Strategic Plan for eMerge I nteractive Jessica Musengezi Leigh Ann Love University of Florida IFAS
Presentation Outline • Company Description • Case Facts and Assumptions • Industry and Market Analysis • Key Questions • Goals, Constraints, Analysis • Identification of Alternatives • Recommendations and Implementation
What is eMerge Interactive? • Founded in 1993 • Originally developed infrared thermography systems with maritime applications • 1994-2000: Changed focus to cattle industry • 2001-2005: New Management – CattleLog – VerifEYE
Case Facts and Assumptions Facts Assumptions Tech company Mandatory traceability (Jan 2009) CattleLog and VerifEYE Packer/Processor increased Publicly traded (2000) food safety liability Previously owned cattle Persistent concern of trading division livestock diseases and Strong management, R&D transference to humans Little emphasis on sales and Affect of food safety and marketing traceability issues on U.S. Operating loss cattle export market
Past and Current Financial Situation • Negative net earnings since 1999 – 2004: $1 million in sales – 2004: $10 million net loss • Stock price has decreased – High in 2000: $70.00/share – Current (52 week high: 2005) : $2.49/share • Large research and development costs • Minimal emphasis on sales and marketing Source: MSN Money
Financial Ratio Analysis Industry and Market Comparison eMerge Internet Business Market Interactive Services Services Average 70.59% 54.13% 42.43% 49.25% Gross Margin -1.00% 6.60% 11.80% 13.60% Return on Equity Return on Assets -71.80% 4.20% 4.50% 2.30% Days Cost of Goods Sold in Inventory 360 20 18 43 Asset Turnover 0.1 0.6 0.7 0.4 Source: Hoovers Online
eMerge Products • CattleLog – Data collection and management – Herd management tools – Information sharing • VerifEYE CIS/Solo – Identifies bacteria which may cause • Ecoli 0157:H7 • Salmonella • Listeria • VerifEYE Hand Scanner – Identifies bacteria which may cause • Shigella • Norovirus • Hepatitis-A
Industry Positions • Cattlelog major competitors, virtually undifferentiated product Monopolistic Competition Sales Employees eMerge Interactive $1,200,000 42 APEIS Corporation $800,000 6 IMI Global Inc $330,000 5 Micro Beef Technologies Ltd N/A N/A N/A N/A AgInfoLink USA • Own sole license of VerifEYE technology Patent-derived Monopolist Source: Hoovers Online
Market Environment • Unpredictable regulatory environment – Traceability – Identity Preservation • Foreign countries are adopting traceability requirements • To maintain export market, U.S. will need to meet importing countries requirements • Japan markets re-opened in 2004; Japan approves the use of PVP to document age verification
Key Questions How will eMerge stay afloat? How to increase adoption of eMerge technologies?
eMerge Goals • Profitability • Provide value added capabilities to customers • Identify further applications of existing products • Research and develop new products for current and potential customers
SWOT Analysis – Internal (CattleLog) Strengths Weaknesses Experienced management Persistent financial losses team Undifferentiated product Strong R&D Slow adoption rate International and domestic Not first company to market partnerships Paper and electronic option Approved by USDA PVP- Process Verified Program
SWOT Analysis – External (CattleLog) Opportunities Threats Increasing concern about Low demand traceability Competition from other companies with products Increased demand of similar to Cattlelog branded meat products COOL and traceability Highly fragmented beef government legislation market at producer level Foreign country adoption of Government policy traceability regulations uncontrollable by firm
BCG Matrix for CattleLog • Low demand • Fragmented market, do not share information • Slow to adopt new products • Regulatory environment • 4 strong competitors Conclusion: CattleLog is a Question Mark – Could become a star – Could become a dog
CattleLog Financial Contributions • Share of total revenues are decreasing 2001 2002 2003 2004 848,651 574,922 313,697 369,130 AIS-Revenue Total Revenue 848,651 574,922 926,838 1,156,019 AIS Contribution 100.00% 100.00% 33.85% 31.93% • Share of total cost of revenues are increasing 2001 2002 2003 2004 AIS Cost of Revenue 1,065,174 335,111 55,277 104,299 Total Cost of Revenue 1,065,174 335,111 321,664 367,229 100.00% 100.00% 17.18% 28.40% AIS Contribution
