IBP and the U.S. Meat Industry

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. SP 500
SP 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
Buyers
Suppliers
Substitutes
7
Industry Consolidation
8
Strengths

• Largest, low-cost producer
• Market Share Leader Beef and Pork
• SalesAsset 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 worlds 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 Campbells 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

IBPs 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
• Mortons
• Ruths Chris
• Web-based Sales
• Directwwww.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 Kerrs 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 PG (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