Birds Eye and UK Frozen Food Industry

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Introduction This case is based on Birds Eye, a UK based company which started its operations in 1930s and operations continued to 1980s till now. Birds eye were the pioneers in frozen food industry and they started as vertically integrated producers and gained big market share that is 62 % in 1966 which continuously dropped and reached to 20 % in 1982 (shown in exhibit 2). This case is a good example of how competitive advantage (Vertical Integration and vast network) can sometimes become a hurdle in company growth and share later on. Issues Main issue in this case is that Birds Eye which were having the biggest market share and were the pioneers in this field could not maintain their position as before and their share started decreasing as shown in figure1. Their condition became even worse when there were certain changes in the industry, which allowed other companies to enter at different stages of production and distribution chains instead of covering the vast networks. When the industry was getting matured the competition become intense there were fall in the prices of the frozen foods. This lead to decrease in their profitability and Birds eye did not respond in a timely manner when consumer needs were changing. Analysis Birds Eye pioneered the frozen foods industry as vertically integrated producers. They wanted to create barriers for the new potential entrants which can be a threat to them. They created these barriers by investing at various levels of the supply chain thus becoming their own producers, retail distributors and marketers and thus making their operations complex and diversified.. This high cost of investment was a barrier for the new firms entering the market. They were the leaders so they were enjoying more market share and prices while few other firms like Ross and Findus were the imitators so they have to act according and cant increase their prices. In 1970s when the own label firms started entering the market their own competitive advantage become hurdle in their further growth due to the fact that they were involved at various levels of the entire supply chain they have to bear high costs while other firms were devoted their marketing efforts to one of the levels of the chain and focused on particular brands thus offering better quality products at prices less than the Birds eye. The ROI of the Birds eye was also in a declining trend as can be seen from 1972 to 1979 as shown in exhibit 2. This exhibit is showing that they were investing more and getting fewer
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profits due to which the return is less. Their greater cost was attributed to greater cost of raw materials, production and control of vast national distribution network. Their competitive advantage was not sustainable due to the above reasons. Exhibit 5 is showing that there is an increase in the number of self service stores and the number of counter service stores is decreasing. This means these super markets have extra freezing space and increase in demand of frozen foods shown in exhibit 1a. It means that someone has to fill that extra space, so there is potential for the firms to enter in the market and utilize that space. This also increased the power retailers and super markets have. After the new firms entered the market Birds eye cannot gain its share with high prices and it cannot even lower the prices because its costs are high due to complex operations and diversification. There is competition based on price wars and differentiation now there is no advantage of having extensive national network across the value chain. Other companies were then putting efforts to marketing and production while outsource of raw materials and retail network control were not I their operations making their operations and transaction costs less due to which own label companies gained much of the market share from Birds Eye. Their operations were also more efficient and smooth due to less diversification. The suppliers gave them raw materials at cheaper rates than the Birds Eye were able to give. The company was no more able to regain its market share and that share was taken by own label companies which put their efforts in marketing. Those companies were also not able to increase share which imitated Birds eye. Company has to divest its assets so that it can take control over its operation and transaction costs associated with the supply chain. They have to do this as their market share and profits are both declining. They can use the saving to extend their product lines further by adding innovations and promoting them in a right way. This would give them differentiation advantage if they introduce new lines catering to different consumer needs and consumers would be ready to pay even high prices. Consumer pay for the desired quality no matter prices are high or not so they should focus on making their quality better rather than getting control over the entire chain because that would no longer work here. Hence it is analyzed here that the demand for frozen foods industry was increasing. This increased competition and worsen the condition of birds eye. It allowed more space in stores
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when there was shift from counter stores to self service stores. It allowed new entrants and they grabbed the share because of lower transaction costs and smooth and efficient operations. Recommendations: They can use retrenchment strategy in which those operations or business Units are divested which are not profitable. When considering on whom to sell the assets one has to choose only those firms which are specialist in that particular business stage of supply chain so that they can perform meet the quality standards. Divestiture of acquired business would decrease the transaction costs and in this way cash flows generated would be more due to more savings and less costs. These cash flows can be reinvested to marketing its brand like other own label brands are getting advantages out of it. They can get more benefit because they can now focus on quality of its brands and can focus on one activity rather than the entire supply chain. Consumers are already aware of their brand but they must add new innovation and variations in their products because consumer preferences are changing. If they are successful in their marketing efforts they can charge higher prices if they gain some differentiation advantage and in this way profitability will increase. Birds Eye can sell to own labels because those were the only players which gained market share over time at a rapid rate from 6% to 21% in 8 years. They would help in marketing of the brand and Birds eye may focus on production.

Birds Eye and UK Frozen Food Industry

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Figure 1 ( Market Share)

Exhibit 2 Year Profit 1972 1223 1973 1465 42947 1974 1468 48993 1975 1925 52199 1976 249 90383 1977 -679 100004 ROI 0.036084 0.034112 0.029963 0.036878 0.002755 0.00679 0.008941 0.061332 1978 1094 122352 1979 8145 132801

Investment 33893

Figure 2 (Birds Eye ROI)