project strategic
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SampleProjectReport_Team_2_Spring2017.pdf
RUNNING HEAD: OMEGA PROTEIN 1
Strategic Case Analysis
University of Houston – Victoria School of Business
MGMT 4309 – Strategic Management
2 Team 2: Castellon, Josan, Price, Shah
Table of Contents 1.0 Executive Summary ............................................................................................................................ 5
2.0 Company History ................................................................................................................................ 7
2.1 Background. ........................................................................................................................... 7
2.2 Products and Services. ........................................................................................................... 7
Part I: External Environmental Analysis ...................................................................................................... 8
3.0 External Analysis ................................................................................................................................ 8
3.1 General Environmental Analysis. .......................................................................................... 8
3.1.1 Political segment. ................................................................................................... 8
3.1.2 Economic segment. ................................................................................................ 8
3.1.3 Socio-cultural and demographic segment. ............................................................. 9
3.1.4 Technological segment. ....................................................................................... 10
3.1.5. Environmental segment. ...................................................................................... 10
3.1.6 Legal and regulatory factors. ............................................................................... 11
3.1.7 External Environment Driving Factors ................................................................ 11
3.2 Industry Dominant Economic Features. ............................................................................... 12
3.3 Five Force Analysis and Industry Attractiveness................................................................. 14
3.3.1 Threat of new entrants. ........................................................................................ 14
3.3.2 Power of suppliers. .............................................................................................. 15
3.3.3. Power of buyers. .................................................................................................. 16
3.3.4. The power of substitutes. ..................................................................................... 17
3.3.5 Intensity of rivalry. .............................................................................................. 18
3.3.6. Summary of five force analysis. .......................................................................... 19
3.4. Industry Competitors Analysis and their Anticipated Strategic Moves .................................. 19
3.5 Key Success Factors ............................................................................................................. 22
Part II: Internal Analysis ............................................................................................................................. 24
4.0 Internal Analysis ............................................................................................................................... 24
4.1 Organizational Strategy Analysis......................................................................................... 24
4.1.1 Corporate mission. ............................................................................................... 24
4.1.2 Strategy (corporate level and business level). ...................................................... 25
4.1.3 Organizational culture and core values. ............................................................... 28
4.1.4 Leadership. ........................................................................................................... 28
4.2 Financial Analysis ................................................................................................................ 28
3 Team 2: Castellon, Josan, Price, Shah
4.2.1. Valuation analysis................................................................................................ 29
4.2.2. Growth analysis. .................................................................................................. 29
4.2.3. Profitability Analysis: ............................................................................................. 30
4.2.4. Financial strength analysis................................................................................... 30
4.2.5. Management efficiency analysis.......................................................................... 31
4.2.6. Summary of financial analysis. ............................................................................ 31
4.3 Value Chain Analysis ........................................................................................................... 31
4.3.1 Support activities. ................................................................................................................. 32
4.3.1.1. Structure. .............................................................................................................. 32
4.3.1.2. Design, Research & Development. ...................................................................... 33
4.3.2 Primary Activities. ............................................................................................................... 35
4.3.2.1. Input. .................................................................................................................... 35
4.3.2.2 Operation processes. ............................................................................................ 38
4.3.2.3. Marketing and customer service. ......................................................................... 40
Part III: Strategic Fit Analysis .................................................................................................................... 41
5.0 SWOT Analysis ................................................................................................................................ 41
5.1 Strategic Challenges: Opportunities and Threats ................................................................. 41
5.2 Core Competencies: Strengths and Weaknesses .................................................................. 43
5.3 Strategic Fit Analysis (SWOT Matrix) ................................................................................ 46
Part IV: Recommendations ......................................................................................................................... 50
6.0 Recommendations ............................................................................................................................. 50
6.1 Selection and Justification of the Top Two Recommendations ........................................... 50
6.2 Implementation of the Top Recommendation ...................................................................... 53
6.2.1. Action Plans, Deliverables, and Milestones ........................................................ 53
6.2.2. Resources, Technical Requirements, and Budgeting ........................................... 55
Appendices .................................................................................................................................................. 59
Appendix A Industry Growth Rates Graph 3.2 ..................................................................... 59
Appendix B Summary of the Five Forces ............................................................................. 60
Appendix C Strategic Map .................................................................................................... 61
Appendix D Omega 3 Advertising and Marketing Example ................................................ 62
Appendix E Price to Earnings Ratio Graph 4.2.1. ................................................................ 63
Appendix F Profitability Ratios Table no. 4.2.3................................................................. 64
Appendix G Valuation Ratios Table 4.2.1. .......................................................................... 65
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Appendix H Omega Protein Sales Growth Chart no. 4.2.2a. ................................................ 66
Appendix I Omega Cost Breakdown Chart 4.2.2b. ............................................................. 67
Appendix J Growth Ratios Table 4.2.2.............................................................................. 68
Appendix K Net Profit Chart 4.2.3. ...................................................................................... 69
Appendix L Profitability ratios Table 4.2.3. ........................................................................ 70
Appendix M Financial Strength Ratios Table 4.2.4. ............................................................ 71
Appendix N Management Efficiency Ratios Table no. 4.2.5............................................... 72
Appendix O Organizational Charts ....................................................................................... 73
Appendix P: SWOT Summary Table .................................................................................... 74
Appendix Q: SWOT Matrix Table: Strategic Decisions ........................................................ 75
Appendix R: New Product Launch Timeline ......................................................................... 76
Appendix S: Use of Fishmeal for Aquafeed .......................................................................... 77
Appendix T: Cost Structure of Meal Replacement Shakes.................................................... 78
Appendix U: Cost Structure of Animal Feed ......................................................................... 79
References ................................................................................................................................................... 80
5 Team 2: Castellon, Josan, Price, Shah
1.0 Executive Summary
The following report is a strategic analysis of Omega Protein Corp. The report utilizes
various tools to analyze the organization and their markets. Furthermore, utilizing the
information gathered from the analytical tools, strategic recommendations have been created for
Omega Protein to undertake for their future strategy to enhance competitiveness and market
share in those industries.
Initially, our report covers the external industry environments. Omega Protein operates in
two main industries, Animal Feed and Human Nutrition. To facilitate the evaluation of each
industry, a PESTEL analysis was performed as well as Five Forces analysis, both are important
to understanding their competitive environments and to make sure profits are likely to be made
in them. Lastly, we identify the key success factors in these industries that are needed by all
companies competing in them to hold market share and remain competitive.
An internal analysis of Omega Protein Corp and its competitors was also performed. This
includes a review the organizational strategy, mission, vision, organizational culture, and
leadership of the firm. Additionally we analyze the firm’s financial standing, this includes an in
depth ratio analysis which compares Omega Protein’s financial health to that of other competing
firms in the industries. We also analyzed the value chain based on its primary and support
activities for Omega Protein and its competition.
The findings have been summarized in a SWOT analysis which identifies Omega
Protein’s strengths and weaknesses and further identifies how they can use these to develop a
strategy to either take advantage of the opportunities in the market or to construct a defense to
maintain their current market standing. The industry opportunities that have been found include
the addition of new product offerings in the human nutrition segment and the innovation of
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existing products. Industry threats involve the strength of substitutes in the market, fierce
competition in the industry, and rapidly changing consumer preferences. Taking into
consideration Omega Protein, their internal strengths include their vertically integrated supply
chain, good financial position, and their ability and capacity to innovate. The identified
weaknesses are excess property and facilities, low brand recognition, and heavy dependence on
one raw material.
Taking into consideration these impacts, our team found several strategic options for
Omega Protein. Of these options, two recommendations that we feel would make the best
strategic fit. The first is the creation of additional products in the human nutrition market,
specifically in the growing segment of meal replacement shakes for weight loss and sports
nutrition. The second is to diversify the aquaculture feed offering in animal nutrition by also
producing plant based feed in addition to its fishmeal. Finally, our strategies are offered with a
timeline for a quick completion of the new products to market as well as an action plan on how
to implement the strategy.
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2.0 Company History
2.1 Background.
Omega Protein started from humble beginnings when founders John and Thomas Haynie
installed fish processing devices on their property in Reedville, Virginia in 1878. This was an
investment to take advantage of the increased demand for fish meal and oils processed from the
abundant menhaden fish that were local to Reedville (History, 2015). As more applications for
fish byproducts became evident, the Haynie’s merged their business with other organizations to
include additional resources. Advances in technology gave way to expanding the operations to
the Gulf of Mexico in 1966 which allowed for an increased fishing season and the subsequent
processing of menhaden fish. Omega Protein as we know it today, was formed officially in 1998
and became publically traded on the New York Stock Exchange (Who We Are, 2014).
2.2 Products and Services.
Omega Protein produces fish meal, fish solubles, and fish oil. These raw materials are
incorporated into a number of end uses. The two primary markets for these products are in the
Animal Feed and Human Nutrition industries. In the animal feed market, fish meal is a high-
protein ingredient that is produced by Omega Protein and sold to manufacturers of livestock and
companion animal feed (Omega, 2017). Some major customers in this area include Cargill®,
Nuscience®, Purina®, Iams®, and Science Diet®. Fish solubles are additives in fish meal that
are primarily sold to bait manufacturers (Omega, 2017). For human nutritional products, Omega
Protein produces food additives and supplements to manufacturers; these include protein
products, specialty oils (such as Omega-3) and other ‘nutraceutical’ ingredients (Omega, 2017).
Key customers in this target market include Swanson®, GNC®, Nature’s Way®, and Carrington
Farms® (Who We Are, 2014).
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Part I: External Environmental Analysis
3.0 External Analysis
3.1 General Environmental Analysis.
In analyzing the macro-economic influences of the industry, a PESTEL analysis was
performed evaluating the relevant factors.
3.1.1 Political segment.
The primary raw material that is used during the production of animal fats and oils for
nutritional supplements is fish. Fish is a global commodity, so other manufacturers can easily
access fish in the world market. Currently, foreign producers have dominated the industry supply
of fish (D’Costa, 2017). In the United States, the change in administration in 2017 has begun to
embrace protectionist and anti-free trade agendas (Knowler, 2017). An expected result of this
agenda is a shift from raw material imports to relying on domestic producers. The actual impacts
have still not been officially realized, but import taxes or caps will increase the demand for local
sources of fish and fish meal which will allow for a higher overall price that can be charged. In
addition to raw materials, any derived fishmeal and oils that are produced domestically we also
expect to be preferred over global competitors.
The end products in vitamin and nutritional supplements currently operate in a trade
deficit however that deficit has been steadily declining (Yucel, 2017). The amount of imports
falling in conjunction with the same anti-trade policies that affect the seafood market will
increase demand from local suppliers in the industry.
3.1.2 Economic segment.
The general economic climate affects the industry as a whole. Although nutrition is a key
priority, the higher cost of healthy food and supplements make them susceptible to economic
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fluctuations that result changes in ultimate consumer’s income. IBISWorld reported in their
Vitamin and Supplement Manufacturing Industry report that, “As per capita disposable income
rises, more consumers will be able to trade up to premium vitamin brands and purchase a greater
variety of supplements, helping sustain industry revenue growth (2016).”
Significant changes in disposable income are not expected in the United States in the
immediate future according to multiple economic sources. The International Monetary Fund
gave only a slightly increasing forecast of economic growth in 2017 at 2.2% (International
Monetary Fund, 2016). Likewise, the Indiana Business Review also forecasted output growth in
2017 to average only ‘slightly above 2%’ in 2017, citing a pattern that has been in place for the
last several years (Witte, 2016). As a result, there should be not significant economic factors that
change the demand for products in the industry.
3.1.3 Socio‐cultural and demographic segment.
Ultimate consumers dietary and lifestyle preferences drive both the market for both
animal nutrition and human supplements, but both in different ways. For vitamins and
supplements that are added to end used foods, one key demographic affected is the aging
population. Consumers who are older have a higher preference for healthy options more often
because of the increased health complications. This trend is expected to continue, in the
IBISWorld Industry Report, it was noted that “As overall healthcare expenditure increases, the
number of Americans that use dietary supplements as a preventative measure against illness,
fatigue and general poor health will continue to grow, driving demand for industry goods (Yucel
2016).”
For the industry focus on animal nutrition, the key demographics are slightly different.
Marketers have found that consumers who are buying pet food for their companion animals are
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generally very concerned with the health of the ingredients. In fact, they found that most
consumers buying for their dogs are more serious about buying healthy dog food than they are in
buying healthy food for themselves (Tesfom & Birch, 2010). This mindset drives the need for
animal food producers to produce healthy food because pet owners are emotionally attached to
their pets and are willing to pay the money for it (McCormack, 2016).
