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Consultant Report 1995

Ben & Jerrys Homemade Inc.Case Study: Ben & Jerrys Homemade Inc.: "Yo! Im your CEO!"
Consultant Report
1 Contents
1 Contents 2
2 Executive Summary 3
3 Introduction 3
4
Situation
4.1 MARKET Analysis
4.2
Company
4.3
Strengths
4.4
Weaknesses
4.5
Summary:
Where
the
company
4.6 OPPORTUNITIES 7
4.7
Threats
4.8 Summary: Where the company could go. 8

Analysis
analysis

is

right

now.

3
3
4
5
6
7
7

5 Proposed Strategy 8
6
Strategy
implementation
6.1
Reshaping
the
internal
structure
of
the
company
6.2
Restructuring
of
distribution;
channels,
distributors
6.3
Concentrating
on
key
markets
6.4 International expansion 12

9
9
11
11

7 Future Outlook 12
8 Recommendations to the Investor 12
9
9.1
9.2
9.3
9.4
9.5
9.6 Gantt chart 16

Appendix
S.W.O.T.
P.E.S.T.-L.I.C.E.
Five
Gearing

Forces
Ratio
Sensitivity

Analysis
Analysis
Analysis
Calculation
Analysis

14
14
14
15
15
15

10 List of Reference 16

2 Executive Summary
Ben & Jerrys Homemade Inc. (B&J) is one of the two major players in the superpremium icecream MARKET in the United States of America. B&J had been very successful throughout the 1980s;
controlled by Ben Cohen and Jerry Greenfield. It currently holds 42% of its market. It benefits from its high

product quality, social image and MARKETING STRATEGY , high employee satisfaction, and overall
good financial situation while it suffers from high costs of sale, poor policies towards distributors and
suppliers,
and
lack
of
international
focus.
While the company made a net loss of $1.9 million in 1994, this was due to an asset write-down of $6.8
million and the introduction of a new line of ice-cream which both can be regarded as nonrecurring
events. Debt ratio and liquidity indicate that this financial crisis is temporary. Even with a slowing
American economy and with it reduced ice-cream sales, B&J, with its highly differentiated product with
luxury
character
is
not
as
affected
by
the
downturn.
However, the company faces the risk of falling behind strong competition. In order to strengthen its
competitive position it will have to drive down the cost of sales, expand internationally, and expand
domestically.
The purpose of this strategic plan is to identify and suggest the OPTIMAL solution for B&J to gain a
strong competitive position in terms of market share and profitability in its BUSINESS area. The study
team believes that B&J should adopt ways to (1) defend its current market position, (2) expand total
domestic as well as international market demand, and (3) at the same time drive down production costs.
3 Introduction
This report begins with our proposed strategy analysis for B&J followed by an analysis of the internal and
external environment. Next, the reasons for selecting this strategy are presented. The implementation
plan incorporates information about key resources requirements as well as the likely outcomes, both
financial and non-financial, of this proposal. In section 7, projected outcomes of those strategies are
presented. Finally, the study group will give some recommendations to the investor on pre- and postinvestment strategies.
4
4.1 Market Analysis

Situation

Analysis

Health conscious consumers: As health awareness continues to rise throughout the population, it
has the potential to slow down sales of the high-fat super premium flavours.

Seasonal demand: Ice cream has always seen as a summer treat. In the summer, ice-cream
sales are up to 30% higher than in the winter1.

Declining demand: The overall weakening economy in the United States has already had an
impact on sales in the super premium ice-cream market.

Price competition: Price competition has become more intense 2.


4.2 Company analysis
B&J is operating in the super premium ice-cream manufacturing business. The US super premium icecream business is dominated by the two main competitors. The market therefore has the characteristics
of a duopoly.
A variety of factors define the companys current competitive position in the marketplace. Firstly, B&J finds
itself in a highly competitive, low growth market. Haagen-Dazs - the companys biggest competitor - and
B&J have been constantly fighting towards leadership in the super premium ice-cream market. Chart 4.21 BELOW shows the latest position of B&J.
Chart 4.2-1

