117 GSL Chasseur Chickens Case Study 1 S113

CPA Program --- professional level

Global Strategy and Leadership

Webinar 4 Case Analysis: Chasseur Chickens Pty Ltd

Case Study 1 Semester 1 2013 Authors: Samantha Winter and Delyth Samuel

Published by Deakin University on behalf of CPA Australia Ltd, ABN 64 008 392 452

© CPA Australia Ltd 2013

The contents and any information contained in this document (Information) are for general information only. They are not intended as professional advice. For any professional advice, please consult a suitable qualified professional. CPA Australia Ltd, Deakin University and the author(s) of the Information (Entities) make no representation about the content and suitability of this Information for any purpose. The Entities disclaim all warranties with regard to the contents and in no event will be liable for any loss and/or damage whatsoever resulting from loss of income or profits, whether in an action of contract, negligence or other tortious action, arising in connection with the use and performance of and/or reliance of the Information.

CPA Program – professional level

Global Strategy and Leadership

Webinar 4 Case Analysis: Chasseur Chickens Pty Ltd

Case Study 1

Semester 1 2013 Authors: Samantha Winter and Delyth Samuel

Contents Introduction 1

Case facts 2

Industry information 3 The global chicken meat farming and processing industry 3 The Australian chicken meat farming and processing industry 4 The production process 8 Industry key success factors 11 Competition in the Australian chicken meat farming and processing industry 12

Chasseur Chickens Pty Ltd 14 Introduction – The April 2006 board meeting 14 Chasseur Chickens Pty Ltd – Background 14 Chasseur’s business strategy 15 Chasseur’s recent performance 16 Operations and production 17 People and management 18 Back to the future 18

Glossary 19

References 19

Appendix 1: Chicken meat farming and processing stages 20

Questions 21

Tasks 22

Solutions 23

Task 1 24

Task 2 35

Task 3 41

Task 4 41

Webinar 4: Case Analysis – Chasseur Chickens Pty Ltd Case Study 1

CPA Australia – GLOBAL STRATEGY AND LEADERSHIP Page 1

Introduction The case study is based on the chicken meat farming and processing industry and involves a company called Chasseur Chickens Pty Ltd. The case facts include detailed information about the industry and its competitors, and information on Chasseur Chickens such as its background and its financial performance. The issue for consideration is the evaluation of the industry’s attractiveness in terms of growth, profitability and competitiveness, and the identification of the strategy that the company should adopt in order to move forward and achieve its strategic goals. This case study is designed to give you an opportunity to apply the concepts of strategy included in Modules 2 to 5 including environment and industry analysis, capability analysis, gap analysis and strategic option evaluation. At the end of the case study, you are asked to attempt and complete case study tasks to assess your ability to analyse the case and apply the theoretical principles of strategy to the facts of the case. What is of importance in your response to the tasks is your knowledge of the strategy concepts and how they are applied to the case facts. Note: The case facts in this case study incorporate characters and events that are completely fictitious. Any resemblance to real persons and events is purely coincidental.

Case facts



Industry information

The global chicken meat farming and processing industry Poultry meat consumption has consistently increased in recent years with an upward trend apparent in most countries. On a global basis, poultry meat accounts for about 25 per cent of total meat consumption, second only to pork. Table 1 details poultry meat consumption over the last few years for the major global markets.

Table 1 Poultry meat consumption per capita in selected locations (kg/capita)

2000 2001 2002 2003 2004 2005 USA 54.4 55.0 55.6 58.4 58.7 59.0 UK 30.9 30.8 33.0 33.4 33.8 34.2 United Arab Emirates 38.1 37.8 40.8 48.2 47.8 49.0 Hong Kong 59.9 62.5 70.2 67.8 68.3 68.2 Australia 32.1 33.7 36.3 37.4 38.6 39.0 The spread of chicken meat production around the world has increased in recent years as countries work towards self-sufficiency. The rapid growth in poultry production began in the 1970s led by the United States. During the 1980s, for example, the production in the United States alone rose by 40 per cent. More recently, China and Brazil have enjoyed enormous growth in poultry meat production. The global distribution of poultry output is outlined in Table 2 with no dominant geographic region. Australia is included in the ‘Other’ region.

Table 2 World poultry output in 2000

% of production USA 22.0 China 17.0 Europe 15.0 Brazil 8.0 Other 38.0 Source: Adapted and compiled from Cooper-Blanks, B. (1999), The New Zealand Poultry Meat Industry: An Education and Industry Resource, Poultry Industry Association of New Zealand, Auckland, Chart 9, p. 13. In addition to the quantity of birds produced increasing dramatically, as illustrated in Table 3, so has their productivity, that is, conversion to meat. Compared with 1965, a bird can be grown and its meat marketed in half the time. Twenty-five years ago it took 3 kg of poultry feed to produce 1 kg of chicken meat; in 2006 it took less than 1.7 kg. These improvements were attributed to genetic improvement, improved nutrition, improvements in flock health, refinements in management and breeder performance. The industry believes that further gains are still possible.



Table 3 Poultry bird production 1965 versus 2000

Birds 1965 Birds 2000 (million) (million) USA 2 695 9 232 China 440 7 045 Europe 146 3 296 Brazil 1 864 6 214 Other 2 632 16 255 Total (all countries) 7 777 42 042 Globalisation and rationalisation of the world chicken-breeding industry have driven much of these improvements. A handful of major international organisations now exist which franchise out their breeds and breed management programs to different geographic markets through the export of fertile hatching eggs that form the ‘great-grandparent stock’ of the franchisees’ breeding program. At the same time, as these productivity gains were made, the industry introduced and maintained strict quality controls throughout the production process itself. Quarantine regulations have become a critical component of successful chicken meat production. Control of breeding stock is perhaps the most significant tool used to control the quality of the breed and, therefore, add value in the industry. In 2001, however, only 11 per cent of world poultry meat was exported, with countries generally producing for domestic consumption. The United States is currently the largest exporter, with 17 per cent of total production exported predominantly to Saudi Arabia, Japan, Russia and Hong Kong (the major importers). Exports of chicken meat and products has been low historically because chickens are the least demanding of all livestock, in terms of land resources. Also, consumers tend to demand fresh rather than frozen poultry products.

The Australian chicken meat farming and processing industry The Australian chicken meat farming and processing, a highly organised and efficient industry, has developed from relatively modest beginnings five decades ago to an industry rivalling the traditional livestock industries of sheep, beef, veal and pig meat.

Size and growth In 2005, about 476 million birds weighing on average 2.6 kg each at harvest produced 729 000 tonnes of chicken meat with a retail value of approximately $4.2 billion (see Table 4).

Table 4 Industry value in 2005

Farming Processing Retailing Industry turnover ($m) 1 290 3 209 4 165 Industry employment 5 355 15 678 29 750 Tonnes produced 729 000 N.A. N.A. Average industry production growth has fluctuated over the six years as shown in Table 5. Industry growth is anticipated to slow in the future to about 1.9 per cent per annum, with the industry forecasting annual production to be 864 000 tonnes by 2009–10. The growth rate peaked in 2001–02 to cater for export market expansion. However an outbreak of Newcastle disease in 2004–05 has effectively eliminated this market. Consequently, in that year, less than 2 per cent of total production volume was exported, and Australia represented about 1.7 per cent of world production levels.



Table 5 Chicken meat production: 1998–99 to 2004–05 Tonnes (000) % growth 1998–99 556 — 1999–00 572 2.9 2000–01 581 1.6 2001–02 647 11.4 2002–03 671 3.7 2003–04 706 5.2 2004–05 729 3.3 Historically, the industry has not been responsive to changes in demand, with production generally constant. This has seen fluctuations in price and profitability as processors needed to clear stock quickly due to its fresh nature and short shelf life. In addition, unlike other livestock producers, poultry farmers were unable to change to alternative livestock when demand declined due to the specialised nature of poultry farming and the equipment required. As a result, a high focus on efficiency throughout the industry has resulted in intensive animal rearing operations through efficient feed utilisation and optimised productivity. This has enabled lower price rises at the retail end than for other livestock, with poultry prices increasing by only 147 per cent from 1976 to 1988, compared with 230 per cent for most other meats. Table 6 details key financial information for the industry, showing the differences between farming and processing. As can be seen, farming turnover growth is negative for some years, despite the production volume increase. This highlights the industry’s inability to link production with demand and the resultant fluctuation in profitability.

Table 6 Australian chicken meat farming and processing: 1999–2000 to 2004–05

1999–00 2000–01 2001–02 2002–03 2003–04 2004–05 Farming Production (000 tonnes) 572 581 647 671 706 729 Turnover ($m) 1128.2 1109.1 1253.8 1212.0 1226.7 1290.2 Turnover growth pa (%) 0.0 –1.7 13.0 –3.3 1.2 5.2 Gross profit ($m) 564.2 541.5 621.3 570.1 572.5 595.0 Gross profit (%) 50.0 48.8 49.6 47.0 46.7 46.1 GP $ growth (%) 0.0 –4.0 14.7 –8.2 0.4 3.9 EBIT ($m) 152.3 148.6 165.5 161.2 160.7 166.5 EBIT (%) 13.5 13.4 13.2 13.3 13.1 12.9 Exports ($m) 54.5 59.4 66.5 134.4 192.2 22.8 Enterprises 601 604 608 595 583 571 Processing Turnover ($m) 2194.0 2550.5 2653.0 2862.1 3026.8 3209.5 Chicken meat ($m) 1316.5 1530.3 1591.7 1717.3 1816.1 1925.8 Turnover growth pa (%) 0.0 16.2 4.0 7.9 5.8 6.0 Gross profit ($m) 429.5 539.5 682.6 810.3 892.6 927.4 Gross profit (%) 19.6 21.2 25.7 28.3 29.5 28.9 GP $ growth (%) 0.0 25.6 26.5 18.7 10.2 3.9 EBIT ($m) 337.8 395.3 403.3 437.9 457.1 478.3 EBIT (%) 15.4 15.5 15.2 15.3 15.1 14.9 Imports ($m) 8.3 8.7 11.3 10.0 10.0 7.7 Exports ($m) 25.2 24.6 28.7 33.0 32.0 36.7 Enterprises 100 102 102 99 95 95 Note: Chicken meat turnover is approximately 60 per cent of total turnover.



Consumption trends The growth in production mirrored increasing domestic consumption trends, with Australian consumption forecast to be 40.6 kg per capita in 2006. However, this was still a long way behind countries such as Hong Kong, as seen in Table 1, which has an annual consumption in excess of 68 kg per capita. Consumer demand in Australia has also increased as a result of price reductions that are able to be achieved through technological developments and economies of scale within the industry. With increased consumption, chicken meat is now second only to beef and veal as Australian consumers’ most preferred meat, with chickens accounting for 14 per cent of livestock production in Australia in 2005. The key substitute products for chicken are fish and other meats, such as beef, lamb and pork, depending on relative price performance. However, consumers are increasingly shopping for meal solutions rather than for set weights of meat and vegetables as they were once doing. In fact, all meats are facing increasing competition from rice, pasta and prepared foods. Chicken meat was historically produced almost exclusively for domestic consumption. A major industry push into export markets commenced in 2001; however, import restrictions placed on Australian poultry products by a number of countries due to outbreaks of Newcastle disease in New South Wales thwarted these efforts. Nevertheless, the industry believes that there are opportunities to increase value-added exports, especially exotic varieties (i.e. quail and duck) and niche products such as chicken feet and necks. It is forecasted that consumers will continue to increase the per capita consumption of poultry, rising to 41.1 kg of poultry per person in 2009–10 (see Table 7). Chicken meat represents 95 per cent of this consumption. The increase in demand for chicken is generally related to increases in real disposable income. In 2002–03, households which were in the top 20 per cent of income earners spent 47 per cent more on poultry than the average household.

