Sunripe Marketplace - a Private Label Strategy - Coursework Example

Sunripe Marketplace: A Private Label Strategy 0 Business Mission, Vision and Strategy Sunripe Marketplace (hereafter referred to as Sunripe) is a small niche retailer that focuses on selling fresh, high quality produce. Will Willemsen founded Sunripe and worked assiduously to make it a successful venture. The mission and vision of Sunripe have not been explicitly stated in the case. A close scrutiny of the company’s procurement strategy and product assortment suggests that the mission of the retailer is to ‘Provide Fresh, High Quality, and Healthful Food Options’. The vision of the retailer is to become a ‘highly profitable company that enjoys the patronage of a large number of customers’. The strategy is to become the ‘preferred destination by providing food that is up to one week fresher than the supermarkets’. 2.0 External Marketing Audit 2.1 Macro Environment-PESTEL The operations of Sunripe are affected by the political, economic, social, technological, environmental and legal factors. These factors influence the operations and decisions of Sunripe in varying degrees. The influence of economic, social and environmental factors on Sunripe appears to be more pronounced than the other factors of macro environment. 2.1.1 Political Factors 2.1.1 (a) Political factors that affect the operations of a business include political stability, ideology of the ruling government and diplomatic relations. 2.1.1 (b) The case does not mention much about the political factors that affect the operations of Sunripe. 2.1.1 (c) The set up of the Ontario Food Terminal (OFT), where food items received from more than 100 countries are sold under one roof indicates that the government enjoys good diplomatic relations with other countries and has adopted a liberalised trade policy. 2.1.2 Economic Factors 2.1.2 (a) The general economic environment, rate of inflation, level of disposable incomes, rate of unemployment affect business operations of a firm. 2.1.2 (b) The target market of Sunripe consists of people with ‘above-average’ incomes. Thus most of the economic factors, predominantly the income levels of the consumers, will affect Sunripe’s revenue. 2.1.2 (c) It can logically be assumed that recessionary conditions will lead the customers to tighten their budget strings which will adversely affect Sunripe’s sales. 2.1.3 Social Factors 2.1.3 (a) People who shop at Sunripe are concerned about social issues and therefore the social aspects have a potency to affect Sunripe. 2.1.3 (b) Growing awareness about the benefits of healthful food options can lead to an increase in products like WWF Brick Bread and increase Sunripe’s revenue. 2.1.4 Technological Factors 2.1.4 (a) There is no information on technological factors in the case study. 2.1.4 (b) It can only be surmised that Sunripe will have to invest in the latest technology to enable it conduct its business operations smoothly. 2.1.5 Environmental Factors 2.1.5 (a) The case study does not mention any environmental factors that affect Sunripe. 2.1.5 (b) It has however categorically been stated in the case that Sunripe customers are concerned about environmental issues and involved in community work. 2.1.5 (c) It therefore transpires that Sunripe will have to discharge its corporate social responsibility and operate like a responsible corporate citizen. 2.1.6 (d) If Sunripe adopts processes that help conserve the environment and does something good for the community in which it operates, it will be able to win the confidence of its customers. 2.1.6 Legal Factors 2.1.6 (a) Business houses have to adhere to the law of the land and abide by rules and regulations governing the business. 2.1.6 (b) The case study only refers to the minimum hourly wage of $7.45 to be paid to part-time employees. Sunripe is not really affected by this aspect since it employs mostly full-time employees. 2.2 Porter’s Five Forces Model 2.2.1 Rivalry amongst Existing Players 2.2.1 (a) Sunripe operates in a highly competitive industry. 2.2.1 (b) There are numerous supermarket chains that vie directly with Sunripe . 2.2.1 (c) Some of the major supermarket chains operating in the country are the Jim Pattison Group, Loblaw Companies, Metro Inc., Sobey’s and Empire Company Ltd. 2.2.1 (d) Small regional chains and in-store grocery markets situated inside hypermarkets like Costco Wholesale, Target, Walmart and Whole Foods Market also pose as competitors to Sunripe 2.2.2 Bargaining Power of Suppliers 2.2.2 (a) Bargaining power of suppliers is high especially when they sell to small players like Sunripe. 