The Work Strategic of Chocolate Company - Case Study Example

The Real Chocolate Company Inc. Introduction The Real Chocolate Company Inc. is one of the business players in the gourmet chocolate segment of the chocolate and confectionery industry. The company offers a wide range of product choices in its chocolates and confectionery goods. It has positioned its products as the "handmade gourmet chocolates." The company was identified as one of America's 100 fastest growing small public companies. It has 5 subsidiaries and 316 franchisee-owned stores located in the US and other stores in Canada. Sarah Smith, CEO, and other managers in the company aims to make the Real Chocolate Company as the premiere retail chocolatier in the U.S. 1. External Analysis 1.1. PESTEL Analysis The Real Chocolate Company, together with other chocolate and confectionery industry players must legally comply with government regulations. This includes health, sanitation and safety regulations. Product labeling regulations must be strictly followed. Franchise operations must abide with registration and disclosure of information. Candy taxes, vending machine restrictions and other legislations such as levels of lead in candies, which are introduced in various states in US, would affect the costs of chocolates and confectionery products. On the other hand, the increase in sugar imports to the country would be beneficial to the supply needed by the company. Health concerns that might affect the sales of chocolates is the increasing problem of obesity. Sweets, such as chocolates, and other high calorie products may causes obesity when taken irresponsibly. Although, health benefits of the product, especially dark chocolates, organic and natural chocolates, appeals to health-conscious consumers and old people. High income groups, Asians, and younger people are becoming the target market of gourmet chocolates. These groups have different behaviours and needs, but they serve as an opportunity for sales and growth when exploited. Prices of primary raw materials, like chocolates and nuts, used for the manufacture of gourmet chocolates may vary significantly in the market. This is caused by monetary fluctuation, economic and political stability, and weather conditions in cocoa producing countries. Uncertainty in the supply and the price of commodities may affect the production and operation of Real Chocolate Company stores and franchises. 1.2. Porter's 5 Forces Competitive analysis checklist was created to identify the five forces of competition. See Appendix A. Analysis shows that the market is highly competitive. Direct competitors have larger annual sales against the Real Chocolate Company. The power of suppliers is also high. The flow of supply of raw materials such as chocolates and sugar affects the production directly. Ease of entry into the chocolate market is high. Chocolate manufacture is simple and there are variations in the way the products are created and served. The company is almost dependent on the sales in franchise stores, which can be considered as customers of the Real Chocolate Company. Other sources of revenues such as company owned stores and non-traditional outlet is relatively low on the cash flow. 2. Internal Analysis 2.1. Strengths and Weaknesses "Perfection in Handmade Gourmet Chocolates" is a very good motto for both customer perspective as well as the employee's morale. This motto demonstrates the commitment of the company towards freshness and quality produced chocolates. Perfection means quality. Handmade illustrates freshness. Customer impression is important to create customer satisfaction and loyalty. Employee's morale and attitude is also guided by the motto since it reveals the responsibility of not just the management but also to the rest of the stakeholders in the company. This is a responsibility of producing quality chocolates from start to finish, from raw materials to packaged chocolates. The larger portions of chocolates in the packaging and the wide range of product choices give a distinction for customers. This is a competitive advantage towards other chocolatiers in gaining a fair share of the gourmet chocolate market. Larger is always better. More choices mean more customers which mean higher sales. 3. Current Problem Diagnosis The gourmet chocolates segment in the chocolates and confectionery industry is highly competitive. The system wide sales of Real Chocolate Company Inc. are relatively small compared to competitors such as Godiva Chocolatier, Russell Stover and See's Candies. However, the market for gourmet handmade chocolate is budding and growing. Also, new markets on demand of organic and natural chocolates are emerging. The health benefits of dark chocolates are creating new customers. These behaviors can be exploited by the company. The supply of primary raw materials is uncertain since it is imported from cocoa producing countries. The supply can be affected by the political, economic and weather conditions of the country. This would mean that the company's control on the supply chain is minimal. Also, the prices in the commodities market fluctuate monetarily. This