Table 7 Forecasts of per capita Australian consumption of poultry

Consumption kg per capita 2002–03 36.4 2003–04 38.0 2004–05 39.0 2005–06 40.6 2006–07 41.2 2007–08 40.9 2008–09 40.7 2009–10 41.1 Key drivers of future growth in domestic poultry consumption are as follows. A continued strong domestic economy – chicken consumption is directly related to available

disposable income. Australia has enjoyed reasonably low interest rates for some years, and this has seen a substantial rise in disposable income. However, personal debt is at record levels, largely due to the buoyant housing market, and any rise in interest rates will have a negative impact on demand due to a tightening of disposable income levels.

Changing lifestyle trends – an increase in health consciousness has seen a shift in favour of white meats and fish over traditional red meats. Poultry meat is low in fat and high in protein, fitting well with changing consumer tastes.

Culture – Australia is a multicultural society and most national cooking styles incorporate poultry dishes. With immigration trends set to continue, and poultry meat’s image of being free from religious constraints (unlike other forms of meat), this would give rise to greater potential for consumption growth amongst all ethnic groups.



Convenience and fast food – convenience products and fast-food outlets have proliferated over recent years as time-poor consumers demand products that can be prepared in less time. This is being driven by a continuing trend of more women in the workforce and smaller family units that favour convenience food products. Chicken has become more prevalent in menus as consumers seek a fast and healthy option. In addition, increasing average weekly household disposable income has meant people increasingly eating out, with chicken being a prominent part of most restaurant menus.

A key issue facing the industry in the future is consumer perception of the use of hormones and growth proponents in broiler chicken production. The use of hormones is banned in chicken production, with the industry safeguarding against such use by enforcing testing programs through the National Residue Survey (NRS) conducted by the Australian Federal Government Department of Agriculture, Fisheries and Forestry. This has helped to allay consumer concerns in this area, and to date no residues have been detected in batches tested. In addition, the increasing demand for organic produce is impacting on the industry. Free-range chickens account for a small amount of total production; however, it is the fastest growing product, growing at approximately 25 per cent per annum. To capitalise on the growing consumer trend for organic produce, several industry participants have recently gone into production with free-range accredited growing farms.

Product segmentation Chicken represents approximately 60 per cent of processing turnover; 25 per cent is other poultry (i.e. duck, turkey), and the remaining 15 per cent is game birds (i.e. quail, pheasant). The nature of the product has changed significantly over the last 15 years, with an increase in the market for fresh chicken and further processed products, as demonstrated in Table 8. In addition, demand for further processed chicken products (e.g. chicken nuggets and small goods) has grown rapidly. The Australian chicken meat farming and processing industry can be broken down into three major segments (raw whole chickens, raw processed chicken and cooked processed chicken) with two product categories (frozen and fresh), as shown in Table 8: Raw whole chickens – accounts for 35 per cent of the market and is experiencing negligible

growth. This includes fresh and frozen whole chickens (in fact, growth for fresh and frozen whole chickens has significantly declined).

Raw processed chicken (e.g. fillets) – accounts for 50 per cent of the market and is growing at 8–10 per cent per annum. This includes fresh and frozen pieces/cuts.

Cooked processed chicken (e.g. chicken nuggets) – accounts for 15 per cent of the market and is growing at 10–20 per cent per annum.

Table 8 Product segmentation

1988–89 2004–05 % % Frozen whole chickens 28.0 10.0 Frozen pieces/cuts 4.0 5.0 Fresh whole chickens 39.0 25.0 Fresh pieces/cuts 26.0 45.0 Further processed 3.0 15.0 Source: Adapted and compiled from Cooper Blanks, B. (1999), The New Zealand Poultry Meat Industry: An Education and Industry Resource, Poultry Industry Association of New Zealand, Auckland, Chart 9, p. 13.



The value-added segment has grown quickly with changes in consumer tastes and a preference for more highly processed and convenience products. In response, a number of industry participants have invested heavily in product development and marketing of value-added product, such as cooked processed chicken.

The production process The industry is vertically integrated, including the production/processing of chicken meat for distribution through a variety of retail outlets such as supermarkets and specialist chicken shops, as well as through commercial outlets such as takeaway shops and restaurants. Approximately 80 per cent of poultry produced in Australia is chicken, of which 90 per cent (of this chicken meat) is produced by specialist chicken farms. Appendix 1 contains a detailed description of the production process. Two types of chickens are used in the industry: Broilers – aged between 25 days and 65 days of age and used to produce chicken meat. Boilers – reared specifically for laying eggs and not their meat; these are slaughtered at the

end of their laying life (approximately 65 weeks). Note that hen meat is only used in further processed products (i.e. chicken nuggets) and is not commercially available for sale at the retail level.

Processors do not generally have competencies in both chicken meat processing and hen growing due to the different end-use of each product and their different life cycle management requirements. Table 9 shows the life cycle of a broiler chicken.

Table 9 The broiler chicken life cycle

Approx. Approx. processed Age Description live weight weight Hatching to 18 days Brooding – placed in sheds under heater N.A. N.A. 18–22 days Spatchcocks can be processed 770–820 g 500–550 g 35–42 days Smaller birds processed 1.85 kg 1.30 kg 42–49 days Average ‘supermarket’ whole bird processed 2.40 kg 1.70 kg 49–56 days Large birds filleted and further processed 2.95 kg 2.15 kg Source: Australian Chicken Meat Federation, ‘Product practices’, <http://www.chicken.org.au/ production.html> (accessed November 2003).

Production trends

Breed development Early in industry development, the majority of parent stock chickens were pure breeds. Gradually, breeds were crossed to improve productivity resulting in new ‘synthetic lines’. While selection and breeding had improved egg-laying qualities and the amount of meat produced, many of the standard pure breeds were neglected in favour of cross-breeds. This was because no single breed had all the desired traits. The poultry used in the modern egg and broiler industries were, therefore, generally crosses of hybridised strains, and as a result of this breeding practice, pure breeds of poultry were becoming difficult to obtain and blood lines weakened.



Chasseur and international breeding stock alliances Chicken meat production in Australia is carried out mainly using breeding stock from one of a small number of large international poultry breeding companies. Australia is dominated by breeding stock from two major companies: Cobb Vantress (a wholly owned subsidiary of Notting Foods Inc. in the United States)

supplies Bigbird and Gropoultry Breeding, a joint venture between Chasseur, Country Chooks and Avian Chickens, which operates a great-grandparent program in Australia using the Cobb 500.

Aviagen Group (a UK-based company) supplies Swapmeat Enterprises with Ross breeding stock, one of its global brands.

The international breeding companies focus on improving their chicken breeds to deliver enhanced performance in terms of parameters such as feed to meat conversion and growth rates. Breeding farms and hatcheries follow the management programs for grandparent and parent birds, as recommended by the suppliers of either fertile eggs or day-old chicks. This makes Australian producers reliant on international breeders or local organisations with breed franchises for breeding stock. This has enabled them to be internationally competitive and maintain quality. Chasseur recognises the importance of being part of such alliances, and has entered the Gropoultry Breeding alliance to ensure access to the Cobb Vantress breed and maintain competitiveness with the major local producers such as Bigbird and Swapmeat.

Vertical integration across the production process Given the multiple stages within the production process, the process is very capital intensive. Over the last 20 years, the major producers have brought most stages of the production process in-house to ensure quality controls are maintained and the retention of margins previously paid to external suppliers. While there are a large number of industry participants, they mainly operate at the processing end of the value chain. Larger companies tend to be more capital intensive than smaller operators. Investment to improve the efficiency in poultry processing means that most firms are using modern, automatic equipment and modern freezing and chilling facilities. New technology is likely to increase capital intensity, as most activities are now capable of being automated. As a result, entry into the industry at both the growing and processing stages is suggested to be in the order of $35 million to $40 million. Despite this, there has been significant entry in recent years of small to medium operators that have been able to take advantage of processing equipment purchased second hand on the world market. However, these small processors are reasonably dependent on the larger companies for key inputs, such as chicken breeding stock. At the retail end of the value chain, there are only a few processors that can generate the volume and conformance to product size specification that supermarkets and takeaway outlets need. Bigbird, Swapmeat, Chasseur, Country Chooks and Avian Chickens hold extremely strong positions in the industry, as they directly import fertile hatching eggs from breeders overseas and run their own quarantine, hatcheries and breeding programs. Not only does this ensure them continued access to first-rate chicken genetics and ongoing improvements and production efficiencies; it also means they control the distribution of breeding stock within Australia. Most of the independent processors buy day-old chicks from this group, with Bigbird and Swapmeat supplying about 70 per cent of the day-old broiler chickens hatched.

Contract outsourcing of breeding and hatching While breeding and hatching are highly controlled, only 14 per cent of product is grown on company owned farms, with the majority of bird growing, particularly at the broiler chicken stage, being contracted out. Generally, growers are contracted for three years by poultry processors to rear broiler chickens from one-day-old chicks. The flock remains the property of the processing company during this time with contract growers being responsible for providing the land, labour and buildings which must meet processor specifications. The processing companies provide training and technical expertise, feed (which is mainly delivered from company-owned feed mills) and day-old chicks.



The cost of production The cost of producing a meat broiler chicken is estimated at $5.18 per bird (i.e. 2.6 kg), with the cost broken down as follows: 1 per cent for grandparent breeding; 6 per cent for parent bird breeding; 1 per cent for hatchery processes; 45 per cent for growing (including feed, contract growing costs and capital costs); 20 per cent for processing costs; 14 per cent for sales, distribution and advertising; 5 per cent for administration and overhead costs; and 8 per cent for interest charges on capital expenditure. Grower fees are collectively negotiated in each state by a state representative body according to legislation, but these fees are likely to increase in the next three years following a review of the Broiler Chicken Industry Act by the National Competition Council in 2007. Fees currently stand at about $0.50 per chicken covering management, shedding, equipment, litter, labour and a profit margin for the rearing of the chickens provided by the contract grower. The poultry industry is a large consumer of wheat, absorbing more than one-third of all feed wheat available in Australia. It also uses 75 per cent of meat meal produced in Australia. One of the key issues for the industry is that local feed costs are higher than feed costs of other major poultry producing countries. Should import regulations on chicken be relaxed, this relative cost disadvantage could pose a significant threat to domestic production. Interest payments per farm vary with the state of the industry, the level of debt and the level of interest rates. However, they are high relative to other farming activities, reflecting the capital intensive nature of production and, hence, the relatively high average debt level. This is compounded by the location of many poultry farms on relatively valuable land on the urban fringes.

Imports Less than 5 per cent of product is imported due to concerns about disease. In November 2001, the government announced that limited imports of cooked chicken meat would be allowed into Australia. However, strict guidelines were put in place such that imports had to be cooked at 70°C for 143 minutes, which was the level at which disease was determined to be unable to survive. In addition, the Australian Quarantine Inspection Service (AQIS) introduced stringent tests on imported chicken meat and, as a consequence, imports have not increased significantly. It is anticipated that this trend will continue.

Distribution and retail Processors generally also act as distributors to the end sale outlet. End sales are broken down as follows: 30 per cent to supermarkets or major retailers; 20 per cent to smaller retail outlets such as specialist chicken shops and butchers; 30 per cent to takeaway outlets; and 20 per cent to other outlets (including restaurants, hotels). Two major supermarket chains, Coles and Woolworths/Safeway, dominate the Australian market. An important trend emerging in the last few years has been the supply base rationalisation that the supermarkets have been undertaking. Fewer suppliers each provide a larger proportion of products purchased. In addition, Coles and Woolworths have introduced accreditation programs for fresh produce suppliers, and supplies from non-accredited producers will no longer be purchased. This has produced a rush of processors becoming ISO 9002 and HACCP accredited, resulting in improvements in the consistency of quality across the industry. In the future, the major supermarket chains are predicted to take market share away from butchers and specialty fresh food stores, and further erode processor margins.



