Triggers and processes of value creation in Australia's chicken meat ...

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Triggers and processes of value creation in Australia’s chicken meat industry

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Andrea Insch Department of Marketing, School of Business, University of Otago, Dunedin, New Zealand Abstract Purpose – The purpose of this paper is to identify and explain the triggers and processes of value creation in Australia’s chicken meat supply chains. This industry was chosen as the critical case due to the rapid rise in poultry meat consumption in western markets. This study addresses the lack of understanding about the transformation of agri-food supply chains to provide a chronological and historical explanation of patterns of value creation in this industry. Design/methodology/approach – A historical case study approach was chosen. Multiple primary and secondary sources were collated and analysed to describe events in narrative form. Findings – Analysis of the patterns of value creation revealed four major phases in the evolution of Australia’s chicken meat supply chains. In each phase a dominant form of value creation was identified and the triggers that facilitated the transition between phases are described. Research limitations/implications – As the study is confined to a single industry, further research in other settings is needed to verify the patterns described. Since agri-food supply chains are dynamic they should be continuously monitored to identify trends that resemble previous triggers and processes, or manifest as novel ones. Originality/value – This study takes a historical perspective to identify the triggers and patterns of value creation in Australia’s chicken meat supply chains. A schema of phases of value creation is offered that can potentially be applied by practitioners in other industries to diagnose the possible outcomes of prior events and actions by supply chain members. Keywords Poultry, Agriculture and food technology, Supply chain management, Retailing, Pricing, Australia Paper type Research paper

British Food Journal Vol. 110 No. 1, 2008 pp. 26-41 q Emerald Group Publishing Limited 0007-070X DOI 10.1108/00070700810844777

Introduction Changes in food retailing over the past four decades have produced a quiet revolution in the status of certain foods in western consumers’ diets. Application of supply chain management principles installed the platform for delivering an assortment of low cost, standardised food products to mass markets. One of the most dramatic examples is found in chicken meat supply chains. Food retailers supported the move to this white meat first by securing supply and then positioning it as a centrepiece offering. The shift in consumption is witnessed in most western economies. Chicken was the leading meat consumed in the US at 37 kg per person in 2003 (American Meat Institute, 2005). Australia, with less than one-tenth of the US population, recorded a similar per capita consumption of 35 kg per person in 2002-2003 (ABARE, 2004). Chicken meat began to gain prominence in western diets in the mid-1970s as the real price fell rapidly and access through retail outlets expanded.

While the rise in chicken meat consumption is well documented, little is known about the process by which agri-food supply chains have been configured to create value in the form of meat products. A number of studies have examined the dynamics of buyer-seller relationships in agri-food supply chains and the changes in modern food retailing (see, for example, Hughes, 1994; Hollingsworth, 2004; Hingley, 2005). However, these studies tend to overlook the important events, or triggers, that have altered the value creation processes in agri-food supply chains over time. To better understand these processes and their evolution, the aim of this paper is to identify and explain the triggers and processes of value creation in agri-food supply chains. Australia’s chicken meat industry is chosen as the critical case to analyse patterns in the processes of value creation in agri-food supply chains. This study is designed to provide a chronological and historical explanation of the processes of value creation in Australia’s chicken meat industry, and to provide valuable insights for researchers and participants in other agri-food supply chains. This paper begins with a review of prior research on the concept of value, value creation processes in agri-food supply chains and their evolutionary dynamics. This conceptual overview provides the basis for examining the triggers that have led the transformation of value creation processes in Australia’s chicken meat industry. Next, the research method is described. Then, analysis of the changes that have occurred in the value creation processes in this industry are presented. From this discussion, four phases of value creation are delineated and the triggers of value creation are identified. In the following section, implications for practitioners in meat and food retailing industries, and researchers interested in the dynamics of value creation in agri-food supply chains are offered. In the final section, directions for future research are suggested. Value creation processes in agri-food supply chains Defining value and forms of value created The concept of value is central to exchange in meat supply chains. A review of the interdisciplinary literature on this core concept reveals that a diversity of definitions exists. Usage and meanings of the concept can be categorised into two main groups – use value and exchange value. The first meaning of value relates to the utility of a particular object or good, whereas the second relates to its power to purchase other goods in exchange (Smith, 1974). Even though these perspectives are not mutually exclusive, they each emphasise different orientations to processes of value creation. The value in exchange perspective focuses on the monetary or tangible value added at each stage of production as raw material inputs are transformed into consumer products. From this perspective, value is typically defined in a cost accounting sense as “selling price less cost of raw materials and production activities” (Walters and Lancaster, 1999, p. 643). Thus, value added is conceived as the creation of tangible economic outputs through the conversion of resource inputs into standardised products. Taking this approach the economic contribution, or value added, of each productive function can be calculated to determine their relative cost and efficiency (Anderson et al., 1993; Anderson and Narus, 1999). Value viewed from the value in use, or consumption perspective focuses on the total utility value gained from consuming a product and incorporates intangible values in addition to tangible ones. This involves a subjective assessment of tangible as well as

