Operation Decision, assignment help

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Assignment 2: Operations Decision

Using the regression results and the other computations from Assignment 1, determine the market structure in which this frozen, low-calorie microwavable food company now operates.

ECO550- Assignment 1(demand estimation.docx

In assignment #1, the company estimated a demand curve and used a marginal cost curve as its supply curve. You determined the equilibrium in the market where P =MC [or Qs = Qd]. You calculated the various elasticities using the estimated demand at its current price of 500 cents. While not required, if you look at the own price elasticity at the equilibrium price and quantity solved for in Assignment #1 you will notice a problem for the firm if it thinks it is operating in a competitive market.

Now that you know that the firm faces a downward sloping demand curve and that it has pricing power, you are being asked to rethink how the firm should behave in the market as it actually used its pricing power to determine the profit maximizing price and output in this assignment.

1.  Use the Internet to research two (2) leading competitors in the low-calorie microwavable food industry, and take note of their pricing strategies, profitability, and their relationships within this industry (within the USA and worldwide). Use the IBIS Report for the Frozen Food Production Industry (SIC Code 31141) to be provided by your instructor.

===è Please read the attached IBIS report on Frozen Food Industry in U.S.

Write a six to eight (6-8) page paper in which you:

1.  Outline a plan that will assess the effectiveness of the market structure for the company’s operations. In Assignment 1, the assumption was that the market structure [or selling environment] was perfectly competitive and that the equilibrium price was to be determined by setting QD equal to QS. You are now aware of recent changes in the selling environment that suggest an imperfectly competitive market where your firm now has substantial market power in setting its own “optimal” price.

===è See the attached spreadsheet

Assignment 2x.xls

Analyze the short run and long cost functions for the low-calorie microwaveable food company given the cost functions below and suggest substantive ways in which the low-calorie food company may use this information in order to make decisions in both the short-run and the long-run.

TC = 160,000,000 + 100Q + 0.0063212Q2

·  ===è So,

o  TFC = 160,000,000

o  TVC = 100Q + 0.0063212Q2

o  MC= 100 + 0.0126424Q

More specifically:

a.  Determine the Average Total Cost function (ATC), AVC, and AFC

·  ===èSee spread sheet for the calculation of Q* = 13,611

·  ===èATC= TC/Q = (160,000,000)/Q + 100 + 2 * 0.0063212Q = 1,348

·  ===èAVC= TVC/Q = 0.71 = 186.04

·  ===èAFC= TFC/Q = 1,175.49

b.  Determine the quantity (Q) associated with minimum ATC.

·  ===è See spread sheet for the calculation

·  ===èATC is minimized when ATC = MC

·  Determine the minimum value of ATC

·  ===èATC = 736

·  ===èRemember, for a firm to be profitable, the product’s price (P) must be greater than its average total cost (ATC) at the optimal level of output Q*.

2.  Suppose the business operations have now changed from the market structure analyzed in the activities required for the first assignment due to this new data about costs. Determine two (2) likely factors that might have caused the changed behavior. Predict the primary manner in which this change would likely impact business decisions in the new market environment.

·  ===è Market structure characteristics

Week 5.1-Market Structure.ppt

·  ===è The change in market structure from perfect competition to monopolist competition implies that the firm is now has monopoly power i.e., it has some control over its own price.  As such, the rule of profit maximization is still MR=MC, however, since the demand is downward sloping P>MR, the firm can now make above normal profit. 

·  ===èThere many factors that may have caused the change in the type of market structure.  The most significant factor of change is the ability of the firm to differentiate its products from its rivals.

3.  Analyze the major short-run and long-run production and cost functions implied by this new cost data for the frozen, low-calorie microwaveable food company. Use the information contained in the IBIS report. Suggest substantive ways in which the frozen, low-calorie food company may use this information in order to make decisions in both the short-run and the long run.

·  ===èPlease the attached theoretical short-run cost and long-run cost analysis and read the information contained in the IBIS report.

Assignment 2-Frozen Food Production in the US industry report.pdf

Assignment 2-SpecializedIndustryReportList.pdf

4.  Determine the possible circumstances under which the company should discontinue operations. While no specific fixed or total cost data are provided, use the newly provided cost data above and your knowledge from the textbook on the relation of fixed and variable costs to revenue to develop estimates that might suggest key actions that management should take in order to confront these circumstances. Provide a rationale for your response.

·  ===èTo be profitable, the firm’s product’s price (P) must be greater than its average total cost (ATC) at the optimal level of output (Q) i.e., P>ATC.