Chart 4.2-2 shows the increase in sales vs. the increase in cost of sales. While the increase in sales in
1994 was mainly due to the success of the newly introduced "Smooth, No Chunks" line and a 3.7% price
increase of pints, the increase in cost of sales was also caused by the fact that the company has about
40% of its manufacturing supplied by Edys Grand Ice-Cream. The "out-of-house" production means a
significant loss of control over the production process, especially over cost management. Hopefully this
situation will improve with the start of production at the new St. Albans production plant.
Chart 4.2-2
The company finds itself in a complex system of strengths and weaknesses and external factors, which
results in a variety of OPPORTUNITIES and threats for the company (for detailed information, see
appendix 10.1).
4.3
4.3.1 Reputation for quality

Strengths

The high quality of the product is certainly a crucial factor for the success of the proposed strategy. The
stress on the genuine origin of the ingredients and the companys name "Homemade" creates and
nourishes this impression in the eyes of the customer. The companys strong R&D department constantly
develops new innovative flavours. Even though the barrier to imitation is extremely low 3, this helps to
create the cutting edge to stay ahead of the competition.
4.3.2 Social MARKETING
The founders beliefs in social responsibility has not only earned them the brand loyalty of the socially
aware `baby-boomer generation, it also has saved the company a lot of money by providing FREE
marketing through media coverage of social events 4.
4.3.3 Employee satisfaction
The companys devotion to employee satisfaction 5 is one of the causes for the companys low employee
turnover rate of 12%. The low turnover rate has impact on learning effects, training costs, and employee
commitment. Longer employed workers are more likely to understand the production process and suggest
improvements. The lower turnover rate also results in a better reputation of the company in terms of
working environment. This gives the company the opportunity to choose from a wider range
of APPLICANTS .
4.3.4 Low Gearing ratio
The low ratio of debts over total assets of 27% in 1994 gives B&J credibility, which is a good foundation
for further INVESTMENTS and expansion (see appendix 10.4).
4.4 Weaknesses
4.4.1 High cost structure
The high cost structure at B&J is mainly due to labour intensive production, above average wages 6and
their supplier policy. How far the costs can be associated with labour or high administration costs is not
apparent from the data provided but worth investigating.
In addition, the company relies on one exclusive distributor 7. This not only makes it very vulnerable in
case of loss of this distributor, the company also loses control over its distribution channels. As the main
competitors put more pressure on prices, the importance of cost control will rise.

4.4.2 Low shareholder value


This is caused by the lack of dividends. As 48% of the stocks are held collectively by the "Principal
Stockholders"8 this might not be a major concern but without the potential for a DECENT RETURN
on INVESTMENT , potential investors will be reluctant to do so. The lack of investment into the company
might prove as a disadvantage, especially in regard to the main competitor, whose resources are larger.
4.4.3 Lack of international experience
Although efforts have been made to expand BUSINESS activity into the United Kingdom, Israel, and
Russia, the company does not make use of its full international potential 9. The attempt to MARKET the
range of B&J ice cream through restaurants is one step in that direction.
4.5 Summary: The current position of the company.
Even though the company made its first yearly loss in 1994, it can still be considered healthy 10. The loss
in 1994 is in the opinion of the study group mainly due to a few "one-off" factors. A large portion of the
debt can be accounted for by the asset write-down of $6.8 million. This write-down was a result of a
necessary redevelopment of a malfunctioning software system and incorrect assumption about the value
at the St. Albans plant. The introduction of the "Smooth, No Chunks" line in the same year also resulted in
some extra advertising and introduction costs11. The low debt-over-assets ratio and high liquidity ($20
million12) proves the companys ability for further investment and/or international expansion. The
performance record compared to the industry average also proves this point 13.
Based on the analysis of the data given, the study group believes that B&J still has a strong position in
the market and the ability to secure long-term future profit.
4.6 Opportunities
The non-fat (Sorbet) ice-cream market in the U.S. and the superpremium ice-cream market in Europe are
still in very early stages of the lifecycle. Haagen-Dazs has gained a first-move advantage in Europe.
However, the markets in Europe and Asia are still underdeveloped in terms of presence of superpremium
ice cream. As well as new markets, new distribution channels could be OPENED 14. The increase in
production capacity will give B&J the OPPORTUNITY to get production back into their own hands and
increase productivity at their production facilities. If B&J is sufficiently present at U.S. supermarket outlets
is not clear from the given data. If not, further growth is possible in that segment.
The new CEO Holland has experience in improving companies performance 15. This could prove useful for
the company in the future.
4.7 Threats
The overall weakening economy in the United States has already had an impact on the sales in the
superpremium ice-cream MARKET 16. The main competitor has already expanded its operations into
Europe and Asia. If B&J does not react to this development, it faces the risk of being stuck in the
stagnating American
market and
no
foothold
in
the growing European market.
Health awareness is rising in the population. This has the potential to slow down sales in the high-fat
segment
of
the
ice-cream
market.
Dreyer, the companys exclusive distributor and an ice-cream manufacturer itself, is backed up by the
strong, internationally operating Nestle group. If Dreyers should decide to enter the superpremium icecream market, this poses a potential threat to B&J, especially since B&J is depended on this one sole
distributor.