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intangible benefits and sacrifices (De Chernatony et al., 2000; Mo¨ller and To¨rro¨nen, 2003; Parasuraman, 1997). Taken further, value from this perspective involves the evaluation of multiple product attributes that provide utility to the buyer. This encompasses the notion of added value which has been defined as a multidimensional construct which includes the functional and psychological benefits of a particular product perceived by consumers, relative to competing product offerings (De Chernatony et al., 2000). Functional or tangible attributes of meat products include their nutritional and eating qualities (ie leanness, tenderness, succulence, appearance, flavour and texture). Psychological or intangible attributes of meat products are more abstract and include the pleasure, safety and enjoyment from eating meat and involve such consumer benefits as convenience, availability and versatility (Steenkamp, 1997). Meat products have traditionally been sold as commodities as they pass through the supply chain from suppliers to retail buyers. In the past few decades the range of value added meat products has grown rapidly. However, most meat product categories have not reached the stage of maturity where the marketing of added value branded products is common. The prevalence of branded chicken meat, pork and bacon products in western nations is more common than the beef and lamb categories which are still sold mostly as unbranded products (Grunert and Valli, 2001). The range of branded meat products varies across markets, with the US and Europe being more extensive than Australia (Cawood, 2003). Despite the attention given to this trend (see, for example, FinancialWire, 2006; Beverland, 2005; Sans et al., 2005; Tronstad and Unterschultz, 2005), the triggers or events that have occurred in meat supply chains to facilitate the transition from commodities, to products, to branded products are not clearly understood. Dynamics of value creation Value creation processes involve the creation of benefits for participants in organised activities (i.e. innovating, producing and delivering products to the market) and depend on whether the supply chain is able to combine resources to offer a unique value proposition for the buyer (Anderson, 1982; Webster, 1992; Mizik and Jacobson, 2003; Vargo and Lusch, 2004). At an operational level, this involves the progressive transformation of conglomerate resources into meaningful assortments in the hands of end consumers (Alderson and Martin, 1965). In meat supply chains, each sector of the industry performs a role in the alternating sequence of sorting and transforming resources to deliver meat products to consumers. Alderson and Martin (1965, p. 95) stress that in configuring the optimal number of steps in a transvection “the situation is not static but dynamic because of changing technologies both in transportation and sorting”. Rising concentration of ownership in national food retailing and the internationalisation of major chains stimulated research on the dynamics of retail supply chain coordination and configuration. These changes have been driven by adoption of just-in-time (JIT) principles under the banner of efficient consumer response (ECR) (Fearne and Hughes, 1999; Soucie, 1997). A customer-focused philosophy underlies these retailer-initiated programs designed to deliver higher quality, better service and greater variety at lower cost (Wood, 1993). To create these sources of customer value, retailers implement initiatives with suppliers to reduce impediments to operational efficiency and effectiveness. This movement has been