To remain competitive with the major supermarkets, the specialty chicken retail outlets and butchers have also consolidated their suppliers. A key point of differentiation for these smaller retailers is their high performance standards and product innovation strategies. Examples of this product innovation include: specialty chicken shops’ range of ready-to-eat fresh chicken products; takeaway outlets offering products such as popcorn chicken and chicken strips; a West Australian-based specialist retailer receiving the Australian National Heart

Foundation’s ‘tick of approval’ for offering low-sodium, low-fat products and healthier menu options; and

a prominent chicken retailer offering a range of products including marinated, flame-grilled chicken which is trimmed of fat, low-fat burgers and pitas, and grilled chicken salads and spicy rice in low-fat versions. It has also launched a range of low-fat, low-carbohydrate meals and offers a catering service.

Industry key success factors Industry experts summarise the following capabilities as critical to future success in the industry: Fully integrated business model – adopting an integrated business model is critical to

maintaining profitability levels, particularly as competition in the market increases. Size, giving rise to economies of scale – increasing size and scale are required to reduce

production costs and protect sales margins. Survival is often a case of ‘acquire or be acquired’.

Access to genetically sound breeding stock – assurance of sound breeding stock is required to maintain quality levels for production. This is to ensure disease-free birds are available given strict quarantine requirements in light of events such as the Asian bird flu and the Newcastle disease outbreak.

Strong quality focus – customers expect quality products and this is particularly important in the value-added and niche/specialised product segments where higher profit margins are achieved. A quality focus is also important in achieving an ‘accredited supplier status’.

Low cost operator – the ability to control costs and generate production efficiencies assists in ensuring profitability levels are maintained and helps to deal with the strong competition in the industry. Controlling costs would also dilute the effect of strong retailer power.

Focus on R&D/product development – this is required to generate growth in the industry. This is particularly important in the value-added product segment, which has higher profit margins. Here, product innovation together with a strong focus on consumer requirements has contributed to market growth targeted at providing home meal solutions. In addition, new product development will assist in creating consumer demand and counter retailer power.

Accredited supplier to major supermarkets – achieving an accredited supplier status is critical to success in the retail end of the value chain as major supermarkets will only deal with accredited suppliers.

Dominance of value-added segment – it is important to be a strong competitor in the value-added product segment as this segment has the highest growth rate and profit margins.

Culture and management – a strong focus on quality, R&D and cost control is important from a cultural perspective. In addition, competitors in the industry must be customer focused and flexible to meet changing consumer tastes and requirements, particularly in the value-added product segment.



Competition in the Australian chicken meat farming and processing industry The Australian chicken meat and processing industry is dominated nationally by a few large integrated companies with significant investment in processing plant and equipment. A summary of the major industry participants is provided in Table 10 below.

Table 10 Key competitors and market share in 2005

Market share % Swapmeat Enterprises Pty Ltd 30 Bigbird Enterprises Pty Ltd 25 Chasseur Chickens Pty Ltd 15 Country Chooks Pty Ltd 5 Bonlargi Chicken Pty Ltd 3 Other 22

Swapmeat Enterprises Pty Ltd Swapmeat Enterprises is a private Australian company based in Parkes (NSW), employing about 4250 staff. The company is involved in the production of both eggs and chickens, the latter being a fully vertically integrated operation, following a low cost strategy. In addition, Swapmeat has its own hatcheries and stockfeed mill. In August 2003, it purchased the Poulet operation for $156.5 million. This acquisition gave Swapmeat a 33 per cent share of processing and raised its annual processing revenue to about $775 million. Swapmeat ceased production in South Australia in 2006, with the intention of supplying from interstate. This closure left contract growers extremely exposed due to the highly specialised and technical nature of their facilities. Swapmeat Enterprises is ranked 21 in the top 500 privately owned Australian companies, and was ranked 32 in Australia’s top 200 agribusiness companies in the recent past.

Bigbird Enterprises Pty Ltd Scott Jones established Bigbird in 1922 on the outskirts of Sydney. Following his death in the 1950s, his sons ran the business jointly, and under their management the business expanded nationally. The company is now involved in poultry processing, stockfeed production and horse racing. Bigbird is primarily concerned with poultry growing and poultry processing. It is the largest turkey and duck supplier in Australia; therefore, differentiating it from other competitors. The company is ranked 55 in the top 500 privately owned Australian companies. It is also ranked 135 in Australia’s top 200 agribusiness companies. Bigbird’s operations are fully vertically integrated, including breeding, hatching, growing, processing, value adding, further processing and distribution of chickens, turkeys and ducks. In January 2002, Bigbird announced that it would invest $24 million in South Australia to double the capacity of its plant at Whyalla, consolidating its operations onto the one site. Further investment of up to $60 million is expected during the next 10 years. During 2003–04 and 2004–05, Bigbird completed a product development centre in NSW with further processed production capacity, a quarantine farm in Yass (NSW) and a significant upgrading of processing facilities in Victoria and New Zealand.

Chasseur Chickens Pty Ltd Chasseur Chicken is major Australian chicken meat production and processing company. The company is privately owned and covers all aspects of the industry value chain. Chasseur is recognised as having a differentiated offering compared with its major rivals, Swapmeat and Bigbird, due to its value-added product range, well established relationships with key retail outlets



and the achievement of quality accreditation across a wide range of aspects of its operations. Chasseur is focused on its direct customers (i.e. the retailers) and the end customer (i.e. the consumer), and plans to be the supplier of choice to both. The company recognises that they need to sustain their superior growth rate and profitability to prevent a takeover from one of the two major companies (Bigbird and Swapmeat). The Leghorn acquisition in 2005 was undertaken to achieve production and processing economies of scale and gain access to additional markets through Leghorn’s Halal accreditation and speciality store relationships, as well their export focus and AQIS export approval status. Further acquisitions are possible; however, they would need to be a good strategic fit from operational and cultural perspectives. In addition, Chasseur has adopted a low cost strategy in order to protect profitability by focusing on production economies of scale and scope, and the cooked value-added product segment with higher margins. The company has strong family values, and the ongoing sustainability of the business is more important than short-term profitability. In 2003, Bigbird unsuccessfully approached Bob Brown about the prospect of buying Chasseur’s operations for $300 million. Brown was offered a seat on the board; however, under the terms of the deal he would lose control over the Chasseur operations. In addition, a large proportion of the purchase synergies would arise from the removal of duplicate functions across the combined business group. This would have resulted in the retrenchment of many of Chasseur’s loyal employee base, some of whom had been with the company since Bob Brown’s grandfather established the business over 50 years ago.

Country Chooks Pty Ltd Country Chooks is a private Australian company with interests primarily in chicken growing and processing, using a differentiation strategy for growth. Part of this differentiation is achieved through being a joint owner of the Cobb breeding stock franchise in Australia (through Gropoultry Breeding), thereby ensuring the company’s competitive position in the domestic market. The company has a modern facility in outer Sydney, together with an associated plant in the Blue Mountains (NSW) where chicken products are processed and distributed to markets throughout NSW and interstate. Country Chooks is the major supplier to the Queensland market. Country Chooks produces a complete range of chicken products, covering traditional areas of whole birds, fillets and pieces as well as an extensive range of fresh value-added products, marketing its products through major supermarket chains, caterers, specialist chicken shops, delicatessens, restaurants and other food operations. The company has been granted Halal accreditation by the Supreme Islamic Council of Australia and has a HACCP-based quality control system in place. During 2004–05, Country Chooks opened two retail stores, one in Manly (NSW) and the other in Vermont (Victoria), making it the only company to forward integrate with retail outlets. The product range includes three different flavours of the Portuguese split-style BBQ bird (Mexican, Perri Perri and Portuguese), and these are also available through Coles supermarkets. It also produces home meal replacement products, once again available through the meat and delicatessen departments of Coles.

Bonlargi Chicken Pty Ltd Bonlargi Chicken is the second largest poultry company in Victoria, with over 70 company and contract farms supplying 565 250 birds per week to the market. The company was founded in the 1950s, principally to supply kosher chicken to the Jewish community around the area. In the late 1960s, Bonlargi diversified its interests beyond its core processing and retailing, and made its first steps towards becoming a fully integrated wholesaler. The company also increased its involvement with the hatching, breeding and growing of chickens under a differentiation strategy. Its breeder farms are some of the largest in Australia, with hatcheries producing and hatching in excess of 595 000 eggs per week.



Bonlargi’s Footscray processing plant in Victoria uses some of the world’s most advanced transfer line technology, and is capable of processing 71 400 chickens during an eight-hour shift. The company has recently spent $30 million in upgrading its building and farming facilities, including a new breeder farm facility in Albury (NSW) and a new boning room at its Footscray processing plant. It recently had two farms accredited as free-range, and will soon be able to offer a full array of free-range products, an area which other competitors are yet to participate in.

Grouse Game Pty Ltd A relative newcomer to the industry, Grouse Game is a family-owned business and a supplier of game birds and meats within Australia, and is fully export licensed. The company was started in 1979 and is located in country NSW. The family-owned business focuses on niche products in the game poultry market, such as duck and quail. It does not directly compete in the chicken meat farming and processing industry. It has the largest quail farm in the Southern Hemisphere, with a modern processing plant geared to processing quails and game birds up to 1.4 kg, with a capacity of 6000 birds per day. The company supplies a range of table game in Australia and overseas to supermarkets, butcher shops, wholesalers, restaurants and the catering industry. Its exports declined dramatically in 2005 following outbreaks of Newcastle disease, which resulted in countries refusing entry of poultry products. This was particularly damaging to the company as it was anticipating 50 per cent of its revenue from export sales. Following the disease outbreak, the company shifted its position, only allowing exports to account for 10 per cent of its revenue.

Chasseur Chickens Pty Ltd

Introduction – The April 2006 board meeting By the April 2006 board meeting, it was almost a year since Chasseur Chickens Pty Ltd (Chasseur) had acquired competitor Leghorn Poultry in a bid to achieve economies of scale and strengthen its position as the third largest company producing chicken meat in Australia. The chicken meat farming and processing industry has undergone significant rationalisation in recent years, and it appeared imminent that strong competition from the two major companies would start to erode Chasseur’s traditional stronghold of value-added processed products. There were also hints that a major international company had been investigating the Australian market to identify potential alliance partners or takeover targets as part of the global industry rationalisation. Given Chasseur’s strong growth and performance to date, the company’s board now needed to understand where the future of the industry lay and how it could position Chasseur to ensure its long-term sustainability and, as a result, achieve Charlie Chasseur’s dream of being a major chicken meat producer in Australia.

Chasseur Chickens Pty Ltd – Background Arriving from Albania in 1916 at the age of 16, Charlie Chasseur established a family poultry business at Lithgow, west of Sydney, New South Wales, in 1955. Charlie’s grandson, Bob Brown, took over as managing director of the company in March 1988 after Charlie’s death. While it was ranked as 350th in the top 500 privately owned companies in Australia over the past decade, its ranking has now slowly risen to 194. In 2006, Chasseur employed about 1200 staff, with major operating centres located in Brisbane, Melbourne, Adelaide and Central NSW. Chasseur is the third largest company in the Australian chicken meat farming and processing industry, with sales of $674.7 million giving the company approximately 15 per cent of the national chicken meat market. Major customers include various takeaway outlets as well as supermarkets. Placing high importance on quality, Chasseur was ISO 9002 accredited in 2001 across all farming and processing functions, including food processing, distribution, feed manufacturing, protein recovery and hatcheries. In addition, ISO 9002 accreditation was received for the



administration processes of purchasing, training, product control, product traceability and process improvement, making Chasseur the first company in this industry to receive accreditation for administrative functions. The Hazard Analysis Critical Control Points (HACCP) food safety system was also adopted, further demonstrating Chasseur’s focus on quality control and safety. Chasseur’s growth to date has been largely based on product development, with a focus on fast-food outlets, schools, clubs, restaurants, caterers and function venues. All products are portion controlled; that is, provided in set portions and individually quick frozen (IQF), which is of high appeal to these customers. In addition, recent product development has introduced a number of snack and meal solutions within supermarkets. These factors have contributed to annual sales growth of about 8 per cent per annum for the last five years. However, global rationalisation has impacted on the Australian industry in recent years. Achieving economies of scale for farming and processing is considered to be more important than product development for the long-term future profitability and growth of major companies in this industry. As part of its growth strategy, Chasseur acquired Leghorn Poultry in July 2005 to further expand processing activities, gain access to additional distribution outlets and achieve greater economies of scale. Complementing the current Chasseur business, Leghorn produces a range of fully cooked small goods and smoked chicken for Chasseur under its own label, as well as under the Farmland label for Coles Supermarkets (one of the two major supermarket chains in Australia) for national distribution. In addition, Leghorn has strong capabilities in processing and export markets. Chasseur also works closely with Country Chooks and Avian Chickens, two of Chasseur’s competitors. These strategic alliances were established to achieve further economies of scale in production for the alliance participants, through maximising processing equipment utilisation. This enhanced utilisation enables the alliance member companies to supply all states of Australia with cooked and/or frozen products as well as fresh products.

