Escolar Documentos
Profissional Documentos
Cultura Documentos
Published by Deakin University on behalf of CPA Australia Ltd, ABN 64 008 392 452 CPA Australia Ltd 2013 The contents and any information contained in this document (Information) are for general information only. They are not intended as professional advice. For any professional advice, please consult a suitable qualified professional. CPA Australia Ltd, Deakin University and the author(s) of the Information (Entities) make no representation about the content and suitability of this Information for any purpose. The Entities disclaim all warranties with regard to the contents and in no event will be liable for any loss and/or damage whatsoever resulting from loss of income or profits, whether in an action of contract, negligence or other tortious action, arising in connection with the use and performance of and/or reliance of the Information.
Case Study 1
Semester 1 2013
Authors: Samantha Winter and Delyth Samuel
Contents
Introduction 1
Case facts
Industry information The global chicken meat farming and processing industry The Australian chicken meat farming and processing industry The production process Industry key success factors Competition in the Australian chicken meat farming and processing industry Chasseur Chickens Pty Ltd Introduction The April 2006 board meeting Chasseur Chickens Pty Ltd Background Chasseurs business strategy Chasseurs recent performance Operations and production People and management Back to the future Glossary References Appendix 1: Chicken meat farming and processing stages
2
3 3 4 8 11 12 14 14 14 15 16 17 18 18 19 19 20
Questions
Tasks
21
22
Solutions
Task 1 Task 2 Task 3 Task 4
23
24 35 41 41
Case Study 1
Introduction
The case study is based on the chicken meat farming and processing industry and involves a company called Chasseur Chickens Pty Ltd. The case facts include detailed information about the industry and its competitors, and information on Chasseur Chickens such as its background and its financial performance. The issue for consideration is the evaluation of the industrys attractiveness in terms of growth, profitability and competitiveness, and the identification of the strategy that the company should adopt in order to move forward and achieve its strategic goals. This case study is designed to give you an opportunity to apply the concepts of strategy included in Modules 2 to 5 including environment and industry analysis, capability analysis, gap analysis and strategic option evaluation. At the end of the case study, you are asked to attempt and complete case study tasks to assess your ability to analyse the case and apply the theoretical principles of strategy to the facts of the case. What is of importance in your response to the tasks is your knowledge of the strategy concepts and how they are applied to the case facts. Note: The case facts in this case study incorporate characters and events that are completely fictitious. Any resemblance to real persons and events is purely coincidental.
Page 1
Case facts
Case Study 1
Industry information
The global chicken meat farming and processing industry
Poultry meat consumption has consistently increased in recent years with an upward trend apparent in most countries. On a global basis, poultry meat accounts for about 25 per cent of total meat consumption, second only to pork. Table 1 details poultry meat consumption over the last few years for the major global markets.
Table 1
Poultry meat consumption per capita in selected locations (kg/capita)
USA UK United Arab Emirates Hong Kong Australia 2000 54.4 30.9 38.1 59.9 32.1 2001 55.0 30.8 37.8 62.5 33.7 2002 55.6 33.0 40.8 70.2 36.3 2003 58.4 33.4 48.2 67.8 37.4 2004 58.7 33.8 47.8 68.3 38.6 2005 59.0 34.2 49.0 68.2 39.0
The spread of chicken meat production around the world has increased in recent years as countries work towards self-sufficiency. The rapid growth in poultry production began in the 1970s led by the United States. During the 1980s, for example, the production in the United States alone rose by 40 per cent. More recently, China and Brazil have enjoyed enormous growth in poultry meat production. The global distribution of poultry output is outlined in Table 2 with no dominant geographic region. Australia is included in the Other region.
Table 2
World poultry output in 2000
USA China Europe Brazil Other % of production 22.0 17.0 15.0 8.0 38.0
Source: Adapted and compiled from Cooper-Blanks, B. (1999), The New Zealand Poultry Meat Industry: An Education and Industry Resource, Poultry Industry Association of New Zealand, Auckland, Chart 9, p. 13.
In addition to the quantity of birds produced increasing dramatically, as illustrated in Table 3, so has their productivity, that is, conversion to meat. Compared with 1965, a bird can be grown and its meat marketed in half the time. Twenty-five years ago it took 3 kg of poultry feed to produce 1 kg of chicken meat; in 2006 it took less than 1.7 kg. These improvements were attributed to genetic improvement, improved nutrition, improvements in flock health, refinements in management and breeder performance. The industry believes that further gains are still possible.
Page 3
Case Study 1
Table 3
Poultry bird production 1965 versus 2000
Birds 1965 (million) 2 695 440 146 1 864 2 632 7 777 Birds 2000 (million) 9 232 7 045 3 296 6 214 16 255 42 042
Globalisation and rationalisation of the world chicken-breeding industry have driven much of these improvements. A handful of major international organisations now exist which franchise out their breeds and breed management programs to different geographic markets through the export of fertile hatching eggs that form the great-grandparent stock of the franchisees breeding program. At the same time, as these productivity gains were made, the industry introduced and maintained strict quality controls throughout the production process itself. Quarantine regulations have become a critical component of successful chicken meat production. Control of breeding stock is perhaps the most significant tool used to control the quality of the breed and, therefore, add value in the industry. In 2001, however, only 11 per cent of world poultry meat was exported, with countries generally producing for domestic consumption. The United States is currently the largest exporter, with 17 per cent of total production exported predominantly to Saudi Arabia, Japan, Russia and Hong Kong (the major importers). Exports of chicken meat and products has been low historically because chickens are the least demanding of all livestock, in terms of land resources. Also, consumers tend to demand fresh rather than frozen poultry products.
Table 4
Industry value in 2005
Industry turnover ($m) Industry employment Tonnes produced Farming 1 290 5 355 729 000 Processing 3 209 15 678 N.A. Retailing 4 165 29 750 N.A.
Average industry production growth has fluctuated over the six years as shown in Table 5. Industry growth is anticipated to slow in the future to about 1.9 per cent per annum, with the industry forecasting annual production to be 864 000 tonnes by 200910. The growth rate peaked in 200102 to cater for export market expansion. However an outbreak of Newcastle disease in 200405 has effectively eliminated this market. Consequently, in that year, less than 2 per cent of total production volume was exported, and Australia represented about 1.7 per cent of world production levels.
Page 4
Case Study 1
Table 5
Chicken meat production: 199899 to 200405
199899 199900 200001 200102 200203 200304 200405 Tonnes (000) 556 572 581 647 671 706 729 % growth 2.9 1.6 11.4 3.7 5.2 3.3
Historically, the industry has not been responsive to changes in demand, with production generally constant. This has seen fluctuations in price and profitability as processors needed to clear stock quickly due to its fresh nature and short shelf life. In addition, unlike other livestock producers, poultry farmers were unable to change to alternative livestock when demand declined due to the specialised nature of poultry farming and the equipment required. As a result, a high focus on efficiency throughout the industry has resulted in intensive animal rearing operations through efficient feed utilisation and optimised productivity. This has enabled lower price rises at the retail end than for other livestock, with poultry prices increasing by only 147 per cent from 1976 to 1988, compared with 230 per cent for most other meats. Table 6 details key financial information for the industry, showing the differences between farming and processing. As can be seen, farming turnover growth is negative for some years, despite the production volume increase. This highlights the industrys inability to link production with demand and the resultant fluctuation in profitability.