2.2.2 (b) Sunripe pays a premium to obtain high quality produce from suppliers. 2.2.2 (c) Big chains like Walmart, Target et al tend to buy in bulk and therefore can negotiate lower prices from the suppliers. 2.2.3 Bargaining Power of Buyers 2.2.3 (a) The bargaining power of buyers is high since they have many alternatives. 2.2.3 (b) Customers wait for retailers to roll out discounts and promotional offers. 2.2.3 (c) Sunripe makes price redundant since it competes on the plank of differentiation; fresh, high quality food at reasonable prices. 2.2.3 (d) High quality offered by Sunripe coupled with top-notch customer service attracts people and thus reduces the bargaining power of buyers to quite an extent. 2.2.3 (b) If customers maintain their own farms, it increases their bargaining power. 2.2.4 Threat of Substitutes 2.2.4 (a) Threat of substitutes is high since consumers have the option to go to convenience stores, niche retailers, bakery outlets, farmers, small groceries or any of the other major retailers. 2.2.5 Threat of New Entrants 2.2.5 (a) There are no major entry or exit barriers and therefore threat of new entrants is high. 2.2.5 (b) Achieving economies of scale by a new big player may prove difficult. 2.5.5 (c) Niche retailers catering to a small segment can easily set up shop with minimal investment. 3.0 Internal Marketing Audit 3.1 The Four Ms: Man, Money, Machine, Marketing Mix Effectiveness 3.1.1 Man Will Willemsen, the founder of Sunripe, is the single most important force behind Sunripe’s success. He painstakingly sourced the merchandise for his stores. Willemsen did not mind paying a premium to procure high quality, fresh food. Sunripe employed 90, mostly full-time employees, to manage the operations of its two stores. 3.1.2 Money Sunripe is an entrepreneurial set up and therefore has limited capital. The retailer has managed to obtain steady cash inflows due to its operational efficacy. Sunripe had a sound financial position with the London store alone generating revenue of $10 million in 2006. This store performed above expectations and registered a growth of 20 percent in sales. The turnover from private label products was $1.6 million in 2006. The sales of the Sarina store had crossed the $1 million mark within a year of its inception. 3.1.3 Machine Sunripe procured products from the manufacturers and sold them to the consumers. There were certain processes carried out at Sunripe that added value to products. The meat was cut at the stores to obtain the ‘best cuts’. The retailer also adopted the dry or natural method of aging beef. The requisite processes were in place for the production of bakery items and other private labels. 3.1.4 Marketing Mix Effectiveness 3.1.4.1 Product Sunripe’s product assortment included fresh produce (60%), deli (14%), meat (14%), bakery (10%) and national dairy brands (2%). 3.1.4.2 Price Sunripe adopted a competitive pricing strategy and priced its products at par with the products available at higher-end supermarkets. Sunripe’s Brick Bread was priced at $2.99 (600 gram loaf). The prices of breads at higher-end supermarkets ranged from $0.99 to $5.99. 3.1.4.3 Promotion Sunripe did not spend much on advertising. Instead the retailer relied on positive word-of-mouth to attract customers to its stores. Sunripe distributed two, full-color flyers in the local newspapers after opening its London store. 3.1.4.4 Place Sunripe had limited distribution prowess since it operated only two stores. 3.1.4.5 Extended Marketing Mix: People, Processes and Physical Evidence Sunripe’s full time employees were knowledgeable and well versed with all facets of business. They assisted and advised customers and thus enhanced the latter’s shopping experience. Willemsen took the responsibility of the procurement process. He made a sourcing trip to the Ontario Food Terminal (OTF) and meticulously chose the produce for his stores. The blemished food was removed from the shelves and was used in other value added products. The practise of ‘breaking down’ the entire display every night and ‘building it up’ the subsequent morning made the merchandise look visually appealing. The policy of first-in, first-out ensured that Sunripe delivered on its promise of fresh food. 3.2 Operating Results Sunripe achieved good operating results due to its sound business practices. The average gross margin for the retailer in the private label category was 41 percent. Within the private label category, the Sunripe branded products like value-added salads and value-added juices had the highest gross margins of 65 percent and 60 percent respectively. These two products were however very low on volume sales. The annual sales of value added salads was only $48,000 in 2006 while the sales of value added juices was $1,60,000 during the same period. 