Chasseur’s business strategy Chasseur regards itself as a major Australian chicken meat farming and processing company. Its stated strategic goals are as follows: to be recognised as the leading chicken meat brand in the Australian food industry; to provide customers with high quality products and excellent service; to be the leading company in the industry, continuing to grow at rates higher than the

industry average; and to be the leading supplier of further processed chicken products. It plans to achieve these objectives by: being an accredited supplier to the major supermarket chains and specialty chicken outlets; expanding by acquisition, where appropriate; sustaining superior performance; understanding and satisfying customer needs; investing in state-of-the-art equipment to enable product innovation and efficiencies; and entry into the Asian market. Chasseur is already recognised as having a differentiated offering compared with its major rivals, Swapmeat and Bigbird, due to its value-added product range, well established relationships with key retail outlets and the achievement of quality accreditation across a wide range of aspects of its operations. Chasseur is focused on its direct customers (i.e. the retailers) and the end customer (i.e. the consumer), and plans to be the supplier of choice to both. The company recognises that it needs to sustain its superior growth rate and profitability to prevent a takeover from one of the two major companies (Bigbird and Swapmeat). The Leghorn acquisition in 2005 was undertaken to achieve production and processing economies of scale and gain access to additional markets through Leghorn’s Halal accreditation and speciality store relationships, as well as its export focus and AQIS export approval status. Further acquisitions



are possible; however, they would need to be a good strategic fit from operational and cultural perspectives. In addition, Chasseur has adopted a low cost strategy in order to protect profitability by focusing on production economies of scale and scope. It also focuses on the cooked value-added product segment that has higher margins. The company has strong family values, and the ongoing sustainability of the business is more important than short-term profitability. In 2003, Bigbird unsuccessfully approached Bob Brown about the prospect of buying Chasseur’s operations for $300 million. Brown was offered a seat on the board; however, under the terms of the deal he would lose control over the Chasseur operations. In addition, a large proportion of the purchase synergies would arise from the removal of duplicate functions across the combined business group. This would have resulted in the retrenchment of many of Chasseur’s loyal employee base, some of whom had been with the company since Bob Brown’s grandfather established the business over 50 years ago.

Chasseur’s recent performance Chasseur’s recent financial performance compared with that of its competitors is shown in Table 11 while its sales by product segment is shown in Table 12.

Table 11 Industry competitor performance

2001 2002 2003 2004 2005 Production and processing sales ($m) Swapmeat Enterprises 312.0 328.4 322.0 1329.5 1349.5 Bigbird Enterprises 1031.5 1042.0 1047.2 1090.9 1124.6 Chasseur Chickens 334.2 371.3 405.8 436.4 674.7 Country Chooks 194.3 185.2 168.3 195.6 224.9 Bonlargi Chicken 32.7 36.3 34.6 36.4 40.5 EBIT/Sales Swapmeat Enterprises 15.5% 14.0% 13.0% 10.0% 9.5% Bigbird Enterprises 15.4% 14.0% 13.0% 12.5% 13.1% Chasseur Chickens 20.0% 22.1% 21.7% 24.5% 24.9% Country Chooks 11.3% 12.1% 12.0% 12.5% 12.9% Bonlargi Chicken 14.5% 14.9% 15.1% 14.6% 14.8% Wages/Sales Swapmeat Enterprises 14.3% 14.5% 15.1% 15.1% 15.2% Bigbird Enterprises 14.2% 14.4% 13.9% 14.6% 15.0% Chasseur Chickens 16.6% 17.1% 17.2% 18.6% 18.7% Country Chooks 15.1% 15.3% 15.5% 16.1% 16.3% Bonlargi Chicken 14.4% 14.4% 15.0% 15.2% 15.5% ROA Swapmeat Enterprises 14.2% 13.0% 13.2% 15.0% 14.5% Bigbird Enterprises 11.5% 11.2% 11.8% 9.9% 10.1% Chasseur Chickens 12.9% 13.9% 13.1% 15.3% 15.6% Country Chooks 9.7% 9.9% 9.8% 10.2% 10.3% Bonlargi Chicken 16.7% 17.0% 17.1% 16.5% 16.7% ROE Swapmeat Enterprises 10.5% 10.1% 9.8% 7.5% 8.8% Bigbird Enterprises 10.2% 9.9% 10.1% 9.2% 9.8% Chasseur Chickens 15.2% 15.5% 15.3% 14.3% 14.4% Country Chooks 9.9% 10.2% 10.3% 10.7% 10.9% Bonlargi Chicken 14.6% 15.1% 14.9% 14.5% 14.6%



Table 12 Chasseur sales by segment

2001 2002 2003 2004 2005 Sales Frozen whole/cuts 9.0% 8.5% 8.0% 7.5% 6.5% Fresh whole 15.0% 16.5% 18.0% 18.0% 18.5% Fresh pieces/cuts 31.0% 31.5% 30.0% 29.7% 29.0% Further processed 45.0% 43.5% 44.0% 44.8% 46.0%

Operations and production Chasseur has demonstrated a strategic approach to its operations by focusing on all aspects of the value chain. Business operations include broiler and breeder farms, hatcheries, processing plants and feed-milling. Products include sales of live poultry (including breeding stock), poultry feed, fertile eggs, day-old chickens, primary processed chicken (raw) and further processed chicken. Based in Victoria, the newly acquired Leghorn Poultry is also a vertically integrated poultry producer in its own right.

Breeding, hatching and farming As a partner in the Gropoultry Breeding joint venture with Country Chooks and Avian Chickens, Chasseur is the sole distributor in Australia of the Cobb 500 meat broiler chicken supplied by Cobb Vantress, the major international breeding company owned by Notting Foods. Fertile hatching eggs are imported through government quarantine stations on Torrens Island where they are hatched to become great-grandparent stock. Leghorn owns fertile egg farms and a hatchery in Goulburn (NSW). Chasseur also operates a number of hatcheries in NSW and South Australia that receive up to two million fertilised eggs each week for incubation from the company’s breeding farms. The Gropoultry Group produces two different breeds of chicken: a chick that is reared for the purpose of producing table eggs and a chick that will ultimately be used for poultry meat production (the Cobb 500 high yield meat broiler). The principal farming areas for Chasseur’s breeder operations are in northern NSW, South Australia and the Sydney region. Chasseur has a number of company-owned and operated broiler farms as well as nearly 50 independent contract farmers, including Leghorn’s contract growing farms to which it delivers day-old chicks. Leghorn is the first company in Victoria to satisfy the Victorian Meat Authority’s quality accreditation (QA) system and has ISO 9002 certification for all its operations. Contract growers who provide Leghorn with broilers have to have their own accredited QA system, several of which have also obtained free-range poultry status. The company also owns and operates a feed mill located in country NSW. Chasseur’s total requirement for feed at all the company locations throughout Australia is in excess of 130 000 tonnes per year. Grain production levels in the country are mainly controlled by the relevant government organisation.

Processing Chasseur operates two modern processing plants located in NSW. The processing operation includes slaughtering, plucking, cleaning, cooling and grading. The process line in each plant is highly automated and has the capacity to process 10 700 chickens per hour. Over a year, the combined output of both plants exceeds 60 million kg of processed poultry meat, operating on one shift, five days per week. Additional processing departments convert primary processed chicken into 250 different types of products. Further processing for cooked and smoked products is located at Leghorn’s Victorian plant, which has the capacity to produce about 120 tonnes of



finished products per week or to process 71 400 birds per day on a single shift basis. In 2002–03, Leghorn introduced an increased air chill storage chiller and blast freezing capacity, adding a second shift and doubling production capacity.

Research and development In terms of research, Chasseur owns and operates Aviary Laboratories, a laboratory and research centre. The centre is recognised within the poultry industry for work in the areas of microbiology, quality assurance, serology, virology and pathology. Through its participation in the R&D community, Chasseur has gained access to leading edge developments in animal health. This has been important in preventing outbreaks of disease in Chasseur’s flock, which would otherwise have been devastating to its business, given the Australian Government requirement to destroy the whole flock when sick birds are found in breeding and hatching farms.

Distribution The company focuses mainly on the domestic market, selling to major supermarkets, chicken shops and manufacturers of frozen foods and meals. Industrial customers use its chicken in frozen meals for export, and a small percentage of its product is exported directly. Distribution throughout Australia is undertaken by refrigerated transport using distributors in most states, leveraging from Leghorn’s existing distribution network.

Marketing and new product development Chasseur has a focus on product development for the food service market, with an extensive food service product range designed for fast-food outlets, schools, clubs, restaurants, caterers and function venues. Its portion controlled, IQF products set the standard in the industry. New product development has introduced a number of snack and meal solutions, including a variety of chicken products such as nuggets, burgers, wedges, fingers and a wide range of cooked and smoked lines. The company has been accredited by both Woolworths and Coles, and is seen in the industry as a leader in quality control. This is leveraged by Chasseur as a key differentiating factor in its sales and marketing efforts.

People and management Privately owned by the Chasseur family since its formation in 1955, Chasseur is proud of its family tradition. It values its people and considers itself as trying to grow the business through its employees. Its team of experienced, professional and committed people provide a strategic advantage in offering high standards of quality and service to its customers. The company is proud of its employees at all levels and believes that their commitment is paramount to its marketplace performance. The consistent emphasis on quality is epitomised by the achievement of ISO 9002 and HACCP accreditation. Tight controls are maintained on the value chain. Head office management also maintains rigid reporting and measurement requirements, with senior management employing a ‘hands-on’ approach in the day-to-day running of the business. Due to the strong family values of the company, staff turnover is very low. The six-member executive team includes three family members and also John Smith, the founder of Leghorn and deputy chairman of the Chasseur board. This indicates the strategic nature of the Leghorn acquisition and the value that Chasseur places on Leghorn’s expertise and capabilities. The company is actively involved in various industry bodies, including the Australian Chicken Growers Council, of which Bob Brown is the Chairman, ensuring that the company has the capacity to influence the shape of the industry’s future and stay abreast of future developments.

Back to the future At the April 2006 board meeting, John Smith reported that the integration of the Leghorn acquisition was ahead of plan and had been highly successful, largely due to a good strategic fit between the two businesses. Chasseur had secured its place as the number three producer in



the industry, and most importantly was the clear leader in the value-added segment where high profitability was still being enjoyed and competition was only just starting to occur. This contrasted with the low margin fresh product where the two major participants had entered a price war to win market share. In addressing the board, Bob Brown noted that there were signs that another approach by Bigbird was likely to be received in the near future, as the Australian companies grappled for market share and increased penetration into the more profitable value-added segment. Chasseur had the major share of this segment, with an advantage over its competitors through its investment in technology and infrastructure in recent years. In addition, the outbreak of Newcastle disease had now been effectively contained and Australia’s export status renewed by key Asian markets. Strong growth opportunities appeared to be available to the company, and Brown was keen to pre-empt any approach by Bigbird. With some ideas already apparent, the board charged Brown with preparing a discussion paper outlining Chasseur’s main strategic options for consideration at the May board meeting.

