How is the company performing?
The company is faced by many threats. Perhaps the most potent of these is the global economic meltdown which is bound to negatively affect chocolate sales since chocolates are essentially luxury items. Additionally, it has constrained the availability of credit hence financing for expansion activities. Besides the threat posed by poor economic performance, another threat includes the wide availability of substitute products. Legislative initiatives to subject the industry to FDA content standards also pose threats to the company.
Global warming has had undesirable impacts on shipping temperatures hence the quality of cocoa ingredients procured by many firms. If not redressed, this can negatively affect the company in the long run. Cheaper products by companies such as Hershey and those from more efficient producers such as Canada are another threat. Ethical issues facing the industry such as a public outcry on the use of child labour in cocoa farms and exploitative practices of the chocolate companies also threaten the survival of the company.
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The most important CSF in America’s chocolate industry is a reliable supply of the basic ingredients namely cocoa, dairy ingredients and sugar. Of particular importance is the procurement of the highest quality cocoa beans which can give the end consumers the desired taste and consistency. Another important CSF is the availability of a good distribution network with strategically located stores. Top secret recipes which especially specify the temperatures applied, the percentage of ingredients used, blending formulas and the time interlude used need to be carefully form another critical success factor.
Other important CSFs are production which needs to be innovative and top-notch, technology and cost management. Technology is important as it helps to improve the physical appearance, flavour and shelf life all of which are important for the success of chocolates. Whereas the revenues of the Real Chocolate Company are on upward trend and the firm has recorded a steady and rapid expansion in recent times, its sales form less than 6 percent of the total gourmet market sales.
The company is a market follower, trailing far behind competitors such as Godiva Chocolatier (annual sales = $825 million), Russell Stover, (annual sales = $450 million) and See’s Candies (annual sales = $325 million). Recent years have seen an increase in its net margins, indicating that profitability has been increasing over the last three years. Other positive indicators include higher return on assets (ROA), return on equity (ROE) and leverage. This implies that the company has efficiently used resources at its disposal and that shareholders continue to get good returns for their investment.
Over the same period, the company has had marginal declines in its current and quick ratios and total asset turnover. This means that Real Chocolate Company is not very liquid and may find it hard to settle current liabilities when they become due (see Appendix B). Problem Diagnosis Several problems facing the Real Chocolate Company were identified in the preceding section. First the company is faced with the prospect of slow sales and the unavailability of credit to fund expansion due to the poor economic climate in the United States. Secondly, the company has a small revenue base as it primarily concentrates on the small gourmet market.
This focus strategy may backfire as other broad market leaders can quite easily come up with products to serve sub-segments of this market, compete against the company on price and grab a substantial market share. Besides, it is entirely possible for other more efficient producers to slice out some sub-segment which they are able to serve better. A case in point is the organic chocolate market where many big players are getting in. To conform to current expectations, the company is also faced with the demands for production of fair trade and socially responsible products.
Additionally, the company has to contend with stiff competition from other more efficient producers of chocolate. Another problem facing the Real Chocolate Company is the relatively weak performance of its retail stores, with more than 90 percent of its revenues accruing from franchise fees, royalties and franchisee sales. Finally, the Real Chocolate Company is faced with the problem of high threat of substitutes. In order to maintain its market share and achieve its strategic objective of being a market leader, the company needs to find solutions to these problems.
What can the company do to enhance its sales with the current global economic crisis? How can the company fund its future expansion? How can the company increase its revenue and produce fair trade and socially responsible products? What strategies can the company use in order to overcome the stiff competition and sustain its market share? Finally, what options does the company have in its quest to ensure that substitute products do not hurt its bottom-line? The following section explores the different strategic options available to the company.