Nest-Fresh-Eggs-Harvard-Business-School-Cases

9-806-056REV:OCTOBER16,2006________________________________________________________________________________________________________________ProfessorTeresaM.AmabileandResearchAssociateVictoriaW.Winstonpreparedthiscase.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2005PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.TERESAM.AMABILEVICTORIAW.WINSTONNestFreshEggs(A)WhatdoIcareabout?Providinghealthyfoodforpeople.Humanetreatmentofhens.Andcontrollingmyowndestiny.—CydSzymanski,CEO,NestFreshEggsNestFreshisabusinessthathasbeendevelopedaroundthebrandandbusinessphilosophyofitsleader.ThisCompanydoesn’tworkwithoutCyd.Cydistrustworthy;sheputsherfaceonthecartonandshecompletelybelievesinthephilosophybehindwhatwearedoing.Shewantsitalltobeperfect.—TracyFields,AdministrationManager,NestFreshEggsCydSzymanskitriedtosqueezeinfivemoreminutesof“playtime”withherfive-year-olddaughterAnnaBellebeforeDanni,hernanny,arrivedtotakeover.Everthemultitasker,SzymanskifoundshewasabletokeepupherendoftheteapartyconversationwithAnnaBellewhilestillgivingsomethoughttohercompany,NestFreshEggs.Szymanskiwasproudofthesuccessshehadachievedinthe14yearsthatNestFreshEggshadbeeninoperation.ByAugust2005,notonlywassherecognizedwithintheeggindustry,butshehadalsogarneredwiderrecognitionthroughFastCompany,EntrepreneurMagazine,andWorkingWomen’sMagazineforthesuccessfulbuildingofher$5millioncage-freeegg1business.Thebusinesswasbuiltonastrongpersonalbeliefthatpeopledeservedhealthieralternativesforfoodandthatanimalsdeservedtobetreatedwell.NotonlyhadSzymanskiremainedtruetoherconvictions,butshehadalsobeenfinanciallysuccessful.Overtime,moreconsumersunderstoodthehealthandethicalbenefitsassociatedwithcage-freeeggsandwerewillingtopayapremiumpricetopurchasethem.Szymanskilovedwhatshewasdoing.ButsincethefoundingofNestFreshEggsin1991,theeggindustryingeneralhadundergoneanumberofchanges.Largecaged-eggproducers,intriguedbythehighmarginsassociatedwithcage-freeeggproduction,hadstartedtoenterthecage-freemarket.Itwasunclearwhethertheseproducerssharedtheethicalconcernsofcage-freeproductionorwereinsteadmotivatedbyprofit.Theyweredevelopingsmallcage-freeproductionfacilitiessidebysidewiththeircagedoperations,facilitiesthatSzymanskihadcalled“concentrationcamp”farming.2Theyalsohadthefinancialclouttolowerpricing,somethingthesmallindependentcage-freeoperatorslikeNestFreshwerefarlessabletodo.1Cage-freeindicatesthatthelayinghenwasnothousedinacage,asmostlayinghenswere.However,thecage-freedesignationdidnotsignifythatthehenhadaccesstotheoutdoors,anditwasnotalwaysverifiedbyathirdparty.2AlexMarkels,“AMarketingCry:Don’tFenceThemIn,”TheNewYorkTimes,September1,2002806-056NestFreshEggs(A)2NestFreshEggssuppliedbothsupermarketsandrestaurantsin11stateswitheggproducts.EverycartonofeggsthatleftitsDenver-basedproductionfacilitydisplayedacoloredpictureofSzymanskipresentedasthe“Egglady.”(SeeExhibit1.)SzymanskihadworkedhardtopersonalizetheNestFreshbrandandshebelievedthatthebrandhadbenefited.Sheworkedwithothercage-freeoperatorslessascompetitorsandmoreaspartners.Szymanskifeltthatshehadalwaysdonewellinthatpartnershipandwaswellrespectedbyherpeersasanethicalbusinesswomanandasavvymarketer.Butcompetinghead-to-headagainstmultimillion-dollarcaged-eggoperations,suchasthoseownedbyLandO’Lakes™,RoseAcre,andCal-MaineFoods,wasanotherthing.TheirpocketsweredeepandSzymanskithoughtthattheirethicswerequestionable.Shefeltthattheirbusinessoperationsdemonstratedanabsenceofdeepvalues,withcage-freeeggproductionservingasaprofitcenterandnotasawayoflife.Sinceitsfounding,NestFreshEggshadbeenprofitablenearlyeveryyear.Butby2004revenueshadbeguntoslip,andSzymanskisensedthatthiswasthebeginningofatrend.Howcouldsheprotectthecompanyasshecompetedwithcaged-eggproducersonwhatshebelievedwasanunethicalplayingfield?TheEggIndustryEggproductionintheU.S.wasbigbusiness.3Bythe1970s,whatSzymanskidescribedas“thefriendlyimageofGrandmaWilsonthrowingcornfromheraprontoaflockofhungryhensonherindependentfarm”wasmostlyathingofthepast.Allfacetsofeggproductionweretypicallyconsolidatedintoasinglelocation,toenhanceefficiencyandreducecosts.Thisincludedfeedmills,theraisingofpullets(babychicks),thehousingoflayinghens,andtheproductionfacilitieswhereeggswerecleaned,inspected,weighed,andpackaged.Eggproductiontendedtobearegionalizedbusiness,becauseeggswereperishableandexpensivetotransportlongdistances.Moreover,consumptiontendedtobeseasonal;forexample,itwashigherduringthewinterholidayseason.Thepriceofeggstotheconsumerhadchangedlittlein25years.However,forboththeproducerandtheretailer,therewerewild