·  ===èA business discontinues its operations in the short-run if P>AVC or in the long-run P>ATC.  So, the shutdown ruleis P < AVC

5.  Suggest one (1) pricing policy that will enable your frozen, low-calorie microwavable food company to maximize profits. Provide a rationale for your suggestion that will involve comparison of the first assignments two possible price and quantity pairs with the new optimum presented here in Assignment #2

·  ===èRegardless of type of market structure, the profit-maximization level of output is always achieved at the point where MC=MR The significant feature of perfect competition is the lack of barriers to entry resulting in a large number of small firms producing identical products.   In such a market structure no single firm has the ability to influence the market price so firms are price takers. The significant feature in a monopolistic competition is product differentiation based on physical characteristics, location, and time.  Product differentiation gives firms market power and hence more options in pricing practices such as randomized pricing, block pricing, two-part pricing, commodity bundling, peak-load pricing, cross subsidies, premium pricing, cost/plus pricing, penetration pricing, transfer pricing, etc. 

6.  Outline a plan, (based on the original information provided in the first assignment along with the IBIS report industry cost data for the firm), that the company could use in order to evaluate its financial performance. Consider all the key drivers of performance, such as company profit or loss for both the short term and long term, and the fundamental manner in which each factor influences managerial decisions.

o  Using the price and output levels generated in part 5, calculate the short run profit,

o  Using the output level generated in part 5, cost data in part 3, and assuming a very competitive market, calculate profit in the long run.

7.  Recommend two (2) actions that the company could take in order to improve its profitability and deliver more value to its stakeholders in line with the recent history and forecast future behavior for the Frozen Food Production Industry [SIC Code 31141] as outlined in the IBIS report. Outline, in brief, a plan to implement your recommendations.

8.  Use at least five (5) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource.

Your assignment must follow these formatting requirements:

·  Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

·  Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.


Points: 300

Assignment 2: Operations Decision

Criteria

Unacceptable

Below 70% F

Fair

70-79% C

Proficient

80-89% B

Exemplary

90-100% A

1. Outline a plan that will assess the impact of the market structure/cost data for the company’s operations.

Weight: 10%

Did not submit or incompletely outlined a plan that will assess the impact of the market structure/cost data for the company’s operations.

Partially outlined a plan that will assess the impact of the market structure/cost data for the company’s operations.

Satisfactorily outlined a plan that will assess the impact of the market structure/cost data for the company’s operations.

Thoroughly outlined a plan that will assess the impact of the market structure/cost data for the company’s operations.

2. Suppose the business operations have now changed from the market structure specified in the 1st assignment results as a result of the new cost data and demand understanding. Determine two (2) likely factors that might have caused the change. Predict the primary manner in which this change would likely impact business operations in the new market environment.
Weight: 10%

Did not submit or incompletely supposed the business operations have now changed from the market structure specified in the 1st assignment results. Did not submit or incompletely determined two (2) likely factors that might have caused the change. Did not submit or incompletely predicted the primary manner in which this change would likely impact business operations in the new market environment.

Partially supposed the business operations have now changed from the market structure specified in the 1st assignment results. Partially determined two (2) likely factors that might have caused the change. Partially predicted the primary manner in which this change would likely impact business operations in the new market environment.

Satisfactorily supposed the business operations have now changed from the market structure specified in the 1st assignment results. Satisfactorily determined two (2) likely factors that might have caused the change. Satisfactorily predicted the primary manner in which this change would likely impact business operations in the new market environment.

Thoroughly supposed the business operations have now changed from the market structure specified in the 1st assignment results. Thoroughly determined two (2) likely factors that might have caused the change. Thoroughly predicted the primary manner in which this change would likely impact business operations in the new market environment.

3. Analyze the major short-run and long-run production and cost functions for the low-calorie microwaveable food company in light of the new data. Suggest substantive ways in which the low-calorie food company may use this information in order to make decisions in both the short-run and the long run.

Weight: 10%

Did not submit or incompletely analyzed the major short-run and long-run production and cost functions for the low-calorie microwaveable food company. Did not submit or incompletely suggested substantive ways in which the low-calorie food company may use this information in order to make decisions in both the short run and the long run.

Partially analyzed the major short-run and long-run production and cost functions for the low-calorie microwaveable food company. Partially suggested substantive ways in which the low-calorie food company may use this information in order to make decisions in both the short run and the long run.

