The Case In 1997 Birds Eye was losing market share in an industry they once dominated.

Over previous decades they had established themselves as the leading player in the UK frozen food industry. In 1977 the company reported a net loss of 679,000 British Pounds. This was in contrast to decades of profitability and market leadership. During the 1950s and 1960s Birds Eye had built and developed the frozen food market in the UK. Using technology developed by Clarence Birdseye, Birds Eye implemented quick freeze technology in 1938 to introduce a fresher, higher quality product to the UK consumer. After the company was bought by Unilever in 1942, the development of the frozen food industry was underway. The industry faced many challenges in the 1940s. Frozen foods were uncommon and little infrastructure was in place to facilitate the sourcing, production, and distribution of frozen food. In addition, few retailers had freezers in their stores to stock and sell frozen products. These challenges were addressed through Birds Eyes involvement in the entire supply chain. Vertical integration provided the means for the company to become very successful in the UK. Birds Eye first became involved in the sourcing and production of the raw materials. Since successful freezing requires that the food be harvested and frozen in a short period of time, Birds Eye invested in production facilities located close to the farms and ports where the food was harvested. This allowed the company to manufacture a high quality product. To further assist in quality, Birds Eye also partnered with farmers to assure the highest quality was grown and harvested. Through the establishment of SPD (Speedy Prompt Delivery), the company became involved in the storage and distribution of frozen food. This investment overcame the limited capacity of the distribution system of the 1950s. In addition, Birds Eye was also influential in getting frozen freezers to retailers. With significant investment in the infrastructure of the industry, Birds Eye was very successful in the 1950s and 1960s. By the 1970s the landscape had changed and new entrants to the market were impacting the profitability and dominance of Birds Eye. Why Birds Eye developed as a vertically integrated producer? Undeveloped Infrastructure: The frozen food market during 50s and early 60s was in its infancy with the raw material suppliers, distributors and retail stores relatively unsophisticated. The infrastructure needed to support the business was not fully developed. For the raw materials (peas), farmers needed help with investments in harvesting equipment and with farming expertise. In the distribution, retailers needed financing help with the purchases of refrigerators. In such scenario, it made sense for Birds Eye to both forward and backward integrate as it had the both the capabilities and resources to manage the entire supply chain. Rapid Growth: During the 1950s and 60s the tonnage sales were increasing at a rapid rate of 40% per annum. During such remarkable growth periods it makes sense for companies to vertically integrate so as to secure the raw materials, ramp up distribution and production capacities in order to keep up with the demand. Quality of the Product: The products sold by Birds Eye had to be high quality because of the additional overhead of freezing and the products had to be frozen at the right moment within hours to justify the premium. This requirement of the industry required producers to have control over all aspects of production.

Securing Raw Materials: Birds Eye entered the broiler chicken in 1958 and the entered the fishing industry in 1965 in order to secure its raw material supplies With vegetables they were able to closely able to integrate with farmers and were able to closely simulate vertical integration environment without the actual need to own farm facilities Prevent new competition: Owning the entire value chain meant that, entering into this market would become significantly difficult for new entrants due to high capital needs. Industry Structure: The two main competitors of Birds Eye during 50s and 60s Ross and Findus were also following the vertical integration strategy and the industry structure and maturity around this time forced the businesses to vertically integrate as they had no other choice. Competitive advantage of vertically integrated producer Control over the supply chain: A vertically integrated producer enjoyed control over the entire supply chain leading to faster reaction to increased demand. Quality of products: Since a vertically integrated producer has much better control over the quality at several points in the supply chain, they can ensure a better quality finished product. Capturing the profit margins across the value chain: Vertically integrated producers were able to capture both the upstream and downstream profits. Disadvantages: Increased overhead costs: The specialized suppliers enjoyed lower overhead costs as they were specialized in single product, which did not involve any changeover costs. On the other side vertically integrated suppliers had multiple product lines, which led to inefficiencies. Exit Barriers: The significant infrastructure capital investments by vertically integrated producers when the market was not mature prevented them exiting less profitable businesses