In 1950s Birds Eye had established its integrated system of production and distribution and its strategy was more or less marketing oriented. Company focused to increase sales by introducing new product, promoting consumer awareness of the convenience and value for money of frozen food, and developing consumer recognition of the quality associated with the Birds Eye brand. 40% of the revenue used to be generating by five biggest-selling products – peas, beans, chips, fish fingers, and beef burgers. In 1995 it used television as a biggest mean strategically to market its products hence to increase sales. It gave a cutting edge over others to get customers to Birds Eye. Birds Eye pioneered frozen foods with a product quality higher than people were used to in processed food and with a personality that combined efficiency, hygiene, confidence and completeness. Birds Eye used the strategy to attract more customers by adding more values beyond the physical and functional ones that contributed to a clear and likeable personality for the brand.
Competitive advantage of Birds Eye:
Birds Eye’s efforts gave it a competitive advantage and market dominance in the frozen food industry in UK. In early 1950s and 1960s, Birds Eye accounted for over 60% of UK frozen food sales on a tonnage basis. On the other hand brand market share of the company was over 70% by value and around two-third by tonnage for most of the period, the share of the frozen food sale was 75% and some 40,000 retail outlets were served exclusively by Birds Eye.
Get Help With Your Essay
If you need assistance with writing your essay, our professional essay writing service is here to help!
Birds Eye pioneered the development of market of frozen food. It managed to maintain brand leadership and superior profitability over other competitors such as Findus and Ross. Neither of these competitors was prepared to undercut Birds Eye. The pattern of price behavior in the industry was affected by leadership of Birds Eye. Birds Eye’s retail dominance was assisted by a system of discounts that encouraged larger retailers to give Birds Eye the major part of their frozen foods business. The size of the discount from its published trade prices depended on the annual turnover of the retailer, the cabinet space, and the frequency and the size of the deliveries.
In the 1970s and 1980s there was decline in the market share and profitability of Birds Eye due to increase in the competition in the market.
Main reason of being vertical integrated producers for frozen food:
Underdeveloped infrastructure:
Birds Eye was established in UK in 1938, which was the initiative of a British Businessman, Robert Ducas, financially and technically supported from General foods Corp and Chivers and Sons Ltd. Initially company faced the problems while building market leadership. These problems arose mainly because of the concentration of processing into a short time space, the unreliability of the machinery, the lack of the skilled labor etc. though processing costs were fixed, yet machinery was asking for more capital investment as it has to be imported from USA. The locations of the frozen food were dependent on the availability of the raw material.
Quality of the food: Once company had planned facilities the next step was secure supplies of high quality raw material. It was using grower’s machines instead of manual labor.
Securing Raw Material: Birds Eye entered into broiler chicken industry in 1958 and within few years it had built a capacity to produce 6.5 million birds a year at about 20 farms. It acquired the majority stake in fishing company to secure a regular supply of cod. It also developed a number of innovations in food processing and freezing techniques and developments in quality management, as well as improvement in the production of its raw material.
Distribution was bit big problem for Birds Eye as compared to production problem. It cost at between 15-25% of the total cost of the frozen food. Birds Eye’s investment in cold storage and refrigerated distribution was primarily through its sister company SPD.
Another problem for the company was retail distribution of the frozen food. As soon as infrastructure development took place, demand for frozen increased tremendously. Before frozen food were considered as luxury which became a need on later stage, which lead to an increase in the number of retail shops in 1950s and 1960s.
Preventing new competition: owning the entire value chain meant that, entering into this market would become significantly difficult for new entrants due to high capital need, hence it provided a advantage to Birds Eye to prevent competition
Industry Structure: The two main competitors of Birds Eye during 1950s and 1960s, Ross and Findus were also following the vertical integration strategy and the industry structure and the maturity around this time forced the business to vertically integrate as they had no other choice.
Birds Eye’s Different arrangements for peas, fish & meat: For fish and meat Birds Eye did backward integration by building capacity and acquiring controlling stake in the suppliers. For peas however they worked closely with farmers providing them with both capital and expertise with the growth of high quality product. Birds Eye had tight control over both models in supply china. The differences between the two models could be because of in the vegetable market Birds Eye was able to secure of raw material with longer-term contracts with farmers, whereas with the fish suppliers, there process was more difficult. This process did not let Birds Eye have enough control so they fixed the process by vertical integration.
