Adv 388k by the sea biscuit case analysis group 6

Case Analysis: By-the-Sea Biscuit Company ADV 388K Integrated Communication Management [Group 6]

Zachary Bodner (bodnerzd) Alex Hart (amh6375) Xing Liu (xl5525) Darya Procopovich (dp28353) Emma Szyller (es34345) The University of Texas at Austin

By-the-Sea Biscuit Company Group 6 Case Analysis

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Situation Analysis Macro Environment Company Analysis Paul Finney and Pat Jobe, long-time friends and future business partners, are proposing the launch of a frozen biscuit business venture in Clearwater Seafood plant in North Sydney, Nova Scotia. Cape Breton Innovation and Research Council (CBIRC), a private corporation, had recently assumed ownership of the plant and wanted to expand and develop local business by accessing new technology, new ideas, new products, and new markets. In August 2006, Finney and Jobe presented a business proposal to CBIRC and the organization was very enthusiastic and believed the idea had potential. Finney and Jobe, although convinced of the merits of the product concept, still had some questions that needed answering before they could make a final assessment on the viability of the business. Both had full-time jobs and the decision to leave to pursue this business was not a decision that could be made lightly.

Demographic Environment The population for the three target regions are: o Atlantic Canada (particularly New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland): 2,285,729 o New York State: 18,976,457 o New England (six New England States): 13,922,517 Within these populations there is a shifting trend toward the single-person household and a growth in the number of on-the-go consumers. Thus, two potential target demographics are the single-moms who need a healthy, easy to make alternative and those looking for a quick, on-thego breakfast alternative.

Economic Environment From an economic standpoint, the fluctuating currency exchange rates have an important impact on By-the-Sea Biscuit Company’s ability to sell to the U.S. markets. Recently, the Canadian dollar was gaining strength and as of January 2007, the U.S. dollar was valued at $1.16 CAD. Technological Environment The traditional bread baking method results in a short product shelf life, however, by 2006, natural additives allowed manufacturers to produce frozen dough that was comparable in quality to homemade dough. Critical to this production process is the need to employ a rapid freeze method to minimize yeast fermentation during dough preparation.

Competitive Environment According to a report by Statistics Canada, there are 140 companies listed in a directory called “Company Directory for Commercial Bakeries and Frozen Bakery Product Manufacturing Facilities.” Of these 140, only 23 were involved in frozen or partially baked manufacturing. Four of these were located in New Brunswick, and 1 in Nova Scotia. In the U.S., Canada Bread Company Limited is the chief competitor, with 50% of the U.S. market share. Finney and Jobe identified no current competition for frozen biscuit production in Atlantic Canada.

By-the-Sea Biscuit Company Group 6 Case Analysis

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Product Environment From 1998 to 2006, the retail value for bakery products produced in Canada had increased by 44%. In 2004, the Retail/Wholesale Biscuit and Bakery Market was estimated at $6.3 billion with the average Canadian household spending about $536 annually in this category. In 2005, the total value of bakery exports to the U.S. was $545 million. This figure did not include frozen or partially baked products.

In the U.S., a 1997 report stated that, “biscuit dough accounts for 41% of refrigerated/frozen dough product sales. Biscuit dough sales are expected to have an increase of 6.5% annually, with forecasted sales of $3.2 billion by the year 2000.� In contrast - Finney and Jobe did not find much data (besides anecdotal) to accurately forecast this level of demand in Canada.

The research showed that the average per capita expenditure in the product class is approximately $14.33 for the U.S. and $12.20 for Canada (about 15% less than that of U.S. customers).

According to their research, Canada has many comparative advantages over the U.S. in terms of natural commodities. This includes an excess supply of high quality wheat, lower costs of sugar, lower costs of energy and competitive overhead costs.