Forecasted Revenues and Costs • Case 1: Assume ceteris paribus $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -$200,000 Product Gross Margin Company Gross Margin
Possible Alternatives: CattleLog • Close division • Sell division to competition • Adopt a “wait and see” attitude regarding regulatory environment • Lobby to enact favorable regulations • Develop alternative product uses
Recommendation and Justification Recommendation Sell CattleLog to competition Invest profits from sale into VerifEYE product line Justification • Low demand from target market • Market slow to adopt product • Technology will be obsolete by 2009 • Consider R&D a sunk cost
Case 2: Life after CattleLog • Assume ceteris paribus for VerifEYE $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Product Gross Margin Company Gross Margin
SWOT Analysis – Internal (VerifEYE) Strengths Weaknesses Exclusive license Persistent financial losses Strategic alliances Low sales Exceeds HACCP Undeveloped sales and requirements marketing plan Highly integrated market Numerous applications Reduces liability for customers
SWOT Analysis – External (VerifEYE) Opportunities Threats Increasing concern about New entrants safety assurance Product alternatives Market willingness to adopt –Irradiation new technologies –Pasteurization Global expansion through overseas distributors Applications to health and retail sectors
VerifEYE Financial Contributions • Share of total revenues are increasing 2001 2002 2003 2004 0 0 613,141 786,889 FST-Revenue Total Revenue 848,651 574,922 926,838 1,156,019 FST Contribution 0 0 66.15% 68.07% • Share of total cost of revenues are decreasing 2001 2002 2003 2004 0 0 266,387 262,930 FST Cost of Revenue Total Cost of Revenue 1,065,174 335,111 321,664 367,229 FST Contribution 0 0 82.82% 71.60%
Case 2: VerifEYE after CattleLog • Assume ceteris paribus, discontinue CattleLog $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Product Gross Margin Company Gross Margin
BCG Matrix for VerifEYE • eMerge holds license, no competition • Highly integrated industry • Increases profit by decreasing waste • Reduces liability Conclusion: – CIS/Solo potential to become cash cow – Hand-Scanning Unit potential to become star
Possible Alternatives: VerifEYE • Close or sell division • CIS/Solo products – Stop R&D, focus on sales and marketing – Continue R&D while developing sales and marketing • Hand Scanner – Stop R&D, discontinue product – Continue R&D while developing sales and marketing
Staying Afloat: Recommendations Continue R&D Develop sales and marketing plan For all VerifEYE products
eMerge Implementation Plan Objective: Increase Sales Emphasize promotion Penetrate market • Establish a sales team – Combine sales and technical specialists – Personal selling and service support – Establish lasting industry relationships
VerifEYE Marketing Plan Problem: Early adopters are focused on benefits; Early majority consider themselves to be progressive Solution: Highlight key benefits of product performance and applicable business solutions – Help increase revenues • Decreasing trimmings, streamline cutting process – Exceed compliance standards • Exceed industry standards for disease detection – Opportunities for branded product management – Provide assurance of contaminant-free products • Decrease liability for end users
Market Plan Implementation VerifEYE CIS/Solo VerifEYE Hand Scanner Meat Packers and Health Sector Target Market Processors Retail/Food Service Volume discount Penetration pricing Pricing Strategic alliances, regional trade shows, educational sales Promotion meetings, direct marketing to target market and affiliates. Domestic: Strategic alliances and direct sales to target market Distribution Global: Continued alliances with complementary products
Adoption of Technology: Recommendations • Identify additional strategic partnerships • Re-evaluate marketing and sales plan • Expand to other industries Institutional sectors (prisons, schools, government) Laboratories • Continue R&D for new applications of the VerifEYE technology • Broaden spectrum of diseases recognized by scanner
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