interpreted by suppliers of fresh and processed food products as the reversal of supply chain dynamics with the locus of power in the chain moving to retail trade customers and ultimately consumers. In agri-food marketing a parallel stream of literature refers to this phenomenon as the industrialisation of agriculture (IA). Here, retailer dominance is associated with pressure for product differentiation and dictation of narrow product and quality specifications. Produce suppliers and food manufacturers also argue that increasing concentration in retailing has created an unhealthy dependence on a small number of retail chains with formidable buying power. Evidence of unfair practices have been reported in the mass media and empirical studies (Burch and Goss, 1999; Parliamentary Joint Select Committee on the Retailing Sector, 2001; Ailawadi, 2001; Dobson et al., 2003). Mounting evidence of power imbalances in food retailing is shifting analysis from a focus on trust, commitment and cooperation to the nature and consequences of uneven power relations. Power differentials between retailers and food suppliers do not exclude collaborative relationships (Hingley, 2005). Although, perceived inequity or unfairness can contaminate goodwill among supply chain partners (Anderson and Narus, 1990; Spekman et al., 1998). Members with greater bargaining power are better positioned to influence value creating activities and to appropriate the returns (Cox, 1997, 1999; Mizik and Jacobson, 2003). In particular, food retailers’ own-labels and corporate identities are seen as visible devices used to appropriate a disproportionate share of the value created in the supply chain (Hollingsworth, 2004). However, little is known about the evolution of value creation processes in modern agri-food supply chains beyond the short-term time frame of most studies. Furthermore, there is a need to identify the events, or triggers, that have transformed the forms of value created in agri-food supply chains. Research method The aim of this study is to trace the changes and continuities in the value creation processes in Australia’s chicken meat supply chains. Therefore, a historical research approach was chosen. This was appropriate since description and analysis of previous events and conditions provided insights into the origins and patterns of activity and change (Savitt, 1980). This methodological approach allowed the researcher to use multiple data sources to examine events in their full context and apply a range of techniques for analysis and synthesis (Elton, 1967; Fullerton, 1987). Data collection, analysis and synthesis To construct the historical narrative, primary and secondary sources were collated following the conventions of historical research[1]. Primary sources were arranged into three categories: (1) archival records and documents; (2) corporate communications; and (3) media and press reports. Archival sources analysed comprised government parliamentary records, policy documents, organisational records, statistical yearbooks and survey data. Corporate communications included internal documents such as strategic plans, market research reports, presentations and promotional materials such as press releases,


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advertisements, labels and packaging. Press and media reports and documents – radio and television reports, magazine and newspaper articles – produced by external agencies were also analysed to verify the factual information from other primary sources. In addition, six semi-structured interviews were conducted with two participants representing each of the following links of the supply chain: chicken meat farmers, chicken meat processors and supermarket retailers. The duration of the interviews averaged 1 hour 35 minutes and covered questions relating to product market characteristics, the functioning of supply chains, the role of marketing and patterns of buyer behaviour. In this study data from the interviews was used to verify and supplement the archival sources in order to achieve data triangulation. Secondary data was sourced from statistical databases, published books, articles, pamphlets and unpublished theses. Each source of evidence was critically evaluated following guidelines provided by Golder (2000) to ascertain their authenticity and credibility. A narrative history of the case was written focusing on the concepts of interest. The sequence of events and changes in the concepts were described in each narrative (Abbott, 1990) and arranged into major phases inductively using the tool of periodization. Application of this tool offered several advantages. First, identifying important turning points provided the basis for marking distinct phases. Second, dividing the historical narrative into segments facilitated comparative analysis. Third, focusing the reader on specific time periods enabled easier recall of facts and major events that assisted in summarising and effectively structuring the historical evidence. Finally, imposing parameters on the evidence collated enabled the researcher to sort through and analyse the material to identify patterns (Hollander et al., 2005). This analysis of Australia’s chicken meat industry is organised into four phases of value creation presented in the next section. Phases of value creation 1960-1967: Co-ordinating inputs and information With the rapid suburbanisation of Australia’s major cities the familiar family chicken was removed from the backyard pen. Expansion and modernisation of meat bird farming encouraged more frequent consumption of chicken, which was once reserved for special occasions. From the late 1950s onwards bird farming became specialised with the first scientifically bred strains made available to farmers who began to source feed off-farm. A handful of families and a small number of cooperatives imported automated processing equipment from the US which provided a marked improvement in efficiency, lowering the costs of producing chicken meat. In order to afford this expenditure these firms had to raise the scale of production. Two prominent family enterprises, Inghams and Steggles, combined vertical integration, contracting and long term supply arrangements to coordinate the procurement of live birds with processing. Rather than investing in large sheds and expensive equipment for rearing chickens to slaughter weight, these companies sub-contracted the growing function to chicken farmers who made these investments. This arrangement enabled the major processors to reduce their investment in production of the core product by shifting “capital and supervision costs while simultaneously concentrating the high value added processing and distribution functions” (Kim and Curry, 1993, p. 76). To guarantee an outlet for the rising supply of chicken meat, these leading “integrators’ formed exclusive supply agreements with Australia’s largest