3.1.4 Technological segment.
Some new technologies have affected the fish oil production portion of supplements.
Most notably, the ability to add Omega 3 to food without leaving an aftertaste has expanded the
possibility for product additives that were previously nonexistent. Up until then, if a producer
wanted to add Omega-3 to their food, they had to use plants based products that didn’t have an
aftertaste. The plant based products do not have the same proven health benefits as the EPA and
DHA that is only found in Omega 3 proteins from fish (Uhland, 2005). Innovations such as this
open up new opportunities for the products offered. Continuing research and development to find
and incorporate new ways to utilize products for consumer use will be necessary to gain
competitive advantage in the industry.
Technology in the industry will also help develop innovative strategies along the supply
chain. According to the industry report for Vitamin and Nutritional supplements, one of the key
drivers of demand is new scientific research and breakthroughs (Yucel, 2016). We see this is an
indication that players in the industry must keep up with new technologies to continue to serve
their market completely.
3.1.5. Environmental segment.
Fish production is subject to a number of environmental factors that can cause the fish
population to decline. Any adverse condition can greatly affect the supply of fish. Some recent
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examples are the BP oil spill and Hurricane Katrina in the Gulf Coast. When the supply of fish is
limited, revenue is expected to decrease due to inability to meet demand (D’Costa, 2017).
Additionally, fish is susceptible to over processing and which can endanger the supply for future
seasons.
3.1.6 Legal and regulatory factors.
Dietary Supplements do not currently face drug approval requirements by the Food and
Drug Administration; therefore, political factors are not as restrictive to nutraceutical products as
they are to pure pharmaceutical products. However, there has been an increasing level of
regulation from both Federal and state agencies (Yucel, 2016). All players in the industry will be
affected by increasing regulation regarding their final product, leading to a financial burden and
adding barriers to entry.
In addition to final product regulations, any processing facility will be regulated by the
Environmental Protection Agency (EPA) and must also dispose of waste in an environmentally
sustainable way to comply with the Clean Water Act (McCormack, 2016). These compliances
affect all domestic producers in the industry and may therefore be more costly for purchasers to
buy domestic rather than import from a country that is not subject to the same restrictions.
3.1.7 External Environment Driving Factors
In the Vitamin and Supplement Industry, a driving factor is from changing consumer
preferences and its resulting manufacturing process innovations to bring specialized products to
the market. The demand for these products depends on who is producing the best and newest
products. Scientific breakthroughs can sway demand. Additionally, the highest growth
opportunity in this industry is from diet and sports nutrition, both which are highly influenced by
new trends (Yucel, 2016).
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For the Animal Nutrition segment, a driving external factor is the buyer’s preferences for
differentiated products. Livestock farmers, for example, will want customized feed options that
meet the nutritional needs of a specific breed or species in a way that will enhance the output of
their livestock (McCormack, 2016).
3.2 Industry Dominant Economic Features.
Omega Protein is a producer of food and nutritional supplements. These supplements are
in the form of proteins, specialty oils and fatty acids. Omega Protein sells their product in two
different commercial market segments. First, they are sold to commercial manufacturers of food
products who integrate the nutritional supplements into their foods which provide health benefits
to the ultimate consumers. Second, they are sold to livestock and aquaculture feed producers to
enhance the nutritional value of seafood and pork that is harvested for consumption (Who We
Are, 2014). Hence, the two market segments, both the Vitamin and Supplement market and
Animal food production market, have been analyzed.
The animal food production industry is expected to grow over the next few years mostly
due to a steady, yet small, increase in demand. Part of this demand is due to the increased meat
consumption by consumers which drives the demand for more feed. Additionally, pet ownership
is expected to increase over the next five years at an estimate of 3.1% annualized, this growth is
an integral portion of the industry (McCormack, 2016). These increases in demand expect to
bring more entrants to this industry, but not at a pronounced rate. The market is currently in the
mature stage of the life cycle, which indicates a growth rate approximately the same as the
economy as a whole (McCormack, 2016). Please see attached Appendix A for an industry
growth chart, the Animal Food Industry revenue growth validates that the rate is stabilizing at a
modest rate.
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The animal feed market can be segmented between pet owners and livestock producers.
Both have different requirements for the nutritional supplements of their products. Pet owners
have pushed a significant demand towards healthy pet food, which will encourage those in the
industry to utilize high quality, healthy options. IBISWorld noted that ‘many pet owners are
emotionally attached to their pets and are more willing to endure price hikes for products they
believe will boost their pets’ health (McCormack, 2016).” Livestock farmers, on the other hand,
will likely focus on the health of the livestock and will look for feed that is specifically
formulated to encourage specific outputs. For example, a dairy farmer may purchase feed
specially formulated to increase milk production (McCormack, 2016).
The Vitamin and Supplement manufacturing industry is growing since last five years and
is expected to do so in next five years, but, at a slower rate compared to its past growth
(McCormack, 2016). Reasons for its growth are the steady demand, rise in income and change in
demography. Please see Appendix A for a growth chart of revenues in the Vitamin and
Supplement industry, while still growing, the rates are declining after a large spike in demand
during 2011. This validates the IBISWorld analysis of slowing in industry growth.
Vitamin and Supplement industry is highly segmented due to varying demographics,
however the high number of players makes it highly competitive. Consumers have varied needs
and preferences based on their age and lifestyle which opens many niche segments in the
industry. For instance, population over the age of 65 will grow in the future and some age-related
issues such as osteoporosis and vision loss can be reduced with the use of supplements (Wahl,
2015). As per the National Institute of Aging (NIA), “Supplements of calcium and vitamin D can
significantly reduce bone loss and the risk of fractures in older people, according to a new report
from scientists at Tufts University along with fighting osteoporosis” (Calcium, 1997). There is
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also a growing awareness of personal fitness among the consumers. Participation in sports has
increased and thus increase in demand for high activity supplements is on rise (Wahl, 2015). The
industry growth rates of the last several years, including their projections have been graphed to
visually indicate the growth of the Animal Nutrition and Vitamin Supplement industries to
visually indicate these points in Appendix A.
Rivalry among industry players vary among different market segments, and FDA
regulations will affect the rivalry. An Americanbar.org publication states in 2015 that “(i)n a
recent 16-month period alone, the FDA reportedly took more than 100 actions against the makers
and sellers of dietary supplements”. In response to the regulations, companies have made
changes to address consumer and government agencies concerns. GNC, for example, has
proposed the Regulatory Alliance for Industry Supplement Excellence (RAISE) for this purpose
(Wahl, 2015). Brands whose products are FDA approved and thus has better quality will have
more demand compared to its rivals.
3.3 Five Force Analysis and Industry Attractiveness.
3.3.1 Threat of new entrants.
There are medium barriers to entry into the nutrition supplement industry. New entrants
need to invest in creating niche supplements to be successful, however they can easily gain
market share with new specialized products. Moreover, of the agencies regulated by the FDA
there are fewer required standards for the nutraceutical market, which allows for easier
compliance for new entrants. At the same time, many pharmaceutical companies are trying to
also enter the supplement market as well. Existing companies are starting to utilize techniques to
vertically integrate, similar to packaged food companies experienced in their industry. This
increases the chances for outsider companies to enter the market in an effort to provide the
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products traditionally provided by their suppliers. For instance, according to
Nutraceuticalsworld.com, Herbalife is “Committed to becoming more vertically integrated,
securing its supply chain from “seed to feed, (Stephens, 2007)”. According to IBISWorld, the
nutritional supplement industry is at the growth stage of its life cycle, with low level of revenue
volatility. “(T)he industry's value-added (IVA), which measures the industry's contribution to the
economy, to grow at an average annual rate of 4.2%”. Thus, the growth factor presents a great
opportunity for a pool of new entrants.
The Fish and Seafood market requires low capital investment. There is no huge
investment in land as it is usually rented (D’Costa, 2017). Buyers demand for fish and seafood is
growing due to the health benefits of the products. “Global per capita fish consumption has risen
to above 20 kilograms a year for the first time, thanks to stronger aquaculture supply and firm
demand” (Global per capita…, 2016). Thus, new entrants can earn profit due to increasing
demand and relatively low initial investment.
3.3.2 Power of suppliers.
Suppliers for vitamins and supplement industry are farmers that produce different seeds
and plants, fishermen, and the dairy industry. These supplies are not for specialized products
rather they are considered “commodities” as they are available from many sources without
providing any dominant bargaining power to any one supplier. “There are no major players in
this industry” (Yucel, 2016). American Crystal Sugar company and Green Pasture International
Inc. are the major suppliers but only have market share of less than 1% each (Yucel, 2016).
Moreover, many companies have vertically integrated backward lessening their dependence on
suppliers. This further weakens the suppliers’ power in the industry.
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The suppliers in the fish and seafood market have low concentration. This indicates that a
vast number of small fish farms supply a majority of the product (D’Costa, 2017). The products
supplied are again considered a ‘commodity’ and the industry players tend to be major customers
of the suppliers who have extremely low market cap. The suppliers also face the risk of a high
variety of substitute products available, for example, livestock meats. All of these are indicators
that suppliers have low leverage in the industry.
3.3.3. Power of buyers.
The major buyers of vitamin and supplement industry are food, beverage and nutritional
supplement manufacturers along with direct consumers. The wholesale buyers are large
companies that make bulk purchases and thus have significant bargaining power. There are many
players in the industry. However, there is a growing demand for supplements because of the
increase in awareness regarding their health benefits. The ultimate consumers in the human
nutrition market seek out new product innovations and scientific breakthroughs in both dietary
supplements and sports nutrition segments (Yucel, 2016). The global dietary supplements market
is expected to reach $278 billion USD by 2024 because of its increasing demand for different
products, according to a new report by Grand View Research, Inc. (2016). Thus, the buyers’ pool
is increasing every year. There are only two major companies that account for less than 18%
market share and the rest of the market share is held by many different small companies
(McCormack, 2016). As a result, buyers have a lot of options and low switching costs. Buyers
also have easy access to information regarding price and quality of products of industry players
due to the internet. Buyers drive innovation in the market. These are indicators that buyers have
high leverage in the industry.
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Buyers for fish and seafood markets also have low switching costs. Consumers can buy
substitute products at cheaper prices from other sources like supermarkets often at better prices.
Fresh fish and seafood has a very low shelf life which puts pressure on industry to sell it as
quickly as possible. This provides bargaining power to the buyers. Additionally, buyers include
both large companies and individual consumers. Big companies create pressure with bulk
purchases in the industry. Thus, buyers create high level of pressure.
3.3.4. The power of substitutes.
The vitamin and supplement industry fulfills the need of all the minerals and vitamins
needed by the body. However, these needs can also be satisfied with the intake of fresh fruits,
vegetables, and juices. Thus, fruits, vegetables, and juice industry (farming and selling) creates
substitute pressures. There is an easy availability of these substitutes of seafood and at a
competitive price. For example, consumers may prefer dairy products as a substitute for
supplements because of its availability, price, and benefits.
In the Fish and Seafood industry substitutes include alternates for fish oils and fish meal,
these alternates are gaining in popularity due to the increasing price of fish and seafood.
“(R)ecent research has led to success in the use of the leftover trimmings from the fish
processing industry. (Fish trimmings consist of the parts of the fish that are not converted into
fillets or steaks during processing) Trimmings that used to be waste now can constitute a
significant percent of the raw materials for fishmeal production” (Feeds, 2017). Substitute
sources for fish oil are available as well. In fact, krill oil may have more benefits than traditional
fish oils. MegaRed® Omega-3 oil supplements provides the health benefits of traditional
Omega-3 fish oils but advertises to have no aftertaste and be more digestible (Megared, 2017).
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Because of the availability of substitutes, and the extensive choices to consumers, the substitute
pressures are high for the fish and seafood industry.
The aquaculture industry has many potential substitutes as well. It was noted by the
National Oceanic and Atmospheric Administration (NOAA) the “A continued evaluation of
alternative protein and oil sources such as by-products from other industries (e.g., biofuel), fish
processing waste, and newer sources such as worms, insects, and algae will yield insights into
the nutrient profiles of alternative ingredients and how they may meet the nutrient requirements
of farmed species” (Feeds, 2017). These substitutes are expected to increase in popularity when
there is a low supply of fish which will drive up the price in the market.
