Rogers Chocolate Essay Example for Free

Rogers Chocolate Essay Introduction R gers’s Chocolates is Canada’s oldest chocolates company that was formed in 1885 in Victoria, British Columbia by Charles Rogers. The company specialized in producing different varieties of ward winning hand-wrapped, high-quality chocolate brands as well as premium novelty ice cream which it sold through its retail outlets, sales through wholesale delivery, online/phone sales, and through Sam’s Deli restaurant in British Columbia. The goal of the organization is â€Å"to double or triple the size of the company within 10 years† (Zietsma, 2007) Rogers’ target market is both end users and consumers who buy chocolates to indulge themselves or to give as a gift. Rogers’ target buyers are new and existing chocolate buyers that love quality chocolates. Demographics tend to be mainly women ages 25-55 years old with middle to high household income of $50,000 upward. They generally have college education and are professionals, white-collar workers, managers, or owners. The majority will be frequent travelers on cruise ships and Internet users. In order to develop a successful growth plan for the Rogers’ Chocolates, it is very important to get an integrated understanding of the external and internal environment effecting the chocolate industry in whole and Rogers’ Chocolate in particular. An organization’s external environment represents the opportunities and threats while focusing three major areas that include general, industry and competitor environment. The firms understanding of the external environment is matched with its knowledge about the internal environment (resources, capabilities, core competencies, organization, management etc.) in order to develop a strategic growth plan that will bring competitive advantage and above-average returns. External Analysis P. E. S. T Analysis: Political/Legal: * Legal issues regarding child labour in cocoa farms. * African countries are more affected by child labour. * Large manufacturers are seeking a redefinition of the term â€Å"chocolate† under USFDA guidelines so that they can produce cheaper version of the product and still call it chocolate. Economic: * Falling growth rate in the chocolate industry due to economical factors. * Due to seasonal vulnerability of the product, it is hard to manage inventory resulting in higher costs for wasted material. * Higher cleaning and maintenance costs for the equipment for large producers. * Sociocultural: * Increasing trend towards healthier diet, organic food, low-trans fat and no-sugar chocolate. * More demand for dark chocolate due to its heart-healthier anti-oxidant properties. * Consumers and employees stressing on more corporate social responsibility. * Human rights concerns on forced labour in West Africa. * Environmental concerns influencing packaging, procurement and operational decisions. Technology: * Less focus of private and government supported RD expenditures. * Farmers are less efficient in growing cocoa beans because of lack of proper knowledge, education and training. Industry Analysis: Even though there had been a gradual decline in the growth of chocolate industry as a whole, there is still opportunity in the premium chocolate sector of this industry, which is growing at 20% annually. The Canadian market size for chocolates was US$167 million in 2006 and it was projected to grow at 2% annually. The change in demographics with aging baby boomers and their emphasis on brand and quality has given an opportunity to traditional chocolate manufacturers like Hershey’s and Cadburys to shift their focus on the production of premium quality chocolates. Rogers’ Company is faced with many factors that are directly influencing the company, its competitive actions and competitive responses in the overall industry. The Five Forces of Competition Model: Michael Porter’s five forces of competition is an analytical tool that can be for Rogers’ Chocolate to measure the intensity of the industry competition and an industry’s profit potential. Threat of New Entrants: Hershey’s and Cadburys are moving towards the premium chocolate market through the acquisition or upmarket launches (Zietsma, 2007). The profit potential present in this sector supported by its 20% annual growth rate make it very attractive for large organizations to come forward and avail this opportunity. There is a low threat of new entrants prevailing in this chocolate industry because of the high capital requirements and expected retaliation by current manufacturers. Current players in the industry also possess some barriers to entry for new entrants by maintaining economies of scales with their large production capacity and keeping their product differentiation with their specialized and novelty chocolate products. Even though there are low switching costs and easy access to distribution channels, but still the brand loyalty of the customers including the Rogers’ Chocolate itself make it harder for new firms to come into the competition. Bargaining Power of Suppliers: There is a high bargaining power of suppliers because of the need of the key ingredients required for chocolate manufacturing and limited number of suppliers for this industry. Since cocoa trees require tropical climate, it forces the main producers in the west to import them from countries in West Africa or other hot places where suppliers are dominated by few large companies The chocolate and cocoa industry relies on suppliers to deliver high quality products that meet food regulations and consumer taste tests. If the suppliers’ product is not available or does not meet the quality expected, the industry will suffer greatly. This dependency on the suppliers’ product and the absence of substitute products increases the suppliers’ bargaining power. Bargaining Power of