far greater than demand. In fact, many unleaded crystal manufacturers (a prominent glass category in foodservice) located in Europe have either closed completely or consolidated with similar manufacturers. Libbey’s principle competitor in the manufacture of soda lime (pressed) glass products (Libbey’s principal product), Arc International, France, has fallen on hard times financially and has been acquired by a private equity firm. Remaining global competitors include Pasabache, Turkey; Everyware Global (Anchor Hocking Glass), US; Bormioli Rocco, Italy; An Hui Deli Glass, China; and Vicrilla, Spain. All manufacture substantially lower volumes than Libbey. 2. Ceramic and stainless steel tableware manufacturing is virtually nonexistent in the US any longer. Homer Laughlin is the last remaining manufacturer and their focus is primarily on the retail market. There are no stainless steel flatware manufacturers remaining in the US any longer either. Former US manufacturers have continued to operate as brand marketers importing their product requirements from, literally, hundreds of small OEM manufacturers concentrated primarily in the Far East and South Asia. This OEM supply channel has led to dozens of importers substantially smaller than Libbey entering the market and competing in the same space where there is little brand loyalty. A second tier of competitiveness occurs against foreign (principally UK) brands marketing in Libbey’s strongest market, the US. These brands consist of Steelite International, Churchill China, and Dudson. There are other European brands as well but are less prominent. Nonetheless, the marketing efforts of these secondary brand manufacturers have created a “fog” in the market segment. As stated previously, all three of these product categories – glass tableware, ceramic dinnerware, stainless steel flatware and tabletop accessories are mature industries in a flat market. In fact, glass manufacturing, Libbey’s key category is in a slow decline. There is little brand recognition or preference either. And, while there is certainly design and styling differences product line to product line, the product is considered commodity. Finally, it should be noted the cost of new entry into glass manufacturing, Libbey’s unique manufacturing position, requires a very high capital expenditure. Therefore, Libbey is essentially sheltered in this category in two ways – an unattractiveness of market -2-
and high cost of entry. In terms of where Libbey is with respect to the three “S” curves, cumulative revenues are flat to growing slowly; profit margins are flat; and the number of firms supplying the foodservice segment is declining. Internationalization Strategy: 1. Glass tableware is not an easily exported tableware product due to its (A) very high shipping cubes and (B) fragility. An exception has been the trading of higher priced unleaded crystal stemware from, principally, the Czech Republic, but this has been due to a combination of relatively high demand and the absence of manufacturing of this product in North America. In addition, prevailing market pricing allows for unusually high shrinkage due to shipping breakage. On the other hand, manufacturing of low cost, commodity, soda lime (pressed) glass is local. Libbey embarked on a program of glass manufacturing internationalization some 25 years ago with their acquisition of Royal Leerdam Glass in Holland and the construction of a glass manufacturing operation in China. These moves both represented a DFI strategy – acquisition and “greenfield”. This strategy has been successful in both EU and China. Therefore, going forward, Libbey can be viewed as sheltered industry within any global market they may choose to enter. Libbey’s DFI in Mexico with the acquisition of the Crisa ceramic dinnerware factory has had limited success in the US due to the saturation of many brands (private and national) and commodity ceramic tabletop products. The acquisition has been relatively successful as a brand in Mexico. However, it should be noted that Mexico is highly restrictive of similar imported goods from China, the principal country-of-origin for this type and range of product globally. 2. Libbey has not been successful in their limited global marketing efforts of their Syracuse and World Tableware brands. Again, the product is distinguishable only by design and styling, but can be easily copied by other low-cost manufacturers. Libbey has not made any further acquisitions of ceramic dinnerware manufacturers worldwide and no stainless steel tableware manufacturers whatsoever. Consequently, Libbey’s internationalization strategy can be considered dormant at this point in time. Furthermore, there is no indication in their stated strategy that this position will change anytime soon. Diversification Strategy: Libbey’s glass product line is primarily commodity and easily duplicated by their key competitor in the US, Anchor Hocking. Similarly, their ceramic and stainless steel product lines can be considered commodity and can be easily duplicated as well. But, nonetheless, Libbey has been successful in their DFI efforts to date. Furthermore, this success is against a backdrop of a very low growth to essentially flat global foodservice market. In my view, these circumstances and conditions point toward two potential diversification strategies – an expansion of markets geographically through additional DFI and -3-