supermarket retailers. These arrangements, constituting a production and marketing oligopoly, provided the stability and financial resources for expansion and market growth. As the new supermarket format was being implanted in the Australian retail landscape, Bruce Steggles, founder of Steggles, formed an association with the Coles organisation, and the Ingham brothers with Woolworths. Despite prior agreements with their suppliers, the supermarket duopoly engaged in price wars to gain market share. Retail prices dropped to as low as 60¢ per kg, with it being remarked that chicken was “always on special”. This behaviour placed frozen chickens as a loss leader item to entice customers into supermarkets (Milne et al., 1989). By the mid-1960s most of the large processors were selling frozen chickens interstate. They were able to undercut smaller, local processors by increasing the water content of their chickens during processing and freezing. In response the local players demonstrated that their products did not shrink when cooked. They also lobbied for regulation against the practice and pushed a new product – fresh chickens – that favoured local distribution. Customer response was positive and demand for fresh product escalated, forcing the “integrators” to acquire local operations to supplement supplies freighted from their main distribution centres (Cain and Ball, 1990). Continued growth of the product category required improved coordination of information among supply chain members as reliable data had not been widely disseminated. Members located upstream were most active in collating and disseminating vital information to align supply with market requirements. This drive culminated in the formation of the Australian Chicken Meat Federation (ACMF) in 1964 to coordinate the interests of growers, processors and related enterprises, and to facilitate consensus in decision-making. AMCF members were determined not to be subsumed under government control as it would remove incentive to promote proprietary products (Cain and Ball, 1990). 1968-1979: Guaranteeing quality Intensification of methods for producing chickens through the 1960s was paralleled only by the expansion of outlets to deliver value added products to consumers over the following decade. Australians were granted greater access to fresh and frozen products via the proliferation of self-service supermarkets and fast food outlets dotting suburbia. Preferred supply agreements and the use of state-wide distribution systems by the major supermarket chains consolidated supply, eliminating many smaller suppliers whose plants did not meet their strict quality control standards (Milne et al., 1989). Proliferation of franchise outlets and corporate-owned supermarket chains put pressure on all chicken meat suppliers to standardise products. Consensus was achieved quickly on standards for moisture content of frozen chickens, on a uniform national system of number coding of carcass sizes, on the weight of retail packs, and a code of practice for hygienic processing. On-farm production was also regimented with the adoption of the “all in-all out” growing procedures in tightly controlled environments. Continuing improvements in the genetic attributes of stock and the narrowing of seedstock to two major breeds delivered consistency. Together, these developments encouraged standardization of chicken meat’s eating quality. By 1970 fresh or chilled chicken was widely available to Australian households. To keep pace with orders from their state based and nationwide retail customers, the integrators expanded the geographical coverage of their operations through aggressive