is a threat to the company. What strategic measures should Sarah Smith, CEO, and the Real Chocolate Company implement in order to sustain its current growth and become the premier retail chocolatier in the gourmet chocolates segment' 4. Generation of Strategic Options 4.1. Differentiation Real Chocolate Company's motto of "Perfection in Handmade Gourmet Chocolates," has made the company and its products distinct from other chocolatiers in the US. Their wide range of product choices and bigger sizes have created loyal customers as well as appealed to new ones. The practice of on-site production of some products in the stores creates a positive response on customers. Chocolate lovers and health buffs would appreciate the process and will be assured of the freshness and quality of the homemade products. The company can further differentiate its product by exploiting the demand of dark chocolates, as well as the trend on organic and natural chocolates. These new products cater to a new market. A new market would entail additional sales and revenues for the company. 4.2. Focus The wide range of product choices entails additional costs for the company. These costs would spell a lower bottom line in the profit. The company must concentrate on few high selling products in order to minimize the cost of production. A small number of chocolates in production would create higher volume of finish goods. The cycle of manufacturing the products would be lower. The company can standardize its production and automate most of the processes. The company should create a strategy in product excellence which is focused on cost leadership, marketing and distribution. Fewer products would also entail fewer handling and purchasing cost. 4.3. Expansion There are a lot of room for expansion in the US and international market of gourmet chocolates. Real Chocolate Company should concentrate on opening more company-owned stores and franchisee-owned shops in more factory outlet malls, regional malls, airports and other entertainment oriented sites. Their successful businesses in US can be benchmarked in opening franchise agreements in other locations such as Canada, Europe and Asia. The international market is a bigger market which remains untapped by the company. 5. Evaluation of Strategic Options Profitability and growth are the best criteria for evaluating the success of the strategic options. Both criteria are measurable in the three options presented. For the differentiation strategy, the profitability is high but the company's growth is slow. Profitability is high due to more revenues generated through additional sales on new products. Although the marketing cost and production of several products would increase, the sales incurred for the demand of a new market would compensate for the additional cost. Growth is slow for this strategy since new assets such as additional stores is minimal and market presence does not change the market share of the company. For the focus strategy, the profitability is high but the company's growth is slow. Profitability is high since this strategy is focused on lowering the costs of production and distribution. Growth is slow since no new assets are acquired, however, with product excellence, market share would increase due to increase in customers. For the expansion strategy, the profitability of the company is high and the company's growth is fast. Profitability is high due to increase market presence and tapping of new market locations. This would mean increase in sales and revenues. Increase in cost in the first few months of expansion may increase due to additional spending. However, these costs subsides after the normalization of the expansion programs. Growth is fast for this strategy due to new assets and increase in market presence. The overall value of the company would drastically increase. 6. Description of Selected Strategy The selected strategy to sustain company growth and become a premier retail chocolatier in US is for Real Chocolate Company to have an aggressive campaign for store expansion locally and internationally. The company should seize the opportunities of the budding gourmet chocolate market segment. The strengths of the company are on its motto and its bigger products. These current strengths should be capitalized to encourage new franchises. The successes of the existing businesses and the increase in demand for gourmet chocolates are proof that the company is ready to expand. The franchise business is booming and there are more areas that can be exploited. The management is already matured and equipped to handle additional businesses. In order to become the premier retail chocolatier, the Real Chocolate Company must increase its market share and their presence must be felt. 7. Action Plan for Implementation 7.1. Ensure that every department and team goals are consistent with the organization's direction and strategic goal of expansion without compromising its company culture and motto. Top management must identify critical paths to achieve the goals. 