Sociocultural Environment Throughout their research, Finney and Job found that many consumers were interested in high quality products that could be prepared quickly, and that on-the-go consumers were looking for portability in bakery products that could match their life and work styles. They also found that many consumers were moving toward natural and healthy food options. Research showed that by 2001, demand for organic food in Canada had experienced an annual growth rate of 20% and that the majority of Canadians are willing to spend more for chemical-free food, and 25% would spend up to 50% more.

Microenvironment Sales/pricing A leading U.S. competing branded product wholesales for approximately $25 per case of 216 biscuits (exclusive of shipping). For this reason, By-the-Sea Biscuit Company decided to price the traditional biscuit variety at $13.50 per case in order to be competitive in its pricing and leave room for retailers to cover the additional shipping costs from Canada to the U.S. Finney and Jobe also discussed the need to have different pricing levels for wholesalers and smaller retailers; however, they expected the overall average to be near the $13.50 price level. A bag containing a dozen biscuits typically retailed for $2.99 to the final consumer.

Cost See Appendix A for fixed costs.

By-the-Sea Biscuit Company Group 6 Case Analysis

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Market Due to the proximity, competitive factors, and growing in-store bakery segments, the target market for By-the-Sea Biscuit would be the Atlantic Canada region and the Northeastern United States (New England states and New York State).

In Canada, the targeted B2B outlets are the 3 major wholesale grocery chains - Atlantic Wholesalers, Sobey’s, and Co-op Atlantic. Of these, Co-op Atlantic is the most attractive because of their focus on and mandated commitment to local products. They are more likely to support local suppliers (By-the-Sea Biscuits) and they currently don’t have a frozen biscuit supplier.

In The U.S., Price Chopper (112 stores) seems to be the most attractive option. The reasons for this are proximity, and the fact that By-the-Sea Biscuits will be able to compete on price and possibly differentiate with a healthy biscuit alternative.

By-the-Sea Biscuit Company aims to capture 50% of the frozen biscuit market within these two grocery retailers. They feel this is possible due to lack of competition and their ability to price competitively.

We know that a bag containing a dozen biscuits typically retailed for $2.99 to the final consumer.

That means that the price of a case of 216 biscuits is $53.82 for the final consumer: Table A: Pricing for Traditional Price for final customer (1 bag)

$2.99

Number of biscuits in a case

216

Number of biscuits in a bag

12

Number of bags in a case

18

Price for final customer (1 case)

$53.82

According to U.S. Census and Statistic Canada website and Finney’s estimation about average per capita expenditures in the product class in the US and in Canada, we can estimate the market size for Atlantic Canada, New England states and New York:

By-the-Sea Biscuit Company Group 6 Case Analysis

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Table B: Market Share Market US

Population

Expenditure per capita

Market size, $ Market size, cases

299,344,150

$14.33

$4,289,601,670

79,702,744

13,922,517

$14.33

$199,509,669

3,706,980

Worcester, MA

172,648

$14.33

$2,474,046

45,969

Burlington, VT

608,827

$14.33

$8,724,491

162,105

18,976,457

$14.33

$271,932,629

5,052,632

95,658

$14.33

$1,370,779

25,470

299,896

$14.33

$4,297,510

79,850

29,871

$14.33

$428,051

7,953

147,306

$14.33

$2,110,895

39,221

32,623,490

$12.20

$398,006,578

7,395,143

2,285,729

$12.20

$27,885,894

518,133

New England States

New York State Albany, NY Utica Rome, NY Poughkeepsie, NY Syracuse, NY Canada Atlantic Canada

By-the-Sea Biscuit Company plans to distribute its production through Co-op Atlantic (in Canada) and Price Chopper (in the US). Co-op Atlantic is a small retailer that has 20 percent of the market, and the market share held by Price Chopper varies 6.7 percent in Poughkeepsie, NY to 36 percent in Albany, NY. The market size that By-the-Sea Biscuit Company can reach through these retailers is calculated in the Table C. Table C: Market Size by Retailer Retailer Co-op Atlantic

