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IBP and the U.S. Meat Industry

IBP and the U.S. Meat Industry. What does IBP do? Company Performance Characteristics of Industry New Strategy Corporate-level Business-level. Financials (Data from Case). Sales. Net Earnings. IBP vs. CAG vs. S&P 500. S&P 500. CAG. IBP. 1990. 2000. U.S. Per Capita Meat Consumption

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IBP and the U.S. Meat Industry

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  1. IBP and the U.S. Meat Industry • What does IBP do? • Company Performance • Characteristics of Industry • New Strategy • Corporate-level • Business-level

  2. Financials(Data from Case) Sales Net Earnings

  3. IBP vs. CAG vs. S&P 500 S&P 500 CAG IBP 1990 2000

  4. U.S. Per Capita Meat Consumption (Pounds per Year) Beef Pork Chicken Fish

  5. Comparative Meat Prices Beef Pork Chicken

  6. 5-Forces Model of Beef Industry Potential Entrants Rivalry Suppliers Buyers Substitutes

  7. Industry Consolidation

  8. Strengths • Largest, low-cost producer: • Market Share Leader: Beef and Pork • Sales:Asset Efficiency = 6.7 (IBP) vs. 2.6 (CA)

  9. Weaknesses • Buys from spot market • Vulnerable to price increases in down cycles • Highly leveraged (D/E = 84%) • Dependent on Occidental • Lacks brand name recognition • No consumer marketing skills

  10. Threats • Declining beef consumption: • 20% since 1976 • 30% decline predicted by 2000 • Poultry is preferred substitute • More intense rivalry from Cargill, ConAgra • Top three hold 70% market share • Poor image: calories, fat, cholesterol • Beef carcass prices continue to rise

  11. Environmental Evaluation Grid ?

  12. Business-level Opportunities • Under-marketed Industry • a la Philip-Morris’ entry into beer industry (Miller) • Few Branded/value-added Products • But, rivals and substitutes already have lead in brand name recognition (HealthyChoice, Purdue) • Export Markets: • EU restrictions on Growth hormones, antibiotics • EU mad-cow disease • Japanese taste preferences

  13. Corporate-Level Opportunities • Related horizontal diversification • Leverage meat processing skills/advantages in other “attractive” meat segments • Related vertical diversification • Backwards – Value-managed feedlots, meat characteristics • Forwards – Value-added consumer products

  14. Pork?

  15. Is Chicken the Answer?

  16. Bison?

  17. Exotic/Game Meats? Venison Elk Ostrich

  18. Strategic Recommendations • Business-level strategy (stay with current portfolio) • How should IBP compete? • Corporate-level strategy • Related – In which meat segments should IBP compete? • Unrelated – In which other “industries” can IBP compete?

  19. Mission • To position IBP as the world’s premier value-added meat producer through innovation, customer attentiveness, and efficiency • Goals • Increase ROS to 3.0% by 1991 • Increase exports/total sales to 15% by 1991 • Develop 2 new branded products each year • Reduce spot transactions by 50% by 1993

  20. Branded Products • Pure Iowan brand beef • 30% leaner that USDA Grade A • Designate 2 value-managed feedlots • Low-fat feeds • Antibiotic-free • Growth hormone-free

  21. Branded Products • Tobasco Burgers • Semi-Prepped / Co-Branded Ground Beef • License Tabasco® Name ($5mil) • Purchase Meat chopping equip for 3 plants ($10mil) • Supply contract with Campbell’s for 150k gallons Tabasco® Bloody Mary Mix per year ($150k)

  22. Branded Products • American Patriot Beer-Fed Beef • U.S. version of Japanese Kobe Beef • License Sam Adams® Name ($5mil) • Designate 4 feedlots as ‘value managed’ • Supply contract with beer producers for finished beer waste and fermentation grain by-products ($600k)

  23. Branded Products Beef Sushi and Buffalo Wings • Distribution • Restaurants • Upscale grocers • Production • Beer-fed steer • Bison • Marketing • Ads • In-store promos • Co-branding • Sam Adams • Kirin IBP’s response to the “Chicken Wing”

  24. Distribution – Branded Products • Direct Sales to “upscale” grocers/meat shops • Hire 12 district sales/technical specialists ($35k ea.) • Fleet of 100 ten-foot refrigerated specialty trucks and uniformed drivers (Drivers $25k, trucks $55K ea.) • National steakhouses • Morton’s • Ruth’s Chris • Web-based Sales • Direct:wwww.pure-iowan.comx • Indirect: Distribution agreements with: • Omaha Steaks • Peapod

  25. Marketing • Branded Products • Packaging and Labeling: Change brand from IBP to Pure Iowan, feature Tabasco® and Sam Adams ® • Fold-out scratch-n’-sniff ads in Gourmet, Food & Wine, Southern Living ($150k each magazine biweekly) • Set up feature with Graham Kerr’s cooking show ($200K) • TV ads during PGA Tournament and USTA Matches ($100K for each 30-second spot)

  26. Marketing (misc.) • Transnational International Strategy • Sam Adams® beer-fed beef promoted/shipped to wholly-owned Tokyo sales/distribution center • Pure Iowan® additive-free beef promoted/shipped to wholly-owned London & Rotterdam sales/distribution centers • Marketing Executive • Hire SVP Marketing manager from Kraft, Pepsico, or P&G ($500K)

  27. Strategy Recap HQ Marketing Exec. Reduce spot transactions Bloody Mary, beer by-products Procure Profit Margin Tech. Dev. Value-added products IBL Mfg. OBL Mkt. Svc. Truck Fleet; Intl. Value- added Feedlots Meat chopping equip. Co-brand Ads Sales

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