Since goods and services are limited, manufacturers need to make prudent decisions on what to produce, for whom to produce, and how to produce the given products considering the scarce resources for production. These decisions are essential for manufacturing companies to make a profit. This paper provides a microeconomic analysis of Pilgrim's pride corporation. The paper analyses the company's supply and demand conditions, its production cost and provides overall market analysis to help give the company recommendation on how it can improve its future production based on these analyses.
Pilgrim’s History
Pilgrim's is a leading provider of high-quality food products that include value-added premium products and well-recognized brands. It is one of the largest poultry producers as well as fully integrated pork producers in the US and the world. The company has been providing wholesome and quality products to consumers and customers for more than seventy years.
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The company has a team of 58,000 members who have taken great pride in the daily provision of more than 133 million protein to restaurants, retailers, food service providers, and consumers worldwide (Pilgrim's Global, 2020) . It has twenty-seven facilities for prepared foods and thirty-nine production facilities in the fourteen US states, the United Kingdom, Puerto Rico, Mexico, and Europe. The company has been proud to be in partnership with more than 4,900 family poultry farms and more than 300 family farms for hog and lamb supplies.
Besides, Pilgrim’s also owns Moy Park, a leading poultry and prepared food company in the United Kingdom and Europe. It also owns Tulip Limited, which is the top pork and prepared food company in the UK. Being a global team, Pilgrim process, prepare, package, and deliver fresh, frozen, and value-added products in over one hundred countries. The company's vision acts as the guide for everything the company does to be the best and most respected company within the industry. It also offers an opportunity for their team to have a better future.
Pilgrim’s supply and demand conditions
Pilgrim’s Pride Corp. customer base is spread across one hundred countries, including Mexico and the US. According to Jones (2020) , together, they contribute 92% of the company’s revenues at the end of 2013. The company has more than 5000 customers, but no customer accounts for over 7% of its revenues apart from Walmart. Walmart contributed 9.7% of the 2013 sales. The company's customers are categorized into three; foodservice players, retail players, and distributors. The foodservice players include Popeye's, Burger King, and Yum. The company supplies them with prepared chicken, including chicken strips, marinated chicken, marked chicken, and chicken that are fully cooked.
The company's retail players include discount retail shops and clubs, supermarkets, and delis such as Costco and Safeway. Besides, the company also reaches out to grocers through the company's distributors. These players' products include fresh, frozen, and fully cooked chicken products such as chicken sliders and chicken wings. On the other hand, Pilgrim’s Pride Corp. also works with distributors like Sysco which is regarded as the US Foods’ parent. These distributors help bridge the gap between large food producers and commercial food preparation establishments such as restaurants.
According to CSI Market (2020) , Pilgrim’s Pride Corp. customers experienced their revenue deteriorating by 21.39% in the third quarter of 2020 compared to 2019. That means that the cost of revenue grew sequentially by 10.6%. For the same period that the company recorded an increase in revenue by 10.7% yearly, the revenue sequentially grew by 8.89%. Furthermore, it is also noted that the company’s customers’ net income dropped by 50.49 and the customers’ net margin also dropped to 4.36% in the third quarter of 2020
Furthermore, the company's annual sales and revenue data over the last five years are presented in the table below.
| Year | 2015 | 2016 | 2017 | 2018 | 2019 |
| Revenue (Billion Dollars) | 8.2 | 7.9 | 10.8 | 10.9 | 11.4 |
| Sales (Billion Dollars) | 2.05 | 2.03 | 2.48 | 2.75 | 2.82 |
The company's legacy European operations have improved the consumer's spending by an increase in operational efficiencies, investment in automation, putting much focus on getting higher yields, and employing better mitigation of inputs. For instance, the company's European business rose by 7% in 2019 due to the above factors (Globe Newswire, 2020) . Besides, the company has also been using robotic and X-ray technology for chicken processing to reduce labor intensity in the production process to help the company challenge a tight labor market and increase its supply. Furthermore, the company’s main competitors include Smithfield, Tyson Foods, Perdue Farms, and Sanderson Farms.
Price Elasticity of Demand
Pilgrim’s Pride Corp. stock performance relative to its customers in 2020
| item | Jan | Feb | March | April | May | June | July | Aug | Sep | Oct |
| Customers (%) | 12.06 | 13.78 | 1.92 | -20.98 | 5.15 | 22.24 | 20.67 | 29.36 | 52.13 | 42.01 |
| Stock price ($) | 32.29 | 27.02 | 21.46 | 17.71 | 20.7 | 20.87 | 16.73 | 15.12 | 15.89 | 15.155 |
From the table, it is evident that the company's stock price has not been constant. As a result, customers' percentage has also been changing over the months in 2020. It can be projected that by the end of 2020, the company's stock price will be 17.0, resulting in 48.9% of the customers. That shows that the cost of Pilgrim's product is elastic. A small change in price results in a change in quantity demanded, hence the percentage of customers, as shown in the table.
Several factors bring about these changes in consumer responsiveness to price. Some of these include the availability of competitive firms in the industry, providing substitute products. Demand for products with several substitutes is highly elastic. For instance, Pilgrim's significant competitors such as Smithfield, Tyson Foods, Perdue Farms, and Sanderson farms, provide substitute products to the Pilgrim's chicken products. As a result, any changes in Pilgrim's products' price lead to changes in its demand.
