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Perdue Farms, Inc.: Responding to 21st-Century Challenges

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Presentation on theme: "Perdue Farms, Inc.: Responding to 21st-Century Challenges"— Presentation transcript:

1 Perdue Farms, Inc.: Responding to 21st-Century Challenges
Janice Stubblefield Michael Nereson Amanda Hund Pete DeMeuse Case# 27, page C-565

2 Purdue – Case 25 Company History Strategic and Financial Analysis
Problems Possible Solutions Recommendation Purdue 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 History Arthur 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 History Young 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 Analysis Key Success Factors Porter’s Five Forces Model Organization Structure Location Analysis Barriers to Entry 10 Commandments Market Analysis

8 SWOT Analysis Strengths Weaknesses Opportunities Threats
Reputation Strong leadership with high morals Excellent Research & Development (R &D) Vertically integrated ”Employees first” policy Robust management information system Strong effective marketing Weaknesses Centralized decision-making authority (top heavy organizational structure) Limited distribution network (because shipped fresh) Inability to accurately forecast future demands Limited product line Barriers of Entry very high (Laws, Regulations, Environmental Issues, etc) Opportunities Diversify for greater worldwide market share, Increase marketing of healthy image products Develop new markets, acquire processing units Increased sales of food service chicken and turkey Expand the international grain and oilseed market Partner with restaurants/fast food establishments Threats Acquire or get Acquired Competition strong in broiler industry (competition sells frozen products cheaper) Perdue’s cost to raise chickens is above the national average Over 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 combined Selective Breeding program -- more breast meat than competition Management Information System Manufacturing-related Successes Sale of byproducts Chickens receive nothing that is artificial Completely vertically integrated Low overhead, lower costs Commitment to quality in all aspects of production

10 Key Success Factors Distribution-related Successes
Ownership of vehicles and transportation system Marketing-related Successes Strong moral compass -- strong ethics Good reputation Owner is the company’s spokesperson -- resembles a chicken Skills-related Successes High quality associate benefits package -- “employees first” Organizational capability Privately owned Great awareness of competition Strong vision, mission, and goals

11 Porter’s Five Forces Model
Firms offering substitute products Other meat processing companies Fast Food establishments Restaurants Suppliers Soybean suppliers Grain suppliers Contracted producers Corn suppliers Local farms Buyers Domestic Retail Market Groceries Food Service Market Restaurants Hospitals Schools Airports International Segment China Families Purdue Farms, Inc Competitors Other chicken processors Ex. Tyson Chicken Other poultry Non poultry meats Potential New Entrants Independent Farms Corporate Farms New Chicken Processing Companies

12 Current Organization

13 Locations Analysis Opportunity

14 Poultry Consumption Group Map
Pounds per capita 100 80 60 40 20 Chicken Cow Pig 0 5% 10% 15% 20% 25% 30% 35% Consumption Percentage

15 Perdue Farms Value Chain
Purchased Supplies And Inbound Logistics Buying corn, soybeans,, and other ingredients from suppliers to sustain chicken processing Operations Transport and processing of feed,eggs, and chickens to various locations during the maturation process and packaging Distribution To storage centers, supermarkets, restaurants, and ports Sales and Marketing of Perdue Farms chickens to potential and repeat customers Service Providing just-in-time inventory of chicken to commercial buyers Profit Margin Product R&D, Technology & Systems Development Human Resources Management General Administration Support Activities and Costs Primary Activities and Costs

16 Legal and Regulation Issues
Barriers to Entry Poultry Industry and Processors Environmental Issues Labor Issues Legal and Regulation Issues

17 10 Commandments Attacking competitive weaknesses is more profitable Enhancing company’s competitive position for the long term Be judicious in cutting prices without cost advantage Avoid strategies only succeeding in optimistic circumstances Be aware that aggressive moves for market share provoke retaliation Don’t underestimate rival firms

18 Market Research Male or Female Age Group
18 – 25 46 and up Do you purchase fresh or frozen chicken? Which brand do you buy? Tyson Perdue Other

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
Environment Sales Forcasting

21 Financial Analysis

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 Average 6.4% 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 revenues International sales for 5% Grain and oilseed for 15%

25 Financial Analysis International Sales 5% of company revenues
$140 million in 1998 Prior to 1998, international sales were hardly considered 17% import tax in China High import duties in Russia cutting into profit

26 Financial Analysis Privately held company
Most of the company’s stock is held by the family Some by senior executives

27 Financial Analysis Workforce
20,000 employees for $2.5 billion in revenues 125 employees required for each $1 million in revenues Estimated 1% increase in workforce to generate 1.6% increase in revenue Debt-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 advance Poor planning results in over-production, or under-production Poor 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 Strategy 3 Organization 4 Diversification Environmental Costs Forecasting Privately Held Firm

32 Alternative 1 Status Quo Pros No additional costs Managerial control
Cons Distribution to the West is limited Costly top-heavy organization structure Advertising do not cater to all buyers

33 Alternative 2 Go public with Initial Public Offering
Increase production of frozen Chicken food-line Pros Increased cash flow Increased public recognition Increased shelf-life Expand in geographic coverage Minimizes forecasting Increase market share

34 Alternative 2 Continued
Cons Loss of complete control Commitment to stock holders Perception of Lower quality Increase cost in distribution

35 Alternative 4 Expand production to the West Coast Pros Cons
Expand in geographic coverage Increase Market Share Lower distribution costs Cons Cost of new plants and acquisitions Environmental costs Marketing expenses

36 Alternative 5 Merge with another chicken processor Pros Cons
Expanded product line and market share Increased marketing Cons Lose of control individual name brand threatened 2 3

37 Recommended Solution Alternative #2 Open up doors
Go public with IPO Focus on Frozen Chicken Open up doors Offers financial gains After finances are maintained alternative#3 increase production of frozen Chicken food-line

38 Fresh Produce Distribution Areas

39 Frozen Produce Distribution Areas

40 Consider Globalization Initial Public Offering Strategies with Frozen
Three Strategy Horizons Strategy Initiatives Strategy Horizon 3 Consider Globalization Invent Bird Flu Immunization Strategy Horizon 2 Begin westward Expansion through Acquisition of Small-to-medium Sized processing Facilities, and Construction of New Plants Strategy Horizon 1 Initial Public Offering Align Marketing Strategies with Frozen Food Products Years 4- 6 Years 1 - 3 Years

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