Competition in the Premium Chocolate Industry - Case Study Example

Rogers Chocolates Case A Competition in the Premium Chocolate Industry (a) “Substitutes”- An estimate made in 2006 reveals that in Canada the market size for the chocolate industry amounted to $167 million. Annually the 2006 market was expected to grow at the rate of 2 percent. It was observed that though the overall market for chocolate was falling yet the market for the premium segment was increasing at the rate of 20 percent on annual basis. Thus major brands as Cadbury and Hershey’s were moving on to cater for the premium segment by strategies like acquisitions. The reason associated to the rise in the premium segment for chocolates was the aging baby boomer effect. The aging baby boomers were found to stress more on quality and brand parameters in their purchases. Moreover the premium chocolate market was gaining due attention owing to high amount of gift purchases on Christmas Eve. It was estimated that eight weeks prior to Christmas Eve about a quarter of the chocolate sales tend to occur. Due to the purchase patterns of elites who were more akin to purchase premium segments packed in chocolate boxes rather than chocolate bars, the sales margin of the premium segment recorded a high trend. Moreover, corporate houses both large and small were observed to view Rogers’ chocolates as item of corporate gifts. In addition to being items of corporate gifts the Rogers’ chocolate brand has earned a high reputation in the overall gift segment with affluent people sticking to present Rogers’ chocolate in occasions. The competitors for Rogers’ in the gift segment were Purdy’s and Godiva. It is observed that Purdy’s strongly emphasized on corporate purchases and group orders by rendering rebates for 20 to 25 percent. Godiva was observed to cater to the gift market through the retail chains. (Rogers’ Chocolates (A), 2007.) (b) “buyers”- It was estimated that around 30 percent of the total sales of Rogers’ chocolates resulted from the wholesale chains distributed along five different zones. The different zones for wholesale market for Rogers’ chocolates ranged from gift outlets, large retail outlets, retail outlets catering for tourist customers spread along airports, train stations and hotels, corporate gift buyers and extend to a newer segment of food retail chains serving high-end food products. However, the wholesale sales of Rogers’ chocolates have shown a decline over a period of two years owing to major players in the wholesale market like Bay, Crabtree, Evelyn and Second Cup shifting to low price zones. A sales manager based in Ontario with sales representatives operating across Canada managed the wholesale sale business of Rogers’ Chocolates. The sales agents operating across Canada could operate on their own business while selling Rogers’ chocolates in a particular region. The agreements made by Rogers’ chocolate with its sales agents did not amount to any contract. Rather they were open and thus could be reviewed. In regards to the gift segment, Rogers’ chocolates scored high gross margins through the wholesale chains. Hence being satisfied enough the company gave 10 percent commission to the sales agents on the sales made. An estimate made reveals that in 2006 the number of wholesale customers amounted to 585. The downfall in the 2006 wholesale sales can be viewed for among the 585 wholesale customers it was found that 346 of them made purchases amounting to less than $2000 annually. Again, out of the 346 wholesale customers 221 purchasers made purchases $1000 annually. However, Rogers’ continued to render equivalent service to all the small firms as to the big ones. the competitors of Rogers’ like Godiva depended on retailers for sale of gift packs. Bernard Cellabaut another competitor in the premium segment for Rogers’ also stressed on retail than on wholesale distribution strategy. However, Cellabaut distributed items of ready consumption to small grocery outlets. Another competitor Lindt depended on mass distribution options through drug and grocery dealers for sale of chocolate products. (Rogers’ Chocolates (A), 2007.) (c) “suppliers”- The competitors of Rogers’ chocolates like Godiva impressed the customer’s through attractive packaging. The packaging made by Godiva was increasingly slim and covered with glistening material. Another major competitor of Rogers’ chocolates was Bernard Callebaut. Bernard Callebaut made customized packs of chocolates wrapped in gold and silver boxes. The company also catered to make its stores look bright in proper seasons to invite more footfalls. Another competitor Lindt made gift boxers for chocolates. However, the quality of packaging maintained at Lindt was mid-ranged. The packaging made by Purdy’s caught customer attention for maintaining quality standards. In contrast to these companies, Rogers’ mainly resorted to hand wrapping techniques for packaging chocolate products. Even the chocolates at the premium level of Rogers’ which included materials like cashew nuts, almond barks, nutcorn and various other ingredients was hand packed by the factory employees. (Rogers’ Chocolates (A), 2007.) (b) Competitive forces like packaging tend to be weak for Rogers’ Chocolates for it depends on traditional look with hand wrapping techniques. The marketing techniques followed by Rogers’ Chocolates is strong for it consisted of both wholesale and retail techniques which proved favorable Acquisition tactics as taking over Sam’s Deli is strong for it proves favorable to the firm for gaining huge footfalls. Opening up of new firms and redesigning of outlets is strong for it helped the firm to