Seneca Foods Strategy Essay
- Length: 10 pages
- Sources: 5
- Subject: Agriculture
- Type: Essay
- Paper: #35801576
Excerpt from Essay :
Seneca Foods was founded in 1949 and is a producer of canned, frozen and bottled foods for the supermarket trade, often under store labels. In 2013, Seneca posted $1.27 billion in sales and net income of $41.4 million. The company is in the mature stage of growth for both itself and the industry, growing mainly with increases in population and inflation. The company's operations are subject to variability from weather, which affects the crops at the heart of the supply chain, and the seasonality of the industry.
Internally, Seneca has a strong supply chain, wherein it contracts with farmers to ensure supply of critical fruits and vegetables for its products. That said, Seneca remains quite small compared with many of its competitors, as Seneca mainly sells in the U.S. And has few major brands. Larger competitors sell globally and have individual brands as large as Seneca's entire operation. One of the other key strengths of Seneca is its seeds. The company acquired a seed facility and this has allowed Seneca to maintain control over its seed stock, some of which is now proprietary.
The current problem facing Seneca relates to the maturity of the industry and intense competition from larger companies. These factors are driving down the price of the goods that Seneca produces, and this has created a situation where over the long run the company's margins are being squeezed. This is reflected in the company's financial results. Most major measures, from revenue per share to ROE, have declined in recent years. The company is eyeing a growth strategy to accomplish a couple of things. One is to bring it into markets with more growth potential or at least the potential to expand margins, and the other is to bring some positive returns to the shareholders.
Mergers and acquisitions is the primary driver of growth in mature industries, and for that reason Seneca is targeting M&A as a strategy for its own growth. There are risks to this strategy, however, and many mergers and acquisitions fail to deliver positive shareholder value. The company has also explored diversification as a growth strategy, but there are risks in moving too far from a company's core business. A third option is that Seneca can expand into overseas production in order to lower the costs in its supply chain.
It is recommended that Seneca Foods look to offshore production contracts in order to lower costs throughout its supply chain. This tactic fits with the company's overall competencies that is has already developed. This strategy is not without its risks -- it requires doing some things in which it has no experience -- but provides genuine growth opportunity and more correctly aligns core competencies with strategy.
Founded in 1949, Seneca Foods is a food processing company that primarily makes canned, frozen, and bottled fruit and vegetable products as well as snack chips, sauces and gravies. The company has 21 processing centers located in the Northeastern, Midwestern, and Northwestern regions of the United States and "currently contracts with approximately 2,000 local vegetable growers for over 200,000 acres and up to 175 fruit growers for over 10,000 acres." ("Farming Operations") Products offered by Seneca Foods come under the labels of Libby's, Aunt Nellie's Farm Kitchen, Stokely's, Read, Festal and Blue Boy. In the year 2013, Seneca Foods posted net sales of $1.27 billion, an increase of 1.5% over the $1.25 billion in sales in 2012. ("Seneca 2013 Annual Report") However, while sales increased only 1.5%, the overall earning posted by Seneca reached $41.4 million in 2012; and increase of 267.9% from its 2012 profits of just over $11 million. ("Seneca 2013 Annual Report").
Seneca Foods Corporation is a food processing company that realizes 99% of its net sales comes from food processing. At the end of the 2011 fiscal year, the canned vegetables represent 72% of the company sales, frozen fruit represents 11% and fruit products represents 16%. However, non-food processing sales represent 1%, and the company realizes 10% of its net sales from its brands at the end of the 2011 fiscal year. Recently, the company is facing challenges to record growth because of changing in people's food habits. Typically, the company is recording lower earnings and sales because of the decline in the selling prices of the company's core commodities. For example, the revenue per share declines from $167.2 in 2009 to $113.7 in 2013. Moreover, return on equity (ROE) declines from 11.28% in 2013 to 3.50% in 2014. The company net margin declines from 3.24% in 2013 to 1.03% in 2014. Typically, the company is facing challenges to keep its costs down because the costs of goods sold keep rising year after year. Seneca Foods is required to design a growth strategy to increase profitability. The paper evaluates the alternative growth strategies that Seneca Foods can consider.
Mission, Vision and Value Statements
Seneca does not label any specific mission, vision or value statements. They do provide similar statements, however, on their website. The following can be considered a mission statement:
"At Seneca, we believe that everyone deserves year-round access to great-tasting food that's also great for you. That's why we're bringing families and organizations all over the world real food that's nutritious, affordable, and delicious."
("About Us," Seneca.com)
The following statements provides insight into the values that drive the company:
We source the majority of our high-quality fruits and vegetables from over 3,000 American farms in order to support agriculture and employment here in the U.S.A. Since our first days in 1949, we've been dedicated to our fantastic customers, growers, suppliers, and to each and every one of our 3,500 loyal employees.
("About Us," Seneca.com)
As Seneca Foods primarily sells fruit and vegetable products, the company is wholly dependent upon the climate and weather for the amount of produce grown. In fact, the weather is probably the most important external factor that affects Seneca Foods and it's profit potential. As the weather is beyond the control of the company, but still affects the company's decision making process as well as its plans for the future, the weather can be considered the company's most important external factor in terms of its remote operating environment. If the weather is good, for example, crops will be abundant and the company can make its decisions based on the abundance of produce. On the other hand, if there is a drought, or the weather is bad in some other way the crops will be poor and the company must factor this into its decision-making. In either case, the weather is completely out of the control of the company and Seneca Foods is at its mercy.
As for the most important factor in terms of the industry environment, the seasonal cycle is the one factor that affects and regulates all growers, packers, and distributors of agricultural produce like Seneca Foods. There are four quarters in a company's financial year but as the first and fourth quarters coincide with winter in much of the United States, a time not conducive to agricultural production, Seneca's net sales drop accordingly. In 2013, Seneca Foods posted only $231 million in sales in the first quarter and $274 million in the fourth. But the second and third quarters are prime agricultural production time with 2013 net sales of $317 million and $452 million respectively. ("Seneca 2013 Annual Report") And since all agricultural producers in the United States are limited by the same seasonal cycle, the seasonal cycle is a factor that affects and regulates all in the industry.
Because Seneca Foods produces and sells agricultural products, and because these products are dependent upon the weather and seasonal cycle, both of these related factors can be considered the most important factors affecting the external operating environment. These factors not only influence Seneca Food's activities and choices, but also its opportunities and risks for the future. Season and weather affect the overall output of agricultural produce and determines which products are needed in what form to best meet projected sales. This in turn influences the company's choices in terms of production and promotion as well as the company's opportunities for expansion into new markets or the promotion of new products.
Internal Strengths and Weaknesses
But when it comes to internal strengths, Seneca's greatest strength comes from its farming operations. The company has contracted with fruit and vegetable growers across the nation in such states as California, Idaho, Illinois, Minnesota, New York, Pennsylvania, and Washington. This allows Seneca to follow the seasonal patterns across the nation and continually produce all year round. It also allows for a more diversified number of products as different regions specialize in different produce. And by having growers near to the production facilities, produce can be processed quicker and maintain freshness. However, as farms are completely dependent upon the weather, farming operations can also be a major weakness for Seneca. While some weather can be alleviated, for example sprinklers can help in droughts, unpredictable weather can…