Satisfactorily analyzed the major short-run and long-run production and cost functions for the low-calorie microwaveable food company. Satisfactorily suggested substantive ways in which the low-calorie food company may use this information in order to make decisions in both the short run and the long run.

Thoroughly analyzed the major short-run and long-run production and cost functions for the low-calorie microwaveable food company. Thoroughly suggested substantive ways in which the low-calorie food company may use this information in order to make decisions in both the short run and the long run.

4. Determine the possible circumstances under which the company should discontinue operations. Suggest key actions that management should take in order to confront these circumstances. Provide a rationale for your response.

Weight: 15%

Use the IBIS Report data.

Did not submit or incompletely determined the possible circumstances under which the company should discontinue operations. Did not submit or incompletely suggested key actions that management should take in order to confront these circumstances. Did not submit or incompletely provided a rationale for your response.

Partially determined the possible circumstances under which the company should discontinue operations. Partially suggested key actions that management should take in order to confront these circumstances. Partially provided a rationale for your response.

Satisfactorily determined the possible circumstances under which the company should discontinue operations. Satisfactorily suggested key actions that management should take in order to confront these circumstances. Satisfactorily provided a rationale for your response.

Thoroughly determined the possible circumstances under which the company should discontinue operations. Thoroughly suggested key actions that management should take in order to confront these circumstances. Thoroughly provided a rationale for your response.

5. Suggest and analyze one (1) pricing policy that will enable your low-calorie microwavable food company to maximize profits. Provide a rationale for your suggestion.

Weight: 10%

Did not submit or incompletely suggested and analyzed one (1) pricing policy that will enable your low-calorie microwavable food company to maximize profits. Did not submit or incompletely provided a rationale for your suggestion.

Partially suggested and analyzed one (1) pricing policy that will enable your low-calorie microwavable food company to maximize profits. Partially provided a rationale for your suggestion.

Satisfactorily suggested and analyzed one (1) pricing policy that will enable your low-calorie microwavable food company to maximize profits. Satisfactorily provided a rationale for your suggestion.

Thoroughly suggested and analyzed one (1) pricing policy that will enable your low-calorie microwavable food company to maximize profits. Thoroughly provided a rationale for your suggestion.

6. Outline a plan, based on the information provided in the 1st assignment results and the new data, that the company could use in order to evaluate its financial performance. Consider all the key drivers of performance, such as company profit or loss for both the short term and long term, and the fundamental manner in which each factor influences managerial decisions.

Weight: 10%

Did not submit or incompletely outlined a plan, based on the information provided in the 1st assignment results that the company could use in order to evaluate its financial performance. Did not submit or incompletely considered all the key drivers of performance, such as company profit or loss for both the short term and long term, and the fundamental manner in which each factor influences managerial decisions.

Partially outlined a plan, based on the information provided in the 1st assignment results that the company could use in order to evaluate its financial performance.  Partially considered all the key drivers of performance, such as company profit or loss for both the short term and long term, and the fundamental manner in which each factor influences managerial decisions.

Satisfactorily outlined a plan, based on the information provided in the 1st assignment results that the company could use in order to evaluate its financial performance. Satisfactorily considered all the key drivers of performance, such as company profit or loss for both the short term and long term, and the fundamental manner in which each factor influences managerial decisions.

Thoroughly outlined a plan, based on the information provided in the 1st assignment results that the company could use in order to evaluate its financial performance. Thoroughly considered all the key drivers of performance, such as company profit or loss for both the short term and long term, and the fundamental manner in which each factor influences managerial decisions.

7. Recommend two (2) actions that the company could take in order to improve its profitability and deliver more value to its stakeholders. Outline, in brief, a plan to implement your recommendations.

Weight: 10%

Did not submit or incompletely recommended two (2) actions that the company could take in order to improve its profitability and deliver more value to its stakeholders. Did not submit or incompletely outlined, in brief, a plan to implement your recommendations.

Partially recommended two (2) actions that the company could take in order to improve its profitability and deliver more value to its stakeholders. Partially outlined, in brief, a plan to implement your recommendations.

Satisfactorily recommended two (2) actions that the company could take in order to improve its profitability and deliver more value to its stakeholders. Satisfactorily outlined, in brief, a plan to implement your recommendations.

Thoroughly recommended two (2) actions that the company could take in order to improve its profitability and deliver more value to its stakeholders. Thoroughly outlined, in brief, a plan to implement your recommendations.

8.5 references
Weight: 5%

No references provided

Does not meet the required number of references; some or all references poor quality choices.

Meets number of required references; all references high quality choices.