Glossary AQIS Australian Quarantine Inspection Service. Boiler hen Hen used for breeding purposes only. Broiler chicken Chicken used for meat production. Cobb 500 A breed of broiler chicken. HACCP ‘Hazard Analysis Critical Control Points’ food safety system. IQF Individually quick frozen. ISO 9002 International quality accreditation. Newcastle disease Highly contagious viral disease affecting birds. It is characterised by

digestive, respiratory and/or nervous system disorders. NSW The state of New South Wales in Australia. Poultry Birds bred for meat production including chicken, duck, quail, pheasant,

spatchcock and turkey. Ross breeding stock A breed of broiler chicken. SA The state of South Australia in Australia.

References Australian Chicken Meat Federation (2003) ‘Product practices’ <http://www.chicken.org.au/production.html> (accessed November 2003). Cooper-Blanks, B. (1999) The New Zealand Poultry Meat Industry: An Education and Industry Resource Poultry Industry Association of New Zealand, Auckland.



Appendix 1: Chicken meat farming and processing stages

The key stages in the production process are as follows: Basic breeding: Hatching eggs are imported or grandparent/primary stock is selectively bred

from great-grandparent stock until it reaches laying age and is mated to produce eggs for commercial meat chickens. The laying stock is referred to as parent or secondary stock.

Breeding/multiplication farm chickens: Multiplication farm chickens are reared as progeny from grandparent stock until they reach laying age and are mated to produce eggs for commercial meat chickens.

Hatcheries: Eggs from parent stock are incubated; chicks graded for quality, size and sex; inoculated for infectious bronchitis and other diseases; de-beaked if required; then consigned by special transport to broiler growers as day-old chickens.

Broiler growing: Growth of the day-old chicks is controlled in purpose-built sheds over a production cycle of seven to eight weeks. The farm supplies management, shedding, equipment, litter and labour for the rearing of the chickens. The processor provides day-old chicks, feed, medication and technical advice.

Feed manufacture: Feed mixtures, principally of grain (i.e. wheat, sorghum, oats, soya bean meal and meat meal) are designed to meet requirements for high growth rates and disease resistance. Feed may be in pellet or crumble form and is delivered in bulk to growing farms and dispensed mechanically to chickens in the sheds.

Transportation of feed and live haulage: Feed is delivered by modern ‘blow-up’ units ranging

in capacity from 25 to 40 tonnes. Live chicken meat haulage is by way of plastic crate or aluminium modules handled by specialist forklift equipment.

Processing: Chickens are taken directly from growing farms to the processing line where they are slaughtered, plucked, cleaned, cooled and graded. They are then packaged and frozen or chilled, or subjected to further processing into various products prior to packaging and sale to distributors.

Value-added and further processed poultry: ‘Further processed’ poultry products refer to value-enhanced or portion-controlled poultry that has undergone additional processes before reaching the consumer. For example, prime chicken fillets are further processed into smallgoods such as chicken rolls and chicken breast supreme, or marketed as chicken nuggets and breast tenders, which are often referred to as ‘convenience food’ and ‘home meal replacement’.

Questions



Tasks As Bob Brown’s chief business strategist, you have been asked to contribute to the discussion paper by addressing the following issues. You are required to respond to these issues based on the facts presented in the case.

Understanding the external environment

Task 1: Summarise the attractiveness of the industry. You should consider the following issues: 1a Identify the industry, product segments and value chain. 1b What is the current life cycle position of the industry? 1c What have been the key issues affecting historical industry growth? What was

their impact? 1d What are the key issues that will affect future industry growth? What is their likely

impact and the overall assessment of the industry’s future growth? 1e What have been the key issues affecting historical industry profitability? What was

their impact? 1f What are the key issues that will affect future industry profitability? What is their likely

impact and the overall assessment of the industry’s future profitability? 1g Who are the industry’s key competitors? What are their strengths and weaknesses?

Understanding the internal environment

Task 2: Summarise the strategic position of Chasseur Chickens. You should consider the following issues: 2a Who are Chasseur’s key stakeholders, what are their objectives and are their objectives

aligned with Chasseur’s strategic goals? 2b What business strategy is Chasseur supposed to have been pursuing and has this in

fact been the case? 2c How has Chasseur performed to date? 2d What are the strategic capabilities of Chasseur, and do these meet the strategic goals

of the company? Are the strategic capabilities consistent with the industry’s key success factors?

Making strategic choices

Task 3: Summarise the key strategic issues for Chasseur Chickens.

Making strategic choices

Task 4: Identify (using Ansoff‘s product–market matrix) and evaluate strategic options (using Rumelt’s evaluation criteria) that will assist Chasseur Chickens to address strategic issues identified in Task 3 and enable future growth and profitability of the company. Recommend how these options should be prioritised – into short, medium and long-term timeframes. Justify your recommendations.

Solutions



Task 1 Attractiveness of the industry

1a) Identify the industry, product segments and value chain. The industry is the Australian chicken meat farming and processing industry. Core activities cover breeding, hatching, farming, production, processing and distribution, having backward integrated over the last decade. Product segments include frozen whole chickens and pieces, fresh whole chickens and pieces, and the further processed segment. As discussed in Module 2, it is important to be very specific in your definition of the industry, product and market segments as this impacts on identification of competitors, assessment of competitive position, analysis of performance and recommendations made. Specifying the stages in the value chain that the company is involved in will ensure that your assessment of the current strategic situation addresses the key issues in each stage of the value chain. This will also help to identify stages in the value chain where opportunities may exist for the company to explore.

1b) What is the current life cycle position of the industry? The chicken meat farming and processing industry is at the mature stage of its life cycle. This is demonstrated by the low average growth rate of production and turnover in the industry as shown in Table 6, and low consumption growth as shown in Table 1. Over the last six years, farming production has increased by 31.1 per cent (an average of 4.7 per cent per annum). (The production figure for 1998–99 has been sourced from Table 5.) Farming turnover for the period 1999–2000 to 2004–05 has grown by 14.4 per cent (an average of 2.9 per cent per annum). The chicken-processing turnover has grown by about 46.3 per cent over the period (an average of 8.0 per cent per annum). Further, as shown in Table 6, both farming gross profit and EBIT have declined from 1999–2000 to 2004–05. This indicates that because of the low growth, the competition in the industry has increased. Over recent years, there has been consolidation in the industry as companies seek production efficiencies and economies of scale in order to reduce costs. This is evidence of a low growth environment, wherein the industry is at the mature stage of its life cycle.

1c) What have been the key issues affecting historical industry growth? What was their impact? Using the data in Table 5 (farming production only) and Table 6, growth in the chicken meat farming and processing industry has been positive over the period from 1998–99 to 2004–05. While farming production and farming turnover have grown by an average of 4.7 per cent and 2.9 per cent per annum respectively, indicating positive growth, the processing turnover has grown by an average of 8.0 per cent per annum, indicating medium growth in this area. Using the remote environment analysis model, these historical growth rates to date have been affected by the following issues given in Table 13. When considering factors that impact on an industry, it is important to note whether they have a positive, neutral or negative impact (i.e. the nature of their impact). For each category of factors, it is also important to reach a conclusion as to the combined impact of all the issues identified. These conclusions then enable an overall assessment to be made of the nature of all the factors influencing growth within the industry.



Table 13 Key issues influencing historical industry growth using TEMPLES model

Factor Issue Nature of impact ( + / = / – )

Technology Growth due to price reductions achieved through technological developments

+ Positive

Economy Decline in exports from 2004–05 following outbreak of Newcastle disease

– Negative

Markets Growth in per capita consumption from 32.1 kg per capita in 2000 to a forecast of 40.6 kg per capita in 2005-06 in domestic market

Reduction in export sales due to Newcastle disease outbreak

+ Positive

Politics Threat of relaxation of import quotas and loosening of quarantine regulations.

– Negative

Law Strong industry regulation to protect local producers from imports entering the market and taking market share

+ Positive

Environment Outbreaks of disease such as Newcastle disease which impact on breeding stock supply and ability to generate disease free breeding stock

– Negative

Society Increase in home meal solution requirements by consumers and the value-added segment, which are able to command higher prices.

+ Positive

Negative perceptions by consumers of the use of hormones and growth proponents in broiler chicken production

– Negative

Increased demand for organic produce and free-range chicken meat

+ Positive

Overall impact of society factors

+ Positive

Total – all factors + Positive

Reviewing the industry’s historical growth and the factors that have driven this growth rate provide insight into the level of competition and attractiveness of the industry to current participants, and provides input into the Porter’s five forces analysis of industry profitability in terms of the threat of new entrants.



It is also important to note that not all issues identified have the same weighting, and it is not simply possible to ‘add up’ the positive and negative issues identified to determine the overall impact on historical growth. This is because the turnover or production impact of some issues will be more than others. For example, the emergence of the value-added segment and home meal solution type products have added substantial revenue growth given the higher average prices these products achieve. This can be compared with the impact of a decline in exports following the outbreak of Newcastle disease, which was relatively low given exports make up only 2 per cent of the total market.

1d) What are the key issues that will affect future industry growth? What is their likely impact and the overall assessment of the industry’s future growth? Future growth for the overall industry is assessed as positive (although it will be at a lower rate than historical growth). The following discussion illustrates how this conclusion has been reached. Domestic production volume growth is assessed as low, with the market nearing maturity. This is consistent with the past trends as seen in Table 6. Note, however, that turnover growth will be higher than production growth due to the product mix change to higher value-added product. This can be seen by comparing turnover growth in Table 6 with production volume growth. Export growth is assessed as medium given that the Newcastle disease outbreak has been contained and Australia’s export status has been renewed by key Asian markets. It is not assessed as high due to the tendency towards self-sufficiency in the industry. However, it is noted that exports are a small component of total processing turnover in 2004–05 at $36.7 million, and extremely high export growth only results in a small increase in total industry turnover overall. In addition, as with historical growth, assessing the future growth of the industry demonstrates its attractiveness to current participants, and provides input into the Porter’s five forces analysis of industry profitability in terms of the threat of new entrants. As a general guide, high growth industries are attractive and the threat of new entrants to the market is greater. When considering the future growth of the industry overall, it is helpful to consider the growth potential of key geographic markets and product segments individually and then in aggregate. This is discussed in detail in Module 2. Table 14 summarises the key issues affecting future industry growth and their likely impact. You need to note whether the factors that will impact on the future growth of the industry have a positive, neutral or negative impact (i.e. the nature of their impact), and how large an impact each factor might have (i.e. an assessment of the impact as low, medium or high per the guidelines outlined above). Conclusions for each category of factors also need to be reached as well as an overall assessment of the nature and impact of all the factors influencing future industry growth.



Table 14 Key issues influencing future industry growth

Factor Issue Nature of impact ( + / = / – )

Technology Development of more productive breeds + Positive

High process automation + Positive

Dilution of bloodlines in breeding stock – Negative, may lead to inferior breeds and increased likelihood of congenital defects/ disease

Overall impact of technology factors + Positive

Economy Slowdown in economic growth, decline in disposable income and/or interest rate rises

– Negative, positive correlation with economic conditions

Price sensitivity to substitutes such as meat and fish

– Negative

Fixed contract grower rates to be reviewed subject to National Competition Review

– Negative, fees are likely to increase

Overall impact of economy factors – Negative

Markets Continued growth in ethnic immigration and multiculturalism (i.e. consumption of chicken not limited by religious constraints)

+ Positive

Consumption per capita is predicted to plateau by 2009–10

– Negative

Consumer perceptions and health consciousness favouring white meat over red meat

+ Positive

Religious bans on meat do not impact on chicken

+ Positive

Overall impact of markets factors – Negative

Politics Threat of imports due to quota restrictions being lifted

– Negative

Quarantine regulations relaxed, increasing the threat of disease

– Negative

Overall impact of politics factors – Negative

Legal Renewal of export status now Newcastle disease has been contained

+ Positive, opens export markets



Strict quarantine regulations to prevent the incidence of disease

–Negative, due to impact on cost

Very strict import regulations + Positive, stops import growth

Overall impact of legal factors + Positive

Environment Sustainability issues in relation to breeding/farming methods and dilution of blood lines

– Negative, may lead to inferior breeds and increase likelihood of defects/disease

Society Low domestic consumption per capita compared with other countries

+ Positive, domestic consumption is below other country levels and, therefore, has opportunity to grow to these levels

Health consciousness and overall trend towards white meat due to low-fat content

+ Positive

Increased demand for convenience products and value-added meal solutions

+ Positive, particularly IQF, and also at higher margins.