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acquisitions. They also sought to extend their ability to create value added products by investing more in R&D to enhance the range of products on offer to consumers through local supermarkets, delis and takeaway food shops. The development of new products by differentiating the basic offering was driven by the need to find a value added use for every part of the core product. Gradually, new product ideas were introduced including convenience “cut-ups”, the chicken roll and Chicken Maryland. Despite integrators’ efforts to drive innovation and deliver new value offerings, the balance of power shifted to the retailers who commanded a dominant position by virtue of their visibility. 1980-1989: Offering choice and convenience In the final decades of the twentieth century product differentiation intensified to entice Australians to consume chicken. Retailers’ value propositions responded to changes in lifestyles and attitudes to food that surfaced during the 1970s. In a contested partnership, processors and retailers drove a 80.6 per cent increase in chicken meat consumption from 20.1 kg per person in 1980 to 36.3 kg per person in 2002 (ABARE, 2001, 2004). As leaders in configuring the chain, the integrators had acquired resources enabling them to retain the identity of their products up to the point of purchase. Notably, Steggles and Inghams sponsored advertising to promote their products. This raised consumer awareness of their identities. But, without clear differentiation, and positioning based on chicken’s generic attributes, they faced difficulty building added value brands. Generic promotion sponsored by the ACMF soon eclipsed their brand specific promotion. The integrators faced rationalization in the early 1980s. Consolidation in processing was matched by concentrated retail distribution of chicken meat products. Ownership of outlets merchandising food became more concentrated from 1975 as Woolworths and Coles acquired and merged smaller retailers (Rosewarne, 1983). These actions turned the balance of power in their favour. Consequently, processors were distanced from consumers. Instead, they served retail buyers in relationships characterised by submission to demand for value added products. As chilled cuts became the standard format, the integrators moulded them into a multiplicity of added value branded products driven and supported by their retail partners. As well as two major public relations campaigns sponsored by the ACMF, the integrators ongoing advertising campaigns positioned chicken as the healthier, leaner meat. Presentation of chicken meat products at the point of purchase reinforced the category’s health conscious positioning with the National Heart Foundation’s logo on packs (CSIRO, 1994). Collectively, the efforts of the integrators, ACMF and supermarkets to position chicken as low fat were extremely effective in the beginning of the “low fat” era (Santich, 1995). The forms of value offered by the supermarkets resonated with consumers. The major chains recognised and responded to consumer concerns about price inflation in the first half of the 1980s. First, retailers minimised costs and passed these savings to consumers. Next, they improved their fresh produce assortments and invested in EDI technology to boost efficiency (Parliamentary Joint Select Committee on the Retailing Sector, 2001). Electronic recording of sales information via barcodes, coupled with computerised food warehouses strengthened their influence in the supply chain. By the mid-1980s the three largest chains – Coles, Woolworths and Franklins – controlled 65

per cent of national grocery sales, making ownership in Australia’s supermarket sector one of the most highly concentrated in the world (Euromonitor Publications, 1985). 1990-2002: Competing for control Concentration in Australia’s food retail sector steadily increased such that by the mid-1990s the supply of chicken meat products was dominated by the major supermarket and fast food chains. The three major supermarket chains increased their share of grocery retailing from 40 per cent to 80.2 per cent between 1975 and 1998 (National Association of Retail Grocers of Australia, 1999). The “Big Two”, Woolworths and Coles, continued to dominate retail sales of chicken meat and consolidated their control by each purchasing a number of Franklins supermarket outlets (McCallum, 2001). This produced a duopoly in Australian grocery retailing, with similar consolidation occurring in wholesaling (Parliamentary Joint Select Committee on the Retailing Sector, 2001). Overall, retailers’ low profit margins of between 2 and 4 per cent and the continued positioning of chicken meat as a loss leader item fuelled fierce competition among retailers and between retailers and their suppliers (Ferguson, 2003). Through a series of strategic investments, retailers tightened their influence over the coordination of value creation processes in Australia’s chicken meat supply chains. Concentration in the supply of fresh chicken meat was matched by centralised retail procurement. In essence, the major retail chains configured chicken meat supply chains for outsourced manufacturing of standardised value added products. Tight coordination enabled the major processors, in concert with retailers, to “adjust production and develop new products with astonishing speed and flexibility” (Boyd and Watts, 1997, p. 215). Long-term supply relationships encouraged joint product planning and development to respond to changing consumer lifestyles. Integrators aligned growing and processing by a computerised JIT production system at processing plants. Several key changes in supermarket retailing in Australia reinforced the shift in power to the major food retail chains and concentrated their authority over marketing decision making. The first key change was expanded access to supermarket space as shop hours were extended in most states from the 1990s (National Competition Council, 2002). Australian supermarkets became physically larger, locating in suburban shopping centres to provide a “one-stop” shop for time-poor consumers (Humphery, 1998). The second development was the centralisation and integration of procurement and distribution by the “Big Two”. Centralised, nationwide buying and marketing groups, located at each chain’s head office, coordinated the procurement, promotion and merchandising of chicken meat products. Investments were made in state-of-the-art distribution centres (DCs) and information technologies for JIT sourcing (Mitchell, 2002). Related to this, the third major change was the maturing of JIT procurement into real time purchasing led by the retailers. Access to and use of information about consumer buying patterns enhanced the predictability of demand for existing and new product lines. This information, used as a bargaining tool, gave retailers the authority to allocate shelf space, dictate volume discounts and control new product development. The fourth major change that gave retailers greater power in the supply chain was positioning of supermarkets as superior providers of fresh food – an image ideally suited to chicken. To this end, retailers changed the way they presented


