{"id":4322,"date":"2020-02-19T06:25:00","date_gmt":"2020-02-19T05:25:00","guid":{"rendered":"http:\/\/stories.valora.com\/?p=4322"},"modified":"2020-02-20T08:27:41","modified_gmt":"2020-02-20T07:27:41","slug":"make-or-buy","status":"publish","type":"post","link":"https:\/\/stories.valora.com\/en\/make-or-buy\/","title":{"rendered":"Make or buy? A combination of the two."},"content":{"rendered":"\n

Valora is investing heavily in expanding its pretzel production and banking on strong own brands, such as ok.<\/strong>\u2013 or Caff\u00e8 Spettacolo. In doing so, it is following the classic management strategy of vertical integration, i.e. operating direct responsibility for a larger part of the value chain independently \u2013 for reasons of efficiency as well as margin and differentiation considerations.<\/strong><\/p>\n\n\n\n

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6.30 a.m. in the station: the\nsmell of fresh pretzels in the air. Passers-by grab a coffee at Brezelk\u00f6nig and\na tasty snack to go with it. 11.20 p.m. back at the station: people returning\nhome pick up some water or cigarettes from k kiosk. Whether it\u2019s fresh snacks,\ndrinks, newspapers, magazines or mobile phone accessories, they all meet a need\nthat customers want to satisfy quickly and with a minimum of fuss. People\naren’t interested in the processes and organisation that go into ensuring the products\nare always available in the expected quality and at good prices.<\/p>\n\n\n\n

It\u2019s up to companies like\nValora to go into the fine detail and work out exactly how they are to provide\ncustomers with the products they want. Besides the many logistical challenges,\nfresh or frozen products being an example, the key question is invariably: to\nmake or to buy?<\/p>\n\n\n\n

  • \"\"
    Everything from one source: production, logistics, sale.<\/figcaption><\/figure><\/li>
  • \"\"
    Everything from one source: production, logistics, sale.<\/figcaption><\/figure><\/li>
  • \"\"
    Everything from one source: production, logistics, sale.<\/figcaption><\/figure><\/li><\/ul><\/figure>\n\n\n\n

    Vertical integration pays off<\/h2>\n\n\n\n

    The answer lies in the\nvertical integration of a company\u2019s different value chains. The less a company\nbuys in favour of making its own products, the higher the degree of vertical\nintegration. There are different levels of integration, depending on how many\nupstream and downstream production and distribution operations are brought\nin-house. It all boils down to whether it makes better business sense to\nprovide a service independently or buy it from elsewhere. A company like Valora\nhas many value chains and there isn’t always a case to be made for vertical\nintegration.<\/p>\n\n\n\n

    The American Strategic\nPlanning Institute empirically demonstrates in its PIMS research project\n(Profit and Impact of Market Strategy) that strong vertical integration is good\nfor return on investment and cash flow for companies in mature markets such as\nretail for example. On the other hand, it has a negative bottom line impact in\nvery volatile sectors requiring a lot of investment.<\/p>\n\n\n\n

    Combination of in-house production and own brands<\/h2>\n\n\n\n

    Valora also sees vertical\nintegration as a key competitive advantage, which is why it is a mainstay of\nthe company’s corporate strategy. The strategic priorities are as follows:\nfurther expansion of pretzel production facilities and improved marketing across\nall formats, plus clear positioning for its strong own brands, such as ok.\u2013 or\nCaff\u00e8 Spettacolo.<\/p>\n\n\n\n

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    ok.\u2013 products used to only be available in the k kiosk format. Now, you find them at avec, Press & Books, U Store, Cigo, Service Store DB, and BackWerk.<\/em> <\/figcaption><\/figure>\n\n\n\n

    Use the competitive advantage<\/h2>\n\n\n\n

    Part of the rationale behind\nvertical integration is economic: greater cost efficiency and higher margins\nleading to a larger profit contribution. In addition, it enables strong own\nbrands to gain an advantage over the competition. The extremely popular ok.\u2013\nproducts are a case in point. They are an entry-level product and a\ncompetitively priced alternative to prominent third-party brand products. As a\nresult, ok.\u2013 has established its own loyal customer segment. However, the\nbrand\u2019s vertical integration is not yet complete. Third parties actually\nproduce the goods and supply them to Valora.<\/p>\n\n\n\n

    ok.\u2013 products used to only be available in the k kiosk format. Since then they have been gradually rolled out to avec, Press & Books, U Store, Cigo, Service Store DB in Germany and, most recently, BackWerk. Valora is taking a similar approach to Caff\u00e8 Spettacolo coffee. Besides the around 30 Caff\u00e8 Spettacolo sales outlets in Switzerland, the brand is present as coffee modules in more than 600 Valora stores and at k kiosk, avec and Press & Books. In this way, Valora has created a substantial alternative to the classic brand products. <\/p>\n\n\n\n

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    Caff\u00e8 Spettacolo is present as coffee modules in more than 600 Valora stores.<\/em> <\/figcaption><\/figure>\n\n\n\n

    Another advantage of efficient\nin-house production via an integrated value chain is that Valora controls the\nproduct and service quality from A to Z. In-house production and logistics also\nmake it easier to meet the important demand for more fresh products by\nproducing or processing in the store itself. That is another unique selling\npoint for Valora, one example being its BackWerk shops, where over 40% of the\nproducts are made fresh in the store.<\/p>\n\n\n\n

    Around 25% of gross profit due to vertical integration <\/h2>\n\n\n\n

    Valora’s financial figures show the extent to which the company is targeting stronger vertical integration. It earned 24,4% of its gross profit through own brands in 2019 with Ditsch and Brezelk\u00f6nig baked goods accounting for the biggest share. The fully overhauled avec format also buys into this trend.<\/p>\n\n\n\n

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