Buyers: Even though there are no substitute products for the manufacturing of chocolate, the buyer groups are still powerful because they purchase a large portion of the industry’s total output. Since there are many wholesale buyers of cocoa beans for the manufacturing and selling of the chocolate, it increases the bargaining power of the buyers that forces suppliers to lower their prices or increase their product quality. Another condition that affects the power of buyers is product differentiation. If the product is undifferentiated, the buyer has the power to play competitors against each other and reduce the cost. The chocolate and cocoa industry has a differentiated product, which reduces the power of buyers. The industry has several large players that have brand identification and customer loyalty, which makes it hard for buyers not to use a particular supplier. Threat of Substitute Products: Majority of the chocolate sales occur during the Christmas season and people buy chocolates to give as Christmas gifts or during the Valentine’s Day or Halloween. Other types of gifts during these occasions are considered as substitute products that may include flowers, jewellery, stuffed toys etc. Many people consider chocolate as unhealthy while some people can use other flavours such as lemon, vanilla, peanut butter or mint instead of chocolate that brings a low to moderate threat of substitute products to replace chocolate. Intensity of Rivalry Among Competitors: The presence of a many and equally balanced chocolate producers increases the rivalry among the competitors by permitting vigorous actions and responses by the competitors. With the slow industry growth, chocolate industry for instance, markets become more intense as companies battle to increase their market shares by attracting competitors customers. It results in more price wars, marketing and advertising battles between the competitors. Another factor that intensifies the competition and rivalry among competitors is the high storage and fixed costs that pushes chocolate producers to maximize their production capacity. In order to sell this excess capacity, organizations give purchase rebates and other special discounts to customers that increases the competition. Standardization and differentiation along with low switching costs in chocolate industry also fuels competition. Competitor Analysis: Competition in the chocolate industry in Canada is led by some regional brands along with a few larger producers. Major players in the market include Godiva (Nestle), Bernard Callebaut, Lindt, Purdy and a few local premium chocolate companies like Laura Secord and Rocky Mountain Chocolate Company. There are many factors influencing the competition in this industry that include variations in the price points and quality of different premium chocolate product lines. Each individual company has its own unique technique to boost itself from its competitors. Many companies have their own fancy packaging styles for their products’ delivery that target different customers helping them in getting above average returns. Widespread distribution of products and attractive presentation and displays are some other effective tools that are adapted by many companies in this business offering them good returns on their investment. A company with good and intense marketing and advertising along with widespread geographical location gains more market share compared to the one that is limited to a certain area. Some companies have focused more on their mall outlets while some have taken spots in different tourist attractions. For some companies, retail sales are more promising than wholesale strategy, which shows that selling strategy plays an important part in the success of a company. Even though all forces stated above hastens competition among these chocolate companies, product quality surface to have least impact on extent of competition (Zietsma, 2007). Attractiveness and profitability of chocolate products is determined by how the product is moulded, coloured, and packed (Ellis, M.et al, 2007). Key Success Factor Analysis: Numerous factors that can add up to the successes of Rogers’ Chocolate are as follows: Understanding and Satisfying Consumer Needs Part of the external analysis is to scan, monitor, forecast and assess the timing and importance of environmental changes and trends. In order for Rogers’ Chocolate to get strategic competitiveness, it’s very important that it understands the trends in the chocolate industry that are moving towards premium chocolate with high-quality and high-taste matched with classy packaging, beautiful retail experience and fair pricing. Rogers’ Chocolate already has award-winning reputation with its friendly customer service, pretty theme in its retail outlets with images and aromas. Customers buy premium chocolates for special events or for corporate gifts, so it’s very important that special focus is put on their attractive and unique packaging. Rogers’ Chocolate has it all. Rogers’ Chocolate needs to focus on the sale of its wholesale orders that constitute 30% of the total sales but it has been declining gradually due to inclination of the buyers towards other cheaper brands. It needs to reconsider its pricing strategy, marketing and relations with these customers. Extensive marketing in order improve brand awareness: Regardless of Rogers’ Chocolate being the dominant player in the chocolate industry, it only occupies 7% share in the $167 million market. Premium chocolate is a growing sector with high profit potential and Rogers’ Chocolate has the ability to avail this opportunity if it extends its marketing strategy in order to grow in the near future. Pricing Strategy: Price of chocolate product also affects success of producing firm. Company’s Price of the product