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