Key Issues in case:
1. Vertical integration
2. Production problem:
3. High distribution cost
4. Retailer turnover
5. Flow of new products and marketing problem
6. New entrants in the market
Analysis of Issues:
1) Vertical integration:
Vertical integration was major problem for Bird Eye as it leads to production problem, high distribution cost, high capital cost, sources of raw material, lack of skilled labor and supply chain.
2) Production problem:
In production, major problems were time inefficiency, unreliability of machinery and the lack of skilled labor. Company was importing machinery from U.S. and Canada at high cost. As this was growing business, so lack of skilled labor was also major problem.
3) High distribution cost:
After production, distribution is the major problem and cost was very high. It was between 15-25% of the total cost for frozen food. Cold stores, they were using for frozen food was too much expensive and operating expensive were also high.
4) Retailer turnover:
Frozen food was to be stored in the cabinet and size of the cabinet was big. Because of large size, there is a problem for retailers to place those cabinets in the retail store. On the other hand, profit margin for retailer was only 20% other than services and maintenance. That’s why retailer turnover was very high.
5) Flow of new products and marketing problems:
As time was passing, a lot of new products come into market like ready-to-eat meals, desserts, Chinese foods, pizzas, etc. Because of entry of new products, Birds eye was unable to manage marketing and advertisement of products within limited advertisement budgets.
6) New entrants in the market:
There was a lot of new entrants in the market and was competing with Bird eye. Because of new entrants in the market as well as new product, market share of the company decline from 62-20% from 1966 to 1982. Ross and Findus were direct competitors but there was also small retail stores with own label etc.
Birds eye was using vertical integration method and the disadvantages of this method was exceeding over advantages. As industry was developing, balance of power was shifting from producer to retailer and Birds eye should move toward trade market (Exhibit 1). Using supermarket chain, distribution cost and overhead would also decrease and it would be profitable for them.
Birds eye was market leader of frozen food in 60’s but now they were increasing product line as in result they are facing problem in marketing and advertising products. They should reduce product