Market share 20%

Market size, total $27,885,894

Price Chopper

Market size of the retailer, $

Market size of the retailer, cases

$5,577,178.76

103,627

$3,026,308.92

56,230

New England States Worcester, MA

19.50%

$2,474,045.84

$482,438.94

8,964

Burlington, VT

11.60%

$8,724,490.91

$1,012,040.95

18,804

36%

$1,370,779.14

$493,480.49

9,169

17.60%

$4,297,509.68

$756,361.70

14,054

6.70%

$428,051.43

$28,679.45

533

12%

$2,110,894.98

$253,307.40

4,707

New York State Albany, NY Utica Rome, NY Poughkeepsie, NY Syracuse, NY

By-the-Sea Biscuit Company Group 6 Case Analysis

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SWOT Analysis Strengths Frozen Dough: • Extended shelf-life • Natural additives to frozen dough make it comparable to homemade dough.

• Rapid freeze method to minimize fermentation during dough preparation.

• Convenient breakfast alternative (available in such locations as gas stations and fast-food franchises)

Weaknesses Pricing: • Pricing for the “healthy omega 3” flaxenriched biscuit has yet to be determined and will likely be higher than the traditional biscuit price.

• Different pricing levels for wholesalers and smaller retailers exact differences have yet to be determined.

Distribution: • No confirmation on direct selling to Co-op Atlantic and price chopper • Higher shipping costs from Canada.

Could deter U.S. companies from purchasing By-the-Sea Biscuit’s products because the shipping cost is on the buyer.

By-the-Sea Biscuit Product: • Both Finney and Jobe have backgrounds that are well-suited to this industry; they do not need to hire any additional managers.

• Convenience • Freshness • The company can differentiate itself Promotional Mix: from competitors by offering an • Domestic and international food trade Omega-3 flax-enriched biscuit product shows are costly. Can only afford two. that would be appealing to the health• No immediate plans for any consumerconscious consumer. based advertising.

Pricing: • The biscuits will be priced very competitively to the product offering in the U.S. • $13.50 per case (traditional biscuit) • $2.99 retail price for 12-biscuit bag Distribution: • Refrigerated ship containers are costeffective alternative distribution for US Eastern seaboard destinations.

Promotional Mix: • Direct solicitation to potential buyers • PLMA show has significant

Production: • After equipment purchase, it will take 4-5 months to assemble the equipment before production can begin.

• The freezing process could slow production.

• Supplying a national chain is beyond their capabilities, at least at the onset.

By-the-Sea Biscuit Company Group 6 Case Analysis

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7

foodservice and retail appeal for buyers in the growing frozen food industry.

Re-design website and promotion to create leads.

Include “shipping estimator” so potential buyers can accurately evaluate the cost.

Operations Plan/Facility: • Labor costs would be less in Cape Breton.

• They do not foresee any special requirements or major modifications to the existing facility to accommodate their needs; all required freezing equipment is in place.

• Operation doesn’t require the entire space (room for future expansion).

• Education requirements for staff would be minimal and training would be provided.

• Rental costs at the CBIRC facility is significantly less than other locations.

Opportunities

Threats

Market Opportunity (retail/wholesale biscuit & bakery): • Canada has a comparative advantage in this industry over the U.S. due to the excess supply of high quality wheat, lower sugar prices, lower energy costs, and competitive overhead costs.

• Between 1998 and 2006, the retail value for bakery products produced in Canada had increased by 43.8 percent.

• No other competitors in the Canadian frozen biscuit market.

Market: • US frozen dough market is more developed.

• Lack of data and relevant sources and some outdated data.

Market Trends: • There is no evidence of another manufacturer of frozen biscuit dough that has differentiated its product by

Competition: • Four businesses located in New Brunswick and Nova Scotia • Canadian firms, such as Canada Bread

Social Trends: • The baked goods industry is susceptible to different dietary trends.

For example: analysts attributed “the slight decline between 2001 and 2003,” to the Atkins craze and carbreduction diets.

By-the-Sea Biscuit Company Group 6 Case Analysis

offering a “healthy” alternative.

