Pilgrim’s Pride Corporation: A Microeconomic Analysis

Regardless of which industry the business operates and the kind of products and services the business sells, the consumer forms the most important part of the business. Customer demand informs the supply. The supply, in turn, informs the sales, and the sales, in turn, inform the markup and profit margins. Research has shown that the most successful marketing campaigns are those that take into account the customers' views, wants, and preferences (Payne, 1994). Excellent customer service by firms will create increasing demand from the consumer. Pilgrim's pride corporation is among the largest producers of fresh chicken in the world, with base operations based mainly in the United States, Mexico, and in Puerto Rico. The firm engages in the production, processing, packaging, marketing, freight, and distribution of farm-fresh, frozen, or value-added chicken and chicken products such as whole cut-up chicken, whole chicken, selected chicken parts, marinated chicken, non-marinated chicken, fully cooked chicken, ready to cook chicken, frozen chicken parts, chicken strips, chicken nuggets and chicken patties to wholesalers and retailers, distributors as well as foodservice operators. Apart from chicken products, pilgrim's Pride Corporation (PPC) also offers other food products supplied to consumers through efficient national and international channels. For this discussion, however, we will focus chiefly on the chicken products for PPC and how it affects the supply and demand conditions as well as the price elasticity of demand. 

Demand Conditions 

PPC markets its array of farm fresh value-added chicken products to a pool of over 5000 customers located mainly in the United States, Mexico, and Puerto Rico. Approximately 90 other countries import PPC's chicken products in bulk, which means that the brand keeps growing. No single customer from the 5000 accounts for 10% of the total sales by the company. 

Customers for Pilgrim’s Pride Corporation data 

Customer name	Market cap	total revenues (2019)	Net income	employees
Planet Green Holdings Corp	1	4	0	3,150
Darden Restaurants Inc	14,392	7,200	-187	150,000
Starbucks Corporation	117,109	23,518	925	238,000
The Wendy s Company	5,180	1,687	106	31,200
Yum Brands Inc	32,969	5,603	2,125	537,000
Mcdonalds Corp	163,748	19,243	4,926	420,000
Chipotle Mexican Grill inc	36,927	5,817	237	53,090
Mamamancinis Holdings Inc	65	41	2	500

Compared to PPC, only three companies had larger net revenues. Walmart Inc. was one of the largest sellers of PPC's products, accounting for nearly 9.7% of total sales (2013) up until recently when Walmart accused PPCD of price-fixing. This resulted in a $110M suit, which had negative repercussions on the company's financial outcomes and consequently a tarnished reputation with several of its customers worldwide. Mexico and the US accounted for 14.9% of total sales by PPC. By industry, PPC experienced a 79.76% revenue growth from the fo9od processing industry, but a stern revenue decline of 4.81% in the restaurant and food operator industry. PPC has a total market share (100%) with the companies listed in the above table except for Darden Restaurant Inc. in 2018, PPC's US market sales revenue accounted for $1.8 billion of the total sales revenue compared to $93 million the previous year. 

Supply Conditions 

With the demand for Pilgrim's products growing at a rapid rate on both the domestic and international stage, PPC has efficient supply chains to meet this demand. The integrated company controls all phases of the production, processing, and distribution processes to ensure that all products meet the prescribed safety and quality standards and that there is effective control of customer service. PPC operates feed mills, hatcheries, processing plants, and distribution depots across 12 states in the United States, several in Puerto Rico, and the rest in Mexico. The processing plants and distribution centers are strategically located to ensure that all customers receive the timely delivery of products without losing freshness. PPC, consistent with the mandate to supply the ever-growing demand for their wide array of products, possesses nearly 4,130 growers, 40 hatcheries, 35 feed mills, over 30 processing plants, 23 distribution centers, 3 pet food plants, 6 cook food plants, and an 800 truck fleet to facilitate efficient and timely distribution. 