Exceeds number of required references; all references high quality choices.

9.Writing Mechanics, Grammar, and Formatting
Weight: 5%

Serious and persistent errors in grammar, spelling, punctuation, or formatting.

Partially free of errors in grammar, spelling, punctuation, or formatting.

Mostly free of errors in grammar, spelling, punctuation, or formatting.

Error free or almost error free grammar, spelling, punctuation, or formatting.

10.Appropriate use of APA in-text citations and  reference section
Weight: 5%

Lack of in-text citations and / or lack of reference section.

In-text citations and references are provided, but they are only partially formatted correctly in APA style.

Most in-text citations and references are provided, and they are generally formatted correctly in APA style.

In-text citations and references are error free or almost error free and consistently formatted correctly in APA style.

11.Information Literacy / Integration of Sources
Weight: 5%

Serious errors in the integration of sources, such as intentional or accidental plagiarism, or failure to use in-text citations.

Sources are partially integrated using effective techniques of quoting, paraphrasing, and summarizing.

Sources are mostly integrated using effective techniques of quoting, paraphrasing, and summarizing.

Sources are consistently integrated using effective techniques of quoting, paraphrasing, and summarizing.

12.Clarity and Coherence of Writing
Weight: 5%

Information is confusing to the reader and fails to include reasons and evidence that logically support ideas.

Information is partially clear with minimal reasons and evidence that logically support ideas.

Information is mostly clear and generally supported with reasons and evidence that logically support ideas.

Information is provided in a clear, coherent, and consistent manner with reasons and evidence that logically support ideas.