3.3.5 Intensity of rivalry.
There is high level of competition in the vitamin and supplement industry and there is a
wide variety of niche products available within it (Yucel, 2017). For instance, there are
multivitamins for general use, omega 3 fatty acid supplements, supplements for weight loss, and
protein powders to add in the food, and whey protein supplements. Due to low research and
development (R&D) cost and less FDA standards, competitors stay active in the market by
introducing new products, lower prices and increasing their product lines. Buyers do not face
switching costs, which means that competitors must constantly compete to maintain and increase
their buyer’s pool.
Competition in Fish and Seafood industry is medium intensity (D’Costa, 2017). The
products and service in the industry are differentiated based on freshness, price, quality, and
range of services and products. Buyers’ have low switching cost for general products. Also, the
products are not highly differentiated and generally competitors are of equal size. This creates
high competition level in the industry.
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3.3.6. Summary of five force analysis.
A table of our findings from the five force analysis can be found in Appendix B, our
overall research shows the following. There are many buyers and many sellers in the nutritional
supplements and in the fish & seafood industry. Demand for supplements and fish products is on
the rise because of its known nutritional benefits. At the same time, buyers are well informed
about product quality and price. There is a high level of power from buyers.
The numbers of suppliers for nutritional supplements are high while the numbers of
suppliers in the fish industry are low. In general, all of the suppliers offer similar kinds of
products. Supplies can be fluctuating because of its dependency on weather and climate. Thus,
suppliers have low leverage on the industry.
There is a big pool of new entrants because of the medium level of capital requirement,
average barrier to entry, ease of vertical integration, existing companies expanding into new
product segments, and the rising demand and growth in the industry. There is high level of threat
from the pool of potential new entrants.
The wide variety of substitute products is available in market that offers either better
quality or better price or both give substitute products a lot of power. Vitamins and supplements
are now being added to foods and beverages which is the part of everyday meal. Fish and
seafood is available from supermarkets and online sellers. Thus, substitutes create high pressures
for the industry.
The number of rivals is large and the market share is low. There is no major rival with a
huge market share. This creates high level of competition within the industry.
3.4. Industry Competitors Analysis and their Anticipated Strategic Moves
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Omega Protein Inc. has multiple competitors, although some are less of a threat, many
others have the ability to take market share from the company. The primary competitors for this
organization include: Darling Ingredients Inc., Daybrook Fisheries, and Epax. These companies
compete with Omega by providing animal and marine fats and oils to their market. Please see
Appendix C for a Strategic Map of Omega Protein and key competitors on the basis of
organization size and their associated quality imperative.
Darling Ingredients Inc. is a major competitor since they are an organization with
similarity to Omega Protein, they are both publicly traded companies in the New York Stock
Exchange, they share the same SIC code, and they both are vertically integrated, and are both
headquartered in Texas. Darling Ingredients was first created specifically for meat packing for in
1882. Like Omega, it grew from a small organization growing and expanding to the company
known today Darling differs from Omega due to the raw supply of the materials they provide.
While Omega makes its nutrients and oils from fish, Darling uses Beef, Poultry, and Pork by
products for its supply. Although they both operate globally, Darling has a much larger scale as
they run operations in five continents (Darling 2015).
Because Darling supplies to the pet food industry as well as to food preparation they
often compete in this market as well. However, Darling is much larger. Darling foods have
approximately 9,373 more employees and revenue differences of $2,931,971,000. Its main
purpose is to provide 3 different aspects of business such as feed ingredients, food ingredients
and fuel ingredients, whereas Omega currently only focuses on feed and food ingredients. In
recent news, the competitor Darling Ingredients was recognized by EINNewsDesk as being one
of the key players in the market that will forecast billions in revenues by 2021(Trent, 2017).
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Darling Ingredients has been venturing into other markets. Hydrocolloids are a global
market which makes additives that are used for beverages and food products to increase texture,
physical appearance and viscosity (Li & Nie, 2016). A focus on this industry is an apparent next
plan for Darling. With the hydrocolloids industry continually increasing revenues up to 6.58% by
2022 this creates the incentive to make this market their next move to keep revenues increasing.
Darling has both the capacity and size to become a major producer in this area (Trent, 2017).
Another primary competitor is Epax Omega-3 which is another leading producer of
omega-3 ingredients such as marine-based omega3- fatty acids. Like Omega Protein, one of their
missions is to have the most purified and inventive supplements to promote health products to
their industry. Originally started the production of cod liver oil in Norway in 1837 and today has
used technological state of the art purification processes (About Epax). Epax uses strategic
marketing investments such as supporting the ‘DHA/EPA Omega-3 Institute’ which does
research concerning Omega-3 fatty acids, distributes information, and attempts to increase
market awareness (and demand) for their products. Additionally, Epax announced in 2015 their
next strategic improvement is entering the Islamic market by “processing raw materials to meet
the Islamic religious regulations for Halal (About Epax).” Halal certification is significant as
they try to expand their market globally. By reaching out to Islamic religious customers they are
a step ahead of Omega Protein who mostly exports in a smaller scale. In July 2013, Epax was
acquired by FMC Corporation, a publicly traded company worth 7.74 Billion in 2016
(FMC:Summary, 2017). This acquisition gives Epax a significant source of capital and
investment potential that otherwise was unavailable as a smaller corporation. Now, Epax has the
ability to utilize more capital for research and development, making them a likely candidate for
future innovations that will compete with Omega Protein.
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Daybrook Fisheries is another direct competitor of Omega protein. They fish and process
menhaden fish in the Gulf of Mexico and also supply product to the same customers as that of
Omega Protein. They were recently acquired by Oceana Corp. a large public South African
corporation. The larger corporation gives Daybrook access to financial recourses that were not
available to the smaller organization. Oceana has acquired Daybrook in part for its ability to
diversify its own global fishing industry (Acquisition, 2015). As a result, we do not foresee any
risky or advantageous moves by Daybrook or its parent company.
3.5 Key Success Factors
“Key Success Factors (KSF’s) are competitive factors, product attributes, resources,
capabilities, and competitive assets that have the greatest impact on the future success in the
market (Gamble, 63)”. In the case of the nutrition and supplement industry several of these key
factors can be identified and are critical to the success of the industry and competitiveness.
One of the KSF that players in this industry must have is the ability to innovate. This is
essential, and will require an effective research and development investments by organizations in
this industry. Companies, such as Omega Protein, constantly engage in research and
development efforts; such as through their Innovation and Technology Center that conducts
scientific research on how to create or enhance products. Doing such will allow them provide the
innovative products that exceed consumer expectations along with changing needs (Who We
Are, 2016).
Another critical factor for the success of the Nutrition and Supplement industry is the
ability to produce premium goods/services with high quality inputs and outputs. This is an
expectation by consumers who are seeking for the best value taking in account the health and
nutritional values of their products. Using the quality inputs will also ensure maximize end-
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product quality (Mcbee, 2011). As such, quality sourcing and distribution are important in
assuring the overall success within this industry. An article published on Nutraceuticals World
website stated, “Well over half of dietary supplement users now indicate that knowing the source
of the supplement ingredients is important to them” (Stephens, 2015). More consumers are also
interested in using products from natural, organic, green, and unique ingredient sources.
Producing high quality outputs should be a priority for any organization in this industry for many
stakeholders are relying that they exceed requirements and stay reputable/competitive.
Furthermore, a Key Success Factor for this industry is the ability to adapt to the rapid
changing environment and regulations. Federal and local regulations with respect to health,
safety, dietary and much more requirements are rapidly changing and firms are required to
comply. This can be a challenging task; however, when executed well it may ensure credibility
and avoid service disruptions and a bad public image for those who cannot comply. Firms in this
industry must also adapt in response to rapid changing trends and patterns in consumer
tastes/preferences, attitudes, and lifestyles as well. The supplement industry has historically
incorporated the changing demographics of the ultimate consumer, for instance vitamins are
created for the health-conscious customer, as well specialty pet food with nutritional additives
for dog lovers. Being adaptable is essential for this industry for constant changes in the market,
and if a firm is not adaptable, it may pose a threat to the entire organization.
Another key success factor in the nutrition and supplement industry is being able to
effectively and accurately promote the benefits the consumers can obtain from utilizing the
products produced. Consumers will not buy products if they are not aware of them and its
benefits, therefore it is essential for those players in this industry to create and execute marketing
plans that appeal to customers and inform them why the products are beneficial to them. We see
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this in an example from the DHA/EPA Omega-3 Institute that is sponsored by industry player
Epax to inform consumers of the health benefits from Omega-3 oils, thus motiving consumers
toward buying their products. See the attached Appendix C which is an example press release
from this institute (Infographics). This markets the product by raising overall consumer
awareness and knowledge.
Part II: Internal Analysis
4.0 Internal Analysis
4.1 Organizational Strategy Analysis.
Omega Proteins Corporation is continuously reviewing and monitoring its internal
strategies. Gary Goodwin, Chairman of the Board stated “The Board of Directors consistently
evaluates ways to increase shareholder value. We believe the animal nutrition business segment
is well positioned to capitalize on opportunities for future growth and the Company will remain
focused on internal initiatives to further enhance its operating and capital efficiencies”
(PRNewswire, 2017). As interest in high-protein diets continues to grow and unsteady supply for
fish oil has led to price hikes in favor of Omega Protein. Omega Protein has seen that its revenue
per ton for its animal nutrition segment almost doubled from $564 in 2004 to $1,355 in 2013
(The Motley Fool, 2014). In order for Omega Protein to continue to remain competitive and, it is
essential to further examine its current internal organizational strategy and how it is affecting
their operations.
4.1.1 Corporate mission.
The corporate mission for Omega is to “help people lead healthier lives with better
nutrition through sustainably sourced ingredients such as highly-refined specialty oils, specialty
protein products and nutraceuticals (Omega Protein Announces…2016)”. This highly specific
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mission is reflected in the press releases and marketing materials. It describes their purpose of
operations, and their expectation of the use of their products. This mission evolves directly into
their marketing and corporate strategy.
4.1.2 Strategy (corporate level and business level).
We can observe that Omega Protein is currently executing a best-cost provider strategy,
which is a hybrid of low-cost provider and differentiation strategies that aim at satisfying buyer
expectations on key quality features, performance, service attributes, and/or beating customer
expectations on price (Gamble, 110). According to the Omega Protein Annual Report, “Omega
Protein competes on price, quality and performance characteristics of its products, such as
protein level and amino acid profile in the case of fish meal” (Edgar, 7). This is an indicator that
they are pursuing a best-cost provider strategy. Omega Protein also emphasizes that fish meal
offers nutritional values that are not contained in non-marine sources.
To achieve their strategy, investments have been made by Omega Protein. The food and
dietary ingredient supplier industry is a large, fragmented and growing industry and is highly
sensitive to the introduction of new products. The investments made by Omega Protein in
research and development (Omega Protein Corp. 2017) in their innovation and technology center
are created to meet these needs. We feel that this investment is essential for Omega Protein and
its subsidiaries to be adaptive and innovate to changing consumer preferences. These innovated
products make up for the fact that Omega Protein cannot always be the lowest cost provider
because fish meal and oil products are determined by worldwide supply and demand,
relationships over which Omega Protein has no control, and they tend to fluctuate significantly.
One key distinguishing factor that Omega has made is their decision to vertically
integrate their operations. From fishing, to processing, blending and packaging, and finally to
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sales and distribution, Omega is able to deliver the best value products and services. This
integration allows creation of differentiated products, control over sourcing, and reduced costs.
Considering that a growing health conscious population exists and will continue to
increase along with a global supply chain and customer base, Omega Protein has successfully
introduced itself to several markets. This includes agriculture, livestock, supplement, and food
industries with the focus on proteins and specialty oils. This allows for greater awareness and
share among several segments. It is also important to note that Omega Protein does not plan to
invest much more in the dairy portion of the human nutrition segment due challenges in dairy
operations. According to Nutraingredients USA, Scholtes stated, “We do not plan to make
meaningful additional investments near term in this segment as we focus on driving sales
growth, operating efficiencies and increased profitability” (2017).