an expansion of sales through an affiliation or acquisition of manufacturers of related product lines. World consumer markets are changing. As an example, in a 30 year period, China has expanded from a low cost, labor intensive export economy to a highly developed domestic economy in much of the country. In fact, manufacturers who relied on exporting to grow and sustain their businesses have now turned to supplying a domestic market. Prior to this market arc in China, similar events occurred in Japan and Korea as well as these two countries actually moved on from relying exports of consumer goods > marketing consumer goods domestically to high technology economies to a shift back to exporting high technology goods while importing lower cost, low tech consumer goods. These examples demonstrate an entire cycle of economic development. Interestingly, this arc is present in many other nations today. Therefore, it would be advisable for Libbey to conduct economic analysis of nations worldwide who may be pointed toward a growing consumer economy and target these countries for potential acquisitions (if present) or the deployment of “greenfield” investment in new glass manufacturing facilities. Libbey does not possess compelling market advantages beyond a very wide range of product and marketing programs for their ceramic and stainless tableware product lines. However, they do remain a prominent marketer due to their low sell price model achieved through significant economies of scale and remain relatively successful supplying the US foodservice industry. And while there are strong indicators that Libbey possesses the market knowledge to adjust to changing dining trends, there are only so many knives, forks, spoons, plates, and related products that can be sold. It can comfortably asserted that if Libbey is to grow with their present product range and mix it will only be because they knocked off some of a competitors market share. This is not an effective growth strategy. On the other hand, adding additional product categories marketable to the same customer base is. An example is melamine. The fastest growing dining out segment in the US is fast casual. Panera, Chipolte, Noodles & Company, etc. These operations rely on melamine as their principal product material. These manufacturers of melamine tableware are developing new manufacturing techniques enabling them to achieve new dimensions in shape and decoration. Another example is high clarity plastic drinkware for patio and poolside dining. These new plastic resins can achieve clarity similar to glassware. There are more product and material examples as well. But the point is this. By expanding their product base into entirely new materials, Libbey can reach new market players who may also be potential customers of their existing product lines thereby infusing new growth opportunities with these product lines as well. Stakeholder Analysis: Obvious primary stakeholders include nonunion employees, union employees, individual shareholders, and institutional shareholders. I would also argue that in a two-step distribution channel, distributors also have a substantial stake in the ongoing viability of Libbey as these distributors are resupplying, literally, thousands of tabletop installations throughout the United. However, I would not particularly consider Libbey’s end-user customers as especially key stakeholders due to their ability to readily substitute Libbey’s commodity products from alternative sources. Similarly, there are no unique -3-
components in glass, ceramic, or the grade of stainless steel Libbey consumes in their manufacturing or the OEM manufacturers supplying ceramic and stainless products to Libbey utilize in their manufacturing processes. Presumably, the same holds true in Europe and China as well. And while much of Libbey’s base product is commodity and, by definition, substitutable, changes in suppliers by end-user customers can be time consuming, result in some end-user pushback, and result in lower profit for distributor customers. But this point does not constitute a potential long-term successful strategy. Secondary stakeholders include public interest groups who may react to some evidence of industrial pollution emanating from the Libbey manufacturing facilities. Also, there is a populist political concept in America against the outsourcing of American manufacturing. I would argue this point as well. The types of jobs found in ceramic and stainless steel tabletop manufacturing are not the types of jobs we would want to grow in America due to their labor intensive and relatively low skilled characteristics. Nonetheless, this notion can serve as a distraction to institutional investors. I would also like to point out that, at one time in post WWII history, the U.S. government recognized glass and ceramic valuable sources of domestic employment and granted very high tariff protection to these categories. It simply didn’t work. No new manufacturing firms were formed and, in fact, in the ceramic and stainless steel flatware categories, manufacturing actually declined. Synthesis of Findings: The findings following this analysis are pretty simple and straight-forward: 1. At the end of the day, Libbey is a relatively large global manufacturing operation coupled with a moderately large (and highly competitive) brand management business relying on outsourced supply, operating at a profit (albeit a very low net profit) in a mature and flat industry, but with little opportunity for substantial growth through innovation. In fact, I can make a case for doing nothing in the glass manufacturing business other than maintaining market share and occasionally capitalizing on the missed steps and channel failures of competitors. In addition, Libbey has no substantial debt and their manufacturing operations are relatively modern. But this is not a sound strategy. 2. With respect to their ceramic and stainless steel tabletop brand marketing businesses, even though the outsourced supply chain can be fragile with changing economic conditions in predominantly developing countries; there remains a great deal of flexibility that would not be available if there was substantial DFI or other restrictive alliances in place. Therefore, in consideration of the many points outlined in each section of this analysis, my recommendation would be to:
Pursue the strategy for FY 2017 as outlined by their Board.
