Birds Eye
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Why Birds Eye developed as a vertically integrated producer:The following are chiefly the reasons why Birds Eye developed as a vertically integrated producer.
Ð* Undeveloped Infrastructure: The frozen food market during 50s and early 60s was in its infancy with the raw material suppliers, distributors and retail stores relatively unsophisticated. The infrastructure needed to support the business was not fully developed. For the raw materials (peas), farmers needed help with investments in harvesting equipment and with farming expertise. In the distribution, retailers needed financing help with the purchases of refrigerators. In such scenario, it made sense for Birds Eye to both forward and backward integrate as it had the both the capabilities and resources to manage the entire supply chain.Ð* Rapid Growth: During the 1950s and 60s the tonnage sales were increasing at a rapid rate of 40% per annum. During such remarkable growth periods it makes sense for companies to vertically integrate so as to secure the raw materials, ramp up distribution and production capacities in order to keep up with the demand.
Ð* Quality of the Product: The products sold by Birds Eye had to be high quality because of the additional overhead of freezing and the products had to be frozen at the right moment within hours to justify the premium. This requirement of the industry required producers to have control over all aspects of production.Ð* Securing Raw Materials: Birds Eye entered the broiler chicken in 1958 and the entered the fishing industry in 1965 in order to secure its raw material supplies With vegetables they were able to closely able to integrate with farmers and were able to closely simulate vertical integration environment without the actual need to own farm facilities
Ð* Prevent new competition: Owning the entire value chain meant that, entering into this market would become significantly difficult for new entrants due to high capital needs.Ð* Industry Structure: The two main competitors of Birds Eye during 50s and 60s Ross and Findus were also following the vertical integration strategy and the industry structure and maturity around this time forced the businesses to vertically integrate as they had no other choice.
Birds Eyes different arrangements for peas, fish & meat:For fish and poultry Birds Eye did backward integration by building capacity and acquiring controlling stake in the suppliers. For vegetables however they worked closely with the farmers providing them with both capital and expertise with the growth of high quality produce. Both the models allowed Birds Eye to have a tight control over it supply chain.
The reason for the difference can probably be explained by the fact that in the vegetable market Birds Eye was able to secure the supply of raw materials with longer-term contracts with the farmers, However with the fish supplies, there process was more adhoc where the supplies were either bought from dock side auctions are imported from Scandinavia. This process did not let Birds Eye have enough control so they fixed the process by vertical integration.
Emergence of Specialized Intermediaries:Several changes occurred in the industry structure during the late 60s and early 70s, which led to the emergence of specialized intermediaries. The following factors were chiefly responsible:
Ð* Industry Maturity/ Technological breakthroughs: As the industry matured the rate of technological breakthroughs increased which led to decrease in the amount of capital to enter the business making the barriers to entry low. The emergence of smaller firms opened up opportunities to offer specialized services to manage the various functions in frozen food retail.Ð* Supermarket Chains: Development in the food retailing led to the emergence of super market chains this development led to shift in the balance of power from producers to retailers. Retailers found it profitable to introduce their own brands in the market. This led to an increase of market shares of retailers own brands from 0 to 29% in 1982 (Exhibit 2), these retailers whose core business was not frozen food needed some one to manage distribution and production facilities this paved the way for the emergence of specialized intermediaries.
Ð* Catering Segment: Percent consumption of catering companies increased from 16% in 1967 to 30% in 1973 (Exhibit 1b). Birds Eye did not cater to this niche market whose requirements were different from the consumer market in the sense that they need larger packaging sizes at a lower cost. These factors led to the emergence of competitors like Menu master Ltd to cater to this segment. The new entrants required help with the distribution and production, which again stimulated the emergence of specialized intermediaries like Flying Goose, which specialized in this segment.Ð* Specialization: As the industry