Company, were among the first in Based off of the trend toward healthy North America to develop quality and organic, there is an opportunity for frozen dough, and have established a differentiation by adding such a strong presence in the U.S. market for product. their frozen products • Based off of the on-the-go individual packaging trend, there is also Global Factors: opportunity for differentiation by • The exchange rates between USD and offering such a product.

CAD can fluctuate and be unpredictable and could have an Target Markets: impact on By-the-Sea Biscuits ability • The total value of bakery exports to to sell to U.S. markets. the U.S. in 2005 was $545 million (not including exports of frozen or parbaked products).

• According to research by Agri-Food Canada, there were many growth opportunities in North America’s biscuit and bakery market. In fact, the organization went so far as to state that Canada was “the location of choice for manufacturers of biscuits and baked products for the North American market.”

• Similarly, a report by the Alberta Department of Agriculture, Food, and Rural Development stated, “the opportunities for greatest expansion in the bread and dough market will be in wheat-based, ready-to-eat baked or par-baked frozen dough mixes.”

• Co-op does not have a supply of frozen bread products.

•

Global Factors: • The Canadian dollar was gaining strength and as of January 2007, the U.S. dollar was valued at $1.16 CAD.

8

By-the-Sea Biscuit Company Group 6 Case Analysis

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Problem Statement Find the most efficient way to reach the breakeven point and develop the most profitable marketing and production plan to differentiate By-the-Sea Biscuit Company’s product offering and make this new business venture feasible.

Critical Factors 1.

2.

3.

4.

5.

Distribution Demand – establish demand for organic food offering in each target region.

Competition – there are different degrees of competition in each target region.

Market Share Price – two prices based on the two different product offering: traditional and Omega 3enriched.

6. Organic/healthy food trend 7. Target Audience

Solution 1 Atlantic Canada Only By spending an additional $10,000 on research development for the recipe of the flax dough variety over the first 6 months of business, the company will be able to produce Healthy Omega 3 dough. Demand on organic food in Canada is growing, and 25 percent of Canadians would spend up to 50 percent more on the organic food. Based on this, we can assume that starting in the seventh month the company will produce Healthy Omega 3 dough and sell it to 25 percent of customers instead of the traditional dough.

Place: By-the-Sea Biscuit Company starts with selling frozen dough only in Atlantic Canada, and will not try to enter the US market. The company will distribute its unbranded product through Co-op Atlantic, which has 110 shops and is focused on local producers. Due to the high production ability of the Clearwater facility (By-the-Sea Biscuit Company can produce 15,050 cases per month, which equates to 120,400 cases during the first year over 8 months of operations, working 5-day weeks, at 50-60% capacity) and the relatively low market share that can be reached through Co-op Atlantic (20% - can distribute only 103,627 cases per year; see Table C above), we suggest that By-the-Sea Biscuit Company should also try to gain 50% of the entire Atlantic Canada market by distributing to two other Canadian retailers: Atlantic Wholesalers and Sobeys. Within each of these retailers, they will focus distribution on both grocery stores with an in-store bakery and those without.

Product • Production overview: By-the-Sea’s marketing opportunities exceed company’s production capabilities, which equals 120,400 cases per month. Because income per case

By-the-Sea Biscuit Company Group 6 Case Analysis

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for Healthy Omega 3 would be higher for the traditional option, it is reasonable to fulfill demand on the organic dough and produce less of the traditional option. o Months 1-4: no production (facility preparations) ยง Additionally, during the first 6 months By-the-Sea Biscuit Company will need to develop the recipe for the Omega 3 flax-enriched biscuit. o Months 5-6: produce 100% traditional biscuits o Months 7-12: produce 75% traditional biscuits and 25% Omega 3 flax-enriched biscuits.