In the past, Omega has used the revenues from its core menhaden fishing business to
build out its human nutrition business. However, that has seen a shift and for years management
has been seeking ways to reduce the natural revenue fluctuations that come with harvesting a
natural resource. CEO or Omega Protein, Bret Scholtes, also mentioned that they will review the
human nutrition segment in two parts, one being their dairy operations and the other being the
essential oils and nutraceuticals. Scholtes also stated, “This is just part of continuing to try to
look at where do we have competitive advantages. Where we don’t have competitive advantages,
and what opportunities are there to increase shareholder value”. It is evident that Omega Protein
is constantly seeking ways to improve current operating efficiencies and seek opportunities in
which they can increase value, a way of differentiating themselves (Omega Protein Announces,
2016). Additionally, the most recent annual report indicated that there would be a systematic
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review of the future of the human nutrition segment by Omega, which may indicate a decision to
dissolve or sell this segment (Omega Protein, 2017).
Another internal opportunity that has assisted in their strategy is the addition of
Bioriginal stock. This acquisition advanced Omega Protein’s business strategy by uniting two
highly complementary businesses, adding immediate size and scale to the overall business
through more diversified human nutrition product offerings and expanding Omega Protein’s
global customer reach. Omega Protein President CEO Scholtes indicated that the “Increased
sales of nutritional products for direct human consumption is a key component of Omega
Protein’s business strategy to diversify our business model and increase growth, while
decreasing our exposure to commodity based earnings volatility (Omega…Bioriginal, 2014).”
After reviewing promising result during the first quarter of 2016, Scholes stated, “We
saw great momentum across our business as we started 2016 with $20 million of Adjusted
EBITDA, the highest operating profitability seen in any of the Company's first quarter results.
These strong financial results reflect our ability to leverage our core nutritional capabilities to
supply customers in the feed, food and supplement sectors” (Biospace, 2016). After he stated
that throughout the year, they will continue to take further steps to expand margins and increase
profitability as well as reinvesting their robust cash flows to enhance shareholder value. The
Company's revenues increased 18% from $71.6 million in the same period the previous year to
$84.8 million. This increase was mainly due to an increase in animal nutrition revenues of $13.4
million. The increase in animal nutrition revenues was mainly due to increased sales volumes
(35% and 103% for the Company's fish meal and fish oil, respectively), which was offset a bit by
decreased sales prices of 5% and 20% for the fish meal and fish oil, respectively. This
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demonstrates that the company is able to incorporate attractive attributes to products at lower
costs than rivals and has found successes in executing a best-cost provider competitive strategy.
4.1.3 Organizational culture and core values.
Omega Protein also boasts an impressive corporate structure, with CEO Bret Scholtes
aggressively expanding the firm and maximizing efficiency along the way without sacrificing
product quality. Omega Protein’s vision is “To be a leading, trusted source for sustainable,
value-adding nutritional products”. We can observe that Omega Protein is committed to
achieving their vision and continuously work toward leveraging competitive advantages to drive
sales and operating efficiencies. One of their core values in fact is sustainability. This practice
has allowed them to prosper for over a century, and even their Gulf and Atlantic menhaden
fisheries have been recognized as sustainable with a Friend of the Sea certification, which further
emphasizes Omega Protein’s marine conservation and environmental protection efforts (Omega
Protein…, 2014). We believe that Omega Protein’s best-cost provider strategy keeps attracting
more customers and investors with a focus on appealing features and quality at a good value.
4.1.4 Leadership.
CEO, Bret Scholtes believes in the power of the employee, he empowers his employees
through training and believes they are part of the competitive advantage of Omega Protein.
When first selected at CEO, he spoke on the power of the team. “We believe that the strength of
our executive team will further strategically position the company into higher value product
categories for continued growth and increased shareholder value (Bret Scholtes, 2012)”. As a
result the leadership team reflects the mission, and by partnership, the strategy of Omega to be a
best cost provider of ingredients and quality supplements.
4.2 Financial Analysis
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Financial statement analysis is useful for both the internal and the external users of any
organization. Through the analysis of the past performance, company’s future performance can
be predicted. Comparing financial ratios of competitors will help analyze which competitor’s
performance is better. Omega Protein Corp. (OME) will be compared with Darling Ingredients
Inc. (DAR), FMC Corp. (FMC) that owns Epax and Oceana Group that owns Daybrook
Fisheries using the financial ratios of recent five years ending in 2016. Financial data have been
collected from mergentonline.com, finance.yahoo.com, and oceana.co.za for the calculation of
the financial ratios. All the companies use FIFO method for inventory and use straight-line
method for depreciation of the assets. Oceana’s financial statements follow IFRP while other
companies follow GAAP.
4.2.1. Valuation analysis.
Valuation ratios indicate investors’ perception regarding future of a company. A higher
ratio suggests that investors expect increases in growth, and by association, the value of a
company. Here the stock price is compared to per share - earnings, book value and cash flow.
Oceana is not used for comparison as it is not traded in the US stock market. Table no. 4.2.1. in
Appendix G details the ratios of the remaining competitors along with the chart no. 4.2.1in
Appendix E which compares the Price to Earnings (P/E) ratio. OME’s P/E ratio is fluctuating. It
indicates that Omega has made some strategic decisions that have left investors with fluctuating
opinions. Also, Price/Book Value and Price/Cash flow ratios are fluctuating for OME along with
its competitors. Our interpretation is that investors have low opinion for the overall industry
growth.
4.2.2. Growth analysis.
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Growth analysis helps investors to measure the performance of company’s executives
and compare it to the expected growth. Appendix H, Table 4.2.2. shows the revenue growth and
Earnings per Share growth for OME and its competitors. OME has shown steady growth of
revenue since 2014 with 8.77% during 2016. Also, Chart 4.2.2b.in Appendix I indicate a
reduction in cost of goods sold and growth in net profit during these years. Other competitors
have a very fluctuating growth of revenue. This indicates that Omega Protein’s executives have
increased sales and reduced COGS, especially, in animal nutrition segment.
4.2.3. Profitability Analysis:
Table 4.2.3. located in Appendix F shows profitability ratios of the companies. It
indicates how much profit a company can generate after deducting its different expenses. OME’s
gross profit was 17.85% in 2012 and has grown every year to 29.14% in 2016. Its operating
profit and net profit have also grown from 5.36% to 13.72% and from 1.72% to 8.42%,
respectively. Meanwhile, DAR’s gross profit has declined from 27.55% to 22.26% in last five
years along with its operating profit. Even with the high gross profit margin, FMC’s operating
profit has seen huge fluctuation and is lower than OME in 2016 at 12.84%. Compared, OME has
shown better return on assets than FMC which shows better efficiency of its use of assets. This in
turn increases value for investors.
4.2.4. Financial strength analysis.
Ratios for financial strength measure a company’s ability to face working capital
requirements. In calculating the ratios of Omega Protein versus its competitors, we found that
Omega Protein has a higher financial strength than that of its competitors. Ratios are calculated
in Appendix M. Table no. 4.2.4. A company should have current ratio of a minimum of 1 to be
able to meet its short-term debt and other obligations. OME has maintained the ratio of minimum
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of 2.40 and higher in past five years. This indicates that OME can meet its short-term
obligations. Other competitors also have a ratio of more than 1. OME has quick ratio of 1.50 that
indicates high liquidity to cover current liabilities. Also, OME’s 0.28 debt/equity ratio which has
decreased since 2014 shows that it has used less leverage and thus has high coverage ratio of
129.50. FMC on the other hand, is very risky for creditors due to its high use of debt. OME has
retired its long term debt and also is planning to buy back its stocks in future.
4.2.5. Management efficiency analysis.
Efficiency ratios analyze how efficiently the assets are utilized by the company. Higher
asset turnover ratio indicates efficient use of assets. OME’s ratio is higher than its competitors at
0.91, although OME has shown an increase in efficiency every year since 2013. On the other
hand, based on our analysis of inventory turnover ratio, OME takes longer time than its
competitors to convert its inventory into sales. Inventory has ended up being unusable in human
nutrition, which leads to loss in working capital. OME also has average time to convert its
receivable into cash and is same as DAR by comparison.
4.2.6. Summary of financial analysis.
From the above ratio analysis, we conclude that OME has a strong financial position
overall. It has constant growth of revenues, and has been lowering its cost of goods sold and has
thus improved its profit margin. That being said, Omega Protein has shown low efficiency in its
use of assets in producing sales. It also uses low amount of debt to finance its business compared
to its competitors which creates high financing through its stock, this means the resulting
earnings are being diluted from its stock holders. Therefore, it has lower valuation by investors
compared to that of its competitors.
4.3 Value Chain Analysis
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In order to sufficiently review the value chain for Omega Protein, we have also chosen to
evaluate its rivals in both key industries. Epax, which operates in the same human nutritional
supplement industry, Daybrook Fisheries which is a direct rival for the fishing and processing of
menhaden fish in the Gulf of Mexico, and Darling Foods which compete in the same animal feed
industry. It should be noted that Epax, Darling Ingredients, and Omega Proteins branch out into
markets outside their industries. However, for accurate analysis we are only concentrating on the
value chains that supplement the two primary industries for Omega Protein, products animal feed
and human nutrition. This will allow comparative analysis in terms of internal support and
primary activities in the operation of competing companies in both key industries.
4.3.1 Support activities.
4.3.1.1. Structure.
Omega Protein has a traditional organizational structure (See Appendix J) with
Executives reporting to the CEO, Bret D. Scholtes, who is subject to the Board of Directors. Of
the key executives, there are two Presidents, one for each key business unit, Human Nutrition
and Animal Nutrition (Omega, 2017). Upon analysis, we conclude that this indicates delineation
between the two business units that allow independently management to cater to their target
market. It is worth noting, that there are separate operating and marketing divisions between the
two business units and separate warehousing and production facilities that were acquired as a
part of the Bioriginal® acquisition (Omega, 2017).
Epax has been acquired by FMC Corporation, which is much larger in scale than the
subsidiary. As a result, organizational structure is not released publically independent of the
parent company. Bloomberg.com has a brief executive list which allowed for some insight. Epax
appears to have a smaller number of executives; CEO Ola Snøve has the CFO and two Executive
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Vice Presidents reporting to him. Interestingly, it appears as though the two executives Vice
Presidents are not split up by their Primary business units instead by functional areas, one
focused on nutraceuticals and the other on supply chain (Company Overview). Our analysis is
that the supply chain has high importance to Epax due to its company focus on “clean,
sustainable and traceable raw materials (About Epax).” However, due to the ownership by FMC,
Epax will have additional oversite. See Appendix J for an organizational Chart for Epax.
Daybrook Fisheries operates in Louisiana, also fishing and processing menhaden fish into
proteins and oils. They were also purchased recently by a larger company, Oceana. As a result of
this acquisition there have been numerous structural and management changes within Daybrook.
According to the latest Annual Report from Oceana, a manager within the South African
company was placed as President of Daybrook along with a Financial Manager. In addition, the
expectation is that more management changes will happen within this fishery over the coming
year as their expectation is making integration of Daybrook a top priority in ensuring “the
necessary corporate governance to ensure that procedures are being upheld and monitored
(Integrated Report, 2016).”
Darling Foods is a much larger organization than the others evaluated. The CEO, Randall
C. Stuewe, has several executives accountable to him; Appendix O has an organizational chart of
these executives. It is noted that there are two Executives responsible to their individual business
units, DAR PRO USA and ERS but those only represent the biofuel ingredient segment of
Darling. As a result, it is expected that all other Executives are primarily focused on the Feed
ingredients and Food ingredients representing 61.5% and 31.2% respectively of the company’s
overall net sales (Darling Ingredients, 2017).
4.3.1.2. Design, Research & Development.
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Omega Protein invests a lot of internal resources into their research and development
(R&D) programs. They run an ‘Innovation and Development’ laboratory in Houston, Texas to
analyze produced products and run new R&D projects. This center collaborates with the Omega
Protein segment, Bioriginal®, R&D experts in specialty food oils and nutraceuticals (Omega
Protein, 2017). According to their webpage, the technology center in Houston focuses
predominantly on its marine oils and proteins for both human and animal consumption (Who we
are, 2016). These investments in R&D are not without costs. R&D accounted for $2.6MM
expense in 2016 alone according to the SEC filed Income statement, representing around 5% of
their operational expenses (Omega Protein, 2017).
Because Epax is a subsidiary of FMC, individual R&D expenses were not publically
available for the company. FMC overall had $141.5MM in R&D Expense on their 2016 Income
statement, representing approximately 5% of its operating expenses (FMC, 2017), unfortunately
we have no breakout or expectation that this ratio is similar for the Epax division or how much of
that expense accounted to Epax. That being said, Epax itself claims great dedication to research
on Omega 3 essential oils by their support of the clinical research through the DHA/EPA
Omega-3 Institute (Clinical Work). The institute dedicates themselves to researching the omega-
3 fatty acids and use evidence based information to increase consumer awareness (DHA/EPA
Omega-3 Institute).
