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

ChallengesChallenges

Janice Stubblefield Michael NeresonAmanda Hund Pete DeMeuse Case# 27, page C-565ase# 27, page C-565

Purdue – Case 25Purdue – Case 25• Company History• Strategic and Financial Analysis• Problems• Possible Solutions• Recommendation• Purdue 2006

Perdue Mission StatementPerdue 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…

1900 1925 1950 1975 2000

1917 - Arthur Perdue, bought 50 leghorn chickens and began selling table eggs near Salisbury, Maryland.

1950 - Arthur quite his job and entered the egg business full-time.

1924 - Purchased leghorn roosters and begin shipments to New York.

Company HistoryCompany History

1900 1925 1950 1975 2000

1950 - Young Frank Perdue took over the leadership of the company which employed 40 people.

1967 – 1968 - Annual sales increased to $35 million company bought first processing plant.

1940 – 1950s - Known as a quality product in a competitive market.

Company HistoryCompany History

1900 1925 1950 1975 2000

1980 - $200 mil annual sales; average annual growth rate 17%;

1988 - Perdue farms experienced its first year in the red.

1970s - Expanded geographically into New England, Virginia, and North Carolina.

Company HistoryCompany History

Strategic Analysis ToolsStrategic Analysis Tools• SWOT Analysis• Key Success Factors• Porter’s Five Forces Model• Organization Structure• Location Analysis• Barriers to Entry• 10 Commandments• Market Analysis

SWOT AnalysisSWOT AnalysisStrengths

•Reputation •Strong leadership with high morals•Excellent Research & Development •Vertically integrated

”Employees first” policy

Robust management information system

Good TQM with mission/vision Strength 1• Strength 2• Strength 3 • Strength 4

Weaknesses

• Strength 1• Strength 2• Strength 3• Strength 4

Opportunities

• Strength 1• Strength 2• Strength 3• Strength 4

Threats

• Strength 1• Strength 2• Strength 3• Strength 4

Key Success FactorsKey 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

Key Success FactorsKey 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

Porter’s Five Forces Model Porter’s Five Forces Model

Potential New Entrants•Independent Farms•Corporate Farms•New Chicken Processing Companies

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

Suppliers

•Soybean suppliers•Grain suppliers•Contracted producers•Corn suppliers•Local farms

Firms offering substitute products• Other meat processing companies• Fast Food establishments• Restaurants

Current OrganizationCurrent OrganizationChairman

President/ COO

VP Finance/CFO

Director, Corp. Planning

Director Public Relations

President & Manager Grains & Oilseed

President & General Manager Retail

President & General Specialty Foods

Senior VP Supply Chains Management

VP Administrative Services

VP Technical Services

VP Human Resources

VP Quality

VP International

Senior VP Retail Sales & Marketing

Senior VP Retail Poultry Operations

Director Environmental Services

Locations AnalysisLocations Analysis

Opportunity

Poultry Consumption Group Poultry Consumption Group MapMap

100

80

60

40

20

0 0 5% 10% 15% 20% 25% 30% 35%Consumption Percentage

Po

un

ds

per

cap

ita

Cow

Chicken

Pig

Perdue Farms Value Perdue Farms Value ChainChainPurchased

SuppliesAnd

Inbound LogisticsBuying corn, soybeans,,and other ingredients

from suppliers to sustain chicken

processing

OperationsTransport and processing of feed,eggs, and

chickens to variouslocations during the maturation

process and packaging

DistributionTo storage centers,

supermarkets, restaurants,

and ports

Sales andMarketing

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 DevelopmentProduct R&D, Technology & Systems Development

Human Resources ManagementHuman Resources Management

General AdministrationGeneral Administration

Support Support Activities Activities and Costsand Costs

Pri

ma

ry A

cti

vit

ies

an

d C

os

ts

Barriers to EntryBarriers to Entry Poultry Industry and ProcessorsEnvironmental

Issues

Labor Issues

Legal and Regulation Issues

10 Commandments10 CommandmentsEnhancing company’s competitive

position for the long term

Avoid strategies only succeeding

in optimistic circumstances

Don’t underestimate

rival firms

Attacking competitive

weaknesses is more profitable

Be judicious in cutting prices without cost advantage

Be aware that aggressive moves for

market share provoke

retaliation

Market ResearchMarket Research• Male or Female• Age Group

– 18 – 25– 26 - 35– 36 - 45– 46 and up

• Do you purchase fresh or frozen chicken?• Which brand do you buy?

– Tyson– Perdue– Other

Market ResearchMarket Research• Male or Female

• Age Group

• Do you purchase fresh or frozen chicken?

• Which brand do you buy?

Financial AnalysisFinancial Analysis• Annual Sales

• Net Profit Margin

• Marketing

• Work Force

• Environment

• Sales Forecasting

Financial AnalysisFinancial AnalysisPerdue Annual Sales

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

1920 1940 1960 1980 2000 2020

Year

Rev

enu

e

(in

mil

lio

ns)

Financial AnalysisFinancial Analysis• Marketing

– $50,000 in 1968 in radio advertising– $80,000 in 1969 in television

advertising

Financial AnalysisFinancial 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%

Financial AnalysisFinancial 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

Financial AnalysisFinancial Analysis• Privately held company

– Most of the company’s stock is held by the family

– Some by senior executives

Financial AnalysisFinancial 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

Financial AnalysisFinancial Analysis• Environmental Costs

– 1990 – $4.2 million to upgrade treatment facilities at one plant

Financial AnalysisFinancial 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

Financial AnalysisFinancial 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

Key Problem AreasKey Problem Areas• 1 Geographical Distribution Limitations• 2 Marketing Strategy• 3 Organization • 4 Diversification• Environmental Costs• Forecasting • Privately Held Firm

Alternative 1Alternative 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

Alternative 2Alternative 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

Alternative 2 ContinuedAlternative 2 Continued• Cons

– Loss of complete control– Commitment to stock holders– Perception of Lower quality– Increase cost in distribution

Alternative 4Alternative 4• Expand production to the West Coast• Pros

– Expand in geographic coverage– Increase Market Share– Lower distribution costs

• Cons– Cost of new plants and acquisitions– Environmental costs– Marketing expenses

Alternative 5Alternative 5Merge with another chicken processor • Pros

– Expanded product line and market share– Increased marketing

• Cons– Lose of control– individual name brand threatened – 2– 3

Recommended SolutionRecommended Solution• Alternative #2

– 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

Initial Public OfferingInitial Public Offering

Fresh Produce Distribution Fresh Produce Distribution AreasAreas

Frozen Produce Frozen Produce Distribution AreasDistribution Areas

Three Strategy HorizonsThree Strategy Horizons

7 - 10 Years

•Initial Public OfferingInitial Public Offering

•Align MarketingAlign MarketingStrategies with FrozenStrategies with Frozen

Food ProductsFood Products

•Begin westward Begin westward

•Expansion throughExpansion throughAcquisition ofAcquisition of

Small-to-medium Small-to-medium Sized processingSized processing

Facilities, and Facilities, and Construction ofConstruction of

New PlantsNew Plants

•Consider GlobalizationConsider Globalization

•Invent Bird Flu Invent Bird Flu ImmunizationImmunization

Strategy Horizon 1

Strategy Horizon 2

Strategy Horizon 3

4- 6 Years1 - 3 Years

Str

ate

gy

Init

iati

ve

s