Unformatted Attachment Preview

Assignment 1x Qd = P A Px I 20,000 - 10P + 1500A + 5PX + 10I 80 64 90 5,000 Constant 20,000 Estimated Coefficents Given Values Qd Qd P -10 80 -800 20,000 229,200 A 1,500 64 135,000 Px 5 90 25,000 I 10 5,000 50,000 300 230,000 5,200 400 230,000 5,200 500 600 230,000 230,000 5,200 5,200 230,000 New Constant value Qd = 230,000 - 10P New Qd 229,200 Elasticities Ed= Ea= Epx= Ei= -0.0035 0.4188 0.0020 0.2182 Graph Qd Qs 230,000 5,200 -10 45 Price Qd Qs 100 229,000 9,700 200 230,000 5,200 5200 230,000 35P = 45P -10P 224800 64.23 294,229 294,229 Equilibrium Qs Qd So, * P Qs Qd Q* P* $ Cost Data from IBIS Qs = -7909.89 +79.0989 * P MC = 100 + 0.01264 * Q AVC = 100 + 0.009 * Q VC = 0.711* TC FC = 0.289 * TC 6,423 5200 + 45P 230,000 -10P 294,229 64 #### Or FC/TC = 0.289 Original Values $80.00 229,200 Price Quantity Variable Cost Total Revenue (TR) Total Cost (TC) Fixed Cost (FC) Profit AVC = 100 + 0.009 * Q TR = P * Q VC=0.711 * TC FC = TC- VC Profit = TR - TC Average Variable Cost (AVC) Price = Average Revenue Average Total Cost (ATC) Average Fixed Cost (FC) Average Profit ¢ 495,713,760 1,833,600,000 697,206,414 201,492,654 1,136,393,586 $ $4,957,138 $18,336,000 $6,972,064 $2,014,927 $11,363,936 $21.63 $80.00 $30.42 $8.79 $49.58 MR=MC rule to determine the profit maximizing price & output Qd= P= 230,000 23000 TR = (23000 - .10 Q) * Q MR = MC = 100 + 0.01264 * Q MC = -10 -0.1 P Q 23000 -0.2 Q 100 + MR = MC 22900 Q P * P* 0.01264 Q = = 23000 12,231 0.21264 Q 107,694 -0.10 $122 Qd Intercept -5,200 Qd= Qd= Qd= -5,200 -5,200 26,770 26,770 26,560 Estimated Coefficients Given Values Demand Function Qd= Px -42 5 -210 -42P -42P -42 Pc 20 6 120 I A 5.2 0.2 5,500 10,000 28,600 2,000 Elasticities Own Price Advertising Cross Price Income Microview Ed Ea Epc= Ei= Em= Qs= 0.075 0.005 1.077 25,200 Equilibrium 45P = Qd = 26,770 87P = 1,570 P= Equilibrium Price Qs = Qd = 25,200 +45P = 26,770 -42P = Q= Equilibrium Quantity Price Values Supply Demand -0.008 Qd= Qs= $ 1 25,245 26,728 -42P 18.0 26,012 26,012 26,012 Graph 26,770 -42 25,200 45 $ 2 $ 3 $ 4 25,290 25,335 25,380 26,686 26,644 26,602 $ 5 $ 6 25,425 25,470 26,560 26,518 M 0.25 5,000 1,250 31,970 0.047 Supply Price Values 25245 1 25290 2 25335 3 25380 4 25425 5 25470 6 Price Values Demand 1 26728 2 26686 3 26644 4 26602 5 26560 6 26518 Cost Function Total Cost Average Total Cost: ATC = TC / Q Total Fixed Cost Average Fixed Cost: AFC = TFC / Q Total Variable Cost Average Variable Cost: AVC = TVC / Q Marginal Cost : MC = ΔTC / ΔQ Profit Maximization Rule: MR = MC Demand Function or Total Revenue: TR = P *Q Marginal Revenue: MR = ΔTR / ΔQ Profit Maximization Rule: MR = MC Profit Maximization Rule: MR = MC Profit Maximization Quanitity (Q*) Profit Maximization Price (P*) Total Variable Cost (TVC) Total Cost : TC= TVC/0.711 Total Fixed Cost: FC = 0.289 * TC Total Revenue (TR) = P *Q Profit = TR - TC Average Total Cost (ATC) Average Fixed Cost (AFC) Average Variable Cost (AVC) Marginal Cost (MC) TC = 160,000,000 + 100*Q + 0.0063212*Q2 ATC = (160,000,000/Q) + 100 + 0.0063212*Q TFC = 160,000,000 AFC = (160,000,000)/Q TVC = 100*Q + 0.0063212*Q2 AVC = 100 + 0.0063212 * Q MC = 100 + 0.0126 Q aximization Rule: MR = MC Qd = 25,770 - 42 P P = (25,770 / 42) - (Q / 42) = 613.92 - 0.238 Q TR = 613.92 Q - 0.238 Q2 MR = 613.92 - 0.476 Q 613.92 - 0.476 Q = 100 + 0.0126 Q 0.489 Q = 713.92 1,460 $266 159,474 224,296 64,821 389,002 164,707 154 44 109 118 Industry Data VC = 0.711* TC FC = 0.289 * TC Cost Function TC = 160,000,000 + 100*Q + 0.0063212*Q2 TFC = 160,000,000 TVC = 100*Q + 0.0063212*Q2 MC = 100 + 0.0126424*Q Total Revenue (TR) Marginal Revenue Profit Maximization Rule: MR = MC TR = P * Q $18 26,012 Price Quantity Total Variable Cost (TVC) Total Fixed Cost (FC) Profit FC = TC- VC Profit = TR - TC Total Cost (TC) Variable Cost #REF! #REF! Average Variable Cost (AVC) Price = Average Revenue Average Total Cost (ATC) Average Fixed Cost (FC) Average Profit $3.34 $18.05 $4.70 $61.51 $13.35 Price and output Deterrmination Qd= P= MR = #REF! MC = 230,000 23000 TR = (23000 - .10 Q) * Q 23000 100 Profit Maximization Rule MR = MC 22900 Optimal quantity produced * Optimal price Q P P* Average Total Cost Marginal Cost Quantity associated with the minimum of AVC ATC = (160,000,000/Q) + 100 + 0.0063212*Q MC = 100 + 0.0126 Q 0.0188212 Industry Data VC = 0.711* TC FC = 0.289 * TC AVC = 100 + 0.0063212 * Q 46,941,320 166,878,306 $469,413 in ¢ Deterrmination -10 -0.1 )*Q in $ 6,878,306 160,000,000 34,717,893 $1,600,000 $347,179 12,223,427 8,690,856 $122,234 $86,909 P Q -0.2 Q + 0.01264 Q MR = MC = 0.21264 107,694 23000 $ 00 + 0.0063212*Q 122.3 -0.10 Q Price-Output Determination & Market Structure PRICE-QUANTITY DETERMINATIONS  The goal of firm is to maximize profit.  