Strategic Analysis

BRF Foods
Bukola Ifeoluwa Jaiyesimi
Letícia Franco Martinez
Vitor Nardini Marques

1
Agenda

1. History of the company

2. External analysis

3. Internal analysis and financial position

4. Identification of the core strategy

5. Recommendations
 1. History of the company
80+ years 5+ million tons
of history and tradition in
of food produced/year
the Brazilian market
Owner of the
most valuable
food brands 1
1
Largest exporter
of chicken in the world
1

in Brazil 5
1
1

2nd largest chicken

1
1
1
1
4

producer
5

50+ plants 1

1
1

in the world, company in the world

30+ in Brazil 35

20
Largest producer
40+ distribution 8
9 2 of pork, turkey and
International Operations
centers in the world,
3
chicken in Brazil
Productivity units

20 in Brazil Distribution centers

Source: BRF Foods October 2018 presentation based on Watt Global Media (2015) 3
 1. History of the company

Global Food Company

Portfolio (+4 thousands of SKU’s):

Ready to eat meals and frozen food

Sausages

Cold cuts, chicken cuts and others

Margarine

Ingredientes, Animal food

Vision: Making BRF the Most Inspiring and Important Global Food Company

Source: BRF annual report 2017 4

1. History of the company
 1. History of the company Sadia built Frigobrás
Perdigão was founded Sadia mascot was created
Sadia was founded in (refrigerated facility company)
by two Italian families in 1971 as the company
Concordia (SC). and began the exportation of
in Videira (SC). trademark.
meat.
Timeline

Sadia became the leader Perdigão became a Sadia opened it doors Sadia launched the Qualy
among national exporters pionner in exporting around the world. brand.
to Middle-East. Brazillian chicken meat to
Saudi Arabia.

Source: BRF website

 1. History of the company
Perdigão adquired Batávia
Sadia reached its goal Perdigão became the first
Perdigão opened an office S. A. and partnership with
of exporting to over 40 Brazillian company to be
in London. CCLP.
countries. listed in Wall Street.
Timeline

BFR started the operations of

Perdigão and Sadia formed Perdigão and Sadia BRF was founded with the the OneFoods subsidiary,
BRF trading for the purpose of announced the unification merger of the companies. dedicated to the halal market.
selling food. process.

Source: BRF website

Agenda

1. History of the company

2. External analysis

3. Internal analysis and financial position

4. Identification of the core strategy

5. Recommendations
 2. External Analysis
Supplier Power

The threat Competition

Rivarly of
of new from
Competitors
entrants Substitutes

Buyers Power

Source: Porter
 2. External Analysis - Rivarly of Competitors
Main Competitors Another Competitors

Cooperatives Companies

+ Local producers that operate in informal market with lower quality and prices

Source: Associação Brasileira de Proteína Animal e BRF report 2018

 2. External Analysis – Rivarly of Competitors
Product Diversification

Marketshare of BRF
in 2018

Source: BRF annual report 2017

2. External Analysis – Rivarly of Competitors

Indicators Evaluation Score

Number of competitors High 4

Concentration of market High 4

Competitors diversity Very high 5

Potential for product differentiation Medium 3

Costs of businesses High 4

Average 4.0
 2. External Analysis – Supplier Power

Indicators Evaluation Score

Poultry
Dependency of your
company with one or a few Zero 0
✔ 130,000 families owning small aviaries suppliers

*Possibility of replacing
High 1
Swine suppliers' products

*Degree of importance of
Very high 0
✔ 3,100 production farms your company to suppliers
✔ 15,000 fattening farms Costs involved in changing
Very low 1
supplier
*Indicator with inverted score.
System of Integrated Producers Average 0.5

Source: Mapeamento e Quantificação da Cadeia de Suínos e Associação Brasileira de Proteína Animal

 2. External Analysis – Buyers Power

Food Retailers Indicators Evaluation Score

✔ R$ 432,9 billions of revenue in 2018 Price sensitivity Medium 3

Bargaining power High 4

Concetration of industry Very high 5

*Integration among
Medium 3
suppliers
Capacity to determine the
Medium 3
prices
= Represent 35% of revenue *Indicator with inverted score.
Average 3.6

+ Small retailers with less power

Source:BRF anual report and IBEVAR ranking 2018

 2. External Analysis – Competition from Substitutes

Diversification of products and brands

Indicators Evaluation Score
Propensity of buyers to
Medium 3
replace brands
Substitute products
High 4
availability

Impact of prices Medium 3

Cannibalization of portfolios High 4

*Indicator with inverted score.