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and promoted meat products to strengthen their store brands. Manufacturers’ labels were removed from sliced chicken meat packs. Store brands dominated fresh products in tray packs and the category was heavily promoted through supermarket retailers’ weekly price promotions. As the product category matured in the 1990s, the mass market became more segmented. Organic and free-range chicken products were marketed to affluent, socially-aware consumers. Small- and medium-sized processors and retailers also targeted higher-income, niche segments with slightly differentiated products. Yet, the supermarket retailers were still the most successful in placing their store brands at the forefront of consumers’ minds. Even though the processors recognized the need for brand promotion, they focused on product fulfilment rather than preserving their identity in the supermarket aisles. This was confirmed by the experience of a state sales manager at Bartter-Steggles who explained that opportunities for suppliers to brand niche products were restricted by their retail buyers (Griffith University, 2005). Discussion and integration of findings From the preceding analysis, patterns in the actions and investments of supply chain members were discerned that acted as triggers in the transition between different phases of value creation. These patterns reproduce the nature of power relations between members, their value propositions and forms of value created. Overall patterns in value creation are distinguished in terms of the dominant forms of value in each phase – generic products, value added products and added value brands. Another major difference across phases relates to members’ responsiveness to changing product market conditions. This is observed through supply chain members’ alignment of value creating processes to meet buyer expectations about the benefits, or added value, of chicken meat products. Together, these factors explain the similarities and differences observed. These triggers and the dominant forms of value created in each phase are summarised in Table I. Throughout its early development Australia’s chicken meat supply chains were moulded to create commodity goods sold on the basis of price and availability and treated homogenously. As the industry became saturated and faced competition from other meat products, these supply chains became more engaged with end user needs, marking the transition to the first phase of value creation. Two triggers supported the modernisation of Australia’s chicken meat supply chains. First, the synchronisation of supply arrangements guaranteed regularity of supply. This intensified price based competition among suppliers encouraged by the loss leader strategy of retail buyers. Second, farmers, researchers, agricultural service providers began to collaborate and formal co-operatives were established to standardise production methods and carcass quality. Australia’s chicken meat supply chains remained focused on generic products (i.e. minimum compliance to user requirements) between 1960 and 1967 and made a swift transition to create value added products. Exchange of the physical product was still based largely on price, but supply chain members demonstrated an increasing awareness of market conditions and specifications. Three key factors, or triggers, were identified to explain the rapid shift of chicken supply chains from the supply of generic products to value added products. The first trigger was the relative ease of attaining agreement on joint efforts to standardise product quality, improve the product and

Phase

Dominant form of value created Triggers

Phase one: 1960-1967

Generic products

Phase two: 1968-1979

Value added products

Phase three: 1980-1989 Added value brands

Phase four: 1990-2002

Value added products

Specialisation of meat bird farming Vertical integration and contracting in bird procurement and processing Exclusive supply agreements between integrators and major supermarket chains Frozen chickens as “loss leader” in supermarkets Improved collation and dissemination of information Establishment of chicken meat industry association Rapid expansion of retail outlets Standardisation of chicken meat production and eating quality Consolidation in processing sector Integrators’ investments in R&D Introduction of new fresh products Proliferation of product differentiation Strengthening of integrator and retailer supply partnerships Integrators sponsor brand promotion Rationalisation of processing sector Consolidation in supermarket sector Wide accessibility to chilled branded products Industry-sponsored generic promotion – “healthy” positioning Installation of EDI by retailers Duopoly in Australian grocery retailing Centralised procurement of standardised value added products Maturing of JIT production and “real time” procurement Expanded access to supermarket retail space Retailer control of NPD processes Revitalised positioning of retailers as superior food providers Finer segmentation of mass markets Aggressive advertising of store brands and own labels

coordinate marketing through consensus based on self-organisation. Rapid and universal adoption of a simple grading scheme by chicken meat processors provided the platform for product proliferation. The second trigger was purposeful reinvestment of earnings from sales of a generic product – frozen chicken – into product differentiation. After configuring supply chains to deliver high volume, low cost, standardised products the integrators built facilities for producing further processed, differentiated products. The final trigger was the application of the whole-of-carcass concept. Rather than aiming to earn higher prices for entire carcasses the integrators, in concert with their retail customers, sought to increase the total value of the chicken


