Brent Professor Gloy Agribusiness Strategy AEM 427 10/20/2008
Nest Fresh Eggs (A)
(Response) Why Change Strategy Nest Fresh began its operations as a 100% cage-free producer of eggs in 1991, continuing to realize substantial growth through 2004; however, in 2005 the market place began to change and nest fresh saw its first drop in profit in over 14 years of operating. The cage free business, due to the higher cost of operations, sold eggs in the market at a premium to eggs produced from caged conditions. Many of the larger players were beginning to realize this trend. Consumers were willing to pay a premium of up to 300% for eggs produced under the cage-free conditions. To Nest Fresh, cage-free was always just the right thing to do, but to these larger companies such as Land O Lakes, Rose Acre, and Cal-Maine Foods, cage-free became just another way for them to boost their bottom lines. With these larger players entering the cage-free market, Nest Fresh would have to adopt a new strategy in order to remain competitive. The top three competitors combined had nearly 63 million hens in their facilities compared to Nest Fresh which only had around 300 thousand in their facilities. This meant even worse news for Nest Fresh. The larger companies began employing strategies of caged and non-caged production methods. This way they were able to benefit from the margins of the caged industry and apply them to cutting cost in the non-caged market. That way they were able to offer non-caged eggs a premium to their caged eggs, but still below the prices set by Nest Fresh and other small producers of eggs. Prior to these larger egg companies entering the cage free market Nest Fresh had other problems to deal with. The egg market was both regional and seasonal. This meant they needed to figure out ways to supply their customers on a national level, and be able to meet demand needs when they spiked around the winter time. Nest Fresh had been relying on pure guarantees in order to enter into the larger supermarket chains they felt were necessary in their continued success. They needed to find ways to continually meet their demands and this was a large cost for Nest Fresh. On top of everything else were new products entering the market that claimed to be healthier, or more organic. There products were said to come from hens who had been fed special feed in order to decrease the amount of cholesterol found in most eggs. This meant even more competition in a relatively already competitive market. Nest Fresh was being hit from all sides and it was really beginning to be hard to maintain a balance between their values and ethics, while trying to maintain a working, profitable organization.
Strategy 1- Education Nest Fresh recognized societies concern for the proper treatment of animals early in the game. They developed Nest Fresh on the principles of providing food for people and the human treatment of hens. This strategy was proven to be sound and highly profitable, as seen in Nest Freshs ability to increase profits year over year having priced their eggs at a near 300% premium to other eggs sold in the market. Many of the other market players began to catch on and started to enter into the cage-free market. Many of them however still had the majority of their operations in the caged market but still wanted a piece of the cake in the cage-free market. The owner of Nest Fresh, Szymanski, stated that many of these caged-egg producers don t see any difference in the two products and sometimes will even mix the two kinds of eggs up in a supposedly cage-free carton in they are short on cage-free eggs. They look at the cage-free industry as an extension of their product line and dont care about the core values associated with care-free production methods. Moreover, the larger producers of eggs had an oversight board which imposed minor regulations with regard to the treatment of hens that Nest Fresh thought was misleading to the everyday consumer. By 2004 roughly 80% of these larger produces carried the ACC (Animal Care Certified) seal on their products. In light of these changes in the market Nest fresh sought out a new organization and agreed to be certified under their guidelines in hope that consumers would recognize the difference. The organization was the Certified Human Rights & Handled program. This program was just one of their initial steps in educating the market about the unethical practices of the other larger producers. Nest Fresh had also entered into some form of a co-op with other small producers of 100% cage-free egg products. With the combined efforts of these smaller egg companies, I believe they may be able to address the education issue with great success. They first entered into the co-op to address the problem of becoming more nation-wide in their product offerings; however this would also mean, if combined they would get their educational message across throughout the nation. The article stated that Europe had already taken a few more steps in governing the egg industry that were more in line with the way the smaller US producers conducted business. I see this trend expanding across borders and eventually reaching the US. In light of this, I feel if the smaller producer were to team up on an educational effort, not only would it cut into the profits of the larger producers while giving the smaller producers more market share, but it may also speed up the process leading to greater regulatory bodies in the US. These would both be pluses for Nest Fresh, and as I look at it the industry as a whole. There are plenty of organizations already dedicated to the education for the prevention of animal cruelty and Im sure it wouldnt be too hard to get them onboard this project as well. I know the only reason I currently buy the cheapest eggs on the market is, for one, I dont know any better, and secondly am not really sure I care. This means Nest Freshs main goals in an educational campaign would be to first make the consumer aware of these problems, and
secondly make those problems important to them so they care that something is done. Many times the best tool is fear, and as stated in the article caged-eggs have a higher percentage change of carrying some form of contaminant or disease. I feel if they were to play on these fears or others like it the American public would begin to identify with Nest Freshs values and would find reasons to care. Strategy 2- Enter Caged Market Nest Fresh, second strategy was to look into entering the caged market by teaming up with one of its primary competitors. There are some obvious red flags to this strategy. For one, Nest Fresh was founded on values that go completely against the practices used by the larger egg producers. Nest Fresh would, in the eyes of its customers, be a sellout, a sham, a complete and utter hypocrite. This could possibly cause them to lose the majority of their customer base. Moreover, how likely is the idea that one of the companies Nest Fresh has spent so much time putting down and criticizing for their inhumane practices would even contemplate bailing them out of a tough spot and agree to let them hop on board? That wouldnt really make any sense unless Nest Fresh could really prove to add to their bottom line and according to the article it didnt appear as those they had the density of to hens really affect a larger companies operations. On the other hand, if they were able to either merge or be acquired by another company they would be looking out for the best interest of the company and its employees, because although they want to continue to provide their best care practices to their loyal customers if they dont exist in the future, not only will they not be able to hold this promise, but they will also be breaking the promise of employment to their employees. They really arent in the best position, but if the opportunity presents itself, they may have to jump on it. Moreover, the article mentioned that Nest Freshs owner and CEO, Szymanski, wasnt as committed as she once had been. And when management isnt up to the task that could truly mean disaster for a company.