Average 3.7

Source:BRF annual report

 2. External Analysis – Threat of New Entrants

Production Specifications Indicators Evaluation Score

*Investments in production Medium 2

✔ Contrats with suppliers (integrated
system) *Difficult to acess suppliers High 1
✔ Legal barriers
✔ Exports qualification (Halal slaughter) *Difficult to acess channels Medium 2

*Legal barries Medium 2

*Valorization of current
Very high 0
brands
*Indicator with inverted score.
Average 1.4

Source:BRF annual report

2. External Analysis – Final Frame
Rivarly of Competitors
5.0
4.0

Competition from
Supplier Power
Substitutes 3.8
0.0 0.5

1.4
Threat of New 3.6 Buyers Power
Entrants
Agenda

1. History of the company

2. External analysis

3. Internal analysis and financial position

4. Identification of the core strategy

5. Recommendations
 3. Internal Analysis and Financial Situation

Source:Purdue Strategic Planning Program

 ✔ Agricultural R&I
✔ researchd dedicated ✔ low cost products
✔ Domestic and ✔ strong brand name
to continious Diversified:
international innovations Creating new, convenient, ✔
global presence ✔ Mass market
suppliers of raw ✔ Integrated supply practical and healthy
✔ strategic location ✔ Niche market
materials; management; products for consumers.
✔ Integrated ✔ innovation
✔ Brands management
outgrowers e.g Capture value for the Customers looking
Agroceres, Danbred; strong brands. for:
✔ Local producers; ✔ Convenience
✔ Existing industrial ✔ Strong network
✔ Third party Following the pillars of Practicality
facilities (slide 3); channels;to reach all ✔ Speed
international ✔ Distribution centers governance, quality and
Brazillian states and ✔ Facility
producers; (slide 3); innovation.
others 150 countries ✔ Good meals
✔ Packaging ✔ Brand name;
companies. ✔ Professionals with
PhDs
✔ diversified products

✔ Cost driven in most part of the segments; ✔ Consolidated operating

✔ research, development and innovation activities;;distribution,selling,manufacturing
✔ Scale and quality of production; ✔ Consolidated investing activities e.g fixed
✔ Infrastructure costs (adaptation for halal units). assets,stocks and bonds
✔ Consolidated financing activities from creditors and
 3. Internal Analysis and Financial Situation

Financial Indicators (Billion R$)

2015 2016 2017 2018
Total
32.20 33.73 33.47 30.19
revenue
Gross profit 10.10 7.53 6.90 4.87
Operating
4.23 1.82 0.74 -0.21
income
Net profit 3.11 -0,37 -1.13 -4.45

