Strategic Management of Quaker Oats Company

The Quaker Oats Company, officially formed in 1901, is currently undergoing massive reorganization, which will dramatically change its position in the industry. Over the last four years, Quaker Oats’ returns have been consistently rocky. Quaker unloaded Snapple, its ice-cream toppings and condiments business, and its frozen bagel business 1997. The company has turned to an emphasis on its high performing products such as Gatorade and bagged cereals. Gatorade accounts for more than one-third of the company’s total sales and claims over 80% of the US sports-drink market. Quaker is also a leading producer of granola bars, rice cakes, pancake mixes and syrups, and value-added grain products (Rice-A-Roni).

Quaker Oats manufactures many different products from the sports drink Gatorade to Far East Cous cous. Because of the great variety in their product lines, it is difficult to find other companies that compete in all the same categories. However several large companies compete in many of the same such as Heinz, Coca-Cola, General Mills, and Bestfoods verifying the threat of rivalry is very evident and therefore requiring Quaker to remain on top of their game.

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The threat of substitute for Quaker’s products relates directly to their rivals who have proven ineffective in producing adequate substitutes for products such as Gatorade. Coca-Cola produces Powerade, Gatorade’s biggest competitor, which only holds a very small market share of the sports-drink industry. General Mills competes in the cereal, baking products, and fruit bars areas and Bestfoods is mostly a general foods competitor.

Most of these companies are very well established and therefore Quaker concentrates on them more then the threat of new entrants.

Over the last twelve months Quaker Oats has revenues totaling nearly $4.8 billion and total earnings near $470 million. Financial ratios can often tell us how well a firm is performing relative to its full potential and its competitors. Only the most critical ones need be shown here. The Return on Equity indicates the overall operating efficiency and the quality of management. The Return on Assets is a measure of how successful management is at putting its assets to work to make profits. The Basic Earning Power shows the proportion of Revenue to Total Assets and Profit Margin indicates how much profit the firm makes after which all expenses are accounted.

Relative to its larger competitors Quaker performs very well. This year Quaker has a ROE of 251.3% second only to General Mills with 253.4%, but much better compared to 98.5% for Bestfoods, 35.7% for Heinz 32.5%, and for Coca-Cola. The next ratio Quaker exhibits is a 11.3% ROA, weighed against 18.5% for Coca-Cola, 12.9% for General Mills, 10.0% for Bestfoods, and 5.9% for Heinz.

Quaker offers a very impressive 185% BEP while Coca-Cola shows only nearly half at 89% and General Mills, Heinz and Bestfoods have 143, 141 and 111% respectively. The final ratio is profit margin in which Quaker is very competitive with a profit margin of 9.9% exceeding General Mills 8.6, Bestfoods at 7.6%, and Heinz at 7.0%, falling short only to Coca-Cola at 15.8%.

The industry average (total food producers industry) for each of these results also verifies Quaker’s competitive position. ROA is 6.2%, ROE is 24.9%, Profit Margin is 5.5%, and BEP is 143%. Most of these numbers verify that Quaker is actually more successful than the rest of the industry.

Quaker has strong brands in Europe and Latin America, and Gatorade is also growing in popularity abroad. In Latin America, they have realigned their infrastructure, and consolidated and eliminated redundant positions. Morrison, the new CEO assigned in 1997, began to heavily push to strengthen markets where opportunities for growth were high. In particular, Quaker Oats made a real effort to tap into the expanding Gatorade market by broadening the product line, improving packaging and pumping up marketing efforts.

Quaker has done a great deal to update and standardize the technology within their firm by integrating all food and beverage facilities into larger, more efficient production facilities. As Quaker’s competitors within the industry become more technologically advanced this drives Quaker to do the same.

The structure of Quaker Oats has been one of the most dramatic changes for the company. A tightening of cost controls and elimination of $65 million in expenses through restructuring actions was the result of the total overhaul of Quaker. They also reduced their overall supply chain costs. Quaker consolidated the U.S. sales organization from 14 regional offices into six fully integrated Customer Business Centers. In 1998, despite only moderate overall sales, net income rose significantly as the efficiency of new structuring paid off. Substantial economies of scale were and continue to be the result of the combined offices and producing more products all under one roof.

Although Quaker Oats has been concentrating on cutting costs by becoming more efficient, they try to differentiate Gatorade as much as possible in the market. Quaker has concentrated on a cost reduction strategy since the restructuring changes began in early 1997. They would not be considered to use a cost leadership strategy because they emphasize the quality of their products more then trying to make them as cheap as possible. For Quaker to make such a strong comeback so quickly after major restructuring during 1996 through 1998 verifies that they have become very effective at managing their organization and are able to concentrate on increasing their distinctive competencies.