Table 6
Australian chicken meat farming and processing: 19992000 to 200405
Farming Production (000 tonnes) Turnover ($m) Turnover growth pa (%) Gross profit ($m) Gross profit (%) GP $ growth (%) EBIT ($m) EBIT (%) Exports ($m) Enterprises Processing Turnover ($m) Chicken meat ($m) Turnover growth pa (%) Gross profit ($m) Gross profit (%) GP $ growth (%) EBIT ($m) EBIT (%) Imports ($m) Exports ($m) Enterprises 199900 572 1128.2 0.0 564.2 50.0 0.0 152.3 13.5 54.5 601 2194.0 1316.5 0.0 429.5 19.6 0.0 337.8 15.4 8.3 25.2 100 200001 581 1109.1 1.7 541.5 48.8 4.0 148.6 13.4 59.4 604 2550.5 1530.3 16.2 539.5 21.2 25.6 395.3 15.5 8.7 24.6 102 200102 647 1253.8 13.0 621.3 49.6 14.7 165.5 13.2 66.5 608 2653.0 1591.7 4.0 682.6 25.7 26.5 403.3 15.2 11.3 28.7 102 200203 671 1212.0 3.3 570.1 47.0 8.2 161.2 13.3 134.4 595 2862.1 1717.3 7.9 810.3 28.3 18.7 437.9 15.3 10.0 33.0 99 200304 706 1226.7 1.2 572.5 46.7 0.4 160.7 13.1 192.2 583 3026.8 1816.1 5.8 892.6 29.5 10.2 457.1 15.1 10.0 32.0 95 200405 729 1290.2 5.2 595.0 46.1 3.9 166.5 12.9 22.8 571 3209.5 1925.8 6.0 927.4 28.9 3.9 478.3 14.9 7.7 36.7 95
Page 5
Case Study 1
Consumption trends
The growth in production mirrored increasing domestic consumption trends, with Australian consumption forecast to be 40.6 kg per capita in 2006. However, this was still a long way behind countries such as Hong Kong, as seen in Table 1, which has an annual consumption in excess of 68 kg per capita. Consumer demand in Australia has also increased as a result of price reductions that are able to be achieved through technological developments and economies of scale within the industry. With increased consumption, chicken meat is now second only to beef and veal as Australian consumers most preferred meat, with chickens accounting for 14 per cent of livestock production in Australia in 2005. The key substitute products for chicken are fish and other meats, such as beef, lamb and pork, depending on relative price performance. However, consumers are increasingly shopping for meal solutions rather than for set weights of meat and vegetables as they were once doing. In fact, all meats are facing increasing competition from rice, pasta and prepared foods. Chicken meat was historically produced almost exclusively for domestic consumption. A major industry push into export markets commenced in 2001; however, import restrictions placed on Australian poultry products by a number of countries due to outbreaks of Newcastle disease in New South Wales thwarted these efforts. Nevertheless, the industry believes that there are opportunities to increase value-added exports, especially exotic varieties (i.e. quail and duck) and niche products such as chicken feet and necks. It is forecasted that consumers will continue to increase the per capita consumption of poultry, rising to 41.1 kg of poultry per person in 200910 (see Table 7). Chicken meat represents 95 per cent of this consumption. The increase in demand for chicken is generally related to increases in real disposable income. In 200203, households which were in the top 20 per cent of income earners spent 47 per cent more on poultry than the average household.
Table 7
Forecasts of per capita Australian consumption of poultry
200203 200304 200405 200506 200607 200708 200809 200910 Consumption kg per capita 36.4 38.0 39.0 40.6 41.2 40.9 40.7 41.1
Key drivers of future growth in domestic poultry consumption are as follows. A continued strong domestic economy chicken consumption is directly related to available disposable income. Australia has enjoyed reasonably low interest rates for some years, and this has seen a substantial rise in disposable income. However, personal debt is at record levels, largely due to the buoyant housing market, and any rise in interest rates will have a negative impact on demand due to a tightening of disposable income levels. Changing lifestyle trends an increase in health consciousness has seen a shift in favour of white meats and fish over traditional red meats. Poultry meat is low in fat and high in protein, fitting well with changing consumer tastes. Culture Australia is a multicultural society and most national cooking styles incorporate poultry dishes. With immigration trends set to continue, and poultry meats image of being free from religious constraints (unlike other forms of meat), this would give rise to greater potential for consumption growth amongst all ethnic groups.
Page 6
Case Study 1
Convenience and fast food convenience products and fast-food outlets have proliferated over recent years as time-poor consumers demand products that can be prepared in less time. This is being driven by a continuing trend of more women in the workforce and smaller family units that favour convenience food products. Chicken has become more prevalent in menus as consumers seek a fast and healthy option. In addition, increasing average weekly household disposable income has meant people increasingly eating out, with chicken being a prominent part of most restaurant menus.
A key issue facing the industry in the future is consumer perception of the use of hormones and growth proponents in broiler chicken production. The use of hormones is banned in chicken production, with the industry safeguarding against such use by enforcing testing programs through the National Residue Survey (NRS) conducted by the Australian Federal Government Department of Agriculture, Fisheries and Forestry. This has helped to allay consumer concerns in this area, and to date no residues have been detected in batches tested. In addition, the increasing demand for organic produce is impacting on the industry. Free-range chickens account for a small amount of total production; however, it is the fastest growing product, growing at approximately 25 per cent per annum. To capitalise on the growing consumer trend for organic produce, several industry participants have recently gone into production with free-range accredited growing farms.
Product segmentation
Chicken represents approximately 60 per cent of processing turnover; 25 per cent is other poultry (i.e. duck, turkey), and the remaining 15 per cent is game birds (i.e. quail, pheasant). The nature of the product has changed significantly over the last 15 years, with an increase in the market for fresh chicken and further processed products, as demonstrated in Table 8. In addition, demand for further processed chicken products (e.g. chicken nuggets and small goods) has grown rapidly. The Australian chicken meat farming and processing industry can be broken down into three major segments (raw whole chickens, raw processed chicken and cooked processed chicken) with two product categories (frozen and fresh), as shown in Table 8: Raw whole chickens accounts for 35 per cent of the market and is experiencing negligible growth. This includes fresh and frozen whole chickens (in fact, growth for fresh and frozen whole chickens has significantly declined). Raw processed chicken (e.g. fillets) accounts for 50 per cent of the market and is growing at 810 per cent per annum. This includes fresh and frozen pieces/cuts. Cooked processed chicken (e.g. chicken nuggets) accounts for 15 per cent of the market and is growing at 1020 per cent per annum.
Table 8
Product segmentation
198889 % 28.0 4.0 39.0 26.0 3.0 200405 % 10.0 5.0 25.0 45.0 15.0
Frozen whole chickens Frozen pieces/cuts Fresh whole chickens Fresh pieces/cuts Further processed
Source: Adapted and compiled from Cooper Blanks, B. (1999), The New Zealand Poultry Meat Industry: An Education and Industry Resource, Poultry Industry Association of New Zealand, Auckland, Chart 9, p. 13.
Page 7
Case Study 1
The value-added segment has grown quickly with changes in consumer tastes and a preference for more highly processed and convenience products. In response, a number of industry participants have invested heavily in product development and marketing of value-added product, such as cooked processed chicken.
Table 9
The broiler chicken life cycle
Approx. Description live weight Brooding placed in sheds under heater N.A. Spatchcocks can be processed 770820 g Smaller birds processed 1.85 kg Average supermarket whole bird processed 2.40 kg Large birds filleted and further processed 2.95 kg Approx. processed weight N.A. 500550 g 1.30 kg 1.70 kg 2.15 kg
Age Hatching to 18 days 1822 days 3542 days 4249 days 4956 days
Source: Australian Chicken Meat Federation, Product practices, <http://www.chicken.org.au/ production.html> (accessed November 2003).
Production trends
Breed development
Early in industry development, the majority of parent stock chickens were pure breeds. Gradually, breeds were crossed to improve productivity resulting in new synthetic lines. While selection and breeding had improved egg-laying qualities and the amount of meat produced, many of the standard pure breeds were neglected in favour of cross-breeds. This was because no single breed had all the desired traits. The poultry used in the modern egg and broiler industries were, therefore, generally crosses of hybridised strains, and as a result of this breeding practice, pure breeds of poultry were becoming difficult to obtain and blood lines weakened.
Page 8
Case Study 1
Page 9
Case Study 1
Imports
Less than 5 per cent of product is imported due to concerns about disease. In November 2001, the government announced that limited imports of cooked chicken meat would be allowed into Australia. However, strict guidelines were put in place such that imports had to be cooked at 70C for 143 minutes, which was the level at which disease was determined to be unable to survive. In addition, the Australian Quarantine Inspection Service (AQIS) introduced stringent tests on imported chicken meat and, as a consequence, imports have not increased significantly. It is anticipated that this trend will continue.