Strategy 3- Change Cost Structure Nest Fresh last strategy they thought about implementing was to change the cost structure to maintain their profitability. They only place there were truly established was Colorado, however, outside of Colorado they ran into many pricing problems. Nest Fresh needed a way to reduce their margins to remain competitive to the larger companies entering its space. Szymanski thought nest fresh should look into increasing the density of the hens living space while continuing to remain humane. The concept of barn eggs could be a possibility and had proven success throughout Europe. It would increase profitability and allow Nest Fresh to remain competitive.
In light of the above proposed strategy, I feel its goal may not be enough for Nest Fresh. Nest Fresh found its first niche in this market by offering a far better product that aligned with the values of their consumers. In doing this they were able to sell their products at a substantial premium. This current goal is simply trying to find a way for Nest Fresh to stay on the level of its competitors while not bringing anything new to the table. Just think, if they entered the market in 1991 simply to try and compete with these larger companies, not be better than them, they wouldnt have made it all the way to 2004. If they try to employ this strategy I dont see it getting them anywhere. They are not offering anything better than their competitors, and if you are smaller in this industry, it appears as though you must be better to compete. Best Strategy After going over the above proposed strategies for the future of Nest Fresh, I believe the one they should pursue would be the first strategy for a number of reasons. For one, this strategy is the only one which keeps in line with their core values. Nest Fresh was founded on the basis of providing food to their consumers and humane conditions for their hens. This strategy is the only one that keeps with this goal. The second strategy is a complete diversion away from these values and the third strategy employs doing what they accused the larger companies of doing. It would be unethical and not fully in line with their values. Secondly, I feel there is power in numbers. If they are able to get all of the other smaller egg producers on board as well as the many animal rights organizations out there, they will surely pose a threat to the larger producers. Education appears to be the largest obstacle in their way of continued success with Nest Fresh. And lastly, in support of the first strategy, I feel it is the only strategy which allows Nest Fresh to continue to exist. What I mean by this is that it is the only one that allows it to exist as the company it was founded to be in 1991. All the other options would cause nest fresh to almost become something that its not, and one can never be what its not even a company.
Two Strategic Efforts As stated above in my proposed strategy for Nest Fresh, I feel the two major strategic efforts Nest Fresh should set out to accomplish are to first educate through joint efforts with other smaller egg produces and animal rights organizations, and secondly to find a way to make this issue matter to the consumers within the market. If they are able to implement these jchanges in a timely manner it would enable Nest Fresh to stay true to its values and mission while also increasing profitability. Forming a joint effort between other smaller egg producers who practice 100% cage-free operations and animal rights organizations should be first on the list. I feel they should reinvest all earnings into a country wide marketing campaign that connects the harsh treatment of animals those companies who employ practices other than 100% cage free. The campaign should almost be ran as a company all its own, with the sole goal to be education and linking of the larger companies to the mistreatment of animals. Every form of media should be utilized to get this message across and there should be a centralized location for decisions to be made and then distributed across the country to the many different participants in the campaign. With a bit of timing, once people are beginning to take notice of these campaigns, they should then introduce the kicker or fear factor. The fear factor would accomplish the goal of making people care. President Bush was able to play on Americans fears when he said it was necessary to go at war with these terrorist and stated they had weapons of mass destruction. This was a sure fire way to gain the support of almost all Americans to enter into this war but in the end there turned out to be no weapons of mass destruction. The difference here is that Nest Fresh will only play on the fears true to the issue at hand. They will not make up false evidence or notions against these larger egg producers, but will have to go out and find examples of cases where such treatments of animals has caused harm to the consumer. They should use all the tools at their disposal and really harp or any diseases or illnesses brought on from the consumption of the larger egg producers eggs. They need to find a way to burn within the minds of consumers the idea that any eggs other than eggs produced by a 100% cage free facility will cause them to come down with one of these illnesses or contract one of these diseases. The importance of accomplishing these strategic goals is absolutely essential to the continued success of Nest Fresh. If they are unable to first educate and then really relate to the consumer, the consumer will find no value in their products. The reason they were able to charge the 300% premium in the first place is because they provided a value to the customer which they could not get anywhere else. They must be able to recreate that value through their campaign advertisements and message. Once they have done this it may cause a remarkable change throughout the entire industry. Larger companies may then turn to Nest Fresh for consulting on how to turn their business operations to be more in line with the public interest generated through Nest Fresh marketing efforts. That would be a best case scenario, however, but in a worst case scenario, what is that worst that could happen. More than likely they wont
go completely out of business because if worse comes to worse they could always sell out and become a caged producer, but that should not be the first strategy. They should try and figure out another way first and I believe this to be the best way; first educate and then make people care.