Source: Investing.com
Agenda

1. History of the company

2. External analysis

3. Internal analysis and financial position

4. Identification of the core strategy

5. Recommendations
4. Identification of the core strategy
4. Identification of the core strategy
Question 1: What is “the core” of the business?
What are the business’ Who are the business’ core What are the business’ cost What are the business’
core capabilities? customers? advantages? core products/services?
• Innovation: strong • B2B: bakery, • Competitive advantage • BRF has a big
brands, committed - producers located in diversification (Sadia,
restaurants, Perdigão, Batavo,
people and a robust some international
supermarkets and markets (lower Elegê, Qualy, Cotoché,
and flexible operation; other retailers. Perdix)
production costs and
efficiency gains in animal • Sadia and Perdigão are
• Governance: Ethics, production in Brazil; the most important
integrity and • Scale/Quality: brands
leadership -compete effectively with - Sadia bet on the “ready
development; the main producers dishes” (lasanna,
• Programs designed to stroganoff)
improve cost efficiency - Perdigão bet on “built-in
• Quality in all - Streamline supply products”: the pepperoni
processes, products chain, integrating sausage as a leading
and relationships; demand, production, product
inventory management
and customer service.
4. Identification of the core strategy
Question 2: What are sources of full potential to “deepen” the core?
Strategic Operational Organizational Financial
- Pillars of corporate - 440 thousand monthly - 3.4 thousand people - R$ 684.6 million were
culture, quality, deliveries to customers involved in discussions invested in 2017,
innovation, branding, in Brazil of attributes and focusing on the growth
and e-commerce - Smart packaging commitments of production and
- 150 countries - Have sales teams - 89% of employees efficiency
- + de 220 million directed to each client declared themselves - Restructuring plan: (i)
custumers (bakery, supermarkets) engaged divestments in Europe,
- + 40% of the - Technology in the whole - 17.80% was the Thailand and Argentina;
international sales process turnover rate in 2017, (ii) sale of non-operating
volume comes from own well below the 28.21% assets; (iii) better
- Sustainability management of working
distribution rate recorded in 2015
- Transparency channel capital, mainly frozen
- 58 own factories in 9 raw material and
countries finished product stocks;
- + 4 thousand SKUs and (iv) securitization of
adapted to the receivables
characteristics of each - Expects a cash injection
region in which they of. approximately R $ 5
operate billion
 4. Identification of the core strategy
Question 3: What adjacencies should we extend into?
Some Recommendations
• New market opportunities:
• Opportunities for growth in the Middle East – with diversification of products in Saudi Arabia and
Turkey;

Source: BRF report and

 4. Identification of the core strategy
Question 3: What adjacencies should we extend into?
Some Recommendations
• New market opportunities:
• Opportunities for growth in healthy and local food.

Source: Revista Exame e Sociedade Brasileira de

 4. Identification of the core strategy
Question 3: What adjacencies should we extend into?
• New businesses
• One Foods BRF Subsidiary in the Middle East - harness productive capacity, product portfolio and
channels;
• BRF Ingredients - new solutions in food ingredientes, animal nutrition, plant nutrition and health
and wellness.

Source: One Foods website and BRF ingredients website

4. Identification of the core strategy
Question 3: What adjacencies should we extend into?
• New channels
• Opportunities in food service partnerships;
• Opportunities in direct distribution – increase margins.
4. Identification of the core strategy

Question 4: When and how will I need to redefine the core?

• BRF is today a company with strong brands because did well-

made acquisitions, has well defined strategies and reaches a
broad market with excellence.

• The environment today is favorable to this business model.

Only time, political, economic, social / natural and
technological factors will generate a need to change the core.

• The right moment to redefine the core is when the external

environment and its variables demand.
Agenda

1. History of the company

2. External analysis

3. Internal analysis and financial position

4. Identification of the core strategy

5. Recommendations
5. Recommendations – Future Scenario
Data driven framework for adapting to changes over mid and long term

Uncertainty Response
Risk
health risk, recall off tons of chicken, animal disease
outbreak, cross border operation risk. Forecast based on historical occurrences

Structural uncertainties
Trade barriers, government policies, chinese government anti Multiple scenario based planning which takes into
dumping investigation, pressure from local producers, Saudi consideration the range of uncertainty
Arabia’s no stunning requirement.

Unknowables
“Carne fraca” operation, “Trapaça” operation, rapidly Develpop perceptual skills to ensure rapid and improved
changing digital environment, emerging markets. reacting skills.
5. Recommendations

Strategic Projects:
1. Grow in the Middle East –diversification of products mainly in Saudi Arabia
and Turkey;
2. Increase the portfolio in healthy food;
3. Create product line based on vegan, vegetarian and allergics;
4. Grown the business of ingredient in animal nutrition;
5. Create iniciatives for food service or direct distribution.

Attention Points:
▪ In-depth analysis of stakeholders and shareholders (Beware of scandals:
“Operação Carne Fraca”);
▪ Strategic Talent Management
Thank you