Table D: Market Size for Atlantic Canada Month

Market share, %

Market size, cases

Traditional %

Number of cases

Healthy Omega 3 Market size

%

Number of cases

Market size

1

0

0

0%

0

$0 0%

0

$0

2

0

0

0%

0

$0 0%

0

$0

3

0

0

0%

0

$0 0%

0

$0

4

0

0

0%

0

$0 0%

0

$0

5

0.1

4,318 100%

4,318

$232,382 0%

0

$0

6

0.2

8,636 100%

8,636

$464,765 0%

0

$0

7

0.3

12,953 75%

9,715

$522,861 25%

3,238

$261,430

8

0.4

17,271 75%

12,953

$697,147 25%

4,318

$348,574

9

0.5

21,589 75%

16,192

$871,434 25%

5,397

$435,717

10

0.5

21,589 75%

16,192

$871,434 25%

5,397

$435,717

11

0.5

21,589 75%

16,192

$871,434 25%

5,397

$435,717

12

0.5

21,589 75%

16,192

$871,434 25%

5,397

$435,717

Total

129,533

100,388

$5,402,892

29,145 $2,352,872

Dough production will begin at month 5, when By-the-Sea Biscuit will meet 10% of the market.

Thus, during the first three months of production (months 5-7) By-the-Sea Biscuit will be producing more than they can distribute, but due to high shelf life, they will be able to store the product and distribute once demand meets production capacity. To ensure quality of the product, they will distribute the products that have been in storage the longest first.

By-the-Sea Biscuit Company Group 6 Case Analysis

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Table E: Production Plan (solution 1) Traditional

Month

Total:

Number of cases

Healthy Omega 3

Revenue

Income

Number of cases

Revenue

Income

1

0

$0

$0

0

$0

$0

2

0

$0

$0

0

$0

$0

3

0

$0

$0

0

$0

$0

4

0

$0

$0

0

$0

$0

5

15,050

$203,175

$59,699

0

$0

$0

6

15,050

$203,175

$59,699

0

$0

$0

7

11,812

$159,462

$46,854

3,238

$65,570

$29,662

8

10,732

$144,885

$42,571

4,318

$87,435

$39,554

9

9,653

$130,313

$38,289

5,397

$109,294

$49,442

10

9,653

$130,313

$38,289

5,397

$109,294

$49,442

11

9,653

$130,313

$38,289

5,397

$109,294

$49,442

12

9,653

$130,313

$38,289

5,397

$109,294

$49,442

91,255

$1,231,948

$361,981

29,145

$590,179

$266,985

Total Revenue: $1,822,126 Total Income: $628,965 •

Positioning: o Position the traditional biscuits as pre-meal and holiday biscuits in Atlantic Wholesalers and Sobey’s, the two retailers that do not specialize in healthy local products. o Once the Omega-3 flax-enriched biscuit recipe is developed (month 6), position within Co-op Atlantic retail stores as a quick healthy option for single-family homes and mom’s on-the-go.

Price: •

•

The traditional biscuit variety will be priced to wholesalers at $13.50 per case (as Jobe proposed). The traditional biscuits will be priced to consumers at $2.99 per dozen biscuits.

The Omega 3 flax-enriched biscuit variety will be priced to wholesalers at $20.25 per case (50% price increase compared to traditional biscuit variety). The healthy Omega 3 biscuits will be priced to consumers at $4.49 per dozen biscuits (50% price increase, which is supported by the claim in the case study that, “25 percent [of Canadians] would spend up to 50 percent more [on chemical-free foods].”)

By-the-Sea Biscuit Company Group 6 Case Analysis

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Table F: Pricing for Omega-3 flax enriched Price for final customer (1 bag) $4.49 Number of biscuits in a case

216

Number of biscuits in a bag

12

Number of bags in a case

18

Price for final customer (1 case)

$80.73

Customers would pay up to 50 percent more for the organic food, therefore, the company may rise the price for a case on 50 percent compare to the traditional dough. Based on the assumption that production cost would increase only on 20%, the production cost would be $9.34.