Trend of eating out more + Positive

Trend towards free-range/organic produce. (While this may not impact on volume, turnover will increase due to the higher price at which this product is sold

+ Positive

Consumer perceptions regarding intensive farming and the use of growth hormones

– Negative.

Consumer preference for ‘meals’ rather than set weights of product

– Negative, substitutes for chicken are increasing

Consumer perceptions and health consciousness favouring white meat over red meat

+ Positive

Religious bans on meat do not affect chicken + Positive

Overall impact of society factors + Positive

Total – all factors + Positive

Table 15 summarises the life cycle positions of the various segments/product categories of the Australian chicken meat farming and processing industry, indicating the growth of value-added products.



Table 15 Chicken meat farming and processing life cycle

Emerging Early Growth Late Growth Mature Decline

Specialty poultry (i.e. chicken feet and neck).

Value-added frozen food (i.e. chicken strips, nuggets)

Value-added fresh cuts and pieces.

Fresh cuts and pieces, deboned (i.e. basic value add only).

Fresh whole Frozen pieces and cuts.

Frozen whole

Free-Range Value-added home meal replacement

Organic

On the basis of the discussion above, it is concluded that future industry growth is assessed as low to medium.

1e) What have been the key issues affecting historical industry profitability? What was their impact? Based on Table 6 of the case study facts, Table 16 summarises current industry profitability across farming and processing. The following calculations have been performed: Turnover per tonne = Turnover $ / production tonnes (‘000). Gross profit % = Gross profit $ / turnover $. Change in GP % is calculated as the change from one year to the next. EBIT % = EBIT $ / turnover $. Interest % is 8%. Net profit before tax % = EBIT % – interest %.

Note: The framework for the assessment of growth rates is also applicable for the assessment of profitability levels.



Table 16 Industry profitability

1999–00 2000–01 2001–02 2002–03 2003–04 2004–05

Farming Production Turnover $ per tonne Change in turnover/tonne

$1972

–

$1909 –3.2%

$1938 1.5%

$1806 –6.8%

$1738 –3.8%

$1770 1.8%

Gross profit % Change in GP %

50.0% –

48.8% –1.2%

49.6% 0.8%

47.0% –2.6%

46.7% –0.3%

46.1% –0.6%

EBIT % EBIT % growth

13.5% –

13.4% –0.1%

13.2% –0.2%

13.3% 0.1%

13.1% –0.2%

12.9% –0.2%

Interest % Net profit before tax %

8.0% 5.5%

8.0% 5.4%

8.0% 5.2%

8.0% 5.3%

8.0% 5.1%

8.0% 4.9%

Processing Turnover $ per tonne Change in turnover/tonne

$3836

–

$4390 14.4%

$4100 –6.6%

$4265 4.0%

$4287 0.5%

$4403 2.7%

Gross profit % Change in GP %

19.6% –

21.2% 1.6%

25.7% 4.5%

28.3% 2.6%

29.5% 1.2%

28.9% –0.6%

EBIT % EBIT % growth

15.4% –

15.5% 0.1%

15.2% –0.3%

15.3% 0.1%

15.1% –0.2%

14.9% –0.2%

Interest % Net profit before tax %

8.0% 7.4%

8.0% 7.5%

8.0% 7.2%

8.0% 7.3%

8.0% 7.1%

8.0% 6.9%

Industry profitability to date has been medium overall, at about 6 per cent for the combined farming production and processing activities. Gross margin has fluctuated in line with the price per tonne of production, resulting from the inelastic nature of production relative to changes in demand. As discussed in the case facts, overproduction has resulted in processors having to reduce prices to clear excess stock and accept lower margins. Profitability has also been affected by the high costs involved in the industry, particularly interest charges on the significant capital investment required. The changing product mix towards more value-added product has clearly improved margins over the last five years, with the processing gross margin increasing significantly from 21.2 per cent in 2000–01 to 28.9 per cent in 2004–05 (i.e. a 36 per cent increase over the period). However, with high investment in capital equipment made by the industry over this time in order to generate production economies and the associated depreciation charges, net profit before tax has actually declined.



Using the Porter’s five forces model (and the extended eight forces model) to review factors affecting historical profitability, it can be concluded that industry rivalry has increased. This is the result of many factors including: the power of suppliers has been high due to the limited number of options available for the

acquisition of breeding stock; the increasing power of buyers’ buyers due to the price sensitivity of consumers; the increasing impact of substitutes such as fish and vegetarian meals; and strong price sensitivity as a result of the low growth in the market. this is because industry

competitors have attempted to achieve economies of scale to improve production costs given reduced prices per tonne in farming.

1f) What are the key issues that will affect future industry profitability? What is their likely impact and the overall assessment of the industry’s future profitability? The Porter’s five forces model, the extended eight forces model and the value chain are used to assess the future profitability of the industry. It is concluded that the future profitability of the industry will continue to be medium and declining. Figure 1 summarises the industry’s value chain and the cost of each component as outlined in ‘The cost of production’ section detailed in the case facts.

Figure 1 Industry value chain

In order to improve profitability, the major competitors in the industry (i.e. Chasseur, Bigbird and Swapmeat) have become vertically integrated, other than across the retail channel. Through the breeding alliances, these companies have access to breeding stock which they utilise in the growing process. Growing is generally undertaken by contract growers who are specialists in this stage of the process. Processing is slaughtering, plucking, cleaning, cooling and grading. Processed meat is then packaged and frozen or chilled, or subjected to further processing into various products prior to packaging and sale to distributors/retailers. In terms of future profitability, slowing domestic growth means it is highly likely that price competition in the industry will intensify, particularly if the current inflexibility of production levels is maintained and supply continues to exceed demand. Further industry rationalisation is likely to occur. Small or medium-sized companies could be absorbed by the larger companies as increasing market share and further production economies are sought. This outcome will become more likely if consumption per capita continues to plateau. Industry profitability will also be affected by national competition policy over the next few years. Collective negotiating arrangements are predicted to have a negative effect on the profitability of the poultry processors through an increase in the cost of birds. Where vertically integrated processors (i.e. also involved in farming) are in competition with their contract suppliers, it is relatively easy for much of the industry risk to be moved from the processors to the contract



growers. However, growers (including contract growers) who can benefit from economies of scale and technology advancements will be in a better position to pass on lower costs to processors, while also maintaining their own profitability. Therefore, as a consequence of improved efficiency more than offsetting increases in input costs, the industry value-added segment is forecast to increase marginally faster than industry turnover, assuming there is an increase in the proportion of higher-margin products (such as chicken nuggets) included in the industry’s total output. As discussed in Appendix 1 (Chicken meat farming and processing stages), value-added products refer to value enhanced or portion controlled poultry that has undergone additional processes before reaching the consumer. For example, prime chicken fillets are further processed into smallgoods such as chicken rolls and chicken breast supreme or marketed as chicken nuggets and breast tenders, often referred to as ‘convenience food’ and ‘home meal replacement’. You should also take into account the increasing role that the major supermarket chains are playing in this industry. As these supermarkets gain more control of the supply-chain relationship, margins for processors will further decline. The threat of not being an accredited supplier would force the processors to accept the terms of the retailers. The key factors influencing the future profitability of the industry can be summarised as follows: Positive factors include: growth of value-added, free-range, organic and other niche markets which provide higher

retail prices and margins; economies of scale due to industry rationalisation; high fixed cost industry, with growth reducing the average fixed cost per unit; and export expansion potential, particularly in relation to higher-margin product.

Negative factors include: strong competition in the industry between major companies as growth slows and more

emphasis is placed on maintaining or increasing market share with price becoming a key factor;

increasing power of supermarket chains will further decrease margins; the relative ease of entering the processing end of the value chain by multiple smaller

operators; the impact of interest rate rises on interest payments due to high capital investment; the impact of rising wheat prices on cost of feed in production; the intensification of fight back by substitute products for market share and the home

meal replacement options; and the potential increase in fees of growers due to the National Competition Council review

and renegotiation. The factors discussed above are summarised in the following industry analysis worksheet shown in Table 17, which uses Porter’s model and the extended eight forces model as its framework.



Table 17 Industry analysis worksheet – Chicken meat farming and processing industry

On the basis of the discussion above, it is concluded that the future profitability of the industry will continue to be medium and declining.



1g) Who are the industry’s key competitors? What are their strengths and weaknesses? Table 18 summarises the main competitors and their relative positions in the industry. Table 18 Competitive assessment

Competitor Value proposition Strengths Weaknesses

Swapmeat Fully integrated Largest processor

Highest market share Sole supplier of Ross

breeding stock in Australia

No facilities in SA, has to import from interstate which will lead to high pricing

Disenfranchised growers due to departure from SA

Bigbird Fully integrated Largest turkey and

duck supplier

Stockfeed production capabilities

Strong investment in SA, taking advantage of Swapmeat’s departure

Focus on product development and upgraded processing facilities

Horse racing diversification takes focus off industry

Second largest company Chasseur approach shows need to grow will not come from within

Financial performance below that of Swapmeat and Chasseur

Chasseur Fully integrated Value-added product

Highest share of value-added segment

Focus on quality and product development

Strong internal asset utilisation

Investment in future made

Halal accreditation Export accreditation

Third largest company Gropoulty alliance

does not provide an exclusive benefit

Country Chooks

Fully integrated processor

Forward integration with two retail stores opened

Major company in Queensland market

Halal accreditation Operates two retail stores Home meal replacement

Gropoulty alliance does not provide an exclusive benefit

Lower financial performance compared to major participants

Bonlargi Chicken

Fully integrated processor

Supplier of free-range products

Footscray plant uses world’s most advanced technology

Free-range accreditation Kosher accreditation

Smallest of major participants



Grouse Game

Supplier of game birds

Export licence Largest quail farm in

Southern Hemisphere Good production capacity

available (6000 birds/day)

Small company and does not have production economies

Highly impacted by export ban

Task 2 Chasseur’s current strategic position

2a) Who are Chasseur’s key stakeholders, what are their objectives and are their objectives aligned with Chasseur’s strategic goals? Remember, as discussed in Module 3, key stakeholders can influence strategy and they might not be clearly evident until you think about who actually can influence the strategy. As stated in the section on ‘Chasseur’s business strategy’, Chasseur regards itself as a major Australian chicken meat farming and processing company. Its stated strategic goals are as follows: to be recognised as the leading chicken meat brand in the Australian food industry; to provide customers with high quality products and excellent service; to be the leading company in the industry, continuing to grow at rates higher than the

industry average; and to be the leading supplier of further processed chicken products. There are numerous stakeholders in relation to Chasseur Chickens. An analysis of the objectives of each of these stakeholders and the alignment of these objectives with Chasseur’s strategic goals is given in Table 19.

Table 19 Stakeholder analysis

Who are the stakeholders?

What do they seek to received from the organisation?

Is Chasseur delivering against their expectations?

