• Ingen resultater fundet

Further-Page 38 of 131 more customers and distribution to end consumers are dominated by a few large players with high bargaining power, increasing competition and price pressure in the industry.

6.3.6 Summary of Porters Five Forces

The first research area of the thesis seeks to analyse what characterizes the fresh meat and processed food industries, which has been analysed through the use of Porters Five Forces.

The findings of each of the two primary industries can be found in below in Figure 6-1. Gen-erally, the food processing industry is characterized by a more difficult environment, however companies present in both markets can leverage knowledge and insights as well as possibly lower cost in the food processing industry by having access to stable supply of raw materials and through scale, thus positioning Danish Crown and Tican in relation to their competitors.

Figure 6-1 Summary of Porter's Five Forces (own creation)

Page 39 of 131 process. The current value chain is the result of consolidation and integration within the in-dustry both horizontally and vertically.

Each step of the value chain is a natural extension of the previous step, with the vast majority of the raw materials being transformed into products sold through Tican or some of the affili-ates, which causes the utilisation of raw materials to be very high. For Danish Crown this is also true and due to the larger scale it can be argued that utilisation is even higher in Danish Crown - an example is Scan-Hide which sells hides from the cattle to tanneries but also in the affiliate DAT-Schaub, which is owned by both Danish Crown and Tican (90% and 10% re-spectively (Danish Crown, 2014b; Tican, 2014a) which sells casings and entrails to the food industry. The Figure 6-2 illustrates the extensive value chain of Tican.

Figure 6-2: Primary activities in Tican's value chain (own creation based on (Petersen &

Plenborg, 2012)

6.4.1 Primary production and inbound logistics

While the original value chain model uses inbound logistics as the first primary activity, pri-mary production have been included in the value chain due to the special characteristics of the cooperative ownership structure. Procurement of raw materials thus also becomes a primary activity. In Tican, integration with suppliers are formalized through the cooperative structure and ensures high quality raw materials by increasing control over the process. The majority of raw material for Tican’s products comes from Denmark and the Danish cooperative members, although some raw material inputs are sourced from UK farmers and other EU approved sup-pliers (Direct Table Foods, 2016; Tican Chilled, n.d.). Due to the cooperative ownership structure, Tican is able to facilitate sharing of best practices in relation to breeding across the

Page 40 of 131 cooperative members. Tican can also to some extent control the supply of animals for slaugh-ter, as the cooperative members have to notify animals for slaughter and that Tican organizes the pick-ups, ensuring that slaughter capacity is utilised in the best possible way (Tican, 2012b). The cooperative structure also ensures optimal pricing of raw materials, with all prof-its ultimately returning to cooperative members, thus decreasing incentives to demand excess compensation of raw materials.

6.4.2 Operations and Production

As the figure illustrates, multiple steps are included in the production phase of the value chain. Production transforms the inputs into finished products which takes place at multiple sites and affiliates, both in Denmark and internationally. Margins are generally low in the industry with production cost generally above 80 % - see appendix 28 through 33. Thus in order to remain competitive and to ensure good margins, it is extremely important to have tight control over the production and the cost associated. Tican has multiple plants, but due to the size of their operations and lower economies of scale, the company is quite sensitive to external shocks to production. One example is the closing of the Russian market following the embargo, which in turn led Tican to close the deboning plant in Fjerritslev. With the closing of the market is was not possible to remain competitive within the products specialized for Russia, due to both falling prices and cost that could not be decreased accordingly (Tican, 2014a). Tican only slaughters pigs in Denmark but products also include raw materials sourced from both UK and other approved farmers which are slaughtered elsewhere (Direct Table Foods, 2016; Tican Chilled, n.d.). Danish crown primary focus is also pork, but also slaughters produces cattle, sheep and lamb, although in much smaller quantities (Danish Crown, 2013b). The production cost per pig in Tican is higher than in Danish Crown, which, assuming that an average pig weighs 75 kg, gives an estimated average production cost of 31.93 DKK/kg over the last three years, not accounting for the raw materials sourced in both Danish Crown and Tican. The comparable cost for Danish Crown is estimated to be 1.58 DKK/kg lower – see appendix 63 on marginal production calculations.

6.4.3 Distribution and outbound logistics

The revenue in Denmark only accounts for 10% of total revenue in Tican, and Tican has pro-duction facilities in Denmark, the UK and Poland. While meat is sourced for processed prod-ucts elsewhere, the majority of the raw materials are sourced and slaughtered in Denmark.

The high degree of exports and the perishable nature of the products increases the importance of the distribution and transport of the products to the customers, to ensure freshness and quality of the products. Distribution primarily takes place through Tican, with subsidiaries such as Tican Chilled in the UK specialising in delivery and Tican Rose GmbH, a subsidiary

Page 41 of 131 owned in collaboration with Finnish HK Scan, trading with partners and suppliers in Germa-ny, Spain, France and Poland (Tican Rose, n.d.).

6.4.4 Sales

Tican distributes products through multiple channels, namely Retail, Business to Business and Food service. All sales are handled through Tican’s sales offices selling both brands such as Direct Table or ZM Nove’s Nove but also a high degree of private label products (Tican, 2013). Danish Crown and most companies in the industry are exposed to the same sales pat-tern, selling to large customers such as retail chains and B2B customers. The size of the cus-tomers enable corporation with cuscus-tomers, both in the direct development of private label products, but also in relation to general product development to customer preferences. The size of the customers also implies that they are in a relatively good bargaining position as mentioned in Porter’s Five Forces. Sales to export markets are further promoted by Landbrug

& Fødevarer through promotion of the food cluster (Landbrug & Fødevarer, 2016b).

6.4.5 Supporting activities

With limited knowledge of the internal activities, supporting activities cannot be analysed in detail. Supporting activities typically covers management, firm infrastructure and technologi-cal development (Petersen & Plenborg, 2012), and especially R&D and technologitechnologi-cal devel-opment is important in the industry. R&D in relation to product develdevel-opment takes place both internally and with customers, but also through interest association Landbrug & Fødevarer in terms of best practice in the breeding of pigs. Productivity is, as mentioned earlier, key to maintaining a competitive advantage and thus R&D in terms of quality and yield is extremely important. Similarly, technological development is critical in ensuring continued cost compet-itiveness. Comparing Tican and Danish Crown, the latter has a clear advantage in terms of size and the investments possible, especially given Tican’s current financial constraints.

The decomposition of the value chain analysis, being one of the main research areas of the thesis, ultimately found that Tican is in a fairly good position, but also that the situation is comparable to Danish Crown, who furthermore exhibit a much more better cost structure, indicating that Tican competitive strength compared to peers is moderate.