Table G: Production Cost and Breakeven Points Production costs Traditional

Healthy Omega 3

Total variable cost (per case)

$7.78

$9.34

Fixed costs

$211,100

Unit cost

$9.53

$11.09

Price (per case)

$13.50

$20.25

Break-even point

36,906

19,342

Income (per case)

$3.97

$9.16

Due to the combined production of traditional and healthy biscuits, the overall breakeven point will be reached in the third month of production (7th month overall).

Promotion: • Advertising/Food Trade Shows: participate in two domestic (sponsored by the Canadian Government) trade shows in the first year of operation to gain leads.

• Additionally, the company can employ direct solicitation to the wholesaler/retailer, where product samples and pricing will be provided to potential buyers, thus assuring them of the quality of the product.

• There is no need to use a branded product approach for By-the-Sea Biscuit Company, but if they eventually decide to adopt such an approach then the promotional mix will have to be altered slightly.

Pros: 1. The cheaper local shipping costs will result in a higher margin for the grocery retail outlet.

2. As of now, there are no competitors in the market, so the price per case could potentially be raised if demand is significant enough.

3. Less pressure to differentiate the product compared to competitors due to the lack of competition.

4. There is potential for a “Buy Local” advertising campaign.

By-the-Sea Biscuit Company Group 6 Case Analysis

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Cons: 1. No proven demand.

2. Potential lost opportunity by not immediately entering the U.S. market.

Solution 2 Atlantic Canada and New York and New England regions Place: By-the-Sea Biscuit Company will start selling frozen dough only in Atlantic Canada as well as the two U.S. regions of New York and New England. In Atlantic Canada, By-the-Sea Biscuit Company will distribute through Co-op Atlantic, Atlantic Wholesalers and Sobey’s. In the chosen U.S. markets, By-the-Sea Biscuit Company will distribute through Price Chopper.

Within each of these retailers, they will focus distribution on both grocery stores with an in-store bakery and those without. In order to ensure that shipping costs for U.S. retailers are not a deterrent for purchasing By-the-Sea Biscuit Company’s products, By-the-Sea Biscuit Company will utilize refrigerated shipping containers to export their products as a more cost-effective alternative than road or rail.

Product • Production: o Months 1-4: no production (facility preparations) § additionally, during the first 6 months develop the recipe for the Omega 3 flax-enriched biscuit. o Months 5-6: produce 100% traditional biscuits o Months 7-12: To fulfill demand on the organic dough in the U.S. and Canada, the overall ratio of production will be 70% for traditional and 30% for healthy. Bythe-Sea Biscuit Company will distribute according the below demand: § For Canadian market: 75% traditional biscuits and 25% omega-enriched flax seed biscuits. § For U.S. markets: 50% traditional biscuits and 50% Omega 3 healthy biscuits. § The demand on the frozen dough in Canada is mentioned in the Table D. § The demand on the frozen dough in New England and New York in shown in the Table H below:

By-the-Sea Biscuit Company Group 6 Case Analysis

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Table H: Market Size for New England and New York Market Market Month share, % size, cases Percentage of production

Traditional

Healthy Omega 3

Number of cases

Market size

Ratio of production

Number of cases

Market size

1

0

0

0%

0

$0

0%

0

$0

2

0

0

0%

0

$0

0%

0

$0

3

0

0

0%

0

$0

0%

0

$0

4

0

0

0%

0

$0

0%

0

$0

5

0.1

469

100%

469

$25,219

0%

0

$0

6

0.2

937

100%

937

$50,438

0%

0

$0

7

0.3

1,406

50%

703

$37,829

50%

703

$56,743

8

0.4

1,874

50%

937

$50,438

50%

937

$75,658

9

0.5

2,343

50%

1,171

$63,048

50%

1,171

$94,572

10

0.5

2,343

50%

1,171

$63,048

50%

1,171

$94,572

11

0.5

2,343

50%

1,171

$63,048

50%

1,171

$94,572

12

0.5

2,343

50%

1,171

$63,048

50%

1,171

$94,572

7,732

$416,117

6,326

$510,690

Total

14,058

Table I: Production Plan (solution 2) Traditional

Month

Total:

Number of cases

Healthy Omega 3

Revenue

Income

Number of cases

Revenue

Income

1

0

$0

$0

0

$0

$0

2

0

$0

$0

0

$0

$0

3

0

$0

$0

0

$0

$0

4

0

$0

$0

0

$0

$0

5

15,050

$203,175

$59,699

0

$0

$0

6

15,050

$203,175

$59,699

0

$0

$0

7

11,109

$149,972

$44,066

3,941

$79,805

$36,102

8

9,795

$132,233

$38,854

5,255

$106,414

$48,139

9

8,481

$114,494

$33,641

6,569

$133,022

$60,176

10

8,481

$114,494

$33,641

6,569

$133,022

$60,176

11

8,481

$114,494

$33,641

6,569

$133,022

$60,176

12

8,481

$114,494

$33,641

6,569

$133,022

$60,176

84,928

$1,146,528

$336,882

35,472

$718,308

$324,948

By-the-Sea Biscuit Company Group 6 Case Analysis

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Total Revenue: $1,864,836 Total Income: $661,830

Positioning: • Canadian market: o Position the traditional biscuits as pre-dinner and holiday biscuits in Atlantic Wholesalers and Sobey’s, the two retailers that do not specialize in healthy organic products. o Position the Omega 3 flax-enriched biscuits in Co-op Atlantic as a healthy, local product; should appeal to those who buy local and are looking for organic-type options.

• New York and New England markets: o Position the traditional biscuits as an on-the-go alternative to breakfast because there is a noticeable demand for such products in the U.S. o Position the Omega 3 flax-enriched biscuits as a healthy pre-meal or holiday option for individuals and families looking to take a slightly healthy alternative on their normal biscuit consumption. Because the U.S. biscuit market is already highly saturated, differentiating these biscuits as a healthy alternative to the standard pre-meal biscuit will give the product a unique selling proposition.

Promotion • Advertising/food shows: direct solicitation to the wholesaler/retailer, along with product samples and pricing information.

• Website design that can creates leads for the company; include shipping cost calculator so that potential buyers can accurately estimate their potential margins.

• Attend two food trade shows: o The Private Label Manufacturers’ Association (PLMA) in Chicago has a significant foodservice and retail appeal for buyers in the growing frozen food manufacturing. Canadian exporters can use the PLMA to demonstrate their strengths in frozen food manufacturing. o Another event, potentially the Canadian Pavilion.

• There is no need to use a branded product approach for By-the-Sea Biscuit Company, but if they eventually decide to adopt such an approach then the promotional mix will have to be altered slightly.

Pros: 1. By-the-Sea Biscuit Company’s products are priced very competitively compared to the other product offerings in the U.S. 2. Many regional U.S. stores are geographically close to Canada, and in-store bakery segment continues to grow.

3. Canadian dollar is cheaper than US dollar, so expenses of the By-the-Sea will be lower than competitors’ expenses.

4. Differentiate from the competition in the U.S. by providing a healthy biscuit alternative to traditional biscuits.

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5. Although consumer behavior information was not readily available in the case study, it stated that informed market observations indicated a very strong movement to position biscuits as convenient breakfast alternatives, thus positioning the traditional biscuit product in this manner will help different By-the-Sea Biscuit Company’s product offering from already established brands’ products.

6. Despite the higher shipping cost burden on the retail buyer, By-the-Sea Biscuit Company can use refrigerated shipping containers as a more cost-effective alternative for exporting to the U.S. Cons: 1. Distribution from Canada to the U.S. would be more expensive compared to the shipping within Canada, may deter U.S. retailers from purchasing By-the-Sea Biscuit Company’s products because they could potentially find alternatives that are located in more convenient places.

2. Competition from existing, established firms such as Canada Bread Company in the U.S. Thus, By-the-Sea Biscuit Company must find a way to differentiate their product offering from those already in the market due to the higher level of market saturation.