Bob Brown Growth and prevent Chasseur from being a potential target for takeover

Prestige in the family company Personal power over a large empire

Yes, growth has been achieved and the company wants to keep growing

No, may not be interested in deals with Swapmeat and Bigbird due to the need to maintain ‘family’ control

John Smith Wants to ensure Leghorn is ‘integrated’, not taken over

Maintain his seat on the board and position of power within Chasseur having been head of Leghorn prior to the acquisition

Yes, Leghorn has capabilities that Chasseur can leverage upon

No, decisions may be politically based

Notting Foods Control of Cobb 500 grandparent breeding program in Australia

Yes, ensures access to good breeders



Major supermarket chains (i.e. key customers)

No surprises, guaranteed quality Ability to secure ranges of home

meal replacements and value-added products

Favourable buying terms

Yes, focus on quality and value-added segment

Yes, focus on quality and value-added segment

No, declining margins due to ‘favourable’ buying terms impacts on profitability

Contract growers

Secure contract with Chasseur (given high capital investment)

Maximise profitability

Yes, ensures Chasseur has access to growers who will meet its requirements

No, may result in higher growing costs to Chasseur

Feed providers Secure customers Maximise profitability

Yes, ensures Chasseur has access to feed

No, may result in higher cost of feed to Chasseur

Chasseur employees

Secure employment prospects Traditional family-based values

Yes, ensures low turnover and maintains culture

Government/ AQIS

Ensure strict quarantine regulations are maintained

Ensure efficient industry

Yes, a factor in preventing increased import quotas

Yes, focus on economies of scale

2b) What business strategy is Chasseur supposed to have been pursuing and has this in fact been the case? The five questions (5Qs) approach is used here to understand Chasseur’s stated business strategy.

Business Strategy using 5Qs approach

Examples of how Chasseur has been pursuing this stated business strategy

Does Chasseur plan to grow (profitably)?

Yes – stated strategy is to be the ‘leading company in the industry, continuing to grow at rates higher than the industry average’

What products/services will Chasseur provide?

Stated strategy is ‘to be the leading chicken meat brand’ and ‘the leading supplier of further processed chicken products’

To be the supplier of Cobb 500 breeding stock to other companies, through the Gropoultry alliance

In what markets will Chasseur operate?

Domestic Australian market – direct to retailers and end consumer as supplier of choice

Export customers through Leghorn capabilities

What generic strategy will Chasseur adopt?

Leader strategy focusing on differentiation and low cost. Differentiation strategy based on focus on value-added segment and low cost strategy which is enabled through economies of scale and dominance in the value-added product segment

What position in the industry does Chasseur plan to hold?

Leading company in farming and processing segments



Has Chasseur been pursuing this stated strategy? Chasseur has clearly been following its stated strategy of growth as evidenced by the Leghorn acquisition and dominance of the value-added segment, which is experiencing the highest growth rates in the industry and has contributed to Chasseur’s growing turnover at rates faster than its competitors and the industry overall. In addition, Chasseur is following its selected product and market strategy. In terms of stated strategy, Chasseur has been adopting a leader strategy. This is demonstrated by Chasseur’s differentiation from its competitors due to its dominance of the value-added product range as well as its established relationships with key retail outlets and the achievement of quality accreditation across a wide range of its operations. In terms of being a low cost operator, review of the financial data contained in Table 11 indicates that Chasseur has the highest average EBIT %, ROA and ROE compared with its major rivals, Swapmeat and Bigbird. This is achieved through the combination of stringent cost control by the hands-on management style of Chasseur’s executive team and achieving higher margins through the valued added segment. On this basis, Chasseur is a lower cost operator than its competitors and has achieved the stated strategy. The only area where Chasseur has not achieved its stated strategy is in relation to the position within the industry that it wants to hold. Stating a desire to be the leading company in the industry, Chasseur is currently third behind Swapmeat and Bigbird. While Chasseur has experienced strong growth compared with these competitors and is closing the gap, at 15 per cent market share there is still a very large turnover difference between Chasseur and Bigbird at 25 per cent (refer to Table 10). Given Chasseur’s strong position in the value-added segment, the company should be able to close this gap reasonably quickly. It is evident that Bigbird views Chasseur as a threat by the recent takeover approach that Chasseur rejected. But can Chasseur be the number one company? Only time will tell.

2c) How has Chasseur performed to date? As discussed in Module 3, performance is more than just the financial returns that a company has achieved, and as such we will use the balanced scorecard approach to assess Chasseur’s performance. Chasseur is a family-owned private company and this is important in assessing performance. Different organisation types have different priorities in terms of performance measures depending on the various requirements of key stakeholders. For a private company such as Chasseur, the following measures may be appropriate: market share; sales; net profit before tax; growth; ROA; ROE; customer satisfaction; efficiency; and quality. As you can see, financial measures feature prominently in assessing performance for this company; however, they are also balanced with non-financial measures that indicate how the company is performing in the ‘customers’ eyes’.



Financial perspective – Strong performance From Table 11, it can be seen that Chasseur’s sales and EBIT have risen over the last five years at higher rates than both the industry average and Chasseur’s main competitors, after discounting Swapmeat’s growth from the Poulet acquisition. This has been largely driven through Chasseur’s push into the value-added segment which is the fast-growing segment and also provides the highest margins. Further, notwithstanding the high interest costs (8 per cent) associated with Chasseur’s capital investment program, an EBIT profit margin of 24.9 per cent was achieved in 2005, which is a 24.5 per cent increase from the 20.0 per cent EBIT profit achieved in 2001. ROA and ROE further support a conclusion of strong performance. Again, despite a strong capital investment program, both of these measures are the highest achieved amongst the main rivals in the industry. ROA has grown by 20.9 per cent from 12.9 per cent in 2001 to 15.6 per cent, which demonstrates high asset productivity. ROE has actually declined over the period from 15.2 to 14.4 per cent; however, this is caused by the dilutionary equity impact of the Leghorn acquisition and the 14.4 per cent achieved in 2005 is still a very strong result.

Customer perspective – Medium performance Chasseur has experienced strong growth over the last five years to achieve its current 15 per cent market share. Annual sales growth of about 9 per cent and the acquisition of Leghorn Poultry have contributed to this strong growth. In addition, Chasseur has the largest share of the value-added segment. However, despite these strong results, there is a large gap between Chasseur and Bigbird at 25 per cent market share and Swapmeat at 30 per cent, and this factor brings performance in this area down to medium only. Chasseur has also achieved supplier accreditation status from the major supermarket chains, which demonstrates their support for Chasseur.

Internal business perspective – Strong performance This perspective considers the internal operating efficiency of an organisation. The strong EBIT margins that Chasseur has achieved indicate that the high focus on economies of scale (the rationale for the Leghorn acquisition) has delivered results. This is despite Chasseur having the highest wages as a percentage of sales of the industry (Table 11) due to the labour intensive nature of value-added production. Further, Chasseur’s ROA and ROE demonstrates high internal asset utilisation, with economies of scale achieved through increased production volume. The quality focus maintained by the company has ensured that efficiency gains in farming and production have been achieved in line with industry standards, such as HACCP and AQIS requirements.

Learning and growth perspective – Medium performance Focus on new product development is high, particularly in the value-added segment. In addition, investment in capital equipment has been made to ensure future sustainability and growth. Involvement with industry bodies and in the Gropoultry alliance further demonstrate strong performance in this area. Chasseur has a strong focus on the future performance of the business and ensures that strategic capabilities are developed to achieve future strategic goals.

Summary – Medium performance Bearing in mind that Chasseur is a private company, overall performance is assessed as medium. The major contributing factor for this assessment is Chasseur’s overall third place in the market and relatively low market share compared with its two main competitors. With the growth in the value-added segment, Chasseur is well placed to improve its market share performance in the future as capital investment already made will ensure that the current strong financial performance levels are maintained.



2d) What are the strategic capabilities of Chasseur, and do these meet the strategic goals of the company? Are the strategic capabilities consistent with the industry’s key success factors? Listed in the case facts are areas critical to future success in the industry. To determine whether Chasseur has strategic capabilities in these areas, the following ‘strategic capability tests’ need to be satisfied: are they valued by the customer? are they better than the competition? and are they difficult to imitate or replicate? It is important to remember the difference between a capability and a strategic capability in undertaking this assessment. The three questions outlined above are critical in determining whether a capability provides strategic value to the organisation, or is simply a normal capability required to carry on business. It is also important to note that the strategic capabilities required for success in an industry will differ depending on the business models adopted by the industry and the industry’s key success factors. On this basis, the capabilities outlined in the assessment of Chasseur Chickens below may not be the capabilities required for other industries, and should not be simply copied for any assessment of other industries.

Table 20 Chasseur’s capability assessment

Industry key success factor Valued by the customer?

Better than the competition?

Not easily replicated?

Fully integrated business model

Size, giving rise to economies of scale

Access to genetically sound breeding stock

Strong quality focus

Low cost operator

Focus on R&D/product development

Accredited supplier to major supermarkets

Dominance of value-added segment

Culture and management

Note: Only positive responses for all three questions represent a strategic capability. These are highlighted in bold in the above table.

Factors that are not strategic capabilities A major capability appears to be the fully integrated nature of Chasseur’s operations. However, as demonstrated in the assessment in Table 20, this factor is not a strategic capability on the basis that Chasseur’s key competitors, Swapmeat and Bigbird, are also fully integrated and larger companies. Notwithstanding this however, the business model clearly enables Chasseur to have control over the whole value chain and achieve economies of scale. It is also difficult for a small or medium company to replicate given the industry rationalisation that has occurred to date.



Such an assessment is also true of Chasseur’s participation in the Gropoultry breeding alliance with Country Chooks and Avian Chickens. However, this alliance does not provide an exclusive benefit to the member companies as Bigbird, which is not privy to the alliance, also has an arrangement with Notting Foods to gain access to its Cobb 500 grandparent program. In terms of the accreditation with the major supermarket chains, all this does is let Chasseur be in the game – it does not ensure a position of strength within the game. Likewise, Chasseur’s current dominant position in the value-added segment does not provide on ongoing position of strength – it provides a first mover advantage only.

Factors that are strategic capabilities It is clear on the basis of the returns that Chasseur is able to achieve compared with its competitors that being a low cost operator provides them with a clear strategic advantage. (It is a low cost operator because of the economies of scale achieved through the Leghorn acquisition and through a high share of the value-added segment which produces higher margins.) Although Chasseur’s competitors are able to try and replicate this low cost structure, the key issue as to why Chasseur has a strategic capability in this area is that these competitors are not able to match Chasseur’s low cost operation (as evidenced by higher EBIT %, ROA and ROE over a period of time – as shown in Table 11). This factor, therefore, becomes a strategic capability to Chasseur because, whilst it is the third largest company in the industry in terms of market share, it leads the industry in terms of profitability. Chasseur’s low cost leadership allows funding to be directed towards the strong quality focus that the company has maintained, despite squeezed margins in recent years, and product development, particularly in the valued added and niche/specialised product segments. This has provided Chasseur with first mover advantage, allowing a position of strength to be developed. It is clear that competition in these segments will increase in the future; however, Chasseur’s up-front capital investment will continue to ensure efficiencies are derived and enable Chasseur to compete effectively, even in a price competition. The family-based culture and management of Chasseur is a key capability. Low staff turnover ensures that tacit knowledge is not lost and money wasted in retraining staff in the strict quality procedures. In addition, the family ownership of the company allows for reinvestment in the business for the future, and the development of a sustainable business model, rather than a short-term financial orientation. Future growth and development are clearly important factors in the Chasseur business model, with Brown’s involvement with industry bodies a good example of how the company is ensuring it is well placed for the future and has strong capabilities that are able to meet the strategic goals of the company.

Summary of Chasseur’s current strategic position Chasseur’s current strategic position is assessed as Medium. The company has a strong foothold in the fast growing value-added segment, and has invested in equipment to ensure that economies of scale are achieved. The integration of the Leghorn acquisition is ahead of schedule. The focus on R&D and product development ensures Chasseur’s customer focus is maintained. Performance has been effective in the rationalising industry, and the increasing supermarket power squeeze on margins has not had a major impact on financial returns. However, despite these positive factors, Chasseur is only the third largest company in the highly competitive industry.



Task 3 Key strategic issues for Chasseur The key strategic issues for Chasseur Chickens can be summarised as follows.

The gap between the stated strategy of being the industry’s leading company and its actual position as the third largest company in 2005.