Page 10
Case Study 1
To remain competitive with the major supermarkets, the specialty chicken retail outlets and butchers have also consolidated their suppliers. A key point of differentiation for these smaller retailers is their high performance standards and product innovation strategies. Examples of this product innovation include: specialty chicken shops range of ready-to-eat fresh chicken products; takeaway outlets offering products such as popcorn chicken and chicken strips; a West Australian-based specialist retailer receiving the Australian National Heart Foundations tick of approval for offering low-sodium, low-fat products and healthier menu options; and a prominent chicken retailer offering a range of products including marinated, flame-grilled chicken which is trimmed of fat, low-fat burgers and pitas, and grilled chicken salads and spicy rice in low-fat versions. It has also launched a range of low-fat, low-carbohydrate meals and offers a catering service.
Page 11
Case Study 1
Table 10
Key competitors and market share in 2005
Market share % 30 25 15 5 3 22
Swapmeat Enterprises Pty Ltd Bigbird Enterprises Pty Ltd Chasseur Chickens Pty Ltd Country Chooks Pty Ltd Bonlargi Chicken Pty Ltd Other
Page 12
Case Study 1
and the achievement of quality accreditation across a wide range of aspects of its operations. Chasseur is focused on its direct customers (i.e. the retailers) and the end customer (i.e. the consumer), and plans to be the supplier of choice to both. The company recognises that they need to sustain their superior growth rate and profitability to prevent a takeover from one of the two major companies (Bigbird and Swapmeat). The Leghorn acquisition in 2005 was undertaken to achieve production and processing economies of scale and gain access to additional markets through Leghorns Halal accreditation and speciality store relationships, as well their export focus and AQIS export approval status. Further acquisitions are possible; however, they would need to be a good strategic fit from operational and cultural perspectives. In addition, Chasseur has adopted a low cost strategy in order to protect profitability by focusing on production economies of scale and scope, and the cooked valueadded product segment with higher margins. The company has strong family values, and the ongoing sustainability of the business is more important than short-term profitability. In 2003, Bigbird unsuccessfully approached Bob Brown about the prospect of buying Chasseurs operations for $300 million. Brown was offered a seat on the board; however, under the terms of the deal he would lose control over the Chasseur operations. In addition, a large proportion of the purchase synergies would arise from the removal of duplicate functions across the combined business group. This would have resulted in the retrenchment of many of Chasseurs loyal employee base, some of whom had been with the company since Bob Browns grandfather established the business over 50 years ago.
Page 13
Case Study 1
Bonlargis Footscray processing plant in Victoria uses some of the worlds most advanced transfer line technology, and is capable of processing 71 400 chickens during an eight-hour shift. The company has recently spent $30 million in upgrading its building and farming facilities, including a new breeder farm facility in Albury (NSW) and a new boning room at its Footscray processing plant. It recently had two farms accredited as free-range, and will soon be able to offer a full array of free-range products, an area which other competitors are yet to participate in.
Page 14
Case Study 1
administration processes of purchasing, training, product control, product traceability and process improvement, making Chasseur the first company in this industry to receive accreditation for administrative functions. The Hazard Analysis Critical Control Points (HACCP) food safety system was also adopted, further demonstrating Chasseurs focus on quality control and safety. Chasseurs growth to date has been largely based on product development, with a focus on fastfood outlets, schools, clubs, restaurants, caterers and function venues. All products are portion controlled; that is, provided in set portions and individually quick frozen (IQF), which is of high appeal to these customers. In addition, recent product development has introduced a number of snack and meal solutions within supermarkets. These factors have contributed to annual sales growth of about 8 per cent per annum for the last five years. However, global rationalisation has impacted on the Australian industry in recent years. Achieving economies of scale for farming and processing is considered to be more important than product development for the long-term future profitability and growth of major companies in this industry. As part of its growth strategy, Chasseur acquired Leghorn Poultry in July 2005 to further expand processing activities, gain access to additional distribution outlets and achieve greater economies of scale. Complementing the current Chasseur business, Leghorn produces a range of fully cooked small goods and smoked chicken for Chasseur under its own label, as well as under the Farmland label for Coles Supermarkets (one of the two major supermarket chains in Australia) for national distribution. In addition, Leghorn has strong capabilities in processing and export markets. Chasseur also works closely with Country Chooks and Avian Chickens, two of Chasseurs competitors. These strategic alliances were established to achieve further economies of scale in production for the alliance participants, through maximising processing equipment utilisation. This enhanced utilisation enables the alliance member companies to supply all states of Australia with cooked and/or frozen products as well as fresh products.
Page 15
Case Study 1
are possible; however, they would need to be a good strategic fit from operational and cultural perspectives. In addition, Chasseur has adopted a low cost strategy in order to protect profitability by focusing on production economies of scale and scope. It also focuses on the cooked value-added product segment that has higher margins. The company has strong family values, and the ongoing sustainability of the business is more important than short-term profitability. In 2003, Bigbird unsuccessfully approached Bob Brown about the prospect of buying Chasseurs operations for $300 million. Brown was offered a seat on the board; however, under the terms of the deal he would lose control over the Chasseur operations. In addition, a large proportion of the purchase synergies would arise from the removal of duplicate functions across the combined business group. This would have resulted in the retrenchment of many of Chasseurs loyal employee base, some of whom had been with the company since Bob Browns grandfather established the business over 50 years ago.
Table 11
Industry competitor performance
2001 Production and processing sales ($m) Swapmeat Enterprises 312.0 Bigbird Enterprises 1031.5 Chasseur Chickens 334.2 Country Chooks 194.3 Bonlargi Chicken 32.7 EBIT/Sales Swapmeat Enterprises Bigbird Enterprises Chasseur Chickens Country Chooks Bonlargi Chicken Wages/Sales Swapmeat Enterprises Bigbird Enterprises Chasseur Chickens Country Chooks Bonlargi Chicken ROA Swapmeat Enterprises Bigbird Enterprises Chasseur Chickens Country Chooks Bonlargi Chicken ROE Swapmeat Enterprises Bigbird Enterprises Chasseur Chickens Country Chooks Bonlargi Chicken 15.5% 15.4% 20.0% 11.3% 14.5% 14.3% 14.2% 16.6% 15.1% 14.4% 14.2% 11.5% 12.9% 9.7% 16.7% 10.5% 10.2% 15.2% 9.9% 14.6% 2002 328.4 1042.0 371.3 185.2 36.3 14.0% 14.0% 22.1% 12.1% 14.9% 14.5% 14.4% 17.1% 15.3% 14.4% 13.0% 11.2% 13.9% 9.9% 17.0% 10.1% 9.9% 15.5% 10.2% 15.1% 2003 322.0 1047.2 405.8 168.3 34.6 13.0% 13.0% 21.7% 12.0% 15.1% 15.1% 13.9% 17.2% 15.5% 15.0% 13.2% 11.8% 13.1% 9.8% 17.1% 9.8% 10.1% 15.3% 10.3% 14.9% 2004 1329.5 1090.9 436.4 195.6 36.4 10.0% 12.5% 24.5% 12.5% 14.6% 15.1% 14.6% 18.6% 16.1% 15.2% 15.0% 9.9% 15.3% 10.2% 16.5% 7.5% 9.2% 14.3% 10.7% 14.5% 2005 1349.5 1124.6 674.7 224.9 40.5 9.5% 13.1% 24.9% 12.9% 14.8% 15.2% 15.0% 18.7% 16.3% 15.5% 14.5% 10.1% 15.6% 10.3% 16.7% 8.8% 9.8% 14.4% 10.9% 14.6%
Page 16
Case Study 1
Table 12
Chasseur sales by segment
Sales Frozen whole/cuts Fresh whole Fresh pieces/cuts Further processed 2001 9.0% 15.0% 31.0% 45.0% 2002 8.5% 16.5% 31.5% 43.5% 2003 8.0% 18.0% 30.0% 44.0% 2004 7.5% 18.0% 29.7% 44.8% 2005 6.5% 18.5% 29.0% 46.0%
Processing
Chasseur operates two modern processing plants located in NSW. The processing operation includes slaughtering, plucking, cleaning, cooling and grading. The process line in each plant is highly automated and has the capacity to process 10 700 chickens per hour. Over a year, the combined output of both plants exceeds 60 million kg of processed poultry meat, operating on one shift, five days per week. Additional processing departments convert primary processed chicken into 250 different types of products. Further processing for cooked and smoked products is located at Leghorns Victorian plant, which has the capacity to produce about 120 tonnes of
Page 17
Case Study 1
finished products per week or to process 71 400 birds per day on a single shift basis. In 200203, Leghorn introduced an increased air chill storage chiller and blast freezing capacity, adding a second shift and doubling production capacity.