4.8 Summary: Suitable OPTIONS .


A vast variety of options are open to the company. Those options can be divided into home market and
international operations. Internationally, it can either expand in order to profit from the growth OF THE
MARKET , or it can focus on the home market to avoid the risks and additional expenses of international
expansion.
Other decisions regarding the internal running of the company will have to be made. There is still potential
to cut down the cost of sales to improve the competitive position. There is no indication about the
composition of the cost of sales in the information provided, especially no information about the structure
of the administration costs. However, a few words about the labour costs can be said. Since the
leadership of the company believes in a labour intensive production, labour costs are a main part of the
overall cost structure. To reduce those costs, the company could

Reduce the wages

Not increase the wages until they reach industry average

Reduce the work force volume and implement more labour efficient production means.

Shift work force to the new St. Albans production plant.

Reduce the financial and non-financial employee benefits.

Reduce working hours as long as production capacity exceeds market demand.


On the sales side of the production, more emphasis could be made on:

Non-fat Sorbet flavours

Increasing demand for superpremium high-fat flavours

Expansion or withdrawal from speciality flavours (Peace Pops)


5 Proposed Strategy - Where the Company should go
On the basis of the analysis the study group suggests for Ben & Jerry to adopt ways to expand
total MARKET demand, and at the same time protect its current market share through good defensive
and
offensive ACTIONS .
As B&J suffers from a high cost structure, this situation can be improved through strategic internal and
external changes.
Part of B&Js long-term strategy should be to become a market leader, using its competencies in R&D,
new production plant and strong brand image.
While trying to expand total market share, B&J should increase their marketing expenditure, maintain
product quality and innovate flavours. B&J has to continuously defend its current BUSINESS against
rival attacks.
The following is a list of feasible strategic OPTIONS , in line with the companys social mission.

Reshaping internal structure

Restructuring of distribution; channels, distributors

Concentration on key markets

International expansion
6 Strategy implementation

The proposed strategies can be divided into short-term and long-term goals. Some strategies can be
implemented immediately; others take more time to succeed. The study group proposes to divide the
strategy implementation into four distinctive stages17.
6.1 Reshaping the internal structure of the company
The study team is aware of the sensitivity of this topic, taken the social responsibility and beliefs of the
company leadership into account. However, the study team believes that making minor changes to the
procedures and internal environment has the potential to increase the competitive advantage of the
company without losing its image in the view of the consumer. Even though this would mean some
disadvantages for the employees in the short term it will ensure their workplace and profit them in the
longer
term.
B&J should introduce product teams to include all members of staff from the different departments. This
would integrate the activities involved in developing a new product. Cross-functional teamwork could
speed up the production process and enable B&J to introduce new products faster.
The chart BELOW shows how the future structure inside the company could look like:
Chart 6.1-1
6.1.1 R&D
The shifts in customer demand puts further stress on the importance of the R&D department. B&J has
always maintained a full-time R&D department dedicated to the development of unconventional, cuttingedge flavours. It puts B&J at the forefront of the super premium ice-cream market. B&J should maintain
this advantage. Since Ben Cohen is personally very interested in creating new flavours, it should not be a
problem for B&J to create innovative flavours for its non- and low-fat products. Because its low-fat product
has proved to be very successful during the last few years, B&J should concentrate on this line of
production to match the changing consumer tastes.
6.1.2 MARKETING

