Sahil Alvi

Innovation

Re-imagining Toblerone

by sahilalvi on Sep.08, 2012, under Innovation

TobleroneHere’s an idea for Toblerone — the beloved Swiss chocolate brand of tens of millions of chocolate lovers all over the world.

Imagine a Toblerone bar whose signature chocolate triangles change in flavor from one triangle to the next across all of their four delightful options.

For example:

Triangle 1: Milk

Triangle 2: White

Triangle 3: Fruit & Nut

Triangle 4: Dark

Triangle 5: Honeycomb Crisp

And the sequence would repeat itself.

This new Toblerone could be branded as ‘Toblerone Blend.’

Imagine “all four flavors in one!”

Image Courtesy: Kraft Foods

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Das Auto: The Volkswagen Group is on a roll

by sahilalvi on Nov.27, 2010, under Finance, Innovation

VW Touareg Silver

Volkwagen Group (ADR:VLKAY) or (ETR:VOW) is the most dramatic growth story of the automobile industry in the last half a decade.

With growing brands across a range of incomes brackets and geographic markets: Bugatti, Bentley, Lamborghini, Audi, Volkswagen, Seat, Skoda and Scania — the Volkswagen Group has a largely complementary portfolio of brands. These brands account for 198 models — something to please and satisfy most every customer on every continent in the world.

Porsche Concept 918 Spyder

Of course, Volkswagen AG also is part-owned by the quintessential German sports car brand: Porsche. This relationship allows for a significant number of R&D, Product Development and Procurement synergies between the two companies.

The company has delivered a 12.4 percent rise in vehicle deliveries in first ten months to 5.98 million vehicles. The group delivered record number of vehicles in October, 2010 (growth of over 9.8% compared with the market’s 4.5%). That is twice as much as its industry peer group.

Audi R8

Audi: Vorsprung Durch Technik

The group’s premium brand, Audi, has demonstrated a growth rate of 16.4 percent year-over-year by delivering around 916,900 cars around the world between January, 2010 and October, 2010. It is well on its way to crossing the much vaunted ‘million vehicle’ mark by the end of this year. In high-growth markets like China and Asia-Pacific, the brand has seen blistering growth rates of 55.7% and 49.3% respectively (please see chart below courtesy: VW Group).

The group has announced a massive €51.6 billion investment drive for its automotive division over the next 5 years — investing a large portion of that sum in environmentally-friendly technologies. Four-fifths of it will be invested in property, plant and equipment helping it modernize its production capability and expand its turnover capacity. The company’s Chinese joint ventures will invest an additional €10.6 billion between now and 2015.

Infact, with their new planned investments, the group has a stated goal to surpass Toyota as the world’s largest manufacturer of auto-mobiles.

As of end of November, 2010, the group’s stock is trading at a multiple of P/E multiple of 12 compared with its peer group  that is trading at least a third of the way higher:

  • Daimler (ETR:DAI) is trading P/E of 17.5;
  • BMW is at P/E of 17.7;
  • Toyota (TYO:7203) is at P/E of 18.6.

When I  first allocated the VW ADR to my simulation portfolio on Sept 10, 2010 it traded at US$ 19.71. As of close of trading on Nov 26, 2010, the stock is trading at $28.39.

That is a 44% return over two and half months.

Thanks to its rising brand strength and market penetration in the world’s fastest growing automotive markets, I believe there is plenty of growth in both the fundamentals of the company and its stock.

Disclaimer: The author owns no stock in the Volkwagen Group. He does, however, drive a Volkwagen Touareg and previously has owned a couple of Audis and stands by their build quality and performance.

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Importance of Outlook: A Parable of Oranges

by sahilalvi on Dec.03, 2009, under Innovation, Management

Oranges

Once upon a time there lived two orange farmers in sunny Florida.

They were called: Jack and Steve.

They both were friends, came from the same town, similar age, socio-economic background and skill set.

They both worked hard for their co-operative. They both were hungry to progress in their line of work. They both were ingenious in the way they approached their work. But there was ONE vital difference between the two: Jack and Steve had completely different outlooks on business.

Jack was good at ensuring every last drop of juice was squeezed out of the oranges he used for their co-operative’s juice-making facility. However, Steve was more intrigued by the idea of how he could produce more oranges and sell them to new sets of customers in different product formats and through wider distriution.

Jack continued to come up with innovative ways to squeeze out the last drop of juice in the oranges that were grown in their co-operative’s orchards. It gave the orchard a handsome 10% increase in juice yields.

Steve, on the other hand, had no immediate results to show for his efforts in experimenting with crop yield improvement techniques.  He tinkered with new innovations in how his co-operative’s oranges could be used in other products and categories — food & beverage (non-carbonated drinks, soda, candy, etc.) and personal care (soaps, facial creams, etc.), among others. He even engaged with new distributors from across the pond in Europe to sell more of his product. All of these efforts amounted to very little as most of these initiatives resulted in marginal marketshare gains but significant expenses over the short-to-medium term.

While Jack was delivering measurable “results,” Steve was been criticized and chastised for apparent lack of pragmatism and bottom-line results.

But one fine day, Jack realized he had reached the limit of squeezing every drop of juice available in an orange and could go no further. Meanwhile, right about this time, Steve’s non-fizzy, special orange and mixed fruit juice blend began to take off. Over the next few quarters, the drink gained national popularity.

In that year alone, sales went up by 35% and margins approximately: 20%. And there seemed to be no stopping the popularity of the drink — which a major beverage company was interested in licensing for US$ 300 million for an exclusive, multi-year agreement to produce and distribute the drink. This would be 10 times the annual US$ 30 million turnover of the entire orange co-operative and 100 times greater than the US$ 3 million extra margin improvement that Jack had painstakingly operationalized by improving juice yields from their orange stock.

Moral of the story: Yield management and cost reduction have their logical limits. Growth and diversification, on the other hand, is only limited by the resourcefulness and creativity of the people involved.

What company are you?

Jack — the cost-squeezing innovator with a natural limit to your value creation capabilities…or Steve — the relentless strategic innovator with boundless value creation capabilities.

What is your outlook on business…and life?

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