3.3 Strategic Issues Analysis Sunripe intends to increase its margins and store profitability. The strategic issue before Sunripe is the composition of its product portfolio. The retailer’s private label category has delivered 5 to 10 percent higher average gross margins as compared to other categories in the retailer’s assortment. The retailer stands to gain by improving the positioning of its private labels. Willemsen has two options; use an umbrella branding strategy for new private label products or create new, distinct brands. 3.4 Marketing Structures and Systems Sunripe operated in a market that had a large number of sellers and buyers. The sellers competed on the plank of differentiation or on the basis of price. Firms bought raw material directly from the manufacturers. There were no middlemen and customers were directly in touch with Sunripe. There also existed a possibility of taking orders online and delivering the product at the customer’s doorsteps. 4.0 Competitor Analysis/Audit Sunripe competed with higher-end supermarkets. The rivals used different private label branding strategies. Loblaws Market used two distinct private label umbrella brands; one for its higher end stores and the other for its economical stores. The Great Atlantic & Pacific Company (A&P) positioned its private labels as a low cost alternative to national brands. 5.0 Customer Analysis 5.1 Who Are the Customers? People earning above average incomes and aged 35 years and up are Sunripe’s customers. 5.2 What Are Their Choice Criterion? The customers visit Sunripe to purchase fresh, high quality food. Free parking, product samples and knowledgeable employees make their shopping trip pleasurable. 5.3 When Do They Buy? The customers generally buy once or twice a week. 5.4 Why Do They Buy? Customer visit Sunripe to buy ‘produce up to one week fresher than the supermarkets’. 5.5 Where Do They Buy? Sunripe Customers shop at higher-end supermarkets. 5.6 How Do They Buy Loyal customers drive past many supermarkets to buy at Sunripe. 6.0 SWOT Analysis and TOWS Matrix 6.1 SWOT Analysis The strengths and weaknesses have been derived from the internal analysis while the opportunities and threats have been derived from the external analysis. Strengths High Quality Products Knowledgeable Employees Solid Operating Performance Loyal Customers Weaknesses Limited Capital Only Two Stores Niche Player, Small Customer Base Small Advertising Budget Opportunities Increase Private Labels Sales Social Acceptance Add Healthful Food Options Start Online Operations Threats Fierce Competition Failure of New Branding Strategy Environmental Concerns Threat of New Entrants 6.2 TOWS Matrix SO (Maxi Max) Manufacture private labels to increase sales and profits. Use cash from operations to set up online operations. WO (Min Max) Use franchising model to open new stores. Use affiliate marketing for advertising and online sales. ST (Maxi Min) Use umbrella branding only where quality is assured. Launch loyalty card program, ask existing customers to bring in references and earn more points. WT (Min Min) Maintain price parity and focus on quality to compete. Indulge in responsible and sustainable sourcing to mitigate environmental concerns. 7.0 Marketing Objectives 7.1 Ansoff Matrix The Ansoff Matrix suggests that a company can grow through market penetration, market development, product development and diversification. Sunripe can adopt a multipronged strategy as discussed below. 7.1.1 Market Penetration Sunripe’s value-added-salads generate the highest gross margin of 65%. However the volume sales of this product were only $48,000 in 2006. Sunripe should try and push the sales of value-added-salads. The other products that need a push are WWF breads, beaver tails, and value-added-juices. 7.1.2 Market Development At present Sunripe caters to the needs of its customers through two stores only. The company can expand by offering franchisees. In this way, Sunripe will be able to venture into new markets without a heavy capital outlay. This strategy will help Sunrip cover a large geographical territory. 