Distribution
The company focuses mainly on the domestic market, selling to major supermarkets, chicken shops and manufacturers of frozen foods and meals. Industrial customers use its chicken in frozen meals for export, and a small percentage of its product is exported directly. Distribution throughout Australia is undertaken by refrigerated transport using distributors in most states, leveraging from Leghorns existing distribution network.
Page 18
Case Study 1
the industry, and most importantly was the clear leader in the value-added segment where high profitability was still being enjoyed and competition was only just starting to occur. This contrasted with the low margin fresh product where the two major participants had entered a price war to win market share. In addressing the board, Bob Brown noted that there were signs that another approach by Bigbird was likely to be received in the near future, as the Australian companies grappled for market share and increased penetration into the more profitable value-added segment. Chasseur had the major share of this segment, with an advantage over its competitors through its investment in technology and infrastructure in recent years. In addition, the outbreak of Newcastle disease had now been effectively contained and Australias export status renewed by key Asian markets. Strong growth opportunities appeared to be available to the company, and Brown was keen to pre-empt any approach by Bigbird. With some ideas already apparent, the board charged Brown with preparing a discussion paper outlining Chasseurs main strategic options for consideration at the May board meeting.
Glossary
AQIS Boiler hen Broiler chicken Cobb 500 HACCP IQF ISO 9002 Newcastle disease NSW Poultry Ross breeding stock SA Australian Quarantine Inspection Service. Hen used for breeding purposes only. Chicken used for meat production. A breed of broiler chicken. Hazard Analysis Critical Control Points food safety system. Individually quick frozen. International quality accreditation. Highly contagious viral disease affecting birds. It is characterised by digestive, respiratory and/or nervous system disorders. The state of New South Wales in Australia. Birds bred for meat production including chicken, duck, quail, pheasant, spatchcock and turkey. A breed of broiler chicken. The state of South Australia in Australia.
References
Australian Chicken Meat Federation (2003) Product practices <http://www.chicken.org.au/production.html> (accessed November 2003). Cooper-Blanks, B. (1999) The New Zealand Poultry Meat Industry: An Education and Industry Resource Poultry Industry Association of New Zealand, Auckland.
Page 19
Case Study 1
Page 20
Questions
Case Study 1
Tasks
As Bob Browns chief business strategist, you have been asked to contribute to the discussion paper by addressing the following issues. You are required to respond to these issues based on the facts presented in the case.
Page 22
Solutions
Case Study 1
Task 1
Attractiveness of the industry
1a) Identify the industry, product segments and value chain.
The industry is the Australian chicken meat farming and processing industry. Core activities cover breeding, hatching, farming, production, processing and distribution, having backward integrated over the last decade. Product segments include frozen whole chickens and pieces, fresh whole chickens and pieces, and the further processed segment. As discussed in Module 2, it is important to be very specific in your definition of the industry, product and market segments as this impacts on identification of competitors, assessment of competitive position, analysis of performance and recommendations made. Specifying the stages in the value chain that the company is involved in will ensure that your assessment of the current strategic situation addresses the key issues in each stage of the value chain. This will also help to identify stages in the value chain where opportunities may exist for the company to explore.
1c) What have been the key issues affecting historical industry growth? What was their impact?
Using the data in Table 5 (farming production only) and Table 6, growth in the chicken meat farming and processing industry has been positive over the period from 199899 to 200405. While farming production and farming turnover have grown by an average of 4.7 per cent and 2.9 per cent per annum respectively, indicating positive growth, the processing turnover has grown by an average of 8.0 per cent per annum, indicating medium growth in this area. Using the remote environment analysis model, these historical growth rates to date have been affected by the following issues given in Table 13. When considering factors that impact on an industry, it is important to note whether they have a positive, neutral or negative impact (i.e. the nature of their impact). For each category of factors, it is also important to reach a conclusion as to the combined impact of all the issues identified. These conclusions then enable an overall assessment to be made of the nature of all the factors influencing growth within the industry.
Page 24
Case Study 1
Table 13
Key issues influencing historical industry growth using TEMPLES model
Factor Technology Economy Markets Issue Growth due to price reductions achieved through technological developments Decline in exports from 200405 following outbreak of Newcastle disease Growth in per capita consumption from 32.1 kg per capita in 2000 to a forecast of 40.6 kg per capita in 2005-06 in domestic market Reduction in export sales due to Newcastle disease outbreak Threat of relaxation of import quotas and loosening of quarantine regulations. Strong industry regulation to protect local producers from imports entering the market and taking market share Outbreaks of disease such as Newcastle disease which impact on breeding stock supply and ability to generate disease free breeding stock Increase in home meal solution requirements by consumers and the value-added segment, which are able to command higher prices. Negative perceptions by consumers of the use of hormones and growth proponents in broiler chicken production Increased demand for organic produce and free-range chicken meat Overall impact of society factors Total all factors Nature of impact (+/=/) + Positive Negative + Positive
Politics Law
Negative + Positive
Environment
Negative
Society
+ Positive
Negative
Reviewing the industrys historical growth and the factors that have driven this growth rate provide insight into the level of competition and attractiveness of the industry to current participants, and provides input into the Porters five forces analysis of industry profitability in terms of the threat of new entrants.
Page 25
Case Study 1
It is also important to note that not all issues identified have the same weighting, and it is not simply possible to add up the positive and negative issues identified to determine the overall impact on historical growth. This is because the turnover or production impact of some issues will be more than others. For example, the emergence of the value-added segment and home meal solution type products have added substantial revenue growth given the higher average prices these products achieve. This can be compared with the impact of a decline in exports following the outbreak of Newcastle disease, which was relatively low given exports make up only 2 per cent of the total market.
1d) What are the key issues that will affect future industry growth? What is their likely impact and the overall assessment of the industrys future growth?
Future growth for the overall industry is assessed as positive (although it will be at a lower rate than historical growth). The following discussion illustrates how this conclusion has been reached. Domestic production volume growth is assessed as low, with the market nearing maturity. This is consistent with the past trends as seen in Table 6. Note, however, that turnover growth will be higher than production growth due to the product mix change to higher value-added product. This can be seen by comparing turnover growth in Table 6 with production volume growth. Export growth is assessed as medium given that the Newcastle disease outbreak has been contained and Australias export status has been renewed by key Asian markets. It is not assessed as high due to the tendency towards self-sufficiency in the industry. However, it is noted that exports are a small component of total processing turnover in 200405 at $36.7 million, and extremely high export growth only results in a small increase in total industry turnover overall. In addition, as with historical growth, assessing the future growth of the industry demonstrates its attractiveness to current participants, and provides input into the Porters five forces analysis of industry profitability in terms of the threat of new entrants. As a general guide, high growth industries are attractive and the threat of new entrants to the market is greater. When considering the future growth of the industry overall, it is helpful to consider the growth potential of key geographic markets and product segments individually and then in aggregate. This is discussed in detail in Module 2. Table 14 summarises the key issues affecting future industry growth and their likely impact. You need to note whether the factors that will impact on the future growth of the industry have a positive, neutral or negative impact (i.e. the nature of their impact), and how large an impact each factor might have (i.e. an assessment of the impact as low, medium or high per the guidelines outlined above). Conclusions for each category of factors also need to be reached as well as an overall assessment of the nature and impact of all the factors influencing future industry growth.