Daybrook Fisheries announces on its website that its “science-based products – which are
developed through a continuing extensive research and development program – are distributed
globally, earning an exemplary reputation in the marketplace (About Daybrook).” However,
there is no other current evidence of that, primarily due to their lack of available financial data as
the company was privately held before being purchased by Oceana, or by any recent press
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releases or public statements about innovations from the company. We believe that this area of
the business may be currently underutilized or eliminated in the wake of the acquisition.
Darling Industries reports no Research and Development expenses on their annual report.
However, they do identify that they create several ‘value-added’ products that substantiate higher
prices in the market place (Darling Ingredients, 2017). It is our understanding that advances in
design and innovation is being created by customer demand, and therefore the costs associated
with these developments is in marketing expenses as opposed to traditional R&D expense. All in
all, Darling does not appear to invest their resources or capital in too much reinventing or
renovating their process. They prefer to stay with the same process and way of handling
products, which does increase efficiency.
Our findings in the average R&D investments in each industry overall have been murky
at best, this is a result of industry reports including R&D expenses in ‘other cost’ categories. This
has made benchmarking in both industries very difficult. Our analysis does validate that Omega
Protein appears to fundamentally value innovation and continues to focus a significant
investment in R&D.
4.3.2 Primary Activities.
4.3.2.1. Input.
Much value for Omega Protein comes from its exceptional tangible resources,
specifically within their properties and facilities. They currently have seven manufacturing
plants, over 30 fishing vessels, and six fish oil warehouse and storage locations (two of which are
leased). Additionally, they utilize small airplanes as spotters to recognize schools of menhaden
fish which guide the fleet to advantageous locations. These resources are key to the animal
nutrition segment as its entire value chain is dependent on its raw material source, menhaden
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fish. The animal nutrition segment makes up twice the revenue of the human nutrition segment
(Investor Presentation, 2017). The natural resource of menhaden can fluctuate in supply
depending on many environmental and political issues; the human nutrition segment does not
make enough revenue to ‘float’ the loss of fish for the animal nutrition segment.
The human nutrition and animal nutrition divisions both have many physical resources.
Although essential in some quantity, they also lead to excessive costs if not kept in check.
Recently an analysis of the market for refined concentrated Omega-3 oils lead to the decision by
Omega Protein to close their facility that processed these oils into their concentrated forms in
September, 2016. This change lowered overall operating cost, but did remove their ability to sell
concentrated Omega-3 oils to this market segment. According to their most recent annual report,
however, the closing of centers may not end there, in fact there is an expectation that that
perhaps the human nutrition segment would be either sold or split off if a business analysis
substantiates it (Omega Protein, 2017). Likewise, we see that there are redundant facilities due to
the human nutrition acquisition. There are multiple warehousing and office locations as a result.
We feel that additional and scrutiny of these costly resources is appropriate.
Omega Protein also has intangible resources, primarily through brand and its
representation. In fact, we believe that the Omega Protein Technology and Innovation Center
(OPTIC) in Houston, Texas is a physical representation of its commitment to quality and
development, which are intangible components that further enhance the company brand. In
addition, Omega Protein holds trademarks and patents which create recognition and add
perceived value. Some primary trademarks in the human nutrition are, OmegaActiv®,
OmegaPure®, and BioPureDHA® (Omega Protein, 2017). Although these trademarks are an
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asset, we have observed that they have little recognition to the ultimate end user, which dilutes
their value.
An additional intangible resource that is highly valuable to Omega Protein is through its
knowledge within the industry. This is a resource in which Omega Protein has in abundance,
with over 100 years of history, their influence is well known. They cite “know-how”
relationships in their investor presentation as an internal asset, which we agree is an essential
resource for Omega (Investor Presentation, 2017). We see that most of these resources are in its
core animal nutrition segment; these personnel can increase the competencies as well within the
human nutrition segment.
Epax, being owned by FMC, gives Epax access to a large conglomerate parent company
as well as their shared resources. We know that on its own, Epax has the technology, financial
resources and capital which allow the company to move product internationally. They own a
production facility in Seal Sands, UK (FMC, 2017.). However, from the lack of additional data
from FMC on Epax in press or on its annual statement, it seems that the Epax acquisition is
simply to acquire this processing facility for the supply of Omega-3 oils needed for FMC’s other
ventures and may likely not increase its capital investment in Epax beyond that. However, Epax
still has employee assets from its location. The Epax dedication to quality requires a workforce
that is able to take care of each processing unit and have fully trained individuals to carry out the
required quality of product.
Daybrook Fisheries has less tangible resources than Omega Protein for the fish
processing to animal feed and nutrition segment. They own 11 fishing vessels, 1 very large
production facility and spotter planes as well. Overall, the physical operation is smaller than
Omega, primarily because of the additional human nutrition segment and multiple fishing
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locations. However, Daybrook has several intangible resources that elevate its standing,
particular within the community. They have a Daybrook Foundation which focuses on improving
the livelihood and environmental protection in their local community locations (About
Daybrook, 2016). Their brand image is enhanced due to these charitable endeavors. Another
intangible resource is their employees; however with recent management changeups due to the
Oceana acquisition, we feel there may be a loss of key personnel.
Darling Ingredients has vast tangible resources. In our evaluation of the Animal Feed
segment alone, they had 72 production facilities, almost all of which are owned. These resources
allow for significant overhead but also more efficient buying and distribution capacity. It is noted
that they may have an impact on Darling overall, as they have a comparatively low current ratio
which may be an indication of a lot of liabilities in relation to its current assets. Darling also
boasts significant intangible assets, including their brand name, intellectual properties, patents
and trademarks that are well known within the industry (Darling Ingredients, 2017).
4.3.2.2 Operation processes.
Omega Protein uses vertical integration to supply products to its customer. They provide
the raw inputs in the form of menhaden fish; they process these inputs into fish oil, solubles, and
proteins. These components are then blended and packaged for sale to their customers as outputs.
In many instances, a corporation would only perform one of these functions. This is part of
Omega Proteins strategy to become a fully integrated nutritional ingredient company. They
control most aspects of the supply chain as a result, from sourcing, processing product, to
creating final packages and blends to its customers (Investor Presentation, 2017). When
distributing product, Omega Protein uses their substantial warehousing and storage facilities to
store fish in the off-season. Additionally, the fluctuating commodity value directly changes the
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demand of the product, especially during the off-season, which requires additional safety stock
(Investor Presentation, 2017).
Epax operations and manufacturing process is propriety; and they were a privately held
company prior to its acquisition by FMC, which hasn’t provided any more transparency. They
refer to Epax production as ‘premium omega-3 fatty acid technology’ by FMC during its
acquisition (Watson, 2015). What we know is that they have a state of the art facility which
focuses on high purity Omega-3 products. FMC found that especially intriguing as they are
looking into expanding Omega-3’s from just nutraceuticals to actual pharmaceutical products for
FMC (FMC, 2017).
Daybrook has a manufacturing process similar to that of Omega. They are vertically
integrated by providing the raw material of menhaden through its fishing operations, processing
the fish into wither fish meal, protein, or oils to be sold to manufacturers to integrate into their
products. However, compared to Omega, Daybrook has a streamlined manufacturing process;
this is partly due to their smaller overall operation. Daybrook’s strategy is to have plants closer
to each other to process the fish in a timely manner. Menhaden fish are “migratory plankton
surface-feeders” which are normally fished from the month of April to November. These quick
manufacturing processes allow for quick inventory turnover, which is an efficiency that is
primary to their value chain. As we evaluated in our ratio analysis, their inventory turnover is
more impressive than that of Omega (About Daybrook, 2016).
Darling Ingredients uses different raw materials than the other companies being
evaluated, their production begins with all kinds of animal by products, which are rendered into
animal feed, proteins and oils. Because they are not beholden to the accessibility to fish, they
have their many animal processing facilities inland. They have such a large manufacturing
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presence; they can run multiple manufacturing lines at once. This increased output substantiates
the additional investment in the multiple facilities (Darling Ingredients, 2017).
4.3.2.3. Marketing and customer service.
Omega Protein competes in the animal nutrition segment based on quality and product
differentiation that it can offer due to its integrated supply chain. Most of their animal nutrition
sales are to 200 different customers, via direct sales. Most of these sales are through 12 month
contracts at fixed prices, which can alter the profitability of each sale as the value of fish
commodity increases or decreases. The human nutrition segment sells products to many different
customers in the food manufacturing, dietary supplements, and beverage manufacturers
industries in a variety of forms. The human nutrition segment uses many channels to sell its
product, including internet, direct sales, and print. This segment competes on basis of price,
quality and assortment of products and customer service (Omega Protein, 2017).
The key service component that Omega Protein invests in is quality. They feel that the
quality of their ingredients and end processes is a key component of their ability to retain
existing, and attracting new, customers. As a result, there is extensive testing of quality, and re-
reviews of quality requirements to keep with this standard. The fact that Omega Protein is
vertically integrated, allows for easier control of all stages in the supply chain (Omega Protein,
2017).
Daybrook Fisheries markets their materials to manufacturers of animal feeds. They are
sold via Business to Business connections, and in bulk. They offer global shipping in various
forms, and employs logistics coordinators to reach their customers (About Daybrook). These are
similar to the marketing process of Omega, with a similar emphasis on quality, however they do
not appear to offer customization or additional differentiation in its product to the same extent.
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Epax has differentiated its product to be the seen as they highest purity Omega-3’s in the
industry. Their products are marketed to manufacturers in the form of raw ingredients.
Historically these have been sold to manufacturers in the nutraceutical industry; however FMC
has indicated that they intend to use Epax products in its pharmaceuticals as well. They indicated
in the FMC Annual Report, “as part of the EPAX acquisition for the manufacture of specific
pharmaceutical Omega-3-Active Pharmaceutical Ingredients (API's) which would compete as a
generic alternative to the prescription Lovaza drug (FMC, 2017).” This added another customer
base for Epax if trends continue to use Omega-3 oils in pharmaceutical products as well.
Darling Ingredients also markets its products as ingredients to feed manufacturers. They
distribute them mainly under the brand names DarPro®, Sonac®, and Rothsay®. They are also
distributed in bulk and are sold through commodity trading. Similar to Omega Protein, they
perform direct sales to their customers and perform customer service tasks as well for the
distribution logistics. Because the materials are sold as commodities, it can be assumed they are
sold in high quantity, bulk levels (Darling Ingredients, 2017).
Part III: Strategic Fit Analysis
5.0 SWOT Analysis
5.1 Strategic Challenges: Opportunities and Threats
Opportunities
By operating in multiple industries, there are multiple opportunities available to Omega
Proteins. One such opportunity is expansion within the vitamin and supplement industry into
additional human nutrition product segments. Most of Omega Protein’s products are ingredients
sold to manufacturers to include in their products. However, the focus now is on specialty oils,
dairy protein powders, and other non-fish based ingredients (Omega Protein Corp, 2017). There
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are other key product segments in the human nutrition market that could be exploited. The
protein powder segment, for example, can include blends of fish meal and fish oils to supplement
or replace traditional whey for sports nutrition. Another highly exploitable product in this
segment is diet and meal replacements (Yucel, 2016). It stands to reason that this goes hand in
hand with protein ingredients. These unique product segments allow for a logical growth
potential for Omega Protein.
In both the animal and human nutrition segment, additional opportunities can be found in
the development of new products and the innovation of existing products. In the animal feed
segment for example, proprietary blends can be created with nutritional aspects designed to
increase the desired output from livestock for farmers (McCormack, 2016). These new blends
can create a competitive advantage within the industry. Similarly, the hydrocolloids market that
competitor Darling Foods has entered, presents a unique opportunity for Omega Protein. These
areas of innovation can open the market substantially, akin to when Omega-3 oils were modified
for food ingredients and providing nutritional benefits without the fishy flavor (Uhland, 2005).
Threats
There are many additional substitute products that are direct threats to Omega Protein.
Direct competition in the fishing and fish processing is not as significant as the treat of substitute
products in the industry. Even in the core animal nutrition segment, the cost of protein
supplements has created a demand for alternates to meet the dietary needs of livestock. Amino
acids have been used as a cheaper alternate to both fish and whey proteins for weanling pigs
without adverse effects on their growth (Zhao, Weaver, Fellner, Payne & Kim, 2014).