7.2. Top management must create a total quality product excellence that has core processes on innovation, product development and market expansion. The strategy would create a competitive advantage in the market. 7.3. Marketing must develop a customized value proposition that targets different groups in the gourmet chocolate market segment. (Best, 1997) If the target is the old people group, the value proposition would be the health benefits of chocolates. If the targets are young adults, the value proposition would be the exceptional taste and bigger size of the products. If the target is the high income group, the value proposition would be the high quality of the product using fresh and quality ingredients. 7.4. Top management must scan the environment to understand changes that may affect the organization's strategy of expansion and the market demand. This is necessary to prepare the company from unwarranted problems and also seize potential opportunities. Capitalizing on this change and creating a business structure that is flexible that can respond to change and to entrepreneurial efforts is essential.(Abell, 1979) 7.5. Evaluation and pursuance of investments, innovations and opportunities should be given priority. Market investments and innovations include the feasibility of carrying organic and natural chocolates, dark chocolates and value added chocolates containing special ingredients that are beneficial to health. 7.6. Manufacturing and distribution departments should initiate continuous improvement teams that are mandated to identify areas for improvement in several critical business process. 7.7. Strategic business units must identify the strengths and weaknesses of competition. Strong competition creates a long term health and viability of the company. 7.8. The company should build an action-learning team composed of potential leaders in the company to conduct an analysis on areas for market expansion with emphasis on developing potential sites for company subsidiaries and franchise-owned stores.(Waters,2002) The company subsidiary stores are necessary since it will serve as point of contact for franchisees. The team can analyze the feasibility of tapping the global market such as Canada, Europe and Asia. 7.9. Sarah Smith and her other managers should develop contacts internationally and analyze the market demographics and cultural norms of potential countries to invest and set-up business. By creating partnerships needed to work globally, the company's global operation would be assured. 7.10. The management team should benchmark other organizations to learn the effective ways to manage global sourcing, franchising, manufacturing, distribution and sales. 7.11. Importantly, the top management should measure and evaluate the expansion strategy as well as the different departmental objectives as reference for growth, profitability and success. 8. Conclusion The Real Chocolate Company under the leadership of Sarah Smith can achieve its goal and become the premier retail chocolatier in the US. This can be achieved through aggressive expansion strategy to seize the opportunities in the market. Tapping both local and international market would sustain the growth of the company and may as well create another company milestone in sales and revenues. To be the premier chocolatier, the company's presence must be visible in all locations with high market demand. With the strategic goal of expansion, coupled with business units' objectives of product excellence and aggressive marketing, the success of the Real Chocolate Company is imminent. References Abell, Derek and John Hammond, Strategic Market Planning. New Jersey: Prentice Hall, Inc. 1979. Best, Roger J.: Strategies for Growing Customer Value and Profitability. New Jersey: Prentice Hall, Inc., 1997. Market-based Management Daft, Richard and Dorothy Marcic, Management: The New Workplace. 6th ed. South Western, Australia: Cengage Learning, 2008. Kim, W. Chan and Renee Mauborgne. Blue Ocean Strategy: How To Create Uncontested Market Space and Make the Competition Irrelevant. Massachusetts: Harvard Business School Press, 2005. McShane, Steven.. Organizational Behavior Princeton, NJ: McGraw-Hill, 2001. Waters, Donald. Operations Management: Producing Goods and Services. New Jersey: Prentice Hall., 2002. Appendix A Porter's Five Forces of Competition Framework Appendix B TOWS ANALYSIS THREATS Obesity and health concerns Health, sanitation and safety regulations Franchise regulations Product Labeling Vending Machine regulations Candy Taxes Level of Lead legislations Political, economic and weather conditions of cocoa producing countries Maturing market demand OPPORTUNITIES Asians and young adult consumers More locations for new stores International market WEAKNESSES More manual labor oriented on manufacturing Lack of product placement and positioning Low resources on logistics and distribution Market presence and reach is low Relatively young company (started on 1981) Limited marketing strategies STRENGTHS Large portions of chocolates "Perfection in Handmade Gourmet Chocolates" motto Wide range of product choices On-site production of some goods Extensive training for franchisees Commitment to fresh quality products Read More