3. We can assume that the exchange rate between the U.S. and Canada will play a role in the calculations included in this suggestion, however, they are not addressed here because it only impacts the price that U.S. buyers will pay.

Recommendation Based on the above calculations, we recommend that By-the-Sea Biscuit Company select solution 2: to enter both the U.S.’s New England and New York markets and the Atlantic Canada market simultaneously. By entering both markets, the company will sell more of the healthy dough (which is priced higher and thus results in higher profits) and will be able to push more product through in future years. In the second year of operations once production is at full force, we will be already established in the U.S. and can start to connect with more retailers and push more product into the U.S. Revenue difference Solution 2 and Solution 1: $1,864,836 - $1,822,126 = $42,710 Income difference Solution 2 and Solution 1: $661,830 - $628,965 = $32,864 Due to the fact that the U.S. biscuit market is already highly saturated, By-the-Sea Biscuit Company will differentiate its product proposition by offering the product at a significantly lower price point than its competitors and by positioning the traditional biscuits as single-serving on-the-go product and the Omega-3 biscuits as a healthy alternative to the standard biscuit offering. In Canada, By-the-Sea Biscuit Company doesn’t have to worry about competition so it can offer a wider range of products. Specifically, a healthy option that will be positioned within the Co-op Atlantic stores and a traditional option within the other two retailers.

In the first year of business, it is important to establish a reputation in the industry, thus, By-theSea Biscuit Company will attend two trade shows and should plan to contact other retailers

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through direct solicitation in order to create business contacts for the second year of operations, at which point By-the-Sea Biscuit Company will have higher production rates. In the U.S. specifically, the development of a website is also important so that potential buyers can use a “shipping estimator� to calculate their potential margins when selling to consumers.

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Appendix A Based on these calculations we decided that “option 3” is the most economically feasible. For all calculations in this analysis we are using “option 3” as the main fixed cost assumption.

Fixed costs: Equipment (new) Depreciation (10%) Equipment (used) Depreciation (10%) Bakery line 1 Depreciation (10%) Bakery line 2 Depreciation (10%) Building (rent) annually Office Equipment Salaries (managers) Mandatory Employer Related Costs

Amount

$158,000 Option 1 $15,800 /year $100,000 Option 2 $10,000 /year $74,000 Option 3 $7,400 /year $80,000 Option 4 $8,000 /year $90,000 (10/sq.ft * 9000sq.ft) $2,400 /year, ($200*12) $40,000 $4,800 12%

Salaries (managers) with insurance

$44,800

Raw materials

$30,000

Research on healthy options

$10,000

Marketing and Travel Expense

$19,000

Monthly interest payments

Note

$7,500 /year, $625*12

Total fixed costs (option 1)

219,500 /year

Total fixed costs (option 2)

213,700 /year

Total fixed costs (option 3)

211,100 /year

Total fixed costs (option 4)

211,700 /year

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Appendix B Income Statement Company: By-the-Sea Biscuit Company Revenue Sales revenue (Quantity)

Income Statement 2007

2006

$1,864,836

(Less sales returns and allowances)

-

Service revenue

-

Interest revenue

-

Other revenue

-

Total Revenues

$1,864,836

-

Expenses Marketing and Travel

$19,000

Bad debt

-

Commissions

-

Cost of goods sold Depreciation Employee benefits

$991,906 $7,400 -

Insurance

$4,800

Interest expense

$7,500

Maintenance and repairs Office supplies Payroll taxes

$2,400 -

Rent and Electricity

$90,000

Research and development

$40,000

Salaries and wages

$40,000

Software

-

Utilities

-

Web hosting and domains

-

Other

-

Total Expenses Net Income Before Taxes

$1,203,006

-

$661,830

-

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Income tax expense Income from Continuing Operations

$661,830

-

Below-the-Line Items Income from discontinued operations

-

Effect of accounting changes

-

Extraordinary items

-

Net Income

$661,830

-