Emergence of specialized intermediaries:
The several changes occurred in the industry in late 1960s and 1970s lead to emergence of specialized intermediaries. Following are few of the reason for this:
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.·
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, these retailers whose core business was not frozen food needed someone to manage distribution and production facilities this paved the way for the emergence of specialized intermediaries.
Catering Segment: Percent consumption of catering companies increased from 16% in 1967 to 30% in 1973. 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.
Specialization: As the industry and the cost structures decreased, it made sense for the new entrants to specialize in one product business to reduce costs and complexity in business
Hence it can be analyzed that there was a great expansion in the frozen food industry in UK. It gave a huge competition to Birds Eye and there was great challenge to get over it. The rapid growth of eating away from the home and rapid shift of the catering industry from fresh and canned foods to frozen foods provided a particularly attractive opportunity to new competitors in the market, which were more price conscious rather brand name recognition and sophisticated product packaging.
Birds Eye response to decline in sales and strategic reappraisal:
The retirement of chairman of Birds Eye put pressure on the company and there was decline in the market share. Beyond this condition Birds Eye was able to maintain its market dominance in small retail packs to independent grocer and to a lesser extent, supermarkets. The representation of Birds Eye was really poor in some area such as in home freezer centers, where its share was around 8% in 1974 and in 1973 it was 10%. There was continuous decline in its market share as a whole though whole market was expanding.
In this response, particularly in response to the rise in bulk buying by consumers with home freezers, and to the competition of recent entrants in this sector, Birds Eye introduces Bulk Packs to the retail market in 1972 and followed with this establishment in 1974 of a new business called Country Fair Foods, to supply the home freezer centers and other purchases willing to accept a minimum drop size. Country food and Birds Eye same production facilities but different distribution facilities, because of the different requirements of the freezer centers. Birds Eye was primarily looking forward to maintain its sale growth, primarily by extending product range through new product introduction. The company introduced new product line in 1970s in addition to vegetables, fish fingers and beef burgers, and it was ready to eat meals, desserts, and ethnic dishes.
The increase in the product range cause major difficulties in the areas of marketing strategy and to allocate budget to different segments for Birds Eye. No doubt there was a great need to promote the products and hence had to have a strong marketing strategy. Birds Eye tried to do this at best extent of its strategies. For this purposes, Birds Eye’s marketing advertisements were targeted and segmented-focused.
In response to growing power of large supermarkets chains, Birds Eye redirected its marketing efforts. In 1970 the focus of marketing strategy was shifted from consumer marketing to trade marketing, with particular emphasis on developing relationship with major supermarket chains, including joint promotion efforts.
In order to achieve lower cost Birds Eye and Walla Ltd were merged under the name of Birds Eye Wall by Unilever. In 1982, the combines refrigerated distribution company, Unicold-walls, was transferred to Birds Eye Walls with the intention of speeding the reorganization of distribution and improving coordination. The goal was a streamlines national network of seven regional distribution centers in operation.
Though Birds Eye put huge efforts to adjust new market circumstances, but its market shares and financial performance continued to deteriorate throughout the 1970s. Birds Eye maintained its marketing budget by cutting prices on some major selling products, which resulted in increased sales volume, whereas there was decrease in profit margin.
The appointment of new Chairman in 1979 resulted in Birds Eye reappraising its strategy in UK frozen food market and considering a new phase of internal restructuring. In particular there was a widespread realization that the vertically integrated approach to the sourcing, processing, distribution, and marketing of frozen foods through which Birds Eye had developed the UK market for frozen foods may be a weakness rather that a strength of Birds Eye
Frozen food industry in 1980s:
In 1980s there was a great demand for frozen food. It was become a need over a luxury. There was a huge competition in market to Birds Eye. There were many small retailers offering frozen food to the customers.
Arguments for and against of vertical integration approach:
Vertical integration means that a company is producing own inputs and disposing of its own outputs. Although vertically integrated producer did enjoy some competitive advantages relative to the specialized suppliers, but over time their structure led to some disadvantages in other areas, which negated their advantages. On the whole the disadvantages exceeded the advantages.
