Bird’s Eye Frozen Foods

Case Study Analysis

Submitted By:Sneha ChopraAkash ChaudharyVivek DoleAarti Bansal

Reasons for Vertical Integration

Rapid

Growth

• During the 1950’s and 60’s the tonnage sales were increasing at a rapid rate of 40% per annum.

• It made sense for vertical integration so as to secure the raw materials, ramp up distribution and production capacities in order to keep up with the demand.

Quality of

Produc

t

• The products sold by Birds Eye had to be high quality because of the additional overhead of freezing and timing to justify premium.

• This requirement of the industry required producers to have control over all aspects of production.

Preven

t new competition

• The entire value chain meant that, entering into this market would become significantly difficult for new entrants due to high capital needs

Reasons for Vertical Integration (Contd..)

Industr

y Structur

e

• The two main competitors of Birds Eye during 50’s and 60’s Ross and Findus were also following the vertical integration strategy.

• industry structure and maturity around this time forced the businesses to vertically integrate as they had no other choice.

Undeveloped

Infra -

Structur

e

• The frozen food market during 50’s and 60’s was in its infancy with suppliers and retail stores relatively unsophisticated.

• The infrastructure needed was not fully developed. In such scenario, it made sense to both forward and backward integrate as it had the both the capabilities and resources to manage the supply chain.

Securin

g Raw Materials

• Birds Eye entered the broiler chicken in 1958 and the entered the fishing industry in 1965 in order to secure its raw material supplies.

• With vegetables they were able to closely able to integrate with farmers and were able to closely simulate vertical integration environment.

Strategy Analysis

Advantages

Disadvantages

Control over the supply chain: A vertically integrated producer enjoyed control over the entire supply chain leading to faster reaction to increased demand. Quality of products: Since a vertically integrated producer has much better control over the quality at several points in the supply chain, they can ensure a better quality finished product. Capturing the profit margins across the value chain: Vertically integrated producers were able to capture both the upstream and downstream profits.

Increased overhead costs: The specialized suppliers enjoyed lower overhead costs as they were specialized in single product, which did not involve any changeover costs. On the other side vertically integrated suppliers had multiple product lines, which led to inefficiencies. Exit Barriers: The significant infrastructure capital investments by vertically integrated producers when the market was not mature prevented them exiting less profitable businesses.