Page 26
Case Study 1
Table 14
Key issues influencing future industry growth
Factor Technology Issue Development of more productive breeds High process automation Dilution of bloodlines in breeding stock Nature of impact (+/=/) + Positive + Positive Negative, may lead to inferior breeds and increased likelihood of congenital defects/ disease + Positive Negative, positive correlation with economic conditions Negative Negative, fees are likely to increase Negative + Positive
Overall impact of technology factors Economy Slowdown in economic growth, decline in disposable income and/or interest rate rises Price sensitivity to substitutes such as meat and fish Fixed contract grower rates to be reviewed subject to National Competition Review Overall impact of economy factors Markets Continued growth in ethnic immigration and multiculturalism (i.e. consumption of chicken not limited by religious constraints) Consumption per capita is predicted to plateau by 200910 Consumer perceptions and health consciousness favouring white meat over red meat Religious bans on meat do not impact on chicken Overall impact of markets factors Politics Threat of imports due to quota restrictions being lifted Quarantine regulations relaxed, increasing the threat of disease Overall impact of politics factors Legal Renewal of export status now Newcastle disease has been contained
Negative + Positive
Page 27
Case Study 1
Strict quarantine regulations to prevent the incidence of disease Very strict import regulations Overall impact of legal factors Environment Sustainability issues in relation to breeding/farming methods and dilution of blood lines Low domestic consumption per capita compared with other countries
Negative, due to impact on cost + Positive, stops import growth + Positive Negative, may lead to inferior breeds and increase likelihood of defects/disease + Positive, domestic consumption is below other country levels and, therefore, has opportunity to grow to these levels + Positive + Positive, particularly IQF, and also at higher margins. + Positive + Positive
Society
Health consciousness and overall trend towards white meat due to low-fat content Increased demand for convenience products and value-added meal solutions Trend of eating out more Trend towards free-range/organic produce. (While this may not impact on volume, turnover will increase due to the higher price at which this product is sold Consumer perceptions regarding intensive farming and the use of growth hormones Consumer preference for meals rather than set weights of product Consumer perceptions and health consciousness favouring white meat over red meat Religious bans on meat do not affect chicken Overall impact of society factors Total all factors
Table 15 summarises the life cycle positions of the various segments/product categories of the Australian chicken meat farming and processing industry, indicating the growth of valueadded products.
Page 28
Case Study 1
Table 15
Chicken meat farming and processing life cycle
Emerging Specialty poultry (i.e. chicken feet and neck). Early Value-added frozen food (i.e. chicken strips, nuggets) Growth Value-added fresh cuts and pieces. Late Growth Fresh cuts and pieces, deboned (i.e. basic value add only). Mature Fresh whole Frozen pieces and cuts. Decline Frozen whole
Free-Range
Organic On the basis of the discussion above, it is concluded that future industry growth is assessed as low to medium.
1e) What have been the key issues affecting historical industry profitability? What was their impact?
Based on Table 6 of the case study facts, Table 16 summarises current industry profitability across farming and processing. The following calculations have been performed: Turnover per tonne = Turnover $ / production tonnes (000). Gross profit % = Gross profit $ / turnover $. Change in GP % is calculated as the change from one year to the next. EBIT % = EBIT $ / turnover $. Interest % is 8%. Net profit before tax % = EBIT % interest %. Note: The framework for the assessment of growth rates is also applicable for the assessment of profitability levels.
Page 29
Case Study 1
Table 16
Industry profitability
199900 Farming Production Turnover $ per tonne Change in turnover/tonne Gross profit % Change in GP % EBIT % EBIT % growth Interest % Net profit before tax % Processing Turnover $ per tonne Change in turnover/tonne Gross profit % Change in GP % EBIT % EBIT % growth Interest % Net profit before tax % $1972 50.0% 13.5% 8.0% 5.5% $3836 19.6% 15.4% 8.0% 7.4% 200001 $1909 3.2% 48.8% 1.2% 13.4% 0.1% 8.0% 5.4% $4390 14.4% 21.2% 1.6% 15.5% 0.1% 8.0% 7.5% 200102 $1938 1.5% 49.6% 0.8% 13.2% 0.2% 8.0% 5.2% $4100 6.6% 25.7% 4.5% 15.2% 0.3% 8.0% 7.2% 200203 $1806 6.8% 47.0% 2.6% 13.3% 0.1% 8.0% 5.3% $4265 4.0% 28.3% 2.6% 15.3% 0.1% 8.0% 7.3% 200304 $1738 3.8% 46.7% 0.3% 13.1% 0.2% 8.0% 5.1% $4287 0.5% 29.5% 1.2% 15.1% 0.2% 8.0% 7.1% 200405 $1770 1.8% 46.1% 0.6% 12.9% 0.2% 8.0% 4.9% $4403 2.7% 28.9% 0.6% 14.9% 0.2% 8.0% 6.9%
Industry profitability to date has been medium overall, at about 6 per cent for the combined farming production and processing activities. Gross margin has fluctuated in line with the price per tonne of production, resulting from the inelastic nature of production relative to changes in demand. As discussed in the case facts, overproduction has resulted in processors having to reduce prices to clear excess stock and accept lower margins. Profitability has also been affected by the high costs involved in the industry, particularly interest charges on the significant capital investment required. The changing product mix towards more value-added product has clearly improved margins over the last five years, with the processing gross margin increasing significantly from 21.2 per cent in 200001 to 28.9 per cent in 200405 (i.e. a 36 per cent increase over the period). However, with high investment in capital equipment made by the industry over this time in order to generate production economies and the associated depreciation charges, net profit before tax has actually declined.
Page 30
Case Study 1
Using the Porters five forces model (and the extended eight forces model) to review factors affecting historical profitability, it can be concluded that industry rivalry has increased. This is the result of many factors including: the power of suppliers has been high due to the limited number of options available for the acquisition of breeding stock; the increasing power of buyers buyers due to the price sensitivity of consumers; the increasing impact of substitutes such as fish and vegetarian meals; and strong price sensitivity as a result of the low growth in the market. this is because industry competitors have attempted to achieve economies of scale to improve production costs given reduced prices per tonne in farming.
1f) What are the key issues that will affect future industry profitability? What is their likely impact and the overall assessment of the industrys future profitability?
The Porters five forces model, the extended eight forces model and the value chain are used to assess the future profitability of the industry. It is concluded that the future profitability of the industry will continue to be medium and declining. Figure 1 summarises the industrys value chain and the cost of each component as outlined in The cost of production section detailed in the case facts.
Figure 1
Industry value chain
In order to improve profitability, the major competitors in the industry (i.e. Chasseur, Bigbird and Swapmeat) have become vertically integrated, other than across the retail channel. Through the breeding alliances, these companies have access to breeding stock which they utilise in the growing process. Growing is generally undertaken by contract growers who are specialists in this stage of the process. Processing is slaughtering, plucking, cleaning, cooling and grading. Processed meat is then packaged and frozen or chilled, or subjected to further processing into various products prior to packaging and sale to distributors/retailers. In terms of future profitability, slowing domestic growth means it is highly likely that price competition in the industry will intensify, particularly if the current inflexibility of production levels is maintained and supply continues to exceed demand. Further industry rationalisation is likely to occur. Small or medium-sized companies could be absorbed by the larger companies as increasing market share and further production economies are sought. This outcome will become more likely if consumption per capita continues to plateau. Industry profitability will also be affected by national competition policy over the next few years. Collective negotiating arrangements are predicted to have a negative effect on the profitability of the poultry processors through an increase in the cost of birds. Where vertically integrated processors (i.e. also involved in farming) are in competition with their contract suppliers, it is relatively easy for much of the industry risk to be moved from the processors to the contract
Page 31
Case Study 1
growers. However, growers (including contract growers) who can benefit from economies of scale and technology advancements will be in a better position to pass on lower costs to processors, while also maintaining their own profitability. Therefore, as a consequence of improved efficiency more than offsetting increases in input costs, the industry value-added segment is forecast to increase marginally faster than industry turnover, assuming there is an increase in the proportion of higher-margin products (such as chicken nuggets) included in the industrys total output. As discussed in Appendix 1 (Chicken meat farming and processing stages), value-added products refer to value enhanced or portion controlled poultry that has undergone additional processes before reaching the consumer. For example, prime chicken fillets are further processed into smallgoods such as chicken rolls and chicken breast supreme or marketed as chicken nuggets and breast tenders, often referred to as convenience food and home meal replacement. You should also take into account the increasing role that the major supermarket chains are playing in this industry. As these supermarkets gain more control of the supply-chain relationship, margins for processors will further decline. The threat of not being an accredited supplier would force the processors to accept the terms of the retailers. The key factors influencing the future profitability of the industry can be summarised as follows: Positive factors include: growth of value-added, free-range, organic and other niche markets which provide higher retail prices and margins; economies of scale due to industry rationalisation; high fixed cost industry, with growth reducing the average fixed cost per unit; and export expansion potential, particularly in relation to higher-margin product. Negative factors include: strong competition in the industry between major companies as growth slows and more emphasis is placed on maintaining or increasing market share with price becoming a key factor; increasing power of supermarket chains will further decrease margins; the relative ease of entering the processing end of the value chain by multiple smaller operators; the impact of interest rate rises on interest payments due to high capital investment; the impact of rising wheat prices on cost of feed in production; the intensification of fight back by substitute products for market share and the home meal replacement options; and the potential increase in fees of growers due to the National Competition Council review and renegotiation.