In addition, the human nutrition segment has competition from the krill oil industry to
deliver Omega 3 oils as a vitamin supplement. In addition to the self-touted claims that krill oil
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supplements offer no fishy aftertaste than traditional fish oil supplements, there is increasing
research that indicates that krill may be a better source of Omega-3 oils. In a research paper for
Lipids Health and Disease, researchers compared the two options and concluded the following:
“Consumption of krill oil was well tolerated with no adverse events. Results indicate that krill oil
could be more effective than fish oil in increasing n-3 PUFA, reducing n-6:n-3 PUFA ratio, and
improving the omega-3 index (Remprasath, Eyal, Zchit, & Jones, 2015).” Failure to address the
various and increasing competition in these industries will effectively allow competitors to
capture the existing market share from Omega Protein.
Vitamin and Nutritional supplements are susceptible to changing consumer preferences.
This risk is known to Omega Protein which indicated that "the market is high sensitive to the
introduction of new products” in their annual report (2017). Others in the industry understand
this volatile in demand as well. New nutrition innovation is a key environmental driver and all
industry players will need to adapt to changes to avoid the risk of becoming obsolete (Yucel,
2016). This threat of changing preferences may not simply depend on the human nutrition
segment, but will affect animal nutrition as consumers who consume livestock will also expect
their food sources to have healthy inputs and lives. In addition, pet owners have the same
expectations in quality for their animal companions, “Pet parents treat their animals like family
members and demand a greater range of high-value products to keep them happy. This includes a
variety of high-quality or specialty pet foods, such as gluten-free or vegetarian mixtures of cat
and dog food (McCormack, 2016).”
5.2 Core Competencies: Strengths and Weaknesses
Strengths
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One of the key strategies to drive growth that Omega Protein utilizes is, developing new
products and lines within its core offerings (Investor Presentation, 2017). This is a significant
investment but is a key success factor requirement in the industry. The Omega Protein
Technology and Innovation Center (OPTIC) in Houston, Texas is outlined in the annual report as
a source for this KSF. “The facility has food science application labs, as well as analytical,
sensory and pilot plant capabilities. The facility also has a lipids research lab where the Company
plans to continue to develop new products that have improved functionality and technical
characteristics (2017).”
Another important internal strength that Omega Protein possesses is its strong vertically
integrated supply chain. In fact, it is the nation’s leading vertically integrated producer of omega-
3 fish oil and specialty fish meal products. For example, Omega Protein has its own, “Fishing
operations complete with vessels, spotter aircraft, and manufacturing facilities equipping with
the molecular distillation technology to concentrate fish oils. With respect to its human nutrition
business, Omega Protein's newly-acquired Wisconsin Specialty Protein owns the first domestic
manufacturing facility to concentrate organic cow and goat proteins” (The Motley Fool, 2014).
Possessing a strong vertically integrated supply chain gives them a competitive edge over its
competitors, allows for better control of resources, and assures superior quality control.
Another internal strength is that Omega Protein is in a healthy financial position that
allows more room to grow and enhance profitability. For example, the recent financial results for
the Fourth Quarter and Full Year 2016 were reported online in their press release. Revenues for
the year exceeded $390 million with 29.1% profit margin. The company’s revenues increased
3% from $82.3 million in the same period last year to $84.6 million (Omega Protein Corp, 2017).
Bret Scholtes mentioned, “We had a solid finish to a very good year. Our team executed on our
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strategic initiatives while managing the controllable aspects of our business, and we achieved a
record annual gross profit in 2016” (Who We Are- Omega Protein, a Nutritional Ingredient
Company, 2014). He then stated that they will continue to find ways to improve their
consolidated business, enhancing shareholders’ value and much more.
Furthermore, another internal strength that Omega Protein possesses is, having a strong
leadership and corporate culture. It is evident that Omega Protein is committed toward investing
in training and empowering employees continuously. The leadership in the organization is one of
the drivers for them having a strong corporate culture. For example, Omega Protein’s Chairman
of the Board Mr. Von Rosenberg stated, “We believe that the strength of our executive team will
help further strategically position the Company into higher value product categories for
continued growth and increased shareholder value” (Who We Are- Omega Protein, a Nutritional
Ingredient Company, 2011). Their experienced and dedicated executives possess the leadership
capabilities that have allowed them to move forward and empower employees.
Weaknesses
Brand power is an important aspect of a company’s strategic plan. However, perhaps, due
to the fact that Omega Protein sells direct to manufacturers (as opposed to end consumers), the
brand recognition is not as high as its competitors. Without research, our team immediately knew
of substitute competitor MegaRed krill oil and Darling foods. Although Omega Protein has
exclusive brand names in its Animal Nutrition segment and its Human Nutrition segment, they
aren’t well known.
There are no doubt that Omega Protein’s facilities and plants serve to a great purpose of
sourcing, processing, researching and much more. However, one of their weaknesses can be
attributed to their excess operation of such property and facilities. For example, in 2010 Omega
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Protein used their emergency payments received from the GCCF “to offset costs it incurred to
purchase 6,315 tons of fish meal to partially offset lost production and to offset high costs per
unit of production Omega Protein incurred during the 2010 fishing season in the Gulf of Mexico
as a result of the closure of its fishing grounds” (Omega Protein Corp., 2017). Also, during 2013
Omega Protein recognized that closing its menhaden fish processing plant in Cameron,
Louisiana and merge it with a consolidated Gulf of Mexico operating unit would be more
beneficial. By doing so, they had more opportunity to improve financial performance, increase
existing utilization, and reduce maintenance related capital expenditures (Omega Protein
Closes…, 2013). It is clear, that executing such decisions may be difficult but of may be of
strategic importance to better position the company for future growth.
Another weakness is centered on Omega Protein’s animal nutrition division’s dependence
entirely on their supply of menhaden fish. Due to fishing quotas, natural disasters like hurricanes
and cyclical supply of fish, the company is vulnerable to the fluctuation of menhaden (Omega
Protein Corp, 2017). Since Omega Protein is vertically integrated, we see a major potential
problem with the main revenue generating business unit of Omega Protein being susceptible to
loss of its raw material.
5.3 Strategic Fit Analysis (SWOT Matrix)
Internal Strength and External Opportunity Strategic Fit
Internal Strength: Product Innovation and Development
External Opportunity: Consumer Demand for New Scientifically Advanced Products
in the Human Nutrition and Supplements Market.
Developing ingredients specifically designed for additional product segments within
the human nutrition market. According to IBISWorld, within the vitamin and supplement
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industry, there are some key areas that represent a strategic opportunity for Omega. The product
segments that are particularly attractive are meal replacements and sports nutritionals,
representing 7.9% and 8.3% of the products in this industry, respectively (Yucel, 2016).
The trend in sports nutrition is its early growth stages, while the rest of the industry
shows slowing growth, “As the average American becomes more interested in active lifestyles,
sports recreation and nutrition, growing demand for sports nutrition supplements will create new
growth opportunities for industry operators (Yucel, 2016).” Studies have linked the benefits of
both whey proteins and omega-3 fatty oils as post-workout recovery supplements (Witard,
Phlpott, et. al, 2016) both of these ingredients are supplied by Omega Protein. Diet and meal
supplements are also looking into the inclusion of Omega-3 oils based on recent studies
indicating a link to their intake and increased metabolism in mice (Kim, Goto, et. al. 2015).
These areas pursue a similar, but not identical opportunity for Omega Protein. Both sports
nutrition and meal replacement products depend on protein and essential nutrient ingredients that
fall in line with Omega Proteins ability to innovate existing products.
Internal Weakness to External Opportunity Strategic Fit
Internal Weakness: Low Brand Recognition for Ultimate Consumer
External Opportunity: Consumer Demand for New Scientifically Advanced Products
Creating unique, proprietary nutritional blends and licensing them exclusively
through a well-known brand with positive name recognition. Many of the customers of
Omega Protein have very high brand recognition like Iams®, Cargill®, GNC®, and Land-O-
Lakes® (Investor Presentation, 2017) which lends a potential opportunity for a brand sharing
alliance with one of these customers. Brand sharing, or cobranding, can deter competition by
creating exclusive arrangements and will leverage the brand strengths of these customers and
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creates a synergy between the two partners (Newmeyer, Venkatesh, & Chatterjee, 2014). An
arrangement such as this could create an opportunity for Omega Protein to increase its brand
recognition, as well as benefit from the existing brand power of its blue chip customers.
Internal Strengths to External Threats Strategic Recommendation
Internal Strength: Product Innovation and Development
External Threat: Rapidly Changing Consumer Preferences in the Industry
Create innovative and new products in anticipation of changing consumer
preferences and offer them first to the market. Omega Protein has the capacity to innovate
and change their products in response to customer preferences through its OPTIC center.
However, in general, it may pay to be the first-mover with new innovations. According to
IBISWorld, the Vitamin and Nutrition Supplement is very susceptible to new products. “New
scientific research is also a driver of consumer demand for industry products. Industry surveys
conducted by the Nutrition Business Journal reveal that consumers list scientific research as the
single most compelling factor influencing their purchase and consumption of herbs, vitamins and
mineral supplements (Yucel, 2016).” Although primarily discussed within the human nutrition
segment, animal feed can offer opportunities for innovation as well. Many feed products are
customized specifically for the needs of livestock, and consumers are especially influenced by
specialty products for their pets (McCormack, 2016).
Internal Weakness to External Threats Strategic Recommendations
Internal Weakness: Excess Properties and Facilities
External Threat: Fierce Competition in the Industry
Eliminate excess and redundant facilities to focus on strengths and become more
competitive in core markets. Omega Protein can improve its value by enhancing its asset
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turnover and its bottom line through combining some segments of its human nutrition division
with its existing animal nutrition division. Currently they are organized in different business
units, but many of the human nutrition activities can be performed by facilities and personnel in
the animal nutrition segment. Omega Protein has low asset turnover in its human nutrition
division which faced low sales in 2016 by 7.8%. Also, the human nutrition segments COGS is
87.60% compared to animal nutrition department with 62.70%. High COGS is caused partly by
high amount of depreciation and amortization, providing a strong indication that this is due to the
large amount of assets (Omega Protein Corp., 2017). Moreover, Omega Protein faces fierce
competition from within the industry with low concentration (Yucel, 2016). A decrease in excess
facilities will increase efficiencies and allow a better use of their existing assets to increase
competiveness. We feel the animal nutrition segment has the necessary technical expertise and
facilities to adsorb many of the human nutrition primary activities, such as warehousing and
distribution.
Internal Weakness: Animal Nutrition Segment Dependent on One Natural Resource
External Threat: Increase in Availability and Interest in Substitute Products
Producing plant based meal to hedge against the vulnerability of dependency on
menhaden fish. An opportunity that can be created lies within a substitute option for fishmeal.
There is a growing demand of fishmeal in aquaculture, which is a growing market because of the
rise in consumption of seafood. This is a key profit driver in the Animal Nutrition segment of
Omega Protein. The dependence on menhaden fish can be offset by the development and use of
an alternate protein source for their aquaculture customer requirements. Fish meal is used less as
a commodity and “more strategically (at critical stages of the life cycle), more efficiently (the
same amount of wild fish yields more farmed fish, via fishmeal and fish oil in feed), and they are
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being increasingly substituted with vegetable protein and oil ingredients” (Is Aquaculture…,
2013). Fish meal is now substituted in the marketplace by many vegetable proteins like soymeal
from soybeans. Soymeal is rich in protein just like fishmeal. “Soybeans have particularly high
protein content and also contain favorable acids which have made it a very common substitute
and complement to fishmeal” (Substitutes for Fishmeal: Soybean Meal, 2012).
Omega Protein can utilize its human nutrition facilities that process plant based products
to manufacture soymeal as an alternative to fishmeal. Therefore, this plan can be implemented
without huge investments for establishing plants. Moreover, company can use its supplier base to
procure soy as raw material and use its customer base to sell its finished product. In addition,
Omega Protein already has the technical knowledge of meal for aquaculture so the new product
can enhance its existing offering and offset potential customer preference for a lower cost
alternative when fish based products are too expensive due to supply issues. Including soymeal
production will increase efficiency because of the good match of the value chain.
Part IV: Recommendations
6.0 Recommendations
6.1 Selection and Justification of the Top Two Recommendations
The two recommendations that we are making to Omega Protein are made to enhance
synergy with the strong animal nutrition segment with its human nutrition segment. We first
recommend that the growing product markets within the human nutrition segment be further
exploited by adding focus on meal replacement and sports nutrition shakes and supplements. Our
second recommendation is that Omega Protein utilizes plant based protein as an alternate
fishmeal source for its strong aquaculture customer base.