The process of profit maximization requires determination of the optimal price and quantity produced.  A firm optimum price and quantity produced depend upon the market structure within which the firm operates.  Market structure refers to the competitive environment in which buyers and sellers are interacting, differentiated by specific characteristics.  These market characteristics lead to four distinct market structures with each offering their own methodological approaches to optimal price and quantity determinations. MARKET STRUCTURE CHARACTERISTICS  Number of rival firms in a specific market is an important determinant of the degree of competition in a market.  Degree of product homogeneity is a significant factor in distinguishing and differentiating a product from its competitors.  A homogeneous product is the product that essentially has the same physical characteristics and quality as all other products supplied by rival firms in a specific market. MARKET STRUCTURE CHARACTERISTICS  Barriers to entry provides significant advantages for the existing firm in a specific market. Barriers to entry can be legal (e.g., patents, territorial rights, or licensing), financial (e.g., capital requirements),etc.  Information availability about the quality and price of the product to both buyers and sellers. ▪ Symmetric Information: when both sellers and buyers have the same knowledge about price, and quality of a product. ▪ Asymmetric Information: when knowledge among market participants is unequal. Market Structure Characteristics Perfect Competition Monopolistic Competition Large number of small firms unable to influence price Large number of firms with some monopoly power Homogeneous (identical) product No barriers to entry or exit Heterogeneous products with substitutes Low barriers to entry or exit Long run economic profit is zero, firms only earn normal profit Long run economic profit is zero, firms only earn normal profit Long run economic profit is positive Long run economic profit is positive Firms are price takers, no market Firms with some power over their own Firms are price makers Firm is price makers Oligopoly Monopoly Few (usually 3-5) One seller that set sellers with some the market price degree of price control Heterogeneous Heterogeneous product with close product with no substitutes substitutes High barriers to Very High barriers entry to entry Measures of Degrees of Industry Concentration  A concentration ratio measures the degree of competition in an industry.  The purpose of this ratio is to determine the degree of market control that the largest firms have in an industry. ▪ Concentration Ratio, ▪ Herfindahl-Hirschman Index,  These measures used to distinguish between market structures.  The Federal Trade Commission and the U.S. Justice Department use concentration ratios to block mergers of firms in an industry due to reduced competition. CONCENTRATION RATIO • Concentration ratio demonstrate the extent of market control of the largest firms in the industry. CR = s1 + s2 + . . . +sn Where s = firm’s sales / total industry sales • • Concentration ratio is calculated as the percent share of top largest four firms (CR4) or eight firms (CR8) of the industry. The range of concentration ratio is from almost zero percent (for perfect competition) to 100 percent (for monopoly.) CONCENTRATION RATIO Concentration Ratio > 90% > 60% but < 90% > 40% but < 60% > 0% but < 1% 0% Market Structure Monopoly Tight Oligopoly Loose Oligopoly Monopolistic Competition Perfect Competition CONCENTRATION RATIO IN MANUFACTURING INDUSTRY Low Industry Manufactured Ice Plastic Pipe Book Publishing Paperboard Boxes Curtains and Draperies Textile Machinery Leather Goods Lighting Fixtures Wood Furniture Wooden Kitchen Cabinets Textile Bags Bolts, Nuts, Rivets Typesetting Jewelry Asphalt Paving Sawmills Women's Dresses Sheet Metal Work Wood Pallets High Ratio 24 23 23 23 22 21 21 21 20 19 17 17 16 16 15 14 11 9 6 Industry Primary Copper Cigarettes Beer Light Bulbs Breakfast Cereal Motor Vehicles Greeting Cards Glass Containers Small Arms Ammunition Refrigerators / Freezers Flat Glass Turbines and Generators Aircraft Photo Equip. and Supplies Gypsum Products Men's Slacks Tires Roasted Coffee Motorcycles and Bicycles Soap and Detergents Ratio 98 93 90 86 85 84 89 84 84 82 81 79 79 78 75 75 70 66 65 63 HERFINDAHL-HIRSCHMAN INDEX • Herfindahl-Hirschman Index (HHI) is calculated as the sum of the squared market shares of every firm in the industry. HHI = s12 + s22 + . . . + sn2 Where s2 = (firm’s sales / total industry sales) 2 • HHI ranges from 10,000 (for pure monopoly) to zero (for perfect competition), HERFINDAHL-HIRSCHMAN INDEX Level Extreme High High Medium Low Extreme Low HHI Range Firm Structure 10,000 < 1,800 1,000 - 1,800 > 1,000 Nearly zero Monopoly Tight Oligopoly Loose Oligopoly Monopolistic