HBS case study 3: Hungerit

Source: http://www.hungerit.hu/hu/public/

Domestic Market Analyze

The poultry consumption in Hungary decreased 19.1 percent to 276,000 tons from 2000 to 2007(Table 1). The human population also went down from 10.2 millions in 2000 to 10.0 millions in 2010 and forecast to reduce to 9.9 millions in 2015. As a result, the demand of poultry in Hungary was declined. However, the production of poultry meat in Hungary increased 3.8 percent to 490,000 tons from 2001 to 2006 (Table 2). Hungry already can be sufficient by itself in poultry market from 2000 to 2004 (Table 3) and has more production to export to other countries.

Table 1: Human population of Europe and poultry meat consumption

Source: FAO

Table 2: production of poultry meat (in 1000 tons) in EU countries

Source: http://www.healthy- poultry.org/Results%20of%20the%20project/chapter3.pdf

Table 3:  Self sufficiency rate (%) for poultry meat in EU countries: The self-sufficient rate shows which country has an oversupply (higher than 100) or shortage (lower than 100) of poultry meat.

Source: http://www.healthy- poultry.org/Results%20of%20the%20project/chapter3.pdf

Domestic competitors

There were four large poultry processing companies in Hungry including SaGa Foods Rt, Mast-Good, Gallicoop and Hungerit. The shares of domestic poultry sales are N/A, 11.2%, 6.1% and 5.7% respectively in 2008. On the other hand, the shares of export poultry sales are 17.4%, N/A, 8.2% and 14.4% separately in 2008. Hungerit has more market share in export than in domestic market. Mast-good is the biggest competitor in the domestic market.

International Market Analyze

The EU plays an important role in chicken consumption market in the world. From 1999 through 2006, the EU constituted 14% of the world share of chicken consumption. According to the data published by FAO (Food and Agriculture Organization of Union Nations) described that poultry consumption in the Europe has increased dramatically from 2000 to 2007 in the uptake in Eastern Europe countries. The consumption in Europe of around 20.3 kg per person per year is more than the global average, only 12.6kg in 2007(Figure 1). As a result, the poultry market in EU has huge demand.  

Although the demand of poultry in EU was increasing, almost every country in EU produced poultry by itself (Figure 2). The countries importing poultry in EU are Austria, Greece, Sweden, Czech Republic, Germany and the UK. However, Northlands, Belgium, Denmark, France and Poland export the poultry to other countries. The production in Germany doesn’t afford the demand so Germany is the largest importing country in EU. The UK has the second largest importing market. The Netherlands is mainly exporting fresh poultry meat to Germany and the UK. In addition, they also import deboned frozen poultry meat from outside the EU (Brazil and Thailand).

About 15% of Hungarian poultry production was exported and three-fourths of poultry exports went to other EU countries. 75% of the poultry exporting to EU exported to Germany. As a result, Germany is the target market and the biggest competitor in EU is Netherlands and outside the EU are Brazil and Thailand.

Figure 1: Per-capita poultry meat consumption in the Europe compared to the global average

Source: www.thepoultrysite.com/articles/1793/european-chicken-meat-consumption-trends-2010

Figure 2: Production, export and import of poultry meat in EU countries.

Source: http://www.healthy-poultry.org/Results%20of%20the%20project/chapter3.pdf

Advantages in Hungary

Hungary is located in the middle of Europe. It is so convenient to transport or deliver the goods to all of Europe from Hungary and to serve the emerging Central and Eastern European because of geography and familiarity with the demographics. As a result, even though Brazil and Thailand have low-cost foreign poultry imports, Hungary still has absolute predominance because shipping times from Brazil or Thailand generally prevented fresh product from being sourced. Furthermore, Hungry and Poland have the cheapest labors in EU. Hourly compensation cost in Hungry and Poland is only one tenth of Norway. The cost of producing poultry in Hungry is relatively lower than other country in EU.

Suggestion

According to the analysis of international market and domestic market, I agree that Magyar focused on the strategies in international market because of the future demand and the advantages the company had. However, the EU market is more competitive and Magyar has to spend much money improving the facilities in Hungerit and marketing because the brand was not as popular in EU as in Hungary. The company also has to do more survey to understand the cooking culture and habits in other EU countries to satisfy the need of target customers. As for domestic market, Hugerit already was a leading company in Hungary and had perfect management such as operational plan, R&D and product development, customer service and sales plans. The company can focus on the amendments in future products to fit in the change that people cook.

Holding Company or Joint Ventures

To enhance the competition with other countries in EU, Magyar wanted to organize the Hungarian processing companies into a largest holding company.  The holding company can produce nearly twice as much further processed product as now. However, associating so many companies into a holding company is much more difficult than having a joint venture with the local company in other country especially these companies are current competitors. Joint ventures and merger & Acquisition are most effective methods to enter a new country. The local company must possess certain dominant position to satisfy the company that want to enter and adapt the business environment in a new country.

Products

Hungerit only has 5.7% shares of domestic poultry sales so there still are many potential customers Magyar has to discover. As a result, Magyar not only has to focus on how to sustain the existing customers but also has to pay closed attention to the difference between the new customers and old customers to develop new products. For example, housewives and young people now do not have time to cook or even don’t know how to cook. The demand of value-added products such as breaded, stuffed, or smoked meats and the microwaveable nuggets will increase. In addition, the margins on fresh products were between 3% and 3.5 % while the margins on precooked and value-added products was 7 %, Hungerit have to focus on valued-added product market.

Responsibility

Hungerit produced 8% of the world’s foie gras each year, second to France’s 78% of worldwide production and derived about a third of its total forint annual revenues from foie gras sales. However, people start to concern the environment and treatment to raise the chickens, gooses and ducks because of higher education and the morals. Hungerit should improve the way to feed the poultry more humane instead of only thinking from a businessman. 

Small Volume and Vacuum Package

Vacuum package not only can extend the shelf life of fresh and chilled products from eight to 16 days but also can reduce the probability that bacteria entered into the food and resulted in rotting the food. Moreover, it is much easily to box the vacuum-packaging products. Besides fresh and good quality products, customers also hope low price. Reducing the size of products can meet the lower price points. In addition, the family members are less and less, small volume packaging provided that food can be finished each time and keep the food fresh.