The Biggest Domestic Producer and Distributor of Various Dairy Products in Mongolia: Suu JSC

Topics: Milk, Dairy, Dairy product Pages: 16 (4759 words) Published: November 11, 2012
Table of Contents
I. Introduction2
II. Operations3
2.1 Raw milk procurement3
2.2 Production and distribution4
III. Market Analysis8
3.1 Overview8
3.2 Competition9
3.2.1 Domestic producers9
3.2.2 Imports11
3.3 Market trends12
3.3.1 Key drivers12
3.3.2 Projections13
3.4 SWOT Analysis14
IV. Development and Environmental Impacts15
4.1 Employment15
4.2 Human capital15
4.3 Environment15
V. Conclusion17
VI. Reference List18

I. Introduction
Suu JSC (the Company, SUU) is one of the largest and most respected companies in Mongolia with over 50 years of operating history as a true market leader in its field. Suu is the biggest domestic producer and distributor of various dairy products including milk, yogurt and ice cream in Mongolia. The Company was initially established during the Communist period and has since been transformed into a joint stock company listed on the Mongolian Stock Exchange.

As of 2008, Suu accounted for 59 percent of total domestic dairy production, which reached 13 million liters. With 51 different products on offer in a variety of categories, including packaged milk, yogurt, cream, butter, and ice cream, the Company far surpasses its domestic competitors. In addition to its product diversity, Suu’s key competitive strengths are its large capacity (150 tons/day), the only powdered milk production line in the country, well-established procurement and distribution system and an aggressive marketing campaign.

The market for processed milk and a dairy product has been growing at around 15 percent annually in the last several years, primarily driven by rapid urbanization and growing private incomes of Mongolians. As these trends continue and Mongolians skepticism of imported dairy products grows after recent melamine scandals in China, demand for domestically made dairy products is expected to continue to increase.

On the heels of this positive trend in the market, Suu has seen significant growth in sales and profits averaging 86 percent and 219 percent respectively over the past three years.

Table 1. Suu JSC financial performance

(000 USD)| 2006| 2007| 2008| CAGR|
Net sales| 2,594| 5,447| 9,015| 86%|
Cost of Goods Sold| 2,023| 3,572| 5,990| 72%|
Operating expenses| 349| 873| 1,176| 84%|
Profit before tax| 147| 951| 1,536| 223%|
Net profit| 147| 943| 1,493| 219%|
ROA| 4%| 20%| 25%|  |

To that end, Suu has identified the key components of this long-term plan, which include upgrading its production facility, increasing milk procurement and outreach, and bringing overall operations in line with ISO standards.

To complete Suu’s long-term investment program, the Company is seeking debt financing of USD 7.2 million. The proceeds will be used for further upgrading its production facility (USD 1.8 million), increasing milk procurement and outreach (USD 3.95 million), and refinancing existing debts (USD1.5 million).

II. Operations
2.1 Raw milk procurement

Raw milk is sourced from over 2,500 herders spread across a network of suppliers located at 19 different points. Suu boasts the only such milk procurement system among domestic dairy producers, offering the Company a key competitive advantage. The following diagram outlines the Suu’s network for procuring fresh raw milk:

Figure 1. Raw milk procurement network

Suu began setting up Milk Collection Points (MCP) and Milk Cooling/Storage Unit (MCU) in 2005 in order to streamline the raw material procurement process, which has helped to lower raw materials costs. The MCUs and MCPs create new jobs for the region and directly integrate herders into to the dairy supply chain. Before the establishment of these locations, milk trucks used to go on routes visiting each herder family to collect milk, a process that incurred high costs and provided lower quality assurances. Currently, herders and farmers bring in most of the milk to the...
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