Hungerit Case Study Case Study



Situation Synopsis

As the director of Hungerit, Jozsef Magyar wanted to find new ways to increase the company’s profitability. Born in Szentes, Magyar graduated from university in Szeged with a degree in agricultural engineering. When he was 26 years old, he moved back to his hometown with his wife and found a job at Szentes Poultry Processing Enterprise. Due to the company’s low stock price, Magyar seized the opportunity to buy part of the company, eventually buying the entire company in a matter of years. Right now, Hungerit enjoys smooth operation, but due to high competition both indomestic and international markets, increasing feeding costs, and a strong froint, Magyar is attempting to find new ways to increase the company’s profitability. His goal is to reverse the products processing mixture to 20% primary processed products and 80% value-added products.

Company’s Current Strategy

The company’s goal is to lower its operating costs and improve the quality of its products. The company produces and sells fresh and frozen chicken, ducks, geese, and turkeys. In addition to that, it sells value added products such as microwaveable chicken nuggets. Right now, because all four large poultry processing companies (Saga Foods Rt, Hungerit, Master-Good, Gallicoop) produce value added and primary processed products, they provide significant domestic competition. Not only that, there are many international competitors like Tyson Foods and JBS that interfere with profit margins. Currently, in order to compete with other companies, the company is attempting to diversify its products as its strategy as well as lowering the raising and feeding costs of their poultry.

Problem Statement

External Analysis
In 2007, Hungerit was the largest poultry company in Hungary and was the second largest Hungarian exporter of products. From the global demand and demographic perspective, although the chicken consumption will increase by 3.92% from 2007 to 2017, the European market is saturated because the population will remain steady and not change. For example, in 2010, the population growth rate is only 0.098%, but the growth rate for China is 0.49%, which is five times higher than in the European Union. Compared to the European Union, China, Mexico, and India are all good places for the company to expand its markets, due to their huge projected increases in population. According to predictions, these three countries’levels of poultry consumption will increase by 18.42%, 14.75%,and 17.76% in 2017. From the political perspective, after the Communist government was dissolved in Hungary in 1989, the new government decreased the subsidies of feeding costs, increasing the costs experienced by Hungerit. Also, due to the high number of substitutes found in the company’s products, competition is very high. There are many brands and products the consumers can choose, making securing loyal customers difficult.

Key Success factors

1.The company needs to continuously research new value-added products, such as adding new flavor to existing products.
2.The company should increase employees’ working skills and knowledge, which can improve their working efficiency.

Strengths of Key Competitors

1.Tyson Foods – the largest processor of diversified meat in the world, has a significant market share and huge infrastructure.
2. Perdigao S/A – the company began in the European Union, and had vertically integrated farming and processing operation.
3. Master-Good Ltd.- Possesses the largest broiler chicken production capacity in Hungary, and occupies 11.2% of domestic market shares of poultry sales.
4. Saga Foods Rt.- Possesses the largest poultry export sales in Hungary at 17.74%.

Internal Analysis

Operating analysis
Hungerits core competency was operating on a mostly vertically integrated business, processing around 18 million birds a year. In 2007, in order to increase the capacity and match the economies of scale, the company added new product lines and machines which can decrease labor costs and make products stay fresh longer. For example, the company adopted a chopping line and molding machine in 2007, as well as a vacuum-packaging line later that year. This new equipment can improve the efficiency of production and save labor costs. Until now, the firm did not have any proprietary technology because it is not a high-technology firm. All the products the company has sold are considered to be of high quality. The company also has strict control over all processes, including feeding and slaughtering.

Managerial Preference/ Values Analysis

Magyar, the director of the company, set up an operating plan for next year with an internal board of directors. For the operating plan, the supervisor needed to expect changes in the euro-froint exchange, and the exporter manager then predicted the demand in the future. For Hungerit, Magyar owned 43.50% and his family owned 21.25%. BASC-TAK owned 29.85% and a German owned 5.85%. Due to the amicable relationship between Magyar and other company owners, many decisions were simply made by phone and accomplished within twenty-four hours.

Marketing and competitive position

In 2004, the total revenue for the company was $24,471,000, and in 2007, the total revenue was $33,685,000. From the number, we can see that sales have increased by 37.65%. In order to make more people living outside Hungary recognize the brand, the company should increase their advertising presence to an international scale. According to the company’s domestic market share, Hungerit was not the market leader, falling behind both Master-Good and Galiicoop in sales.
Given this internal analysis, I think the company should change its marketing strategy and market its products more aggressively and pervasively. Also, in order to expand the business, the company should introduce new technology from other countries, such as new feeding materials.

Appraisal of Strategic Issues

Strategic Issues
The company still has many problems – the production line is not fit for expansion, labor costs will increase in the future, and sometimes the decision making process is too easily made, with insufficient regulations followed and research performed. Also, the company suffers from weak marketing and poor exposure. As the whole industry, compared to beef and pork, the conversion rate is very high; poultry industry is still preferred for many producers in short-run. However, in the long run, customers’ preference cannot be adequately anticipated, due to the sheer amount of competition. After losing the advantages of low labor costs, Hungerit should find new ways to control its costs, perhaps through the investigation of economies of scale. Furthermore, due to the company establishing six Factory Stores which sold fresh meat instead of frozen, Hungerit established a new and innovative market strategy in the industry. Because of this, there is a great potential for high revenue in the future.

Evaluation of Current Strategy & Strategy Fit

Hungerit currently has an acceptable market strategy. The high quality products fit the needs of most people in its consumer base, and their Factory Stores are good ways to attract new customers. Furthermore, expanding strategy would be good for the company’s development. Due to the steady and stagnant projected future of the population of Europe, expanding markets to China, Mexico, or other countries are good ways to increase profitability and improve on their existing consumer base.

Works Cited

Bell, D.E., Morton, S., and Shelman, M. “Hungerit.”