determines consumption rate of the product. Whether price is regulated by the organization itself or state-based decision, it affects demand of the product. Demand and price of any product are inversely related. Low market demand implies low net sales, which makes success of the company to be uncertain. Another aspect of price factor is in determination of production cost. Lower prices than other producers of the same type of commodity make production cost expensive. On the other hand, high price reduces market demand of any product. In a case where different companies sell similar product at different prices, companies using extreme prices are at risk of failing Geographical Distribution: It is very important for the success of the company to have a widespread geographical distribution of its products. A company with many locations is more likely to have its customers familiarized with its products and image. Brand loyalty increases when customers know that their preferred brand is located not too far from them. Product Diversification: Product diversification is applied in cases where stiff competition exists in the market. Instead of maintaining production of only one type of chocolate product, modification in shape, color, and different composition ensures further success of a company. Internal Analysis: Strengths: * Well-established and reputable Brand * Experienced Management Team * Rich history and tradition in Canada * Award winning recognition * Revenues * Loyal customers * Devoted Employees and Passionate Employees * Quality products hand wrapped Weaknesses: * Production process – not efficient and no measuring capabilities * Demand forecasting – difficult due to seasonality of sales * Management’s and Employee’s resistance to change. * Management team conflicts * Packaging * Lack of brand image and customer awareness * Cost of setting up and cleaning equipment * Inventory Management – Out of Stock and Over stock – production planning issues * Decrease in Wholesale * Online Sales only 4% Opportunities: * Growth in European and Asian markets * Retail and Online expansion * Increased production capacity * Trends and shifts in consumer confectionary market * Kiosks in airports * Organic trade line Threats: * Economy and demand fluctuations * Competitors * Decreased number of tourists. * Environmental concerns and human rights concerns expressed by some consumers * USFDA guidelines for â€Å"redefining† chocolate Rogers’ Chocolate has 24,000 sq. ft. production facility with 110 non-unionized retail and production employees. 75 employees work in retail while 35 in the production. Hand making and hand packing made the chocolate production very labour intensive while big portion of the costs were that of set-up time and cleaning time for the equipment during the batch processing. There are no means of measuring the productivity and efficiency in the plant. Another issue faced by the Rogers’ Chocolate is its inability to forecast the demand and hence the production of its products due to the seasonality of the sales. This problem is dealt with excess production to deal with the out-of-stocks during the peak seasons. The delays in the import of art tins for assortment from China also throw the schedule off for the next product in production line. Rogers’ Chocolate has a very low turnover rate because of its historic heritage of 120 years and strong family values. Some workers were third-generation Rogers’ employees with strong commitment and passion for the company. However, it created a problem for the company because employees were resistant to any change in the company. Rogers’ Chocolate was also involved in the local community service by employing people with disability and a group of brain-damaged individuals. The organization had a very good and friendly corporate culture where people respected each other on first-name basis. Compensation packages offered to the employees were also very competitive in order to retain the experienced employees. Rogers’ Chocolate has the potential of growth with its present resources. The company has a well-managed and competent workforce, which is the driving force for the entire organization. The board of directors consist of educated and experienced people who have good know-how of the industry. The production facility and other tangible and non tangible assets permit Rogers’ to come forward to lead the industry. It has all the right business tools that are required by an organization in order to succeed. Rogers’ has access to the main markets of the country that include its retail outlets, wholesale sales and online sales. All these resources and its ability in making premium chocolate with high quality and high taste make it a potential threat to its competitors. If utilized properly, these resources and capabilities can allow Rogers’ Chocolate to formulate a strategy to earn above average returns. Recommendations: * Focus on strengthening current retail operations than wholesale. * Roger’s good corporate social practices will also focus on human rights (labour laws), packaging, procurement and operational decisions. * Increase brand awareness to capture more market share. * Focus growing the retail business into new geographic markets. * Continue to grow complementary business lines (i. e. Ice Cream) * Develop core competence in operations management to drive efficiencies and reduce inventories. * Upgrade technology in production to increase capacity * Create new product lines and packaging to broaden the customer base. * Franchise Sams Deli. It has large amount in administration expenses. * Franchise retail chocolate stores. * Offer promotions on special events like Christmas, Father’s Day, Mother’s Day, and Valentine’s Day etc. * Keep existing customers happy with special discounts and customer loyalty programs.