Table I. Triggers of value creation

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carcass by adding greater value to individual cuts. As a result, the processors drove expansion of value added products transforming the chicken into an array of offerings from frozen microwave dinners to chicken nuggets. This was the dominant form of value created by Australia’s chicken meat supply chains between 1968 and 1979 and again between 1990 and 2002. Unlike the previous two phases, in the third phase, the supply chain was characterised by greater responsiveness to changing user requirements. Mechanisms to collect and disseminate market intelligence were in place to detect changes in the product market environment. However, the nature of the response to changes took a passive form resembling submission to customer demands. Suppliers focused on customer satisfaction in a cost effective manner to deliver value added products. Once quality assurance systems were put in place products were relatively standardised in terms of quality and additional benefits. Consistency in the quantity of supply was also assured as supply chain members formalised their procurement arrangements. A critical factor explaining the transition of the chicken meat industry to create added value brands was investment in marketing communications to support promotion of brand identities. After securing retail outlets for their products and creating a range of differentiated products, the integrators began to build branded meat products. Through their extensive advertising campaigns consumers became more familiar with and aware of the nation’s two major chicken meat processing companies. However, the integrators failed to sustain a brand presence in the long term due to the generic positioning of their brands. In the fourth phase, the creation of added value in the form of branded chicken meat products was underpinned by a supply chain in which members actively sought and responded to market intelligence on consumer trends to target more narrowly defined niche segments. In some cases the integrators attempted to drive and lead product innovation and consumer preferences. Consumers sought variety, convenience and nutrition responded positively to new chicken meat products introduced by the integrators. The sequence of investments made to lower chicken production costs, ensure consistent quality, develop new products and promote their identities centralised processors’ control over added value in the chicken meat marketing system up to the late 1980s. However, retailers’ control of the chain during the 1990s confined chicken meat processors to associate their name with value added products like frozen home meal replacement (HMR) products. Increasing investment by retailers from the mid-1980s shifted the balance of power in their favour and enforced new rules on their suppliers. Their dominant influence in the supply chain was visible in the quality standards they specified, the delegation of roles in value adding and restricted access to consumers for suppliers that could not meet their standards. Catering largely for mass markets, retailers focused on a narrow range of shared values sought by consumers like freshness, convenience and low price, and moulded chicken meat supply chains to deliver these benefits. However, retailers’ responsiveness to market intelligence was passive rather than active, evidenced by the limited development or introduction of new product lines in the final phase. For each of the major supermarket chains and fast food chains, there was a lack of differentiation between their products and positioning. Whereas, suppliers of chicken meat offering a clear point of differentiation and superior value targeted niche markets in an attempt to develop added value brands. As larger retailers tried to replicate