7.1.3 Product Development Product development is the ideal strategy for Sunripe to follow. The retailer should add more private labels since this category has earned astounding gross margins. Sunripe should adopt an umbrella branding strategy for its new product launches because the Sunripe brand is well-known to its loyal customers. The use of umbrella branding will ensure that the new private label brands are immediately accepted by the customers. The risk of this strategy is that if a new product fails, it tarnishes the image of other products that are under the Sunripe brand. However the likelihood of a failure is low since the Sunripe is a committed to delivering quality products to its customers. Willemsen’s personal involvement in day-to-day business operations will not allow Sunripe to falter on this aspect. Going forward, Sunripe’s assortment will have distinctly branded private label products as well as a growing proportion of Sunripe umbrella branded private label products. 7.1.4 Diversification Diversification of business is ruled out since Sunripe does not have a huge capital base even though its operating results are good. The retailer is well placed to service its working capital requirements with ease. However it may face paucity of funds so far as capital expenditure is required. It is recommended that Sunripe adopts the product development strategy at this juncture. 7.2 Strategic Objectives (SMART) The specific, measurable, achievable, related and time-bound objectives for Sunripe are stated below. 7.2.1 New Private Labels Products such as fresh beef and chicken to be brought under Sunripe brand name in the next 6 months. 7.2.2 Gross Margins To increase the gross margin on its most popular products; Cacklebury Max, Charcoal Beef and Pink Lady Pork by 10 percent in the next one year. 8.1 Core strategy 8.1.1 Segmentation and Target Market(s) Sunripe will segment the basis on the basis of economic, demographic and psychographic variables. The retailer will target the middle aged adults with high income levels. The juices and salads will also be targeted at the health conscious people across all age groups. 8.1.2 Competitive Advantage Sunripe will continue to compete in the marketplace on the plank of differentiation. Its high quality, fresh food has been a source of competitive advantage. These attributes have managed to create and maintain a loyal set of customers for the retailer and will continue to do so in the future. 9.0 Implementation 9.1Product The retailer will launch new private label products like fresh beef, bread, chicken and juices under Sunripe’s brand name. 9.2 Price Sunripe will continue its strategy of competitive pricing. The new product launches would be priced at par with the products available in higher-end supermarkets. 9.3 Place The new private label products would be sold through Sunripe’s existing network of two stores. 9.4 Promotion The plan will be implemented through the ATR (Attention, Trial, and Repurchase) model. The awareness of the new products will be done through in-store displays. As has been the case in the past, the word-of-mouth will also spread. Free samples will be distributed to the customers during the first fortnight of launch. This will automatically result in trials. Sunripe’s high quality and good taste will then urge customers to go in for a repurchase. 9.0 Control 9.1 Product Control Sunripe will maintain strict control over product quality so that the company’s goodwill is not diluted. Willemsen will continue to source the material required for the new private label products. 9.2 Price Control The prices will be competitive and at par with prices of similar products sold in higher-end supermarkets. 9.3 Promotion Control There will be no advertising for the new product launches. The samples will be distributed inside the stores to Sunripe’s loyal customers. In this way, there will be a check on the sales promotion expenditure. 9.4 Place Control The new Sunripe umbrella brands will follow the same supply chain path as do the other products of the retailer. They will be sold in the two brick-and-mortar stores that Sunripe operates. 10.0 Positioning The task of positioning entails creating a distinct position of the Sunripe brand in the minds of the customers. The positioning of Sunripe emerges from its commitment of providing food that is ‘up to one week fresher than the supermarkets’. The customers can always count on the high quality products of Sunripe. Price is the other important parameter to be considered while positioning the Sunripe brand. Sunripe products are competitively priced and therefore they provide more value to customers as compared to products available at rival outlets. The positioning of Sunripe is depicted in the perceptual map given below. The parameter of freshness and quality is taken on the x-axis and the parameter of price is taken on the y-axis. Read More