Evans Food

Evans Food[pic 1]

Company Introduction

[pic 2] The company has grown from a small business to a global enterprise through the vision, ambition and able leadership of its Chairman and CEO Alejandro Silva.

Industry Scenario

Products

[pic 3]

Consumers

[pic 4][pic 6][pic 7][pic 8][pic 9][pic 5]

Competitors

[pic 10]

Situation Analysis

It is observed that till early 2010, Evans Food was fetching moderate margins on pork rinds and higher margins on pork pellets.

Thereafter, prices of pork skins (the raw material for both rinds & pellets in the value chain) started increasing due to:

• Increase in demand for alternative proteins in China & Mexico
• Decrease in supply of pork skins due to PEDv (Porcine Epidemic Diarrhea virus)

In case Evans Food increases the prices in order to protect the margins, it may lose its existing customers, especially the big retailers.

This caused serious pressure on the margins of Evans Food, leading to cash crunch and loss of one large and several low volume customers (cumulative revenue loss of US $8 million).

Problem Definition

The current profitability of Evans Food has substantially reduced resulting in diminishing cash flows which are inadequate to sustain the profitable operations of the company in the long term.

Evaluation of Alternatives and Recommendation

Option 1: Stay the Course

[pic 11]

Option 2: Raise Prices

[pic 12]

Option 3: Expand Internationally

[pic 13]

Based on the case analysis, Option 2 is the recommended course of action.

It is the right time for Evans Food to revisit the pricing model in view of sustained high prices of pork skins and its leadership position as the largest producer of pork rinds.

• A double-digit price increase would mean a price of $1.1 for a 3-ounce package. Frito’s Baken-ets is retails at $2 per 3.5-ounce pack (or $1.7 per 3-ounce). This clearly demonstrates that customers are buying similar product of another brand at a premium.
• Pork Rinds have an established consumer base and are part of the dietary habits and traditional recipes. Hence, the perception of pork rinds is more than a commodity, but rather a healthy lifestyle choice.

Therefore, the increase in prices of pork rinds can be absorbed by end customers also.

• Moreover, since pork rinds are crucial for generating store traffic, the increase in the price of a low revenue product would be palatable to the channel partners, especially large retailers.

While the immediate increase in price may lead to heartburn for certain retailers, the alternative to stay the course would lead to further erosion of cash flows, breaking the value chain and thus the existence of the company would be challenged.

The other alternative, i.e. to expand internationally in the pork pellets market, seems to be promising, however, the current situation of the company does not allow its resources to be stretched to the extent required for a successful expansion. The international market is already throwing up cutthroat competition to Evans Food in terms of local players.

Implementation Plan

Staggered & Transparent Pricing Strategy

The price increase should be staggered and transparently linked to pork skin supply price. In case an antidote is developed to control the proliferation of PEDv, the availability of pork skins would increase and the prices may normalise over a period of time. In such cases, since the price increase by Evans Food would be linked to pork skin supply price, the benefits of the normalization would also be passed on to the retailers and end consumers.

Advertising Campaign

In parallel, Evans Food should launch a marketing campaign highlighting the health benefits of its own brand of pork rinds (Mac’s Pork Rinds) and its use in traditional recipes thereby promoting it as a lifestyle choice rather than a commodity. This would lead to top of the mind recall and enhance its brand amongst consumer base.

Collaborating in research to cure PEDv and other pig related diseases

Evans Food should take a leadership position in funding research to eradicate PEDv and other pig related diseases thereby building credibility amongst suppliers and customers alike and also enhancing brand value.