IBP and the U.S. Meat Industry
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What does IBP do?
Company Performance
Characteristics of Industry
New Strategy
– Corporate-level
– Business-level
Financials
(Data from Case)
11000
Sales
9000
7000
5000
1985
1986
1987
1988
1989
1986
1987
1988
1989
120
95
Net
70
Earnings 45
20
1985
IBP vs. CAG vs. S&P 500
S&P 500
CAG
IBP
1990
2000
U.S. Per Capita Meat Consumption
(Pounds per Year)
100
90
80
70
60
50
40
30
20
10
0
Beef
Pork
Chicken
Fish
1970
1975
1980
1985
1990
1995
2000
Comparative Meat Prices
$3
$3
$2
$2
$1
Beef
Pork
$1
Chicken
$0
1970
1975
1980
1985
1989
5-Forces Model of Beef Industry
Potential
Entrants
Suppliers
Rivalry
Substitutes
Buyers
Industry Consolidation
90
Market Share
80
70
60
50
IBP
ConAgra
Cargill
CR-3
40
30
20
10
0
1982
1987
1988
1989
Strengths
• Largest, low-cost producer:
– Market Share Leader: Beef and Pork
– Sales:Asset Efficiency = 6.7 (IBP) vs. 2.6 (CA)
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
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
Environmental Evaluation Grid
Very
Bad
General
Environment
Competitive
Environment
TOTAL IMPACT
Economics
Demographics
Political-Legal
Sociocultural
Technological
Global
Potential Entry
Suppliers
Customers
Substitutes
Rivalry
Bad
Benign
?
Good
Very
Good
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
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
Pork?
Is Chicken the Answer?
Bison?
Exotic/Game Meats?
Venison
Ostrich
Elk
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?
• Mission
– To position IBP as the world’s premier valueadded 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
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
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)
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)
Branded Products
Beef Sushi and Buffalo Wings
Distribution
Production
• Restaurants
• Beer-fed steer
• Upscale grocers • Bison
IBP’s response to the
“Chicken Wing”
Marketing
• Ads
• In-store promos
• Co-branding
– Sam Adams
– Kirin
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
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)
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)
Strategy Recap
HQ
Marketing Exec.
Reduce spot transactions
Bloody Mary, beer by-products
Procure
Tech. Dev.
Profit
Margin
Value-added products
IBL
Mfg.
Valueadded
Feedlots
Meat
chopping
equip.
OBL
Truck
Fleet;
Intl.
Mkt.
Co-brand
Ads
Sales
Svc.