Sample 1

Brazil Foods Situational Analysis In 2011, Brazil Foods CEO starts one of the most important phases of his career and his company’s expansion. After approval by CADE for the merger of Perdigão and Sadia, newborn Brazil Foods must now define its domestic/international strategy to achieve the 2015 objectives.

Where are we now? Brazilian Market The Brazilian economy is growing, and that is being felt in the food sector. As people move to the big cities to work, they have both more disposable income, and less time to cook. These conditions are boosting demand for frozen foods & quick meals. Agricultural reforms and investment have transformed brazils unfertile plains into good land for harvesting as well as growing cattle. These market conditions lay big opportunities and growth chances for BRF, which are further explained in the following SWOT analysis: Strengths • • • • • • • Brazil economy expands 7,5% a year Consumers have more disposable income Demand for processed food and food services is increasing Perdigão and Sadia are strong and valuable brands Operational know-­‐how Brazil agricultural sector experiencing extreme development Brazil is expected to be one of the main food suppliers to the world in the next decades Room for development: Brazil is currently using only about 15% of its potential arable area • • Weaknesses • CADE restrictions for domestic market

Opportunities

Threats CADE Ruling may restrict future domestic growth Current business model may be unfeasible if BFR continues to grow domestically (BRF relies on individual meat producers)

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International Market BRF was able to integrate Perdigão and Sadias exports before the CADE ruling, and was able to create important synergies, exporting to more than 140 countries worldwide. However, It did not have any operations in those countries – selling its products through wholesalers.

Sample 1 This meant is was hard for BRF to export anything other that frozen foods, due to the low shelf time of its other products and the complex supply chain they implied. Their exports accounted for 9.2R$ billion in 2010, nearly 40% of revenues.

Where do we want to go? Mr. Fay set an ambitious objective for Brazil Foods: to double revenue from R$22,7 billion to R$50 billion in five years. In order to achieve this target BFR would: • • • Expand domestically within the CADE restrictions, mainly in the food services area, selling products as unprocessed meats and margarine. Expand internationally using the same business model as in Brazil Develop vertically integrated operations in areas as China, India, Middle East and Africa. 1) Domestic Expansion BRF is restricted in its domestic expansion due to the CADE restrictions, which oblige it to sell assets and factories and stop selling some Perdigão products for 3-­‐5 years. At the moment they are diversifying their business into BRF already has strong market shares (60% to 80%) in their domestic market. They are now working to keep those market shares and further increase their brand value for the Brazilian customer. With the approved merger, they will now be able to fully profit from the created synergies and develop know-­‐how, cost reductions, and optimization processes to both: • • Reduce costs and strengthen their position in Brazil Apply new knowledge and synergies to their new markets abroad.

2) International Expansion The next step to BRF is to become a true multinational, by creating a vertically integrated supply chain in other countries. With this business model they will be able to: • • • • • Sell all their range of products, besides frozen foods Explore and source local raw materials Create infrastructure to export to neighbor countries in near future Move closer to the retailer and the consumer Extract more value from each product.

BRFs plan is to create operations in China, India, Middle East and Africa. However, given the lack of infrastructure in some African countries and parts India and China, this may prove a challenge.

Sample 1 • • Some of these countries have undeveloped cold supply chains – BRF will have to create the whole infrastructure Health and Safety rules mean this supply chain and processes will have to keep a high level of quality and respect all regulations – specially since BFR intends to use those production facilities to export to neighbor countries But there are advantages and opportunities as well: • • • China and India have consumption and demographic patterns similar to Brazil The Chinese government will have to partner up with foreign suppliers like BRF to keep up with food demand from growing population The Chinese consumer cannot afford fresh meat (yet), which opens a big new market for BRF.

On conclusion

Where we are:

• Brazilian market growing but restricted with CADE ruling • BRF holds strong market shares in Brazil, in products as Frozen or Chilled processed foods, and dairy products. • Merger between Perdigão and Sadia gives enough scale for going global.

Where we want to go: • Double revenue to R$50 billion in 5 years • Expand operabons to Labn america, Africa, Middle East, India and China • Develop processing and distribubon facilibes on these countries • Diversify range of ofered products • Extract more value from each product sold abroad • Aquire strong brands in foreign markets (products sold should be as local as possible)

How to get there (what to expect) • Usage of valuable know how • Same business model • Development of verbcally integrated supply chain • Establish localy with strong/valuable brands (either local or Perdix/Sadia) • Maintain current posibon in domesbc market through cost efficiency, diversificabon and new products, opbmizabon of business model