This comes as an addendum to my post about Romanian R&D. LaDorna announced acquiring a State-owned research institute - Poultry and Small Animals Research Institute. Why do they do that? Firstly because it's cheap - EUR 8.8 mil. Secondly, because it seems that the group which is a market leader in the Romanian diary product industry confirmed its interest of horizontal expansion in Romania. This means they will look for entering into the poultry industry by launching chicken-based products.
Is it a good move? Depends on what strategic targets LaDorna has. If I am to judge after the poultry industry characteristics, it may prove quite a challenging one since it is a capital intensive industry, with technology investments being very important for first movers. Then agreements with the wholesale distributors are important as well, but LaDorna may not have problems on this one since they could leverage their actual distribution system. Brands play an important role in customers' choice, so they will have to own one or two if they want to havea piece of pie. Finally, the Romanian poultry industry is quite fragmented nowadays, and an acquisition would not be a surprising move for business development and gaining market share. All in all I think it may be an expensive and risky strategic move, but the higher the risks the higher the returns, right?
From what I know of it, poultry looks like one of those businesses that is crying out for conglomeration. It's a business that shows significant economies of scale (well, only up to a point, but Romania is still far from that point, so never mind). And it also responds well to vertical integration -- if you have a chicken farm, it's good to have an abbatoir, and even better to have an abbatoir and a wholesale business. It's also brand-sensitive, as you say. But the first two points -- conglomeration and integration -- suggest that the business is just waiting for a big hit of well-managed capital. Someone with a few million dollars to spend, who knows what they're doing, could make a real killing here. Um, so to speak. I'm interested because Romania's agricultural sector is such a ridiculous underperformer. Anyway. Doug M.
You are right, integration is the name of the game in poultry industry. It is a very capital intensive industry and to get to economies of scale one needs to focus on at least 3 directions: slaughter house, poultry suppliers and distribution. Investments in these area may get very easily to 20-25 mil. and the daily working capital is in the range of a couple of hundreds. The problem is that the demand side does not permit ROIs in the 3-5 years range. One option is export, but this again involves additional investments.
Is Ladorna plays a major activity in the milk producing sector? are there opportunities to investors to enter to milk producing in Romania?