The factors discussed above are summarised in the following industry analysis worksheet shown in Table 17, which uses Porters model and the extended eight forces model as its framework.
Page 32
Case Study 1
Table 17
Industry analysis worksheet Chicken meat farming and processing industry
On the basis of the discussion above, it is concluded that the future profitability of the industry will continue to be medium and declining.
Page 33
Case Study 1
1g) Who are the industrys key competitors? What are their strengths and weaknesses?
Table 18 summarises the main competitors and their relative positions in the industry.
Table 18
Competitive assessment
Competitor Swapmeat Value proposition Fully integrated Largest processor Strengths Highest market share Sole supplier of Ross breeding stock in Australia Weaknesses No facilities in SA, has to import from interstate which will lead to high pricing Disenfranchised growers due to departure from SA Horse racing diversification takes focus off industry Second largest company Chasseur approach shows need to grow will not come from within Financial performance below that of Swapmeat and Chasseur Third largest company Gropoulty alliance does not provide an exclusive benefit
Bigbird
Stockfeed production capabilities Strong investment in SA, taking advantage of Swapmeats departure Focus on product development and upgraded processing facilities
Chasseur
Fully integrated Highest share of value Value-added product added segment Focus on quality and product development Strong internal asset utilisation Investment in future made Halal accreditation Export accreditation Fully integrated processor Forward integration with two retail stores opened
Country Chooks
Major company in Gropoulty alliance Queensland market does not provide an Halal accreditation exclusive benefit Operates two retail stores Lower financial Home meal replacement performance compared to major participants Footscray plant uses worlds most advanced technology Free-range accreditation Kosher accreditation Smallest of major participants
Bonlargi Chicken
Page 34
Case Study 1
Grouse Game
Export licence Small company and Largest quail farm in does not have Southern Hemisphere production economies Good production capacity Highly impacted by available (6000 birds/day) export ban
Task 2
Chasseurs current strategic position
2a) Who are Chasseurs key stakeholders, what are their objectives and are their objectives aligned with Chasseurs strategic goals?
Remember, as discussed in Module 3, key stakeholders can influence strategy and they might not be clearly evident until you think about who actually can influence the strategy. As stated in the section on Chasseurs business strategy, Chasseur regards itself as a major Australian chicken meat farming and processing company. Its stated strategic goals are as follows: to be recognised as the leading chicken meat brand in the Australian food industry; to provide customers with high quality products and excellent service; to be the leading company in the industry, continuing to grow at rates higher than the industry average; and to be the leading supplier of further processed chicken products. There are numerous stakeholders in relation to Chasseur Chickens. An analysis of the objectives of each of these stakeholders and the alignment of these objectives with Chasseurs strategic goals is given in Table 19.
Table 19
Stakeholder analysis
Who are the stakeholders? Bob Brown What do they seek to received from the organisation? Growth and prevent Chasseur from being a potential target for takeover Prestige in the family company Personal power over a large empire Is Chasseur delivering against their expectations? Yes, growth has been achieved and the company wants to keep growing No, may not be interested in deals with Swapmeat and Bigbird due to the need to maintain family control
John Smith
Wants to ensure Leghorn is Yes, Leghorn has capabilities that integrated, not taken over Chasseur can leverage upon Maintain his seat on the board and No, decisions may be politically position of power within Chasseur based having been head of Leghorn prior to the acquisition Control of Cobb 500 grandparent breeding program in Australia Yes, ensures access to good breeders
Notting Foods
Page 35
Case Study 1
Major No surprises, guaranteed quality Yes, focus on quality and valuesupermarket Ability to secure ranges of home added segment chains (i.e. key meal replacements and value-added Yes, focus on quality and valuecustomers) added segment products Favourable buying terms No, declining margins due to favourable buying terms impacts on profitability Contract growers Secure contract with Chasseur (given high capital investment) Maximise profitability Yes, ensures Chasseur has access to growers who will meet its requirements No, may result in higher growing costs to Chasseur Yes, ensures Chasseur has access to feed No, may result in higher cost of feed to Chasseur Yes, ensures low turnover and maintains culture Yes, a factor in preventing increased import quotas Yes, focus on economies of scale
Secure employment prospects Traditional family-based values Ensure strict quarantine regulations are maintained Ensure efficient industry
2b) What business strategy is Chasseur supposed to have been pursuing and has this in fact been the case?
The five questions (5Qs) approach is used here to understand Chasseurs stated business strategy. Business Strategy using 5Qs approach Does Chasseur plan to grow (profitably)? What products/services will Chasseur provide? Examples of how Chasseur has been pursuing this stated business strategy Yes stated strategy is to be the leading company in the industry, continuing to grow at rates higher than the industry average Stated strategy is to be the leading chicken meat brand and the leading supplier of further processed chicken products To be the supplier of Cobb 500 breeding stock to other companies, through the Gropoultry alliance Domestic Australian market direct to retailers and end consumer as supplier of choice Export customers through Leghorn capabilities
What generic strategy will Leader strategy focusing on differentiation and low cost. Chasseur adopt? Differentiation strategy based on focus on value-added segment and low cost strategy which is enabled through economies of scale and dominance in the value-added product segment What position in the industry does Chasseur plan to hold? Leading company in farming and processing segments
Page 36
Case Study 1
Has Chasseur been pursuing this stated strategy? Chasseur has clearly been following its stated strategy of growth as evidenced by the Leghorn acquisition and dominance of the value-added segment, which is experiencing the highest growth rates in the industry and has contributed to Chasseurs growing turnover at rates faster than its competitors and the industry overall. In addition, Chasseur is following its selected product and market strategy. In terms of stated strategy, Chasseur has been adopting a leader strategy. This is demonstrated by Chasseurs differentiation from its competitors due to its dominance of the value-added product range as well as its established relationships with key retail outlets and the achievement of quality accreditation across a wide range of its operations. In terms of being a low cost operator, review of the financial data contained in Table 11 indicates that Chasseur has the highest average EBIT %, ROA and ROE compared with its major rivals, Swapmeat and Bigbird. This is achieved through the combination of stringent cost control by the hands-on management style of Chasseurs executive team and achieving higher margins through the valued added segment. On this basis, Chasseur is a lower cost operator than its competitors and has achieved the stated strategy. The only area where Chasseur has not achieved its stated strategy is in relation to the position within the industry that it wants to hold. Stating a desire to be the leading company in the industry, Chasseur is currently third behind Swapmeat and Bigbird. While Chasseur has experienced strong growth compared with these competitors and is closing the gap, at 15 per cent market share there is still a very large turnover difference between Chasseur and Bigbird at 25 per cent (refer to Table 10). Given Chasseurs strong position in the value-added segment, the company should be able to close this gap reasonably quickly. It is evident that Bigbird views Chasseur as a threat by the recent takeover approach that Chasseur rejected. But can Chasseur be the number one company? Only time will tell.
