Case Solution for Evans Food

Table of Contents

Executive Summary        3

Problem Definition        3

Objectives        3

Situational Analysis        3

Strategic Alternatives        6

Evaluation of Alternatives        6

Conclusion & Recommendations        7

Executive Summary

Evans Food is $100 million Company based out of USA & is largest producer of pork rinds - salty snacks made out of pork skin – in world and sold at some of largest US retailers such as HEB, Meijer, ALDI and Wal-Mart. Pork Rinds contributed to 60% of company’s revenue while remaining 40% was contributed by Pork Pellets which was mostly sold in non US markets. In 3 years, cost of pork skin had increased significantly but company’s selling price to its customers had not kept pace with increase in raw material costs. As a result, Evans Food started losing money on a significant portion of its US volume and barely breaking even on remaining sales. Margins on Pork Pellet Sales were better as compared to Pork Rinds. The Company is now deliberating among three options – Stay the Course or Raise Prices or International Expansion - they can pursue in order to reverse the trend. Accordingly, we would look these options and evaluate them on marketing objectives important for Evans Food & derive a logical conclusion

Problem Definition

Evans Food is confronted with a precarious situation where because of significant rise of Pork Skin prices, its margins are getting diluted and it has come to a situation where it has to take important decisions.

Marketing Objectives

1. To achieve and maintain net margin of 5% for overall business in next 3 years (A)
2. To retain our profitable customers (B)
3. To reduce costs (C)
4. To increase our market share in non US markets in Pork Pellets to 35% by 2016 (D)

Situational Analysis

Gross margin on pork rinds was in single digits. Pork Skin prices started increasing sharply in early 2010, because of following reasons:

1. Demand for alternative protein (compared to chicken or beef) increased in markets such as Mexico and China.
2. Supply of pork skin was adversely affected by a pig virus that killed millions of piglets.

B the 3rd quarter of 2013, Evans Food was beginning to lose money on its US volume and was running low on cash. The Company has to let go some of its non profitable customers which collectively accounted for USD 8 million in revenues.

Revenue break up of Evans Food, product wise are as follows

SWOT Analysis of Evans Food

Strengths

• World’s largest producer of Pork Rinds
• Astute management
• Big retailers as its customers

Weaknesses

• Not enough time and resources for international expansion

Opportunities

• Expansion in non US markets
• Only 18.75% market share in US Pork Rinds market

Threats

• High bargaining power of customers
• Competitor showing no signs of price increase
• Losing money because of high input cost

As mentioned, market of Pork Rind is growing yearly at rate of 1%-2% whereas market of Pork Pellet is growing yearly at 2%. If we plot considering this growth rate & existing market, we find that Pork Pellet market is not growing rapidly.

Porter’s 5 Forces Analysis of Pork Rinds Industry

Porter’s Five Forces Analysis for Pork Rinds Industry

Threat of New Entrants is LOW

• Commodity and low margins industry
• Initial Investments high
• Strict regulation by US Department of Agriculture (USDA) for Pork Rinds producers
• High entry & exit barriers

Threat of Substitutes is LOW

• Popular snack item
• Some Pork Rinds brand commanded premium
• Healthy junk food
• Propensity to switch is low

Bargaining power of Suppliers is MEDIUM

• Major raw material is Pig Skin
• High Pork Skin prices

Bargaining power of Buyers is HIGH

• Buyers are big retailers such as Wal-Mart, etc as well as club ,convenience & discount stores
• A salty snack category for retailers but contributed little to overall revenue to big retailers
• Most retailers have their own private brands

• Major revenues from big retailers, hence they enjoy a high bargaining power

Industry Rivalry is HIGH

• Commodity product, very little to differentiate
• Highly competitive

Why Pork Rinds important for Evans Food customers

1. Nutritional snack food and highly popular
2. Endorsed by Magazines, leaders
3. Generated store traffic

Strategic Alternatives

1. Stay the Course (I)
2. Raise Prices (II)
3. Expand Internationally (III)

Evaluation of Alternatives

We individually look at pros & cons of each of strategic alternatives available with Evans Food