In Mexico, PPC is among the largest producers and distributors of chicken. Presence in Mexico has enabled PPC to access a market with fast-growing demand for chicken and other meat products. Further, PPC leverages its operational strength within the region. The trends in the Mexican market are such that most sales for chicken products in Mexico are attributed to the high demand for fresh, commodity, and market price based products, which PPC readily meets. To facilitate an efficient supply of chicken products to the Mexican market, OPPC acquired Provemex Holding Limited along with all its subsidiaries. Tyson Foods Mexico, which is a subsidiary of Provemex Limited, is a vertically integrated poultry business in Durango, Mexico. With a production capacity of 3 million chicken weekly in all three plans and a human resource of 4500 employees in all plans, offices, and 7 distribution centers, this acquisition places PPC at a vantage position to ensure a continuous supply of fresh chicken products in the region. 

The annual growth of chicken exports from the United States has hit 3.9% in the last decade. For instance, the US is the largest exporter of chicken meat to Brazil. By 2016, the number of chicken product exports hit 3.2 million tonnes, which is 30.1% of the total chicken exports globally and 17.1% of total exports from the United States (Feenstra et al., 2019). With the demand for chicken products increasing in the rest of the world, PPC strives to ensure that this demand is satisfied. 

The revenue and data for the last 5 years is as follows 

Year ending	Pilgrims revenues in billions of US dollars	Pilgrims sales units (Q) in billions
2019	$11.409	2.82
2018	$10.938	2.75
2017	$10.768	2.48
2016	$9.879	2.03
2015	$8.753	2.05

The net sales revenue in 20149 was 11.41 billion dollars, which was a remarkable increase of over half a billion from 2018 (Statista, 2020). PPC customers saw their gross revenues fall by 21.39% in Q3 of 2020 in comparison to gross revenues for Q3 of year ending 2019 (CSI Market, 2020). This merely implies that the inherent revenue costs grew by 10.6% in that quarter. The Q3 period of 2020 also saw PPC record a 10.75% revenue increment and annual revenue growth of 8.89%. PPC has also ventured into Europe. European business rose by 7% in 2019 compared to 2018. As demand for chicken grows in Europe, it is certain that PPC will be able to meet this demand effectively as it has done in the Americas. Customer-centric initiatives by PPC have been key to success in Europe. The use of automation technology increases efficiency and cuts production costs by addressing labor availability issues. European operations have seen a dramatic increase of 63.4% year over year in the closing quarter of 2020 (Q3). 

Competition Analysis 

The chicken industry is marred by extremely high competition. PPC competes in the US and Mexico with other integrated poultry companies for a share of the cake. The competitive advantage that PPC has includes Association with JBS Inc, competitive pricing, high product quality, strong brand, expansive product line, quality customer service, consistent quality, and innovative product development consistent with customer needs and demand, as well as strategic positioning. The main competitors for PPC include General Mills Inc, Hershey Co., Kellogg Company, Procter and Gamble Co, Pepsico Inc., Conagra Brands Inc., The J M Smucker Company, Post Holdings Inc., Pilgrim s Pride Corporation, and The Hain Celestial Group Inc. 

By quarter 3 of 2020, PPC has realized significantly larger revenue growth in comparison to its competitors as shown in the figure below; 

Price Elasticity of Demand 

In economics, the price elasticity of demand refers to the change of quantity demanded/purchased of a good relative to the changes in prices of that good. Mathematically this is expressed as 

The price elasticity of demand attempts to demonstrate how changes in the pricing of a product by a firm affect the quantity demanded of that product in the real market. If the Price elasticity of demand of zero, then demand is said to be perfectly inelastic, indicating that prince changes do not affect the demand of the commodity. If the PED of between 0 and 1, the demand is said to be inelastic, indicating that changes in price will have a relatively low effect on demand. When the PED is equal to one (1), the demand is said to have unitary elasticity. This implies that a 15% change in price will yield a 15% decrease in the demand for that commodity. When the price elasticity of the demand score is greater than 1, then the demand is elastic. This means that a small change in price will result in a substantially large decrease in the quantity demanded of that good. 

Using the sales data above, the price elasticity of demand for the for 2019 can be computed as follows 

(11.41-10.93)/10.93 *100=4.3 

(2.82-2.75)/2.75 *100=2.54 

PED= (4.3)/ (2.54) =1.7 

A PED (Price elasticity of demand) greater than one indicates that changes in price will ultimately result in a substantial decline in quantity demanded. Pricing problems contribute significantly to revenue losses for any organization. PPC should, therefore, price its commodities in a competitive manner and avoid changes as this will surely lead to a decline in quantity demanded. An example was in 2009 when the prices of chicken were increased by 16%, owing to a 41% price increase in chicken feed. At this time, the quantity demanded of chicken products reduced by 12% to 18%. 