gain customer attention. The production techniques used by Roger Chocolate’s is weak for it depended more on labour intensive modes. Pricing techniques followed by the firm were weak for it dissuaded new customers to try the products Production planning of the firm is weak for it leads to heavy stock piling. Demand Forecasting of Rogers’ Chocolates is weak for it depended more on seasonal breaks. (Rogers’ Chocolates (A), 2007.) (d) (c) Rogers’ Chocolates was in a strong financial position. It was found that despite the fact that the sales of chocolate products hade declined from 2004 an increase was recorded in the revenue. The profit margins however reflected a consistency in being 50 percent of the total sales. The market for Roger has proved favorable to help the company earn a high return percentage on sales for the acquisition of Sam’s Deli. Sam’s Deli, which happened to be a restaurant cum cafeteria, invited huge crowds. Thus, Rogers’ Chocolates got an opening to market their products. Further the company was successful in highlighting its target market to be affluent families and semi to big corporate houses. These customers helped Roger in gaining huge sale of its premium packs for gifts. The sales margin for Roger in October was found to increase owing to two opportunities. The redesigning of the Nanaimo ferry terminal for selling ice cream and chocolates helped the company to cater to a mass market. The company earned the second opportunity for being able to open a big chocolate retail outlet in Victoria having 1800 square feet of retail space. (Rogers’ Chocolates (A), 2007. ; Rogers’ Chocolate’s (C), 2008). A.2 The underlying drivers for change in the premium market for chocolates incorporated the demand for affluent families and corporate groups to give gift items centere4d on chocolate products. Apart from the sale to affluent groups the premium market was also countering demand for low calorie products. It was found that the demand for dark chocolates was surpassing the diet for milk owing to its contribution in maintaining a good cardiac health. Further another key driver of change was the expectation of the company in being socially responsible in terms of packaging and employment issues. (Rogers’ Chocolates (A), 2007.) A.3 The key factors related to production, which enabled the chocolate companies to earn success, encompassed the production techniques, which was mostly, labor intensive. Further, the seasonal breaks like Christmas celebrations and Valentine Day enabled huge chocolate sales. The production was made in huge quantities at an earlier period to cater to these days. Production planning also depended on proper availability of stocks mostly raw materials in a timely manner. (Rogers’ Chocolates (A), 2007.) A.4 A Strength, Weakness, Opportunity and Threat analysis done on Roger reveals that the main strength of Rogers’ Chocolates was its strong hold in the premium gift market. It is found to have incurred revenues through retailing chocolate products through its own stores, wholesales, mail and telephonic orders. The acquisition of Sam’s Deli helped it further to gain a mass market. (Rogers’ Chocolates (A)) In regards to its weakness it is found that the premium price charged for the quality products dissuaded the new customers from trying the product. Further Roger Chocolates depended on a traditional look, which was also not encouraged by the younger generation. (Rogers’ Chocolates (A)) As regards to opportunities the firm was looking forward to enter the online business segment. It would help the firm for being cost effective and catering to a huge market. The company also identified an opportunity of giving discounts to corporate purchasers for 20 to 25 percent, which would excite more sales. The coming of the Olympics in Vancouver and Whistler also would help in fetching more crowds. (Rogers’ Chocolates (C)) The Rogers’ Chocolates faced some serious threats owing to the decline in the tourism industry, which was an active purchaser of chocolate gifts. In addition to the decline in tourism the cost of operations of the plant were increasing leading to a fall in margin. Moreover the research and development team in the company was crossing the time limits for developing better products. (Rogers’ Chocolates (B)) A.5 The strategies taken by Rogers’ Chocolates in redesigning the ferry terminal at Nanaimo and the opening up of another retail unit in Victoria helped the company to record a growth in revenue. The profit percentage, which decreased from 12 percent in 2005 to 9 percent in 2006 based on net profits before taxes, increased due to the strategies taken (see Appendix). Moreover the wholesale distribution strategies and advertising techniques used by the firm helped it in maintaining a strong margin in its operations. (Rogers’ Chocolates (C)) A.6 Out of the strategic options available to Rogers’ Chocolates the sale of products through Internet marketing would help in yielding the best possible results. It is because the firm would be able to cater to amass market with an attractive web page. It would change its traditional look. Further Internet marketing is also a cost effective technique. (Rogers’ Chocolates (A)) Appendix Profit Percentage in 2005: (Earnings Before Income / Net Sales) * 100 = ($1,520,893/ $11,991,558) * 100 = 12 % (Approx.) Profit Percentage in 2006: (Earnings Before Income / Net Sales) * 100=($1,153,071/ $11,850,480)* 100 = 9 % (Approx.) References Rogers’ Chocolates. (A). Richard Ivey School of Business. 2007 Rogers’ Chocolates (B). Richard Ivey School of Business. 2007. Rogers’ Chocolates. (C). Richard Ivey School of Business. 2008. Read More