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Omega Protein currently operates in the human nutrition segment through its acquisition
of Bioriginal® which provides dietary supplements and essential oils. What we propose is a new
focus on meal replacements shakes, both for weight loss and for sports nutritional products.
Omega Protein already produces and blends the raw materials of whey, omega oils, and
supplements (Omega Protein Corp, 2017) that are likely incorporated into this end use by other
manufacturers. This particular product is showing extreme growth amongst dieters, athletes, and
even the elderly seeking to increase their protein intake to offset muscle loss (Johnsen, 2016). Of
extreme interest is the weight loss market for meal replacement shakes. According to IBISWorld
Industry reports that this particular product market is expected to grow at a rate of 5.9% due to
an increasing number of consumers who look to meal replacement shakes for weight loss or
nutritional supplementation on top of the core customer base of athletes and body builders
(OD4285, 2016).
Because Omega Protein has never really sold direct products to a customer, we feel that
this opportunity could be best exploited with a collaborative relationship with one of the many
blue-chip customers that already exist for Omega. This particular product segment could attract
both food manufacturers and supplement manufacturers. A prime example would be GNC®, a
customer who focuses on its ultimate consumer and encourages them to ‘Live Well’ and drives
products based on extensive consumer research (ICR Investor Presentation, 2016). In a
relationship like this example, GNC® could determine the target market segment consumer
preferences and Omega Protein could create a specialized meal replacement blend that met these
needs precisely. Omega would utilize their existing technicians and laboratory expertise to
develop the product and a customized blend could be produced exclusively for GNC®. GNC®,
in turn, would utilize its vast distribution and marketing network to market to the consumers.
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Our second recommendation for Omega Protein involves entering the growing market of
fishmeal substitutes, specifically soymeal. Omega Protein has manufacturing plants that process
plant based ingredients for the human nutrition division. These already established facilities will
be utilized to produce the soymeal.
The reason that fishmeal substitutes are especially attractive is due to the diversification
of risk in this particular area. Fishmeal has been used for aquafeed and other animal feed to
provide protein and other nutrients. The fact that the 69% of the products produced by Omega is
Fishmeal (Investor Presentation, 2017) and that product is entirely dependent only on menhaden
fish (Fish meal- Omega Protein) causes concern. Supply of fish is not easily controlled as it is
influenced by government regulations and quotas as well as environmental risks like hurricanes.
Because of pricing and supply fluctuations, there have been studies done by the NOAA Fisheries
to find more cost effective and sustainable substitutes “Soy products and aquaculture are a
winning combination” (The Future of Aquafeeds, 2011). There is a growing demand for soy
products for aquafeed, already usage of fish based fishmeal is decreasing for aquafeed (Appendix
S) and animal feed. Thus, to eliminate the dependency on menhaden and face the competition
from substitute products, Omega Protein should enter into soymeal production.
Omega Protein already has experience in developing plant based products for human
nutrition through its human nutrition segment and OPTIC, its science and innovation center
(Omega Protein Corp, 2017). The company can use its prior knowledge to develop nutrition rich
soymeal with use of high quality ingredients. The supply chain is already established with the
human and animal nutrition divisions and this should easily meet the supply requirements for
soymeal. Soybeans can be procured from the existing farmers that currently supply other raw
materials to Omega Protein. Downstream in the supply chain, the soymeal product can be sold to
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the blue-chip customers of animal nutrition division or the final customers directly under
Omega’s own brand name with little impact on existing operations.
6.2 Implementation of the Top Recommendation
6.2.1. Action Plans, Deliverables, and Milestones
Development of an action plan for the new product lines are the first step for both
recommendations. Omega Protein already does business in the areas of the new products, which
gives a lot of insight to the existing industry, but it will still need to learn more about the target
market segments and its competitors. Therefore, the first step in developing the new lines will be
to understand the new direct competitors in the area (Greene, 2016). In the case of plant based
fishmeal, the direct competitors are now previous substitute product providers. For meal
replacement shakes, the competitors may involve existing customers, which could potentially
lead to channel partner conflict. When evaluating the competitors, there needs to be an
evaluation of the market price for which the product can be sold to make sure Omega Protein can
effectively compete. This research can be developed within 3 months and with positive results
indicating the market can produce profits (Gamble, Chapter 3), an implementation plan should
be developed to launch the product.
The business climate is currently rapidly changing and there is high demand to push new
products out to market as soon as possible (Brethauer, 2002). Therefore, we recommend a cross
functional team be created to manage the planning and launch process immediately upon market
evaluation. The expectation that a full launch should be within 12 months, which is significantly
fast paced compared to other industries. This is partly due to the fact that nutritional supplements
and animal feed producers do not require approval through the FDA or the USDA, although they
require adherence to their regulations (McCormack, 2016).
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During the project, the initial step will require the creation of the cross-functional team
for 3 months to confirm project viability and establish roles for the project. The next step will be
engaging and working with existing supply chain (both upstream and downstream) to discuss
material availability and expectations for the customers. This step will ensure customers of
continuing commitment to existing products and new opportunities for the new options being
created by Omega Protein. The most significant portion of the new product development will
take the most time as it will involve testing of the product and developing the processes for the
new products, there is an expected timeline of 5 months for the development of the product.
Concurrent with product development and testing, the marketing plan creation should be
working as well as preparing production and logistics for the anticipated increase in sales. After
the product launch, there should be continuous review and feedback gathering to make sure the
core business and the new product lines are meeting expectations (Cohn, 2015). See Appendix R
for a Gantt chart of the project timeline.
The expectation of a successful product launch is the addition of profit for the firm. As
New products, as in those developed in the last 5 years, account for 45% of the annual revenue
for an average firm. However, it is expected that 90% of new products never produce sufficient
revenue (Brethauer, 2002). This indicates that there are necessary requirements for product
development and innovation as they are essential to the profit growth of many companies;
however the products themselves need to be continuously evaluated to make sure they are
making the expected profit before ending the new line. There should be revenue generated by the
new product in the first year of launch, expecting to cover at least the additional costs of
implementation. For the meal replacement shake recommendation, an expected deliverable
would be to break into the market with a modest 2% share. The meal replacements market is a
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$3.4 Billion Dollar market (OD4285, 2016) which would provide $68MM in revenues, with the
average industry profit margin at 8.1%. If this deliverable were met, there could be a net profit of
$5.5 Million Dollars. If such deliverables are not being met, it needs to be determined if the
strategy needs to be modified or the project abandoned.
6.2.2. Resources, Technical Requirements, and Budgeting
Both of our recommendations are extensions of the products manufactured by Omega
Protein. Thus, we feel that the company already possesses the required human resources which
consist of “nutritionists, biologists, food and animal scientists, chemists, engineers, and public
health professionals” (Innovative People, 2017) along with the required manufacturing personnel
in their manufacturing facilities. Omega Protein would not need to hire new personnel to
implement the recommended extensions and expansions. However, a project team should be
created for every new product launch. In the case of the meal replacement protein shake product
markets, the team should report to the President of the Human Nutrition Division, Joseph Vidal.
For the fish meal substitute products, the team should report to the President of the Animal
Nutrition Division, Dr. Mark Griffin. We feel that the normal segregation between the business
units may cause uncertainty of capacity and functional abilities of the other units, therefore the
cross functional team should exist that consists of personnel from each division. A supply chain
manager should be part of this team to maintain the quality in supply inputs especially for
products not created directly by Omega Protein. In addition, the product launch will require
coordination with customers and an understanding of the ultimate consumer requirements;
therefore there should be 1-2 marketing team leads to prepare and refine the specific customer
expectations. For meal replacement products, collaboration with a customer will be the easiest
way to make the product viable on the market, therefore marketing personnel should work on
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existing customer relationships and if a mutual cooperative agreement can be reached to blend a
product exclusively for a customer, the customer should be an integral part of the project team.
To implement either recommendation, the success will depend on the key success factors
of the industry. The first key success factor that will need to be met is providing quality inputs
and outputs of the product produced. The raw materials required for developing meal
replacement shakes will generally be whey, plant and marine based oils and omega-3s such as
coconut oil, fish oil, flaxseeds, and chia seeds. For this recommendation, the food trends will
dictate the need for different materials and blends regularly. The main substitute aquafeed
material will be soy, which means the raw materials needed for soymeal is soy beans. Other plant
based ingredients can be added based on the consumers’ requirement.
All the required raw materials for meal replacement shakes are currently being used by
Omega Protein. Therefore, the company already has a strong upward supply chain to validate
quality input. In essence, the only thing to be done is increase the order volume for all these
ingredients. For the soymeal recommendation, although soybean is not used by Omega, the
company can procure it from the farmers with whom company already has strong ties, or it can
be purchased easily from the market because of the steady increase in soybean farming due to
increasing demand. After the decline of production in 2012, there is an increase in soybean
farming to 76 million acres of land in 2014. Based on the projection up to 2020, the trend is
going to remain same (Soybeans & Oil Crops, 2017). Care should be taken when adding new
suppliers, as quality outputs are a direct result of quality inputs; this will be an essential task of
the project team.
The next key success factor that is required to facilitate the recommendations is the speed
of product innovation to meet the rapidly changing requirements. However, considering the
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existing experience of Omega Protein to develop and customize very similar products for their
customers, there should be a relatively short product-to-market cycle than others may experience.
Research and innovation of soymeal that is high in protein and quality for aquaculture use can
begin in a very short time after a detail study of future market opportunity by the management, as
will the innovation of human meal replacement shakes. OPTIC and other Bioriginal®
laboratories should be used for initial Research and Development. A technical requirement that
should be addressed early in the process of the project is the storage and processing facilities for
the new products. It makes sense to keep human nutrition products warehoused and distributed
from the acquired Bioriginal® facilities if capacity allows. Likewise, the soy based fishmeal
substitutes should be stored and distributed with the existing animal nutrition storage facilities
where the existing animal nutrition products are stored.
The costs involved in a new product launch will include a significant initial investment in
marketing. However, material costs, research and development, and distribution costs should not
be out of the norm as they are in line with existing products and the Omega Protein value chain
should be able to successfully incorporate them into their existing portfolio without adverse
effects to the core business. To properly allocate a marketing budget, we note that others in the
meal replacement product market generally spend 2.4% of total revenue on marketing (OD4285,
2016). If Omega Protein is to gain market share with a new product, we feel that the initial
marketing budget should be double the industry standard. This would indicate a 5%, or $3.4MM
initial investment in launching this product. It also should be noted that this budget is developed
with the standard costs of the other shakes on the market. On average, the cost of raw material is
the highest cost goods sold, representing approximately 40.3% of revenue. – See Appendix T.
However, Omega Protein human nutrition products boast a much higher margin than its
58 Team 2: Castellon, Josan, Price, Shah
competitors at 12.8% (Investor Presentation, 2017). This is due to efficiencies in the supply
chain, this gives the expectation that after the first year of implementation revenues will grow as
Omega Protein matches its efficiencies with this new product line.
To determine the proper cost for fish meal substitute for aquaculture products it must
first be determined how much of the existing market share will the substitute will take up. It is
our expectation that soymeal alternative will increase in demand as fishmeal costs increase,
which can be due to supply problems from fish. Omega Protein must develop a cost effective
suitable replacement for fishmeal. This will entail a significant investment in initial research and
development to make sure the alternate product is available for the customers of Omega Protein.
Generally, the largest costs of feed are the raw materials at 69.9% of the total revenue with a low
5.4% profit margin in the industry (McCormack, 2016) – see appendix U. As Omega Protein has
shown, they are able to gain higher profit margins than the industry in general, and we expect
more revenue from this substitute product due to a decrease in material cost and an increase in
operating efficiency than other players in the market. Although, immediate increased profit
generation may not be seen for this product, costs of marketing and research and development
should be equivalent to expected profit in the industry based on the expected sales and projected
from the animal nutrition team. The real benefits of alternate fish meal will be seen when supply
shortages cause substitute materials to be more attractive to buyers. Entering this market now
may not increase revenues immediately, but as the demand for alternates increases; at that point
Omega Protein will be ahead of the market and gain substantial market share.
