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)

5000

7000

9000

11000

1985 1986 1987 1988 1989

204570

95120

1985 1986 1987 1988 1989

Sales

Net Earnings

IBP vs. CAG vs. S&P 500

1990 2000

S&P 500

IBP

CAG

0102030405060708090

100

1970 1975 1980 1985 1990 1995 2000

BeefBeef

PorkPork

ChickenChicken

FishFish

U.S. Per Capita Meat Consumption(Pounds per Year)

Comparative Meat Prices

$0

$1

$1

$2

$2

$3

$3

1970 1975 1980 1985 1989

BeefBeef

PorkPork

ChickenChicken

5-Forces Model of Beef Industry

BuyersSuppliers

Substitutes

Potential Entrants

Rivalry

Industry Consolidation

0

10

20

30

40

50

60

70

80

90

1982 1987 1988 1989

Mar

ket

Sh

are

IBPConAgraCargillCR-3

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 VeryBad Bad Benign Good Good

General EconomicsEnvironment Demographics

Political-LegalSocioculturalTechnologicalGlobal

Competitive Potential EntryEnvironment Suppliers

CustomersSubstitutesRivalry

TOTAL IMPACT

??

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 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

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

Distribution• Restaurants• Upscale grocers

Marketing• Ads• In-store promos• Co-branding

– Sam Adams

– Kirin

Production• Beer-fed steer• Bison

Beef Sushi and Buffalo Wings

IBP’s response to the“Chicken Wing”

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

Procure

Tech. Dev.

IBL Mfg. OBL Mkt. Svc.

ProfitMargin

Marketing Exec.

Reduce spot transactions Bloody Mary, beer by-products

Value-added products

Meat chopping

equip.

Truck Fleet;Intl.

Co-brandAdsSales

Value-added

Feedlots