suppliers’ distinctive value propositions, these brands faced dilution and absorption into mass markets. Further, retailers’ promotion of their store labelled products and brands restricted the distribution of niche brands to smaller, often independent, butchers and specialist poulters. Comparing the evolution of Australia’s chicken meat supply chains to other countries identified similarities to the US model. First, like the US industry, Australia’s chicken meat supply chains moved from serving local state based markets, to interstate and national markets and then towards more segmented markets. Second, a small number of firms in the processing and retail sectors came to dominate first through horizontal integration and then tight vertical coordination. In emulation of US processors, Australian firms used a combination of contractual and corporate forms of vertical marketing coordination (Kim and Curry, 1993). While intensive chicken meat industries around the world exhibit common features suggesting a convergence in value creation processes, there are several distinct features of Australia’s marketing environment that distinguish it from its US mentor. Unlike the American experience, the Australian integrators have not achieved the same level of brand awareness, penetration, or export market development as US meat processors. These major variations between the two countries’ industries are linked to differing input costs, labour practices and economies of scale. Conclusions and managerial implications This study reveals key features of the transformation of modern agri-food supply chains in order to create different forms of value. Specifically, the transition of Australia’s chicken meat supply chains to create higher value offerings relied on the integration of marketing activities to streamline and tighten the coordination of essential value creation processes. Marketing functions were synchronised to raise production and quality standards. This required sustained investment in quality assurance and supply coordination, based on a JIT model. Purposeful investment to maintain these mechanisms affected members’ responsiveness to product market conditions, their ability to control and delegate marketing activities, and the observable patterns of value creation. This was demonstrated by the gradual shift in the balance of power from farmers, to chicken meat processors, and finally to the major food retailers – supermarkets and fast food outlets. In the final phase examined in this study, these two major retail formats faced intense competition due to the similarity of their value propositions – standardised, value added chicken meat meals – presented in a clean, uniform, tightly controlled retail environment. Food retailers’ tight control of the entry of new niche products limited the range of consumer choice in retail mass markets. Through their gradual horizontal and vertical dominance from 1980 to 2002 retailers outsourced product fulfilment tasks to a narrowing base of suppliers. This was achieved through a combination of corporate ownership of functions and contracting through vertical coordination. Strategic investments made by the integrators and retailers to coordinate value creating activities demonstrated that they could still maintain a strong influence over the marketing of the product category without owing every link in the supply chain. While corporate ownership of processing facilities and retail outlets was pervasive over consecutive phases, it was not a precondition for branding chicken meat products. Control through ownership was an


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important factor but, it also depended on responsiveness to product market conditions. Consequently, as supermarket chains fell into a passive responsiveness to mass markets, innovative suppliers sought alternative outlets. Suggestions for future research Due to differences in product market conditions across agri-food supply chains, the schema developed in this study is potentially limited in its application to other contexts. Future research should examine additional cases in other western markets and in less developed economies to confirm, revise and extend this schema of phases of value creation. A logical starting point would be to examine other meat and protein supply chains that exhibit similarities and differences in product market conditions. Next, the examination of other animal-based and non-animal based products which differ in their patterns of value creation should follow. In particular, research should investigate the sequence and direction of investments in these agri-food supply chains to determine whether this is a decisive factor explaining the timing of transitions between phases. This study did not seek to measure the economic value added by each link in the supply chain to determine their relative economic contributions, returns and efficiency. Supplementary research taking this approach could be undertaken and the results could be compared. Finally, future research should classify emergent phases in the evolution of modern agri-food supply chains. The triggers and corresponding phases of value creation identified in this study can be used as the basis for diagnosing subsequent stages in Australia’s chicken meat industry and to categorise the evolution of value creation in agri-food supply chains in other contexts. Note 1. Primary sources are eyewitness accounts of events that can also be based on audio or video recordings. Documents that are based upon secondary sources are testimony from those who were not present at the time of the event of interest and are a presentation of their interpretation of primary sources. Even though the testimony of secondary sources is not authentic, it often provides corroboration or adds missing details that are consistent with the testimony of primary sources (Golder, 2000). References ABARE (2001), Meat – Outlook to 2005-06, Commonwealth of Australia, Canberra. ABARE (2004), Australian Commodity Statistics, Commonwealth of Australia, Canberra. Abbott, A. (1990), “A primer on sequence methods”, Organization Science, Vol. 1, pp. 375-92. Ailawadi, K.L. (2001), “The retail power-performance conundrum: what have we learned?”, Journal of Retailing, Vol. 77, pp. 299-318. Alderson, W. and Martin, M.W. (1965), “Toward a formal theory of transactions and transvections”, Journal of Marketing Research, Vol. 2, May, pp. 117-27. American Meat Institute (2005), Overview of US Meat and Poultry Production and Consumption, American Meat Institute, Washington, DC. Anderson, J.C. and Narus, J.A. (1990), “A model of distributor firm and manufacturer firm working partnerships”, Journal of Marketing, Vol. 54, January, pp. 42-58. Anderson, J.C. and Narus, J.A. (1999), Business Market Management: Understanding, Creating, and Delivering Value, Prentice-Hall, Upper Saddle River, NJ.

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