Competition Perfect Competition HIGH CONCENTRATION INDUSTRIES Industry Primary copper 4-Firm Concentration Ratio Herfindahl Index 99 ND Industry 4-Firm Concentration Ratio Herfindahl Index Petrochemicals 85 2662 83 1901 Cane sugar refining 99 ND Small arms ammunition Cigarettes 95 ND Motor vehicles 81 2321 Household laundry equipment 93 ND Men’s slacks and jeans 80 2515 Beer 91 ND Aircraft 81 ND Electric light bulbs 89 2582 Breakfast cereals 78 2521 78 2096 Glass containers 88 2582 Household vacuum cleaners Turbines and generators 88 ND Phosphate fertilizers 78 1853 Tires 77 1807 Household refrigerators and freezers 85 1986 Electronic computers 76 2662 Primary aluminum 85 ND Alcohol distilleries 71 1609 LO1 11-12 LOW CONCENTRATION INDUSTRIES Industry 4-Firm Concentration Ratio Herfindahl Index Industry 4-Firm Concentration Ratio Herfindahl Index 14 114 Asphalt paving 25 207 Metal windows and doors Plastic pipe 24 262 Women’s dresses 13 84 Textile bags 24 263 Ready mix concrete 11 63 Bolts, nuts, and rivets 24 205 Wood trusses 10 50 Plastic bags 23 240 Stone products 10 59 Quick printing 22 319 Metal stamping 8 31 Textile machinery 20 206 Wood pallets 7 24 Sawmills 18 117 Sheet metal work 6 25 Jewelry 16 117 Signs 5 19 Curtains and draperies 16 111 Retail bakeries 4 7 LO1 11-13 Frozen Food Production in the USNovember 2013   1 WWW.IBISWORLD.COM Keeping cool: Revenue will grow marginally as producers focus on convenience and health IBISWorld Industry Report 31141 Frozen Food Production in the US November 2013 Hester Jeon 2 About this Industry 17 International Trade 34 Revenue Volatility 2 Industry Definition 19 Business Locations 35 Regulation & Policy 2 Main Activities 2 Similar Industries 21 Competitive Landscape 3 Additional Resources 21 Market Share Concentration 38 Key Statistics 21 Key Success Factors 38 Industry Data 4 Industry at a Glance 22 Cost Structure Benchmarks 38 Annual Change 24 Basis of Competition 38 Key Ratios 5 Industry Performance 25 Barriers to Entry 5 Executive Summary 26 Industry Globalization 5 Key External Drivers 7 Current Performance 27 Major Companies 9 Industry Outlook 27 Nestle SA 11 Industry Life Cycle 36 Industry Assistance 39 Jargon & Glossary 28 The Schwan Food Company 29 ConAgra Foods Inc. 13 Products & Markets 30 H.J. Heinz Company 13 Supply Chain 14 Products & Services 33 Operating Conditions 15 Demand Determinants 33 Capital Intensity 16 Major Markets 34 Technology & Systems www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com Frozen Food Production in the USNovember 2013   2 WWW.IBISWORLD.COM About this Industry Industry Definition This industry includes companies that produce frozen fruits, vegetables and juices; frozen entrees and side dishes (excluding seafood); frozen pizza; frozen whipped Main Activities The primary activities of this industry are toppings; and frozen waffles, pancakes and French toast. These products are then distributed to grocery wholesalers, retail food stores and the hospitality industry. Producing frozen fruit and vegetables Producing frozen fruit and vegetable juice Producing frozen meals, pizza and whipped toppings Producing frozen waffles, pancakes and french toast The major products and services in this industry are Frozen breakfast Frozen vegetables and fruits Prepared food Other Similar Industries 31122 Margarine & Cooking Oil Processing in the US These establishments are primarily engaged in wet milling corn and vegetables; crushing oilseeds and tree nuts; refining and blending vegetable oils; and manufacturing shortening and margarine. 31142 Canned Fruit & Vegetable Processing in the US These establishments primarily manufacture canned, pickled, and dried fruits, vegetables and specialty foods. 31152 Ice Cream Production in the US Establishments in this industry are primarily engaged in manufacturing ice cream, frozen yogurts, frozen ices, sherbets, frozen tofu and other frozen desserts. 31161 Meat, Beef & Poultry Processing in the US These establishments are primarily engaged in slaughtering animals and preparing processed meats and meat byproducts, such as manufacturing frozen specialty foods containing meat, like frozen dinners. 31194 Seasoning, Sauce and Condiment Production in the US These establishments primarily manufacture dressings and sauces; spices, table salt, seasoning, flavoring extracts and natural food colorings; and dry mix food preparations. 