Millies Hand Cooked Potato Chips - Case Study Example

Case Analysis Millie’s Hand Cooked Potato Chips Contents Introduction 3 Problem Statement/Issues 4 Environmental Scan/Analysis 4 Financial Analysis/Ratios/Key Decision Criteria 6 Alternatives 7 Recommendation 8 Conclusion 8 Appendices/Exhibits 9 Reference 10 Case Analysis Introduction Millie’s Hand Cooked Potato Chips, a snack and chips brand launched by Brian Shore in 1984 under the company name of Mazel Mining Co., successfully captured the markets of Nova Scotia, New Brunswick and several other locations across Canada, with a significant sales hike experienced between the period lasting between 1985 and 1986 (Follows, 1990). The premise of the business was based upon the observations of Shore; the mind behind the launch of the product who believed that the ‘hand-cooked’ and ‘natural’ element that is associated with the brand would provide a significant competitive advantage to the product in terms of penetrating into and capturing a niche market that would be willing to pay a higher price for purchasing Millie’s (Follows, 1990). The unique selling point of Millie’s therefore, was featured in the rather unconventional production processes and techniques in the manufacturing of the snack that made use of batch processing, higher cooking times, natural ingredients and no preservatives thereby, leading to a 20% rise in production costs in comparison with competing brands including Frito-Lay, Humpty Dumpty and Hostess Food Products (Follows, 1991). Prompted by a decline in sales growth towards the departure of 1980s due to inefficient cost handling and most significantly, a price war amongst local manufacturers Millie’s assets were eventually acquired by John Miles and John Potter of Betmar, a brokerage firm originating in Toronto (Follows, 1990). Problem Statement/Issues The key issue in the analysis and examination of Millie’s Hand Cooked Potato Chips is focused upon identifying the underlying fundamental reasons which led to the closure and subsequent acquisition of the business by Betmar. In this case the primary consideration lies in understanding and shedding light on how a tremendous rise in product sales for Mille’s from $500,000 to $3 million in a limited time period of three years could not secure the business and save it from its impending fate. Accordingly, secondary issues in the case study are related with the establishment of comprehensive retail channels, altering internal manufacturing processes, working on eliminating reservations regarding declining product quality and identifying issues that are associated with inefficiency and poor management of business costs and expenses. Environmental Scan/Analysis An environmental scan or analysis of the firm can be conducted by examining the operations of the business from the perspective of its strengths, weaknesses, opportunities and threats (See Appendix A). The most significant strength of the business is associated with the market targeting and market positioning of the product. In this regard, the company has been successful in terms of identifying customer needs for a snack that comprises of hundred per cent natural ingredients rather than relying on the incorporation of preservatives to enhance manufacturing and production capabilities while, minimizing costs at the same time. Secondly, the business idea also focuses on benefitting from entering into a niche market rather than offering goods to a mass market. For example, in a mass market it is possible for a business to flourish by generating revenue through lower price while, maintaining substantial sales volume. However, the price premium which customers within a niche market are willing to pay maybe enough to generate similar revenues that could have been generated by serving a mass market, if not more. Moreover, the company’s strengths are also evidenced by the variety of the product line which began with the launch of regular, Bar B-Q and no salt chips to kosher chips for successfully targeting the Jewish market, salt and vinegar, sour cream and onion and Archie’s (Follows, 1990). The weaknesses of the company are evident by the internal issues in financial management for example despite of experiencing tremendous growth in 1986 and having no plans of significant expansion until 1987, the company was unable to break even. This aspect sheds light on the possibility poor forecasting and management of expenses on the part of the management. Eventually, another issue for Millie’s is that as demand for the product rose, the company failed to enhance the quality and efficiency of production standards. For instance, as the company saw the potential of increasing demand and strong customer loyalty by 1988, it only believed that increasing the frying oil content for producing the chips would emerge as a feasible and plausible option for cooking the chips and meeting demand, however, the firm greatly comprised product quality through this decision because it did not launch quality management standards and principles to check ingredient quality (Follows, 1990). The vast sales opportunities for Millie’s in the market can be examined in terms of both local and international orders. For instance, by 1986 the company had been able to acquire several local listings and expand the reach of the product by the means of an extensive supply chain and distribution network across the nation (Nova Scotia, New Brunswick, Prince Edward Island, Halifax and Dartmouth) (Follows, 1991). Additionally, the company also achieved success in terms of securing international orders for food importers in Taiwan who ordered a large batch of the product (Follows, 1991). Nonetheless, impending threats to the company have come in the form of price wars amongst local manufactures that could have negatively impacted the positioning of the product in the market. For example, at one phase during the company’s rapid growth period Shore decided to opt for advancement in sales volume by reducing prices which in turn developed the consumer perception of Millie’s being a low-priced product (Follows, 1991). Financial Analysis/Ratios/Key Decision Criteria A critical matter of financial concern in this case is associated with an alignment in the increase in Millie’s sales revenue and the company’s costs and expenses. Financial assessment of the situation on a yearly basis indicates that the firm was unable to replicate profit maximization in the period of rapid growth in 1986 by incurring a loss despite of $2 million annual sales. In comparison with this scenario, Millie’s had been able to generate a profit of $20,000 in the prior financial year (1985) with annual sales of $500,000 (Follows, 1990). The problem with the incurrence of a loss in 1986 is related with the fact that the company did not expand its operations in the period nor did it invest in asset accumulation until 1987 when Millie’s manufacturing was moved to a $1.3 million plant (Follows, 1990). This observation indicates that the firm may possibly have failed to manage its variable costs including labor wages, raw material, miscellaneous expenses and other charges in 1986 thereby, leading to the inefficient management of costs which could have prompted the subsequent loss. Alternatives Given the conditions which Millie’s currently faces, John Miles and John Potter of Betmar are faced with the following alternatives: Modify the manufacturing and production processes that are implemented at the company. The batch processing method should be altered to minimize costs. Implement quality testing standards within the firm to check the quality of ingredients and the contents of the product. Re-launch the product at selected retail outlets by diminishing the product line and supplying the product to selected outlets. Increasing product price by abiding by competitive pricing strategy rather than focusing upon penetration pricing. Recommendation It is recommended that Betmar should examine the managerial practices of the company and integrate total quality management mechanisms to test manufacturing and production processes. Additionally, the product line of the company should be minimized by assessing the performance of each variation of Millie’s and only sustain those products which are currently showing reasonable or good financial performance. Conclusion The case of Millie’s Hand Made Potato Chips suggests that effective financial management is a key aspect for businesses. As is the case with the company, Millie’s financial records were not recorded properly or were limited as a consequence of which John Miles and John Potter of Betmar had to base their assessment of the company on newspaper articles and other informational sources which were not official in nature. Additionally, product quality standards must be maintained by the firm to continue the protection of customer loyalty and steady sales which may be lost if the product fails to capture the attention of the audience in the long run. Moreover, Millie’s supply chain and distribution network has not been managed properly by the firm because the maintenance long term orders has not remained a priority for the company and most of the supplier relationships have been short term. This aspect has adversely impacted the product’s prospects of entering a larger market. Appendices/Exhibits Strengths Identification of niche market for health conscious customers Identification of rapidly growing snacks market Wide product variety Market positioning Weaknesses Poor financial management and recordkeeping Lack of quality management and standards Opportunities Vast local and international sales opportunities and orders Extensive supply chain and distribution network Threats Price wars between local manufacturers Market positioning of low-priced product Reference Follows, B. S. (1990). Millie’s Hand Made Potato Chips. Atlantic Entrepreneurial Institute. Read More