With Swapmeat and Bigbird holding 30 and 25 per cent market share respectively, Chasseur needs significant market share growth (i.e. minimum of 66 per cent) to rival them. In addition, a large amount of industry rationalisation has already occurred, and achieving significant growth through acquisition would no longer appear to be possible via acquiring a major company. Multiple acquisitions would be required, with the risk of strategic misfit increasing as a result.

The entry of the major companies into the value-added segment due to changing consumption trends and its higher profitability.

Chasseur has been relatively unchallenged in this segment to date, and clearly has first mover advantage. However, as this segment continues to grow, price competition is likely to increase with Swapmeat and Bigbird fighting for market share. The strengthening position of the major supermarkets will further squeeze margins and impact on Chasseur’s profitability. With high capital investment having been made over recent years, Chasseur’s financial performance will suffer and this may impact on Chasseur’s ability to sustain long-term price competition from Swapmeat and Bigbird.

Chasseur has no sustainable significant differentiating factor compared with its competitors. The strengths outlined in Table 18 for Chasseur do not provide a source of exclusive competitive advantage for the company. With three major companies now controlling 70 per cent of the market, Chasseur is at real risk of having no sustainable differential value proposition for the customer, and becoming a ‘me too’ operator in their eyes.

Task 4 Strategic option identification and recommendation

Identifying strategic options for Chasseur Chickens The Ansoff product–market matrix has been used as the basis for identifying potential options. The order in which assessments are made is important in terms of exhausting existing product/market options first, prior to moving into consideration of new products/markets. Once existing options have been completely exhausted, and only in this case, should diversification into new products and new markets be undertaken. This is because of the risk involved in diversification, and the need for the company to acquire capabilities to undertake these activities. It is necessary to assess whether the option is already undertaken by the company in terms of either ‘existing products’ or ‘existing markets’. If so, then while the option may present an opportunity for the company, it will not be new to the industry/market. For example, if Chasseur decided to move into free-range chicken products, this would be considered new product development under this perspective as Chasseur does not currently have free-range products. This is despite the fact that the product is already made available in the market by Bonlargi Chicken.



Using the Ansoff product-market matrix (Figure 2), the following diagram summarises the suggested approach for identifying strategic options and making recommendations for Chasseur and the order of preference for each option.

Figure 2 Ansoff product-market matrix

Products Existing Products New Products

Mar

kets

Exi

stin

g M

arke

ts

Market penetration

Preference 1

Product development

Preference 2

New

Mar

kets

Market development

Preference 3

Diversification

Preference 4

It is important to note that, when assigning preferences to the various quadrants of the Ansoff matrix, the selection should be made on the basis of the strategic capabilities of the business. It is not always necessary to follow the preferences outlined in the Chasseur example above. This is because strategic options should be prioritised on the basis of lowest to highest risk, and this will be highly influenced by the strategic capabilities of the business. For example, Chasseur has strong product development capabilities, so any options relating to new products would have lower risk compared with market development options where Chasseur has limited experience. In contrast, a business with a strong export and market development capability would choose to prioritise new market options over new product options as a result of a lower risk profile in the market area. In addition, it should be noted that the diversification quadrant is usually assigned the lowest priority. Generally, with diversification comes significantly increased risk as the business would most likely have no experience with either the product or the market as they are both new. Note: The following recommendations consider the classification of the strategic options for Chasseur from the business (company) perspective.

Short to medium-term recommendations Market penetration – Existing products into existing markets (Preference 1) Chasseur’s ability to achieve high growth through this option is limited due to its strong position in the value-added segment already. With Swapmeat and Bigbird entering this segment, growth is likely to be achieved only through further industry rationalisation and acquisition. On this basis, it is recommended that the following key strategic acquisition targets be considered: Bonlargi – due to its growing/processing capacity, technological focus and free-range/kosher

accreditation. As the smallest of the major companies, Bonlargi will need to form an alliance in order to maintain volumes required to offset its capital investment in processing technology and should, therefore, be receptive to an approach.

Country Chooks – due to its relatively poor financial performance. Its two retail stores also provide a point of differentiation from the main organisations, and a point of entry into the retail market and further forward integration possibilities. Its Halal accreditation also provides a unique opportunity.



Grouse Game – is an interesting option due to its position as a niche company in the industry, focused on game birds (particularly quail), which has huge export potential to Asian markets. Grouse Game’s business was severely impacted by the export ban, and being part of a larger company would allow effective diversification of risk.

All three targets provide complementary capabilities to those of Chasseur and, subject to capital constraints and/or competition policy issues, should all be considered as possible acquisitions. A further option would be to approach Bigbird to acquire its chicken meat business in a reverse takeover. Bigbird has indicated its interest in Chasseur already and, as the second largest organisation in the industry, faces many of the same issues as Chasseur. The question here though would be whether the Bigbird family would consider selling to Chasseur. However, an alliance may be a more palatable option under which Chasseur retains control of the chicken meat business. This may be attractive to Bigbird as it has other business interests for which it could then devote more time.

Product development – New products into existing markets (Preference 2) Chasseur has a strong new product development focus and this would continue going forward. The scope of product development could be expanded to include alliances with complementary food manufacturers. For example, Chasseur could work with a company that produces vegetables to produce a home meal solution offer. Another example would be a frozen food specialist to develop new forms of value-added frozen chicken meals. Another opportunity that would lend itself easily to Chasseur would be entry into the egg market as it already breeds chickens for egg production.

Market development – Existing products into new markets (Preference 3) This is the easiest option for Chasseur, particularly given the export capabilities it acquired through Leghorn and that Australia’s export status has now been renewed. Chasseur should target key Asian markets for its products, especially the value-added areas, and secure first mover advantage. This approach can leverage off existing capabilities and enable production volume increases which will drive further economies of scale, therefore cementing Chasseur’s position as the low cost company. In addition, Chasseur could investigate the opportunity of purchasing an existing company in key export markets. This would facilitate entry into these markets and support production, processing and distribution. A further opportunity for Chasseur is to forward integrate, entering the retail market and selling direct to the end consumer. An alliance with an existing specialty poultry outlet may be one possible entry mode, as would expansion of the Bonlargi retail concept upon a successful acquisition. Entry into the fast-food market based on a healthy meal solution concept is another possibility through an alliance with an existing takeaway outlet. However, it should be noted that forward integration has the risk of upsetting relationships with existing retail customers such as the major supermarket chains and fast-food outlets. As such, any plans for such a move would need to be considered very carefully, and possible major customer reaction anticipated with plans put in place for the management of potential conflicts.

Long-term recommendation Diversification – New products into new markets (Preference 4) This is really ‘blue sky’ territory and the options are endless. Chasseur’s importing infrastructure could be used to import other products. Another option may be expansion into processing of other livestock, fish or smallgoods. Given the opportunities previously outlined above, this is really a longer-term issue, once all other options have been exhausted due to the need to acquire new capabilities.



Evaluation of Chasseur Chickens’ strategic options Once strategic options have been identified, it is necessary to evaluate them so as to select the best option for the company, given its strategic situation and the circumstances it is facing. Rumelt’s criteria for evaluating strategic options provides a sound basis for such an evaluation. It is necessary to determine whether each strategic option is consistent with both the internal and external environment of the company and, if so, how feasible it is. Finally, remembering the importance of strategic capabilities, it must be determined whether the strategy will create or maintain a basis of competitive advantage. Chasseur’s strategic options, outlined above, have been evaluated using Rumelt’s criteria for evaluating strategic options.

Internal consistency Given the current strategic, operational and functional capabilities of Chasseur, it is evident that both market penetration and product development are highly consistent strategies. Further, these strategies are consistent with Chasseur’s key stakeholder requirements, which is a critical factor given private company ownership. Chasseur already has the key internal requirements to successfully undertake these options and, as such, the risk to the company of pursing these options is assessed as low. The real issue arises from evaluating how internally consistent are Preference 3 (market development) and 4 (diversification). Chasseur’s current capabilities are not so well suited to these options, which involve the management of multiple products and market portfolios. Accordingly, these options carry an increased inherent risk for the business – they require new strategic capabilities and skill sets as well as changes to the existing functional strategies of Chasseur. However, that is not to say that these options should not be pursued. Rather, Chasseur should undertake a detailed analysis of changes that the business would be required to make, if it were to adopt any of these strategies. It should also consider the issue of how easily the changes can be enacted.

External consistency Chasseur is currently the third largest competitor in the Australian chicken meat farming and processing industry and does not compete in other meat industries at all. On this basis, it is clear that again the first two preferences are consistent with the external environment. Opportunity still exists for Chasseur to create further economies of scale and grow within the current industry; however, it must be noted that future growth is going to be slow and this will make such a target more difficult to achieve than previously. It should be further noted that the two larger competitors will also be looking for such opportunities, and industry rivalry will increase. As a result, there will be a downward pressure on profit margins overall. With first mover advantage in the lucrative value-added segment, Chasseur needs to ensure that it continues to look for new opportunities in this area to stay one step ahead of the competition. As a result of the increasingly competitive nature of the Australian chicken meat farming and processing industry, the strategy of market expansion is also externally consistent. The Newcastle disease outbreak has been contained and export growth to key Asian markets has begun to increase. Chasseur had established capabilities to enter the Asian market prior to the Newcastle disease outbreak that it can now successfully leverage. Further, Chasseur’s strong value-added capability is a key strength that can be utilised in gaining entry to these markets. A strong reputation in the domestic industry also provides credibility for expansion.



Feasibility The issue regarding the feasibility of Chasseur’s strategic options is interesting. While market penetration is certainly both internally and externally consistent, how realistically it can be achieved is questionable given the strong competition that will ensue from the two larger industry competitors. As already discussed, industry rivalry is likely to increase in the future as a result of the need to improve economies of scale. Profit growth is unlikely to come from market growth alone, given its slowing nature. As such, the feasibility of becoming the largest company in the Australian chicken meat farming and processing industry seems questionable. Both product development and market development appear quite feasible options given Chasseur’s strong capabilities in these areas. Both these areas are also experiencing strong growth, which improves their feasibility rating. However, given its limited exporting experience to date, product development as compared with market development is a less risky option for Chasseur to undertake in the first instance.

Competitive advantage It is clear that Chasseur already has some factors which have given rise to a competitive advantage. The strategy of further market penetration alone will not give rise to greater strategic advantage for Chasseur; however, if it results in the achievement of a low cost generic strategy that other industry participants are unable to emulate, then this would be of strategic advantage. Similarly, being the first mover in the value-added product segment alone is not sufficient to ensure this advantage is maintained, and Chasseur must continue to innovate in product development and stay one step ahead of its competitors. On this basis, the first two strategic preferences may assist Chasseur in maintaining a competitive advantage. However, to create long-term strategic advantage, Chasseur really needs to look to expansion options that ensure strong growth and profitability. On this basis, expansion of exports to Asia will provide a good foundation upon which these targets can be achieved, as will diversification in general. However, it is vital that the risk attached to such options is carefully considered by Chasseur before embarking on these options. They will significantly change the underlying business model of Chasseur, increasing the level of complexity and uncertainty associated with revenue streams generated from new products and markets. In order to successfully integrate such expansion into the existing business, Chasseur must ensure that risk management becomes an essential component of the business planning cycle, with contingency plans developed to deal with unfavourable outcomes should they arise. Note: In order to evaluate a given set of strategic options using Rumelt’s criteria, the evaluation can alternatively be presented as in Table 21.



Table 21 Strategic options using Rumelt’s criteria.

Strategic options

Internal consistency External consistency

Feasibility Competitive advantage

Option 1 Is the strategy internally consistent?

Yes or No with justification.

Is the strategy externally consistent?


Is the strategy feasible?


Does the strategy create/maintain competitive advantage?


Option 2 Is the strategy internally consistent?


Is the strategy externally consistent?


Is the strategy feasible?


Does the strategy create/maintain competitive advantage?


Option 3 — — — —

Documents

117 GSL Chasseur Chickens Case Study 1 S113