Page 37
Case Study 1
Financial perspective Strong performance From Table 11, it can be seen that Chasseurs sales and EBIT have risen over the last five years at higher rates than both the industry average and Chasseurs main competitors, after discounting Swapmeats growth from the Poulet acquisition. This has been largely driven through Chasseurs push into the value-added segment which is the fast-growing segment and also provides the highest margins. Further, notwithstanding the high interest costs (8 per cent) associated with Chasseurs capital investment program, an EBIT profit margin of 24.9 per cent was achieved in 2005, which is a 24.5 per cent increase from the 20.0 per cent EBIT profit achieved in 2001. ROA and ROE further support a conclusion of strong performance. Again, despite a strong capital investment program, both of these measures are the highest achieved amongst the main rivals in the industry. ROA has grown by 20.9 per cent from 12.9 per cent in 2001 to 15.6 per cent, which demonstrates high asset productivity. ROE has actually declined over the period from 15.2 to 14.4 per cent; however, this is caused by the dilutionary equity impact of the Leghorn acquisition and the 14.4 per cent achieved in 2005 is still a very strong result. Customer perspective Medium performance Chasseur has experienced strong growth over the last five years to achieve its current 15 per cent market share. Annual sales growth of about 9 per cent and the acquisition of Leghorn Poultry have contributed to this strong growth. In addition, Chasseur has the largest share of the value-added segment. However, despite these strong results, there is a large gap between Chasseur and Bigbird at 25 per cent market share and Swapmeat at 30 per cent, and this factor brings performance in this area down to medium only. Chasseur has also achieved supplier accreditation status from the major supermarket chains, which demonstrates their support for Chasseur. Internal business perspective Strong performance This perspective considers the internal operating efficiency of an organisation. The strong EBIT margins that Chasseur has achieved indicate that the high focus on economies of scale (the rationale for the Leghorn acquisition) has delivered results. This is despite Chasseur having the highest wages as a percentage of sales of the industry (Table 11) due to the labour intensive nature of value-added production. Further, Chasseurs ROA and ROE demonstrates high internal asset utilisation, with economies of scale achieved through increased production volume. The quality focus maintained by the company has ensured that efficiency gains in farming and production have been achieved in line with industry standards, such as HACCP and AQIS requirements. Learning and growth perspective Medium performance Focus on new product development is high, particularly in the value-added segment. In addition, investment in capital equipment has been made to ensure future sustainability and growth. Involvement with industry bodies and in the Gropoultry alliance further demonstrate strong performance in this area. Chasseur has a strong focus on the future performance of the business and ensures that strategic capabilities are developed to achieve future strategic goals. Summary Medium performance Bearing in mind that Chasseur is a private company, overall performance is assessed as medium. The major contributing factor for this assessment is Chasseurs overall third place in the market and relatively low market share compared with its two main competitors. With the growth in the value-added segment, Chasseur is well placed to improve its market share performance in the future as capital investment already made will ensure that the current strong financial performance levels are maintained.
Page 38
Case Study 1
2d) What are the strategic capabilities of Chasseur, and do these meet the strategic goals of the company? Are the strategic capabilities consistent with the industrys key success factors?
Listed in the case facts are areas critical to future success in the industry. To determine whether Chasseur has strategic capabilities in these areas, the following strategic capability tests need to be satisfied: are they valued by the customer? are they better than the competition? and are they difficult to imitate or replicate? It is important to remember the difference between a capability and a strategic capability in undertaking this assessment. The three questions outlined above are critical in determining whether a capability provides strategic value to the organisation, or is simply a normal capability required to carry on business. It is also important to note that the strategic capabilities required for success in an industry will differ depending on the business models adopted by the industry and the industrys key success factors. On this basis, the capabilities outlined in the assessment of Chasseur Chickens below may not be the capabilities required for other industries, and should not be simply copied for any assessment of other industries.
Table 20
Chasseurs capability assessment
Industry key success factor Fully integrated business model Size, giving rise to economies of scale Access to genetically sound breeding stock Strong quality focus Low cost operator Focus on R&D/product development Accredited supplier to major supermarkets Dominance of value-added segment Culture and management Valued by the customer? Better than the competition? Not easily replicated?
Note: Only positive responses for all three questions represent a strategic capability. These are highlighted in bold in the above table. Factors that are not strategic capabilities A major capability appears to be the fully integrated nature of Chasseurs operations. However, as demonstrated in the assessment in Table 20, this factor is not a strategic capability on the basis that Chasseurs key competitors, Swapmeat and Bigbird, are also fully integrated and larger companies. Notwithstanding this however, the business model clearly enables Chasseur to have control over the whole value chain and achieve economies of scale. It is also difficult for a small or medium company to replicate given the industry rationalisation that has occurred to date.
Page 39
Case Study 1
Such an assessment is also true of Chasseurs participation in the Gropoultry breeding alliance with Country Chooks and Avian Chickens. However, this alliance does not provide an exclusive benefit to the member companies as Bigbird, which is not privy to the alliance, also has an arrangement with Notting Foods to gain access to its Cobb 500 grandparent program. In terms of the accreditation with the major supermarket chains, all this does is let Chasseur be in the game it does not ensure a position of strength within the game. Likewise, Chasseurs current dominant position in the value-added segment does not provide on ongoing position of strength it provides a first mover advantage only. Factors that are strategic capabilities It is clear on the basis of the returns that Chasseur is able to achieve compared with its competitors that being a low cost operator provides them with a clear strategic advantage. (It is a low cost operator because of the economies of scale achieved through the Leghorn acquisition and through a high share of the value-added segment which produces higher margins.) Although Chasseurs competitors are able to try and replicate this low cost structure, the key issue as to why Chasseur has a strategic capability in this area is that these competitors are not able to match Chasseurs low cost operation (as evidenced by higher EBIT %, ROA and ROE over a period of time as shown in Table 11). This factor, therefore, becomes a strategic capability to Chasseur because, whilst it is the third largest company in the industry in terms of market share, it leads the industry in terms of profitability. Chasseurs low cost leadership allows funding to be directed towards the strong quality focus that the company has maintained, despite squeezed margins in recent years, and product development, particularly in the valued added and niche/specialised product segments. This has provided Chasseur with first mover advantage, allowing a position of strength to be developed. It is clear that competition in these segments will increase in the future; however, Chasseurs up-front capital investment will continue to ensure efficiencies are derived and enable Chasseur to compete effectively, even in a price competition. The family-based culture and management of Chasseur is a key capability. Low staff turnover ensures that tacit knowledge is not lost and money wasted in retraining staff in the strict quality procedures. In addition, the family ownership of the company allows for reinvestment in the business for the future, and the development of a sustainable business model, rather than a short-term financial orientation. Future growth and development are clearly important factors in the Chasseur business model, with Browns involvement with industry bodies a good example of how the company is ensuring it is well placed for the future and has strong capabilities that are able to meet the strategic goals of the company.
Page 40
Case Study 1
Task 3
Key strategic issues for Chasseur
The key strategic issues for Chasseur Chickens can be summarised as follows. The gap between the stated strategy of being the industrys leading company and its actual position as the third largest company in 2005. With Swapmeat and Bigbird holding 30 and 25 per cent market share respectively, Chasseur needs significant market share growth (i.e. minimum of 66 per cent) to rival them. In addition, a large amount of industry rationalisation has already occurred, and achieving significant growth through acquisition would no longer appear to be possible via acquiring a major company. Multiple acquisitions would be required, with the risk of strategic misfit increasing as a result. The entry of the major companies into the value-added segment due to changing consumption trends and its higher profitability. Chasseur has been relatively unchallenged in this segment to date, and clearly has first mover advantage. However, as this segment continues to grow, price competition is likely to increase with Swapmeat and Bigbird fighting for market share. The strengthening position of the major supermarkets will further squeeze margins and impact on Chasseurs profitability. With high capital investment having been made over recent years, Chasseurs financial performance will suffer and this may impact on Chasseurs ability to sustain long-term price competition from Swapmeat and Bigbird. Chasseur has no sustainable significant differentiating factor compared with its competitors. The strengths outlined in Table 18 for Chasseur do not provide a source of exclusive competitive advantage for the company. With three major companies now controlling 70 per cent of the market, Chasseur is at real risk of having no sustainable differential value proposition for the customer, and becoming a me too operator in their eyes.
Task 4
Strategic option identification and recommendation
Identifying strategic options for Chasseur Chickens
The Ansoff productmarket matrix has been used as the basis for identifying potential options. The order in which assessments are made is important in terms of exhausting existing product/market options first, prior to moving into consideration of new products/markets. Once existing options have been completely exhausted, and only in this case, should diversification into new products and new markets be undertaken. This is because of the risk involved in diversification, and the need for the company to acquire capabilities to undertake these activities. It is necessary to assess whether the option is already undertaken by the company in terms of either existing products or existing markets. If so, then while the option may present an opportunity for the company, it will not be new to the industry/market. For example, if Chasseur decided to move into free-range chicken products, this would be considered new product development under this perspective as Chasseur does not currently have free-range products. This is despite the fact that the product is already made available in the market by Bonlargi Chicken.
Page 41
Case Study 1
Using the Ansoff product-market matrix (Figure 2), the following diagram summarises the suggested approach for identifying strategic options and making recommendations for Chasseur and the order of preference for each option.