Price elasticity of demand can also be computed using the price per share performance relative to that of its customer’s average. 

item	January	February	March	April	May	June	July	August	September	October
Customers (%)	12.06	13.78	1.92	-20.98	5.15	22.24	20.67	29.36	52.13	42.01
PPC 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 above, it is clearly visible that PPC’s stock price has been fluctuating over the past few months. Consequently, the percentage of customers has also been fluctuating consistent with changes in price of stock over the months in the current year (2020). Forbes (2020) forecasts that by the end of 2020, PPC’s stock price will be 17.1 a slight increase from what it was in October. This will in turn cause percentage of customers to increase by 7.2% up to 48.9% from 42.0%. Based on these changes, it is easy to conclude That PPC’s PED is elastic since a slight change in price results in a substantially large change in the quantity demanded. 

Several factors affect the consumer's responsiveness to demand with changes in price. One of the main factors is the prevailing competition in the market that provides alternative or substitute products to those offered by PPC at a lower cost (Andreyeva et al., 2010).. Remember, in economics, the consumer is always assumed to be rational and will always seek to minimize the cost subject to the budget constraint. Additionally, the consumers will look for opportunities where they can get more products for less cost (More is always preferred to less) ( Sugden, 1991) . By increasing the prices, PPC will end up losing customers to their closest competitors who provide substitute goods for a lower or mark-up price. For instance, PPC’s main competitors, which include Smithfield, Perdue farms, Gamble Co, Pepsico Inc., and Conagra Brands Inc., create substitute products for chicken products offered by PPC. PPC should avoid changes in the prices, because these changes will result in customer hemorrhaging to their competitors. 

The other chief factor that may be responsible for this responsiveness to price changes, distribution of income, where low-income consumers tend to shy away from purchasing expensive products. The Mexican market, for example, comprises of lower-income citizens compared to that of Europe and the United States. As such, the price elasticity of demands in Mexico may be more elastic compared to that of Mexico. Single-use products such as chicken have a more elastic Price elasticity compared to multi-use products. 

In conclusion, the PED is an analysis of how consumers respond to changes in price. In PPC’s case, The PED was found to be elastic, meaning that increase in price will result in a large decrease in quantity demanded of goods. Demand reduction has a significant impact on PPC’s revenues. Since elasticity was greater than one, any slight change in price is likely to yield a larger fall in demand and hence lower sales revenues 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. 

References 

Andreyeva, T., Long, M. W., & Brownell, K. D. (2010). The impact of food prices on consumption: a systematic review of research on the price elasticity of demand for food.  American journal of public health ,  100 (2), 216-222. 

Csimarket. (2020).  Pilgrim S Pride Customers by Division and Industry - CSIMarket . Csimarket.com. Retrieved 28th November 2020, from https://csimarket.com/stocks/markets_glance.php?code=PPC 

Feenstra, R. C., Ma, H., & Xu, Y. (2019). US exports and employment.  Journal of International Economics ,  120 , 46-58. 

Forbes. (2020) P ilgrim’s Pride Stock Still Down 47% YTD: Opportunity For 20% Gains. Retrieved 28 th November, 2020 from https://www.forbes.com/sites/greatspeculations/2020/11/04/pilgrims-pride-stock-still-down-47-ytd-opportunity-for-20-gains/?sh=6409b1b24b8b 

Payne, A. (1994). Relationship marketing–making the customer count.  Managing Service Quality: An International Journal . 

Statista. (2020). Net sales of Pilgrim's Pride worldwide from 2015 to 2019 (in billion U.S. dollars. Retrieved 28 th novermber 2020, from https://www.statista.com/statistics/1127972/pilgrim-s-pride-net-sales/ 

Sugden, R. (1991). Rational choice: a survey of contributions from economics and philosophy.  The economic journal ,  101 (407), 751-785.