31199 Baking Mix & Prepared Food Production in the US These establishments primarily manufacture food, including mixing purchased dried or dehydrated ingredients for soup mixes and bouillon. Frozen Food Production in the USNovember 2013   3 WWW.IBISWORLD.COM About this Industry Additional Resources For additional information on this industry www.affi.com American Frozen Food Institute www.nfraweb.org National Frozen and Refrigerated Foods Association www.usda.gov US Department of Agriculture IBISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go towww.ibisworld.com WWW.IBISWORLD.COM Frozen Food Production in the US November 2013   4 Industry at a Glance Frozen Food Production in 2013 Key Statistics Snapshot Revenue Annual Growth 08-13 Annual Growth 13-18 Profit Exports Businesses $28.4bn 2.6% $1.4bn $2.0bn Demand from frozen food wholesaling Revenue vs. employment growth Market Share 6 The Schwan Food Company 9.1% 6 4 3 2 H.J. Heinz Company 5.7% % change 9 % change Nestle SA 18.6% ConAgra Foods Inc. 7  .4% 0 −3 −6 Year 05 0.4% 523 0 −2 07 09 Revenue 11 13 15 17 19 −4 Year 07 09 11 13 15 17 19 Employment SOURCE: WWW.IBISWORLD.COM p. 27 Products and services segmentation (2013) 6.0% Key External Drivers 7.4% Demand from frozen food wholesaling Other Frozen breakfast Agricultural price index External competition for the Frozen Food Production industry Per capita disposable income 56.0% 30.6% Prepared food Frozen vegetables and fruits Time spent on leisure and sports Trade-weighted index Per capita fruit and vegetable consumption p. 5 SOURCE: WWW.IBISWORLD.COM SOURCE: WWW.IBISWORLD.COM Industry Structure Life Cycle Stage Mature Regulation Level Heavy Revenue Volatility Medium Technology Change Medium Capital Intensity Medium Barriers to Entry Medium Industry Assistance Medium Industry Globalization Medium Concentration Level Medium Competition Level Medium FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 38 Frozen Food Production in the USNovember 2013   5 WWW.IBISWORLD.COM Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage Executive Summary The Frozen Food Production industry benefited from lower disposable income levels during the recession as consumers opted for affordable frozen food products at supermarkets and grocery stores. Industry revenue spiked in 2009, but sales declined as the economy and disposable income levels recovered. With more money to spend, consumers purchased more fresh produce over frozen varieties and dined out more frequently. Additionally, growing health concerns caused many consumers to purchase less frozen Product innovation will benefit firms, but demand for fresh foods will limit growth prepared meals, which are often perceived to be unhealthful. Operators responded by introducing products with healthier, more nutritious ingredients. As a result of product innovation, revenue is anticipated to grow an annualized 2.6% to $28.4 billion over the five years to 2013, including an increase of 2.0% in 2013. Despite revenue growth in the past five years, industry profit suffered primarily due to rising commodity prices. Marketing costs also dampened profit margins as leading producers aggressively introduced new products to Key External Drivers Demand from frozen food wholesaling Wholesalers buy frozen foods from manufacturers and resell these products to retailers, such as supermarkets and grocery stores, where consumers purchase industry products. As consumers demand more frozen foods from retailers, retailers and wholesalers buy more products from industry operators, which boosts revenue. Demand from frozen food gain market share. Further complicating the matter, many producers were unable to pass on the rising cost of inputs to downstream markets due to consumers’ sensitivity to prices during the recession. Consequently, profit fell from 6.1% of revenue in 2008 to 5.1% in 2013. As profit margins eroded, many producers laid off some of their employees and relied more on machinery and equipment. Additionally, larger companies like ConAgra found acquisitions especially attractive due to the cost savings that could be achieved from economies of scale. Over the next five years, operators will continue to develop new products that appeal to health-conscious consumers and invest in marketing campaigns to boost the image of frozen foods. As more Americans return to work and have less time to prepare meals from scratch, they will opt for the convenience of frozen meals. However, consumers are expected to purchase more fresh produce as disposable income levels continue to rise. Rising income will also allow consumers to dine out at restaurants more frequently. Finally, the growing popularity of imported frozen food products is anticipated to dampen demand from US producers. Ultimately, revenue is expected to rise an annualized 0.4% to $28.9 billion in the five years to 2018. wholesaling is expected to decrease in 2014, representing a potential threat to the industry. Agricultural price index Raw inputs such as fruits, vegetables, grains, processed meat, oils, sugar and other commodities make up the primary cost components for frozen food producers. When ...
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