Figure 2
Ansoff product-market matrix Products Existing Products Existing Markets Market penetration Preference 1 New Products Product development Preference 2
Markets
New Markets
Diversification Preference 4
It is important to note that, when assigning preferences to the various quadrants of the Ansoff matrix, the selection should be made on the basis of the strategic capabilities of the business. It is not always necessary to follow the preferences outlined in the Chasseur example above. This is because strategic options should be prioritised on the basis of lowest to highest risk, and this will be highly influenced by the strategic capabilities of the business. For example, Chasseur has strong product development capabilities, so any options relating to new products would have lower risk compared with market development options where Chasseur has limited experience. In contrast, a business with a strong export and market development capability would choose to prioritise new market options over new product options as a result of a lower risk profile in the market area. In addition, it should be noted that the diversification quadrant is usually assigned the lowest priority. Generally, with diversification comes significantly increased risk as the business would most likely have no experience with either the product or the market as they are both new. Note: The following recommendations consider the classification of the strategic options for Chasseur from the business (company) perspective.
Page 42
Case Study 1
Grouse Game is an interesting option due to its position as a niche company in the industry, focused on game birds (particularly quail), which has huge export potential to Asian markets. Grouse Games business was severely impacted by the export ban, and being part of a larger company would allow effective diversification of risk.
All three targets provide complementary capabilities to those of Chasseur and, subject to capital constraints and/or competition policy issues, should all be considered as possible acquisitions. A further option would be to approach Bigbird to acquire its chicken meat business in a reverse takeover. Bigbird has indicated its interest in Chasseur already and, as the second largest organisation in the industry, faces many of the same issues as Chasseur. The question here though would be whether the Bigbird family would consider selling to Chasseur. However, an alliance may be a more palatable option under which Chasseur retains control of the chicken meat business. This may be attractive to Bigbird as it has other business interests for which it could then devote more time. Product development New products into existing markets (Preference 2) Chasseur has a strong new product development focus and this would continue going forward. The scope of product development could be expanded to include alliances with complementary food manufacturers. For example, Chasseur could work with a company that produces vegetables to produce a home meal solution offer. Another example would be a frozen food specialist to develop new forms of value-added frozen chicken meals. Another opportunity that would lend itself easily to Chasseur would be entry into the egg market as it already breeds chickens for egg production. Market development Existing products into new markets (Preference 3) This is the easiest option for Chasseur, particularly given the export capabilities it acquired through Leghorn and that Australias export status has now been renewed. Chasseur should target key Asian markets for its products, especially the value-added areas, and secure first mover advantage. This approach can leverage off existing capabilities and enable production volume increases which will drive further economies of scale, therefore cementing Chasseurs position as the low cost company. In addition, Chasseur could investigate the opportunity of purchasing an existing company in key export markets. This would facilitate entry into these markets and support production, processing and distribution. A further opportunity for Chasseur is to forward integrate, entering the retail market and selling direct to the end consumer. An alliance with an existing specialty poultry outlet may be one possible entry mode, as would expansion of the Bonlargi retail concept upon a successful acquisition. Entry into the fast-food market based on a healthy meal solution concept is another possibility through an alliance with an existing takeaway outlet. However, it should be noted that forward integration has the risk of upsetting relationships with existing retail customers such as the major supermarket chains and fast-food outlets. As such, any plans for such a move would need to be considered very carefully, and possible major customer reaction anticipated with plans put in place for the management of potential conflicts.
Long-term recommendation
Diversification New products into new markets (Preference 4) This is really blue sky territory and the options are endless. Chasseurs importing infrastructure could be used to import other products. Another option may be expansion into processing of other livestock, fish or smallgoods. Given the opportunities previously outlined above, this is really a longer-term issue, once all other options have been exhausted due to the need to acquire new capabilities.
Page 43
Case Study 1
Internal consistency
Given the current strategic, operational and functional capabilities of Chasseur, it is evident that both market penetration and product development are highly consistent strategies. Further, these strategies are consistent with Chasseurs key stakeholder requirements, which is a critical factor given private company ownership. Chasseur already has the key internal requirements to successfully undertake these options and, as such, the risk to the company of pursing these options is assessed as low. The real issue arises from evaluating how internally consistent are Preference 3 (market development) and 4 (diversification). Chasseurs current capabilities are not so well suited to these options, which involve the management of multiple products and market portfolios. Accordingly, these options carry an increased inherent risk for the business they require new strategic capabilities and skill sets as well as changes to the existing functional strategies of Chasseur. However, that is not to say that these options should not be pursued. Rather, Chasseur should undertake a detailed analysis of changes that the business would be required to make, if it were to adopt any of these strategies. It should also consider the issue of how easily the changes can be enacted.
External consistency
Chasseur is currently the third largest competitor in the Australian chicken meat farming and processing industry and does not compete in other meat industries at all. On this basis, it is clear that again the first two preferences are consistent with the external environment. Opportunity still exists for Chasseur to create further economies of scale and grow within the current industry; however, it must be noted that future growth is going to be slow and this will make such a target more difficult to achieve than previously. It should be further noted that the two larger competitors will also be looking for such opportunities, and industry rivalry will increase. As a result, there will be a downward pressure on profit margins overall. With first mover advantage in the lucrative value-added segment, Chasseur needs to ensure that it continues to look for new opportunities in this area to stay one step ahead of the competition. As a result of the increasingly competitive nature of the Australian chicken meat farming and processing industry, the strategy of market expansion is also externally consistent. The Newcastle disease outbreak has been contained and export growth to key Asian markets has begun to increase. Chasseur had established capabilities to enter the Asian market prior to the Newcastle disease outbreak that it can now successfully leverage. Further, Chasseurs strong value-added capability is a key strength that can be utilised in gaining entry to these markets. A strong reputation in the domestic industry also provides credibility for expansion.
Page 44
Case Study 1
Feasibility
The issue regarding the feasibility of Chasseurs strategic options is interesting. While market penetration is certainly both internally and externally consistent, how realistically it can be achieved is questionable given the strong competition that will ensue from the two larger industry competitors. As already discussed, industry rivalry is likely to increase in the future as a result of the need to improve economies of scale. Profit growth is unlikely to come from market growth alone, given its slowing nature. As such, the feasibility of becoming the largest company in the Australian chicken meat farming and processing industry seems questionable. Both product development and market development appear quite feasible options given Chasseurs strong capabilities in these areas. Both these areas are also experiencing strong growth, which improves their feasibility rating. However, given its limited exporting experience to date, product development as compared with market development is a less risky option for Chasseur to undertake in the first instance.
Competitive advantage
It is clear that Chasseur already has some factors which have given rise to a competitive advantage. The strategy of further market penetration alone will not give rise to greater strategic advantage for Chasseur; however, if it results in the achievement of a low cost generic strategy that other industry participants are unable to emulate, then this would be of strategic advantage. Similarly, being the first mover in the value-added product segment alone is not sufficient to ensure this advantage is maintained, and Chasseur must continue to innovate in product development and stay one step ahead of its competitors. On this basis, the first two strategic preferences may assist Chasseur in maintaining a competitive advantage. However, to create long-term strategic advantage, Chasseur really needs to look to expansion options that ensure strong growth and profitability. On this basis, expansion of exports to Asia will provide a good foundation upon which these targets can be achieved, as will diversification in general. However, it is vital that the risk attached to such options is carefully considered by Chasseur before embarking on these options. They will significantly change the underlying business model of Chasseur, increasing the level of complexity and uncertainty associated with revenue streams generated from new products and markets. In order to successfully integrate such expansion into the existing business, Chasseur must ensure that risk management becomes an essential component of the business planning cycle, with contingency plans developed to deal with unfavourable outcomes should they arise. Note: In order to evaluate a given set of strategic options using Rumelts criteria, the evaluation can alternatively be presented as in Table 21.
Page 45
Case Study 1
Table 21
Strategic options using Rumelts criteria.
Strategic options Option 1 Internal consistency External consistency Is the strategy externally consistent? Yes or No with justification. Feasibility Competitive advantage Does the strategy create/maintain competitive advantage? Yes or No with justification. Does the strategy create/maintain competitive advantage? Yes or No with justification.
Option 2
Option 3
Page 46