Their advantages are
- Barriers to entry: A vertically integrated producer enjoyed control over the entire supply chain leading to faster reaction to increased demand. By vertically integrating backward to gain control over the source of critical inputs or vertically integrated forwards to gain control over distribution channels, a company can build barriers to entry as well.
- Quality of products: Since a vertically integrated producer has much better control over the quality at several points in the supply chain, they can ensure a better quality finished product.
- Capturing the profit margins across the value chain: Vertically integrated producers were able to capture both the upstream and downstream profits.
- Facilitate investment in specialised assets:
- Improved scheduling:
- It is sometime argued that vertical integrated approach give rise to strategic advantages due to easier planning, coordination and scheduling of adjutants processes made possible in vertically integrated companies, which are beneficial in just-in-time inventory. It also enables a company to response in better way to sudden changes in demand.
Disadvantages:
- Cost disadvantages: The specialized suppliers enjoyed lower overhead costs as they were specialized in single product, which did not involve any changeover costs. On the other side vertically integrated suppliers had multiple product lines, which led to inefficiencies.
- Exit Barriers: The significant infrastructure capital investments by vertically integrated producers when the market was not mature prevented them exiting less profitable businesses.
- Technological Changes:
- When technology is changing fast, vertical integration poses the hazard of tying a company to an obsolescent technology.
- Demand Uncertainty:
- Vertical integration can be risky in unstable or unpredictable demand conditions, when demand is stable, higher degrees of vertical integration may be managed with relative ease.
Key recommendations to Executive of Birds Eye:
If we go back in 1979, the following could be the few recommendations for the executive of Birds eye to improve sale and market share in frozen food industry, as there was a huge competition in the market at that time.
Divest/Spin off supplier and distribution businesses: Birds Eye should consider selling or spinning off its procurement and distribution businesses. This could had helped Birds Eye in the decrease overheads and achieve parity in cost structure with the rest of the competition. The smaller size would also contribute to making it more agile and respond quickly to changes in its business.
Leverage Brand: Birds can use the brand recognition to expand into other products or license their brand name for other products to generate some revenue
Selling to private labels: Birds Eye should consider selling to private labels as their share in the market place has been increasing at a rapid rate from 6% in 1970 to 21% in 1978. Though the margin will be lower in this business it will help recapture market share.
Reduce product lines: Over a period of time product proliferation occurred at Birds Eye in order to compete in several different market segments. This led to difficulties with marketing as promoting such widely different products was proving to be difficult. Birds Eye should consider concentrating on the most profitable product lines use it s brand image as leverage and promote higher margin products while doing away with the unprofitable product lines.
Birds Eye’s value chain analysis:
The analysis above is showing the value creation in Birds Eye, by analysing the inputs strategies of the company, production and distribution process marketing and sales strategies and services and in last outputs.
Birds Eye’s interpretation over industry life cycle:
It has been observed that over the period of time, most industries pass through stages, which can be referred as growth, maturity and decline. These stages have different implications for the form of competition.
Industry life cycle is being an important tool to determine and analyzing the effects of the industry evolution on competitive forces. Industry environment can be divided into five types: a) an embryonic (introduction) industry environment; b) a growth industry environment; c) a shake-out environment; d) a mature market industry environment; e) a declining industry environment.
This graph shows all the four environments in the industry. In the embryonic or introduction phase the company just starts developing its basis. In the growth phase the market share and customer base starts increase and company actually start recovering its costs. In the maturity face the company reaches its break-even point and starts making profits. It is a kind of saturation point. In the decline phase due to different reasons, such as increase in the competitions, the market share and profitability of the company starts declining and hence company starts bearing losses.
Find Out How UKEssays.com Can Help You!
Our academic experts are ready and waiting to assist with any writing project you may have. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs.
View our academic writing services
The same thing happened in the case of Birds Eye as well. When Birds eye came into the industry, as it pioneered the frozen food industry, it used vertical integration approach. It had lot of profit and competitive advantage over its competitors. It had high profitability and market share as compared to its competitors. But later in late 1970s and 1980s there was increase in competition, which lead in decrease in market share and profitability of the Birds Eye.
No doubt at this point Birds Eye did reappraise its strategy and tried to recover. But the increase was not as high as before.
Cite This Work
To export a reference to this article please select a referencing style below:
