There are two questions leaders of every poultry company should be asking themselves right now: Do you have an ambition to grow your business in 2013 and beyond? If so, do you have an actual plan, beyond working harder, to grow your core business? If you are like most leaders, the answer to the first question is yes and to the second is no. This challenge is particularly significant in the poultry industry this year with issues such as record animal feed prices and downward pressure on bird prices pressing profits down. However, those who have been in the poultry business for a long time know that there is a problem with prices or costs most years. The question then is: Why do some companies thrive and others do not?
The answer lies in the development of a logical and consistent strategy for growth and the execution of that strategy over time. Of course, the "S" word, strategy, is anathema to many entrepreneurs, recalling as it does a long and time-consuming process of discussion and debate, with a resulting document that is of little practical use. However, over the past 10 years, Chris Zook, a consultant with Bain & Co, has developed a set of ideas known collectively as Profit From the Core that offer a practical and useful alternative. These ideas are simple and logical and, in my experience, are intuitively attractive and practically useful to companies of every size. According to Zook, there are four pillars to a sustained growth strategy.
Pillar 1: A business must have a strong, well-defined core with leadership economics in the core of the core
Every business has a core. Most likely it is the part of the business, which more than any other, drives customer loyalty and company profitability. The core is what makes your company unique and is the root of your competitive advantage in the market place. For example, Nestlé is a company that has effectively defined its core products — coffee and infant formula. These are its competitive advantages, it is the global leader in these markets, and it provides the core through these competitive advantages. What it learns here is relevant to every other part of its business.
Defining your core is the cornerstone of strategy. Do you know (specifically, not generally) what the core of your business is?
One of the world's largest broiler companies provides an example of core understanding and development. Originally, its core was clearly in the production of broiler chickens. Later, it redefined its core as a protein company, audaciously acquiring an organization twice its size. Later still, a previous CEO returned and made it clear that the company would refocus on its core as a producer of chicken meat while also growing through adjacencies as a world-class animal protein supplier.
In many enterprises, management teams do not agree on the core and some have never even talked about it. By not fully identifying the core or by taking it for granted, companies can prematurely abandon the real core of the business or become involved in growth initiatives that are too far from the core, spread resources too widely and develop confusion in their organizations. An example of this was an organization in Northern Europe that started 80 years ago as a fishmeal supplier, then moved into animal feed, later animal breeding, biologics and genetics. A venture in the Middle East involving the construction of turnkey plants led to the collapse of this poorly conceived business with the company being sold and restructured. Today, it is successful with a clear mission in the poultry health industry.
Poultry companies should identify their core business and then leverage their strength and success in that core to identify growth opportunities. Many companies have multiple product lines within their core business area of layers, broilers, turkeys, etc. It is worth examining each of these areas in detail and asking which contributes most to growth in sales and profits and to then examine why. For example, Bachoco is the number-one poultry company in Mexico, holding the first or second position in both eggs and broiler sales. Is Bachoco's core in poultry proteins marketing and branding, or is its expertise in the conversion of grains into poultry proteins?
Pillar 2: Pursue the correct adjacent moves to secure growth within the company (and avoid wrong ones)
Businesses have many options for growth each year, but most growth initiatives fail to generate significant sales or profits. Those most likely to succeed are ones that are close, or adjacent in Zook's words, to the core of the business. A company can achieve new adjacency growth through products or services, new customer segments, new parts of the value chain, distribution channels, business and geographies. Returning to our earlier example, Nestlé has grown from its core business of infant formula and instant coffee to enter adjacent businesses such as pet food (adjacent in that they have similar customers, logistics, production, marketing and distribution), which has proved to be very successful. K&N's in Pakistan is a great example of a poultry company that has moved from being a breeder to becoming an integrated broiler company built on the core of safe and healthy chicken for the people of Pakistan.
The best adjacency strategies also leverage and reinforce the core business. Examples from China and India are integrated chicken producers who have moved to own their own stores and sell their meat directly to consumers. Al-Watania in Saudi Arabia has even developed its own chain of fast food restaurants.
In the egg business, a successful adjacent growth strategy may be filling a new niche customer market for eggs, such as omega-3 or selenium-enriched. Eggland's Best is the clear leader in North America in this field, commanding 90 percent of the specialized market, and achieving five continuous years of months with double-digit growth in an overall market that was declining. Their offerings include a range of strongly branded, nutritionally enhanced eggs at a considerable premium to the eggs sold under traditional labels. For a broiler producer, it may be a move into another similar but complementary meat, or indeed further processing. A useful way to engage in this process is to take the definition of the core you have identified for your business and then ask who else might buy these products or what else would we need to do in order to get a new customer group to buy our products. Some have achieved this by specializing in antibiotic-free or even organic meat production. Globally, Brazil has become the expert at exporting frozen meats, and Thailand has specialized in high valued-added poultry meat.
Pillar 3: Become the best at following the customer
The world today is suffering a protein shortage. All over the world malnourishment continues to shorten lives because people do not consume enough protein. Meanwhile, the dramatic rise in general incomes in Africa and Asia in the past five years is also driving an increase in consumption of cheaper animal proteins, specifically eggs and chicken meat. If this is so, why do you have to sell your product, why are people not asking you for it? The reason is that the food industry in general does not follow the customer. Instead, it has traditionally pushed products at its customers. With daily blogs, tweets and posts demanding cage free, farm fresh and organic products, we need to listen to what consumers are saying, determine the best route to market and meet their expectations. Perhaps we can improve meat quality and the customer experience by further investigating parameters such as tenderness, drip loss, cooking loss and shelf life. Take some time to identify parts of your state, country or region of the world that do not currently consume your product. Why don't they? What would you have to do to change that? The answers should be a fairly long list, and this can be your portfolio of growth opportunities.
Pillar 4: Use repeatable formulas in the business strategy
The final stage in this process is to avoid reinventing your wheel. In finding and investing in adjacent growth opportunities, your company needs to find a way to repeat its formula for success in each new market. Nestlé, for example, has built a repeatable formula based on strong brands, premium prices and wide distribution. By implementing a repeatable formula in their business plans, companies will find internally they will have more strategic clarity, speed in recognition, decision and action, lower management complexity and more focused innovation. Companies such as Tyson, Sadia and Perdigão all built strong consumer brands and markets. They have stuck to the knitting and invested in areas based on this strength. Other companies have struggled against this competition, searching for ways to compete in niches that the larger companies cannot enter. In Africa or the Middle East, companies would be wise to focus on products that cannot be imported, e.g. fresh or chilled meats versus frozen, or shell eggs versus liquid egg products. Finally, there are examples of companies that have branched into other markets successfully. The sale of composted manure by companies such as Morning Fresh or the use of poultry by-products to build pet food and other business by companies such as Simmons Pet Food Inc. are good examples of growth through adjacencies.
For your own business ask yourself: How successful have you been in the poultry business? How do you serve your customers? How do you produce your product? What are your skills in sourcing materials and inputs? This is the starting point for identifying your repeatable formula.
Defining the core of a company is the foundation to a modern business strategy. The core is what makes a company unique and is the key source of competitive advantage. Leadership economics involves finding an area of unique strength to build on — a set of customer situations, channels, locations or products where the company has a competitive advantage. As we listen to a louder consumer voice now, it is even more critical to shift from the mindset of just being in the poultry business to recognizing your role in a food industry that must feed an additional billion people by 2020.