Continuing review of potential alternate material and product manufacturing opportunities world-wide, whether acquired, strategically aligned, or newly created (greenfield), which could provide financial synergies and contribute to a long term sustained growth. -4-
REFERENCES
Given the size of Libbey, their status as a public company and their prominence in the foodservice industry, there is surprisingly very little public information regarding their marketing and operational activity. On the other hand, as a public company, details of their financial condition are readily available in their annual report (10-K). Therefore, my references include a thorough analysis of their annual report, a review of limited literature, and personal interviews with executive management of Libbey as well as other closely related industry executives. Libbey, Inc. 2015 Annual report (for their fiscal year ended June 30, 2016). Bloomberg LLP. Online Market Watch Reports, an historical range. Carbonara, Joseph. “Vollrath Buys Traex From Libbey.” Foodservice Equipment Supplies Magazine, 29 April 2011. Bean, Russell L. “An Introduction to the Foodservice Industry.” North American Association of Food Equipment Manufacturers, Second Edition, 2005. Foley, William, CEO, Libbey, Inc., Toledo, Ohio. Personal Interview 2016. White, James, COO, Libbey, Inc., Toledo, Ohio. Personal Interview 2016. Keck, Allan, President, Trimark R. W. Smith Co., San Diego, California. Personal Interview 2016. Venetis, Tom, Executive Director, Allied Buying Corporation, Lombard, Illinois. Personal Interview 2016. Miles, John, CEO, Steelite International, New Castle, Pennsylvania. Personal Interview 2016. Kuzina, Paul, VP Brand Management, Steelite International (and formerly Oneida Ltd.), New Castle, Pennsylvania. Personal Interview 2016.
-5-
COMPETITIVE LIFE CYCLE
High
Low Emergent Phase (1950–1970)
Growth Phase (1971–2000)
Mature Phase (2001–Present)
1. The “Emergent Phase” of the modern foodservice industry in America dates to post WWII with the beginning of chain restaurant operations, increases in lodging facilities, and the increasing sophistication of institutional and industrial foodservice operations. These new facilities occurred fairly quickly. 2. The early success of these new variations in foodservice occurred, an increased number of similar operations opened and/or expanded rapidly. 3. A plateauing and extended period of slow growth ensured. 4. Since the early 2000 decade, there has been a “shaking out” in the industry. The growth of end-user operations have declined and the supply chain began to consolidate. Today, there is clearly an oversupply of commodity goods in a mature market.
-6-
INTERNATIONALIZATION
International Trade
High
International Industries
Global Industries
Low Sheltered Industries
MultiDomestic Industries
Low
High Foreign Direct Investment
The global business model of Libbey is very interesting in that they touch each of the quadrants. They are an “International Industries” through their global trading of all of the their market categories. They are a “Global Industry” through their direct foreign investment in Mexico, Holland, and China. Their position as a “Sheltered Industry” is least pronounced although I could argue the national attitudes regarding domestic manufacturing in China could lend favor to their manufacturing presence there. And they are certainly “Multi-Domestic” as they do have to tailor their product lines to local foodservice market demands. Therefore, the challenge of Libbey’s globalization program is to maintain an appropriate balance that delivers the greatest cumulative profitability.
-7-
DIVERSIFICATION TYPES
Low
7%95%
> 95%
Single Business
Dominant Business
____________________________________________________________________________________
High
Shared Value Chain
Related
Unrelated
Libbey clearly possesses a “Shared Value Chain”. In fact, their entire global marketing model is based on the sale of related product categories to a common foodservice market. While their global business is dominated by their glass manufacturing focus and could be considered a “Dominant” business, I will argue this focus does not restrict the potential of market expansion in their other product categories. In addition, Libbey has the ability to adjust (balance pricing within their three primary categories sold to a single market thereby making their company a more competitive supplier in each of their categories versus a single category competitor.
-8-
STAKEHOLDER MAP – LIBBEY, INC.
Primary Stakeholders Nonunion Employees:
Long-term, stable employment potential. In house training and educational support. Internal job mobility.
Union Employees:
Board representation. Collaborative contract negotiation and settlement. Pro-union management.
Individual Shareholders:
Transparency of financial affairs. Frequent contact via webinar and other media. Accessibility to public affairs information.
Institutional Shareholders:
A record of financial transparency. Open dialogue with the investment community. Financial plan information and “signals”.
Distributors:
Stable marketing programs. Market collaboration. Clarity of market channel participants.
Secondary Stakeholders: Environmental Protection:
A proactive effort to comply with EPA and other environment controls.
“Buy American” Proponents:
A record of job expansion in the United States.
END
-9-
