2 Purdue – Case 25 Company History Strategic and Financial Analysis ProblemsPossible SolutionsRecommendationPurdue 2006
3 Perdue Mission Statement Past: Create a quality product, be aware of customers, deal fairly with people, and work hard.Present: Enhance the quality of life with great food and agricultural products. While striving to fulfill our mission, we use our values to guide our decisions…
4 Company HistoryArthur Perdue, bought 50 leghorn chickens and began selling table eggs near Salisbury, Maryland.Arthur quite his job and entered the egg business full-time.Purchased leghorn roosters and begin shipments to New York.
5 Company HistoryYoung Frank Perdue took over the leadership of the company which employed 40 people.1967 – Annual sales increased to $35 million company bought first processing plant.1940 – 1950s - Known as a quality product in a competitive market.
6 Company History$200 mil annual sales; average annual growth rate 17%;1970s - Expanded geographically into New England, Virginia, and North Carolina.Perdue farms experienced its first year in the red.
7 Strategic Analysis Tools SWOT AnalysisKey Success FactorsPorter’s Five Forces ModelOrganization StructureLocation AnalysisBarriers to Entry10 CommandmentsMarket Analysis
8 SWOT Analysis Strengths Weaknesses Opportunities Threats ReputationStrong leadership with high moralsExcellent Research & Development (R &D)Vertically integrated”Employees first” policyRobust management information systemStrong effective marketingWeaknessesCentralized decision-making authority (top heavy organizational structure)Limited distribution network (because shipped fresh)Inability to accurately forecast future demandsLimited product lineBarriers of Entry very high (Laws, Regulations,Environmental Issues, etc)OpportunitiesDiversify for greater worldwide market share,Increase marketing of healthy image productsDevelop new markets, acquire processing unitsIncreased sales of food service chicken and turkeyExpand the international grain and oilseed marketPartner with restaurants/fast food establishmentsThreatsAcquire or get AcquiredCompetition strong in broiler industry (competition sellsfrozen products cheaper)Perdue’s cost to raise chickens is above the national averageOver capacity of chickens has reduced wholesale prices
9 Key Success Factors Technology-related Successes R&D program worth more than entire industry’s R&D program combinedSelective Breeding program -- more breast meat than competitionManagement Information SystemManufacturing-related SuccessesSale of byproductsChickens receive nothing that is artificialCompletely vertically integratedLow overhead, lower costsCommitment to quality in all aspects of production
10 Key Success Factors Distribution-related Successes Ownership of vehicles and transportation systemMarketing-related SuccessesStrong moral compass -- strong ethicsGood reputationOwner is the company’s spokesperson -- resembles a chickenSkills-related SuccessesHigh quality associate benefits package -- “employees first”Organizational capabilityPrivately ownedGreat awareness of competitionStrong vision, mission, and goals
14 Poultry Consumption Group Map Pounds per capita10080604020ChickenCowPig0 5% 10% 15% 20% 25% 30% 35%Consumption Percentage
15 Perdue Farms Value Chain PurchasedSuppliesAndInbound LogisticsBuying corn, soybeans,,and other ingredientsfrom suppliersto sustain chickenprocessingOperationsTransport andprocessing offeed,eggs, andchickens to variouslocations duringthe maturationprocess andpackagingDistributionTo storage centers,supermarkets,restaurants,and portsSales andMarketingof Perdue Farmschickens topotential and repeatcustomersServiceProvidingjust-in-timeinventory ofchicken tocommercialbuyersProfit MarginProduct R&D, Technology & Systems DevelopmentHuman Resources ManagementGeneral AdministrationSupport Activities and CostsPrimary Activities and Costs
16 Legal and Regulation Issues Barriers to EntryPoultry Industry and ProcessorsEnvironmental IssuesLabor IssuesLegal and Regulation Issues
17 10 CommandmentsAttacking competitive weaknesses is more profitableEnhancing company’s competitive position for the long termBe judicious in cutting prices without cost advantageAvoid strategies only succeeding in optimistic circumstancesBe aware that aggressive moves for market share provoke retaliationDon’t underestimate rival firms
18 Market Research Male or Female Age Group 18 – 2546 and upDo you purchase fresh or frozen chicken?Which brand do you buy?TysonPerdueOther
19 Survey Results 60% of buyers purchase Tyson chicken. 76% of buyers purchase frozen chicken.60% of buyers purchase Tyson chicken.
20 Financial Analysis Annual Sales Net Profit Margin Marketing Work Force EnvironmentSales Forcasting
22 Net Profit Margin Net Profit Margin = profits / revenue An indicator of a company's pricing policies and its ability to control costs.Year 2000 Perdue Industry Average6.4% 7.13%Prices are too low, or costs are too high.
23 Financial Analysis Marketing $50,000 in 1968 in radio advertising $80,000 in 1969 in television advertising
24 Financial Analysis Sales fiscal year 2000 Domestic retail sales account for 60% of revenues.Food-services sales for 20% of revenuesInternational sales for 5%Grain and oilseed for 15%
25 Financial Analysis International Sales 5% of company revenues $140 million in 1998Prior to 1998, international sales were hardly considered17% import tax in ChinaHigh import duties in Russia cutting into profit
26 Financial Analysis Privately held company Most of the company’s stock is held by the familySome by senior executives
27 Financial Analysis Workforce 20,000 employees for $2.5 billion in revenues125 employees required for each $1 million in revenuesEstimated 1% increase in workforce to generate 1.6% increase in revenueDebt-to-Revenue$1 of investment capital generates $2 in revenues
28 Financial Analysis Environmental Costs 1990 – $4.2 million to upgrade treatment facilities at one plant
29 Financial Analysis Sales Forecasting Forecasting is extremely difficult in the poultry industry.Sales must be estimated 18 months in advancePoor planning results in over-production, or under-productionPoor planning costs money
30 Financial Analysis Location Poultry sales made by the customer usually hinge on 1-2 cents per pound.Some geographic locations cost more than others, per pound, to grow chickens.Consider costs of labor, cost of federal and state environmental laws, and resource costs
31 Key Problem Areas 1 Geographical Distribution Limitations 2 Marketing Strategy3 Organization4 DiversificationEnvironmental CostsForecastingPrivately Held Firm
32 Alternative 1 Status Quo Pros No additional costs Managerial control ConsDistribution to the West is limitedCostly top-heavy organization structureAdvertising do not cater to all buyers
33 Alternative 2 Go public with Initial Public Offering Increase production of frozen Chicken food-lineProsIncreased cash flowIncreased public recognitionIncreased shelf-lifeExpand in geographic coverageMinimizes forecastingIncrease market share
34 Alternative 2 Continued ConsLoss of complete controlCommitment to stock holdersPerception of Lower qualityIncrease cost in distribution
35 Alternative 4 Expand production to the West Coast Pros Cons Expand in geographic coverageIncrease Market ShareLower distribution costsConsCost of new plants and acquisitionsEnvironmental costsMarketing expenses
36 Alternative 5 Merge with another chicken processor Pros Cons Expanded product line and market shareIncreased marketingConsLose of controlindividual name brand threatened23
37 Recommended Solution Alternative #2 Open up doors Go public with IPOFocus on Frozen ChickenOpen up doorsOffers financial gainsAfter finances are maintained alternative#3 increase production of frozen Chicken food-line