2017 2018 2019 2020 2021
4.0% 3.6% 3.0% 3.3% 2.8%
2.1% 2.1% 1.7% 1.6% 1.5%
Vitamin & Supplement Manufacturing Industry Source data: IBISWorld Yucel, 2016
Animal Food Production in the US Industry Source data: IBISWorld McCormack, 2016
Team 2: Castellon, Josan, Price, Shah 59
Appendices
Appendix A Industry Growth Rates Graph 3.2
2009 2010 2011 2012 2013 2014 2015 2016
Vitamin & Supplement Industry 2.6% 4.0% 10.9% 8.2% 6.8% 3.4% 4.1% 3.5%
Animal Food Production Industry 0.7% ‐4.1% 10.1% 2.9% 3.3% ‐3.2% ‐2.0% 0.8%
‐6.0%
‐4.0%
‐2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Change in Industry Revenue Annually (%)
Actual Projected
60 Team 2: Castellon, Josan, Price, Shah
Appendix B Summary of the Five Forces
Summary of Five Forces Analysis Buyer Leverage High
Supplier Leverage Low
Threat of New Entrants High
Threat of Substitutes High
Intensity of Rivalry High
Profit Potential Medium
*Available Ratings Very Low; Low; Medium; High; Very High; N/A
61 Team 2: Castellon, Josan, Price, Shah
Appendix C Strategic Map
Strategic Group Map by Operational Size and Quality Imperative
62 Team 2: Castellon, Josan, Price, Shah
Appendix D Omega 3 Advertising and Marketing Example
63 Team 2: Castellon, Josan, Price, Shah
Appendix E Price to Earnings Ratio Graph 4.2.1.
0
5
10
15
20
25
30
35
40
45
50
2016 2015 2014 2013 2012
Price/Earning Ratio
OME DAR FMC
64 Team 2: Castellon, Josan, Price, Shah
Appendix F Profitability Ratios Table no. 4.2.3.
Ratio Company 2016 2015 2014 2013 2012
Gross Profit (%)
OME 29.14 27.53 25.15 33.87 17.85
DAR 22.26 21.88 21.06 26.83 27.55
FMC 36.55 32.82 34.05 34.59 35.78
Oceana 61.27 37.86 39.22 38.98 38.13
Operating Profit (%)
OME 13.72 11.63 10.23 19.65 5.36
DAR 4.48 4.20 4.16 9.84 13.62
FMC 12.84 ‐1.53 13.51 17.01 17.56
Oceana 20.98 16.63 17.45 14.98 14.27
Net Profit (%)
OME 8.42 6.67 5.98 12.49 1.72
DAR 3.16 2.51 1.73 6.32 7.69
FME 6.45 15.21 7.98 7.95 11.62
Oceana 10.78 10.41 12.08 10.49 9.98
Return on Asset
(ROA) (%)
OME 7.63 5.89 4.86 9.21 1.38
DAR 2.28 1.78 1.32 3.36 8.42
FMC 3.45 7.88 6.03 5.88 9.96
Oceana 8.00 6.11 20.47 18.11 18.06
Return on Equity (%)
OME 9.77 8.12 6.94 12.34 1.98
DAR 5.16 4.32 3.33 5.39 12.31
FMC 10.62 26.12 20.59 19.59 28.02
Oceana 22.18 18.02 34.86 29.31 28.41
EPS
OME 1.46 1.07 0.85 1.45 0.2
DAR 0.62 0.48 0.39 0.91 1.11
FMC 1.56 3.66 2.29 2.16 3
65 Team 2: Castellon, Josan, Price, Shah
Appendix G Valuation Ratios Table 4.2.1.
Ratio Company 2016 2015 2014 2013 2012
Price /
Earning
OME 17.16 20.75 12.47 8.55 33.50
DAR 20.82 21.92 46.56 23.03 14.84
FMC 36.26 11.09 24.88 34.38 19.06
Price /
Book Value
OME 1.67 1.67 0.86 1.04 0.65
DAR 1.02 0.88 1.46 1.70 1.83
FMC 3.79 2.84 4.86 6.28 5.06
Price /
Cash flow
OME 5.99 12.14 3.51 8.06 4.95
DAR 5.43 4.11 10.87 16.34 7.78
FMC 14.07 ‐19.57 18.13 26.05 19.20
66 Team 2: Castellon, Josan, Price, Shah
Appendix H Omega Protein Sales Growth Chart no. 4.2.2a.
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000 Sales (in thousands &USD)
2016 2015 2014 2013 2012
67 Team 2: Castellon, Josan, Price, Shah
Appendix I Omega Cost Breakdown Chart 4.2.2b.
Omega Protein’s division of revenue into costs and net profit
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Proportion of costs and profit from sales
2016 2015 2014 2013 2012
c.o.g.s. Op. exp. other exp N.P.
68 Team 2: Castellon, Josan, Price, Shah
Appendix J Growth Ratios Table 4.2.2.
Company 2016 2015 2014 2013 2012
Revenue OME 390,831 359,311 308,635 244,293 235,639
% change 8.77% 16.42% 26.34% 3.67% 0.18%
Revenue DAR 3,398,115 3,397,446 3,956,443 1,723,550 1,701,429
% change 0.02% ‐14.13% 129.55% 1.30% ‐5.33%
Revenue FMC 3,282,400 3,276,500 4,037,700 3,874,800 3,748,300
% change 0.18% ‐18.85% 4.20% 3.37% 10.97%
Revenue Oceana 595562 445,645 446,662 495,756 562,469
% change 33.64% ‐0.23% ‐9.90% ‐11.86% 24.37%
EPS OME 1.46 1.07 0.85 1.45 0.2
% change 36.45% 25.88% ‐41.38% 625.00% ‐88.30%
EPS DAR 0.62 0.48 0.39 0.91 1.11
% change 29.17% 23.08% ‐57.14% ‐18.02% ‐24.49%
EPS FMC 1.56 3.66 2.29 2.16 3
% change ‐57.38% 59.83% 6.02% ‐28.00% 17.65%
69 Team 2: Castellon, Josan, Price, Shah
Appendix K Net Profit Chart 4.2.3.
Net Profit of OME, DAR, FMC and Oceana
0
2
4
6
8
10
12
14
16
1 2 3 4 5
Net Profit (%)
OME DAR FME Oceana
70 Team 2: Castellon, Josan, Price, Shah
Appendix L Profitability ratios Table 4.2.3.
Ratio Company 2016 2015 2014 2013 2012
Gross Profit (%)
OME 29.14 27.53 25.15 33.87 17.85
DAR 22.26 21.88 21.06 26.83 27.55
FMC 36.55 32.82 34.05 34.59 35.78
Oceana 61.27 37.86 39.22 38.98 38.13
Operating Profit (%)
OME 13.72 11.63 10.23 19.65 5.36
DAR 4.48 4.20 4.16 9.84 13.62
FMC 12.84 ‐1.53 13.51 17.01 17.56
Oceana 20.98 16.63 17.45 14.98 14.27
Net Profit (%)
OME 8.42 6.67 5.98 12.49 1.72
DAR 3.16 2.51 1.73 6.32 7.69
FME 6.45 15.21 7.98 7.95 11.62
Oceana 10.78 10.41 12.08 10.49 9.98
Return on Asset
(ROA) (%)
OME 7.63 5.89 4.86 9.21 1.38
DAR 2.28 1.78 1.32 3.36 8.42
FMC 3.45 7.88 6.03 5.88 9.96
Oceana 8.00 6.11 20.47 18.11 18.06
Return on Equity (%)
OME 9.77 8.12 6.94 12.34 1.98
DAR 5.16 4.32 3.33 5.39 12.31
FMC 10.62 26.12 20.59 19.59 28.02
Oceana 22.18 18.02 34.86 29.31 28.41
EPS
OME 1.46 1.07 0.85 1.45 0.2
DAR 0.62 0.48 0.39 0.91 1.11
FMC 1.56 3.66 2.29 2.16 3
71 Team 2: Castellon, Josan, Price, Shah
Appendix M Financial Strength Ratios Table 4.2.4.
Ratio Company 2016 2015 2014 2013 2012
Current Ratio
OME 3.44 3.36 2.40 4.11 3.80
DAR 1.98 2.10 2.18 6.38 2.20
FMC 1.98 2.04 1.54 1.48 1.92
Oceana 2.21 2.04 2.68 2.35 2.36
Quick Ratio
OME 1.50 0.97 0.76 1.60 2.05
DAR 1.24 1.32 1.35 6.01 1.71
FMC 1.49 1.49 1.20 1.14 1.33
Oceana 1.51 1.36 1.62 0.97 1.38
Debt/Equity
OME 0.28 0.38 3.62 1.75 7.10
DAR 1.26 1.43 1.52 0.61 0.46
FMC 2.08 2.31 2.41 2.33 1.81
Oceana 1.77 1.95 0.70 0.62 0.57
Coverage
OME 129.50 27.90 23.38 28.96 9.46
DAR 1.61 1.35 1.21 4.45 9.63
FMC 5.06 ‐0.62 9.14 15.54 14.50
Oceana 1.95 6.36 51.43 72.81 228.84
72 Team 2: Castellon, Josan, Price, Shah
Appendix N Management Efficiency Ratios Table no. 4.2.5.
Ratio Company 2016 2015 2014 2013 2012
Asset turnover
OME 0.91 0.88 0.81 0.74 0.80
DAR 0.72 0.71 0.77 0.53 1.10
FMC 0.53 0.52 0.76 0.74 0.86
Oceana 0.74 0.59 1.69 1.73 1.81
Inventory turnover
OME 2.55 2.17 2.37 1.71 2.90
DAR 7.99 7.70 7.78 19.36 18.94
FMC 2.96 2.75 4.18 3.68 3.56
Oceana 3.63 2.91 3.65 2.39 3.70
Account Receivables
to Sales
OME 9.93% 11.27% 11.87% 8.65% 7.33%
DAR 11.43% 10.93% 10.36% 6.55% 5.77%
FMC 55.69% 56.51% 43.37% 38.31% 30.00%
Oceana 18.82% 17.77% 13.93% 11.71% 12.77%
73 Team 2: Castellon, Josan, Price, Shah
Appendix O Organizational Charts
Omega Protein, Epax, and Darling Ingredients top executives
74 Team 2: Castellon, Josan, Price, Shah
Appendix P: SWOT Summary Table
A. Opportunities (external)
Additional Human Nutrition Markets
Innovation of Existing Products
C. Strengths (internal)
Ability and Capacity to Innovate
Vertically Integrated Supply Chain
Good Financial Position
B. Threats (external)
Increase in Availability and Interest in
Substitute Products
Fierce Competition in Industry
Consumer Preferences
D. Weaknesses (internal)
Excess Property and Facilities
Marketing and Brand Recognition
Primarily Dependent on One Raw
Material Input
75 Team 2: Castellon, Josan, Price, Shah
Appendix Q: SWOT Matrix Table: Strategic Decisions
A. Strengths (internal)
1 – S/O Match Strategic Recommendations
Developing Ingredients Specifically Designed for Additional growing Product segments within the human nutrition industry.
Examples: Sports Nutrition Meal Replacement
O p p o rt u n it ie s
C .
T h re a ts
( e xt e rn a l)
D .
(e xt e rn a l)
3 ‐ S/T Match Strategic Recommendation
Create or innovate existing products in anticipation of changing consumer preferences.
Example: Use OPTIC center to create a new product to meet a new consumer trend
B. Weaknesses (internal)
2 – W/O Match Strategic Recommendations
Creating Unique, proprietary nutritional blends and licensing them exclusively thru a well‐known brand.
Example: Blue Chip Customers like Cargill®, Iams®, GNC®
4 ‐ W/T Match Strategic Recommendations
Eliminate Excess and Redundant Facilities to focus on strengths and become more competitive in markets.
Example: Combine separate human nutrition facilities and personnel that are performing similar processes.
Producing plant based meal to hedge against the vulnerability of menhaden fish dependency
Example: Soy Meal for Aquaculture
Team 2: Castellon, Josan, Price, Shah 76
Appendix R: New Product Launch Timeline
Product Launch Implementation Timeline in Months
Review and Analyze
Product Launch
Marketing Plan Creation Preparing Value Chain for Increased Sales
Testing and Development
Supply Chain Preparation and Discussion
Market Review and Survey
0 2 4 6 8 10 12 14 16
Team 2: Castellon, Josan, Price, Shah 77
Appendix S: Use of Fishmeal for Aquafeed
Source: iffo.net
Team 2: Castellon, Josan, Price, Shah 78
Appendix T: Cost Structure of Meal Replacement Shakes
Team 2: Castellon, Josan, Price, Shah 79
Appendix U: Cost Structure of Animal Feed
80 Team 2: Castellon, Josan, Price, Shah
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