Quaker could be thought of as a differentiator, especially when it comes to the Gatorade line. Innovations such as an ergonomically designed sport bottle, the 20-ounce wide-mouth bottle combined with the introduction of new flavors such as “Frost Riptide Rush” and “X-plosive” all contribute to the large growth numbers both nationally and internationally.

In 1997 Quaker Oats addressed the issue of costs being too high and began to emphasize a very cost reduction type strategy as opposed to a cost leadership strategy. Realizing Snapple Beverages was suffering significant losses for a substantial period of time it was sold off. Snapple in addition to the other areas mentioned earlier were not making money for Quaker Oats and had inefficient production processes that were not worth reinvesting to fix. This lead to removing a layer of executive management from the Company’s International and U.S. & Canadian operations, and realigning domestic and international business leaders into direct reporting relationships with the Chairman.

While Quaker is cutting back in many areas they continue to expand rapidly with the Gatorade line. Very near future growth plans for Gatorade include building a new North American Beverage Division manufacturing facility in Indianapolis that will add 200 additional jobs to the 230 people presently employed. This $115 million project is planned to begin in January 2001.

Quaker wants to tackle the $10 billion active thirst market and therefore are making many more changes over the next few years. It will concentrate its efforts on streamlining its manufacturing that expects to cut costs and increase profits substantially over the next few years. Unfortunately, part of this process includes eliminating as many as 1200 to 1400 jobs in North America of which these savings will be used to promote Gatorade using intensified advertising and marketing. Many plant closures will take place because Quaker’s food and beverage organizations are integrating into a lesser number of more efficient plants.

The ultimate goal is to lower operating costs by removing the inefficient assets and reconfiguring the company’s food and beverage warehouse and delivery systems. Quaker anticipates about a $40 million savings in operating costs in 2001, increasing to $60 to $70 million beginning in 2002, and totaling between $225 and $250 in pretax saving of which they will be reinvesting between $230 and $245 million in expanding U.S. and Canadian productions capacity of Gatorade. Assets in North American food operations are expected to reduce by as much as $50 million, or 10%, but this would be compensated by the expected beverage operations expansion.

Companies will continue to emphasize streamlining their supply chain over the next few years putting undue pressure on Quaker to remain competitive. The customer demands faster delivery and convenience. In addition, many Asian countries have begun to regain the handle on their economies and therefore show great potential for Quaker to capitalize on the opportunity.

“In the last few years, Quaker has become more a efficient manufacturer as evidenced by steady increases in its gross profit and operating margins…while we have improved our supply chain capabilities and costs, we are convinced that we can accomplish even more”. Quaker intends to further rationalize their operations making themselves more cost-competitive producers and distributors. As the world is constantly moving towards that of a global business Quaker Oats moves towards being a more efficient transnational company by increasing their presence in the Asian and Latin American countries.

Recommendations can be kept fairly limited due to the nature of Quaker’s momentum at the present time. Quaker has eliminated many of the inefficient businesses within their company while keeping their most profitable Gatorade and bagged Cereal divisions moving ahead at an successful pace. They have intentions of streamlining their production process for each component of their company duplicating that of the Gatorade line. Quaker should possibly try to target new markets with Gatorade such as young children or the elderly population. Expansion has been successful in the Latin American countries, but increased marketing and promotional efforts could have great results. These kinds of efforts could prove very successful in the Asian countries also now that the crisis has leveled out a bit.

One could expect the years ahead for Quaker Oats only to get better as they continue to tighten efficiency, particularly in Asian markets where the company had previously experienced some losses. As we move into the next millennium Quaker Oats strives as an industry leader, very motivated to continue their success by heavily concentrating on the most critical areas of their business and pushing for ultimate efficiency of their operations.


1. Brigham, E. U., Gapenski, L. C., Daves, P. R. 1999, Intermediate Financial Mangement, Sixth edition, The Dryden Press, New York

2. Dow Jones Interactive, [WWW], (1999, December 10)

3. Hill, C., Jones, G. 1998, Strategic Management: An Integrated Approach, Fourth Edition, Houghton Mifflin Company, New York

4. PRNewswire (1999) Quaker Announces Supply Chain Reconfiguration; Targets $60-$70 Million in Savings in 2002 and Beyond [WWW] (1999, December 8)

5. PRNewswire (1998) Quaker Chairman Announces Organizational Changes; Uses Competitive Strengths to Target Accelerated Profitable Growth [WWW] (1999, December 9)

6. PRNewswire (1999) Quaker Oats to Build New Gatorade Facility in Indianapolis [WWW] (1999, December 9)

7. Quaker Oats Homepage, [WWW], (1999, June 18 – last update), Available: (1999, December 8)

8. The Quaker Oats 1998 Annual Report, Quaker Oats, 1998

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Strategic Management of Quaker Oats Company. (2018, Jun 17). Retrieved from