The price elasticity of the company’s chicken products explains how changes in price and their demand relate. These two factors interact to bring an effect on the company’s total revenue. Should Pilgrim’s reduce its price level, the percentage drop in the price leads to a larger quantity of sales at that particular time since the lower prices attract several consumers. As a result, Pilgrim's total revenue increases.
Costs of Production
| Year | 2015 | 2016 | 2017 | 2018 | 2019 |
| COGS (Billions) | 6.95 | 8.77 | 9.3 | 10.07 | 10.31 |
| Expenses (Millions) | 203.88 | 310.83 | 389.52 | 343.03 | 397.91 |
The table shows a general increasing trend in the cost of goods sold (COGS). That resulted from rising prices of supplies such as chicken as the primary raw material and decreased revenue. For instance, Pilgrim's sales cost has been in an increasing trend due to the effect of increased cost per pound and increased sales volume yearly (Market screener, 2020) . Similarly, the company's expenses have also been growing in millions for five years of financial analysis. However, the expenses have been growing by a lower margin. This increase in the production cost and an increase in a lower margin increase in expenses has resulted in the company's growing profit across the five years.
Pilgrim’s fixed costs are mainly contributed by the raw materials needed for the production of finished products. That includes the supply of poultry and pigs for the production of pork and chicken. Other fixed costs in the company's production process include the cost of labor and transport costs. They are costs that change depending on the company's production quantity. On the other hand, the company also experience fixed costs. These fixed do not change regardless of the company's amount of production. In the case of Pilgrim's pride, these costs include rental payments, insurance, and interest payments.
Overall Market
| Year | 2015 | 2016 | 2017 | 2018 | 2019 |
| Industry production (Million pounds) | 30673 | 40142 | 40809 | 41751 | 42684 |
| Sales (Billion Dollars) | 2.05 | 2.03 | 2.48 | 2.75 | 2.82 |
The table's data shows that Poultry Industry sales in the US for five years, beginning in 2015, and Pilgrim's sales for the same period. From the data, the company's market share can be determined. However, it is also indicated that the Pilgrim’s company shares 4.7% of the total market sales ( Csimarket, 2020 ).
In this market, one of the market barriers is uncertain quality and high prices of poultry as raw materials for the production of the foods. This barrier acts as a shield to the already existing firms, such as Pilgrim's pride industry. The firms have already established themselves, and they understand the trends in the market.
Recommendation.
From the analysis of the company's supply and cost, the company should develop a better production strategy that enables high supply but low cost. Some determinants of fixed costs such as the cost of supplies, should be considered. For instance, Pilgrims should consider using suppliers offering better supply costs to reduce the cost of production. That will help the company maximize its profit.
References
Corporation. (2020). Pilgrim’s Pride Closes Fiscal Year 2019 with Net Sales of $11.41 Billion, Operating Income of $691 Million and GAAP EPS of $1.83, an 83% increase over the $1.00 in Fiscal Year 2018 . GlobeNewswire News Room. Retrieved 7 November 2020, from https://www.globenewswire.com/news-release/2020/02/20/1988350/0/en/Pilgrim-s-Pride-Closes-Fiscal-Year-2019-with-Net-Sales-of-11-41-Billion-Operating-Income-of-691-Million-and-GAAP-EPS-of-1-83-an-83-increase-over-the-1-00-in-Fiscal-Year-2018.html.
Csimarket. (2020). Pilgrim S Pride Customers by Division and Industry - CSIMarket . Csimarket.com. Retrieved 7 November 2020, from https://csimarket.com/stocks/markets_glance.php?code=PPC.
Globe Newswire. (2020). Pilgrim’s Pride Closes Fiscal Year 2019 with Net Sales of $11.41 Billion, Operating Income of $691 Million and GAAP EPS of $1.83, an 83% increase over the $1.00 in Fiscal Year 2018 . GlobeNewswire News Room. Retrieved 7 November 2020, from https://www.globenewswire.com/news-release/2020/02/20/1988350/0/en/Pilgrim-s-Pride-Closes-Fiscal-Year-2019-with-Net-Sales-of-11-41-Billion-Operating-Income-of-691-Million-and-GAAP-EPS-of-1-83-an-83-increase-over-the-1-00-in-Fiscal-Year-2018.html.
Jones, A. (2020). Pilgrim’s Pride Corporation’s three customer categories . Market Realist. Retrieved 7 November 2020, from https://marketrealist.com/2014/11/pilgrims-pride-corporations-three-customer-categories/.
Market screener. (2020). Pilgrim Pride : PILGRIMS PRIDE CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q) | MarketScreener . Marketscreener.com. Retrieved from https://www.marketscreener.com/quote/stock/PILGRIM-S-PRIDE-CORPORATI-12243603/news/Pilgrim-Pride-PILGRIMS-PRIDE-CORP-MANAGEMENT-S-DISCUSSION-AND-ANALYSIS-OF-FINANCIAL-CONDITION-AND-30502726/.
Pilgrim's Global. (2020). About Us - Pilgrim's Global . Pilgrim's Global. Retrieved 7 November 2020, from https://www.pilgrims.com/about-us/.