& Sales

B&J should keep its social mission, but needs to introduce a new sales & marketing specialist, to
centralise their marketing activities.
The main customers of B&J are reaching forty and are becoming more and more health conscious. To
target this group of people, the focus of the advertising strategy should be promoting its low and non-fact
products. B&J needs to redesign its advertising strategy such as adjusting the design of its packaging to
match its current consumers tastes. Since the competition in the super-premium ice-cream industry
becomes more intense in terms of price. B&J could offer COUPONS and discounts to attract more
consumers.
B&J can expand the market through discovering and promoting new uses for the product; for example,
they could promote ice cream eating on any occasion and any season. The seasonal demand for ice
cream is caused by cultural characteristics. Through careful advertising, consumer behaviour can be
changed.
B&J should give up weaker territories, such as `Peace pops, and reassigning resources to stronger
territories, `Frozen Yoghurt, `Low fat/Fat FREE products. Through this strategy, B&J would consolidate
competitive strength in the market and concentrate mass at strategic positions.
6.1.3 Purchases

B&J has a very strict selection procedure for its suppliers and because of its social mission, it buys
ingredients from small farms, which makes it cost inefficient. The company should buy products from
suppliers that offer better prices even though these suppliers may not necessarily have the social values
that B&J agrees with. Since this is against the mission B&J set, it is not a feasible OPTION for the
company.
6.1.4 Human Resources
B&J should maintain their social mission and keep manual labour, but in the long term move gradually
towards less labour intensive production. It should keep the benefits but not increase the wages until they
reach industry average. As B&J is growing larger, communication between management and employees
might suffer. It is a key point to keep employees informed about changes in the organisation and company
strategy.
6.1.5 FINANCE
From the sensitivity analysis (see appendix 10.5), it shows that the net profit/loss is very sensitive to the
cost of sales and total administration costs. By reducing cost of sales by 1%, the loss would be reduced
by 29.2%; by reducing the administration costs by 2%, the loss would be reduced by 19%. If in 1995 the
company had managed to keep the administration cost within the budget and had not made bad
investments, then the profit would have increased even with total sales remaining the same. The plant in
St. Albans is a long-term INVESTMENT and though the initial cost affected one years profit, it will
eventually benefit the company, as new equipment will increase efficiency. Without the asset write-down,
the profit would have increased by 24%.
6.2
Restructuring
of
6.2.1 Expansion of distribution channels

distribution;

channels,

distributors

Even though B&J has made some attempts to OPEN up new distribution channels, those efforts are not
sufficient enough. Making the product available to the customer at new locations is essential. Those
locations could be:

Restaurants

Internet

Take-out/to-go ice-cream stands in street malls


The availability of the product in restaurants could be achieved by co-operation both with large restaurant
chains18 as
well
as
licensing
with
smaller
restaurants.
Due to the fragile nature of the product, Internet sales will never become a major part of overall ice-cream
sales. However, IT SUPPORTS the novelty image of the company. In addition, the companys website
can
become
a
marketing
tool,
offering
a
range
of
B&J
related
products 19.
Even though, B&J is present at the MARKET with B&J Caf-like SHOPS , this only targets mainly the
eat-in customers. The spontaneous "Scoop-on-the-go" customer is not appreciated enough. Small
franchised ice-cream stands located in busy High Street Malls could fill that niche.
6.2.2 Independence from distributors
Dreyers Ice Cream, B&Js exclusive distributor, which accounts for over 50% of the companys sales,
causes the company to lose too much control over its distribution channels. We propose restructuring the
contract with Dreyers to allow spreading the distribution among various distributors. That way, the

company does not depend so much on a SINGLE


which puts B&J in a stronger position.

distributor and the single distributor has less power,

6.3 Concentrating on key markets


B&J target group focuses on 25-40 year old consumers in the upper-middle class sector without children.
This customer group has more spare money to spend it on luxury goods like B&J. The single serving pint
size is directed towards single households. Ben & Jerry should keep its target market, but attract buyers
who are unaware of the product or who are resisting because of certain features. Along with this strategy,
more emphasis should be put on commercial advertising. The company will have to reshape its social
activities to optimise the advertising impact.
6.4 International expansion
As the U.S. superpremium ice-cream market reaches its maturity stage with slow-downs in market growth
and sales20, international expansion becomes more and more important - especially considering the
production capacity increase by 166% due to the new St. Albans production plant. The gearing ratio
(Debts/Assets) was 27% in 1994 and 17% in 1993, in other words B&J has the financial resources to
expand internationally. At the moment, international markets in Europe and Asia are underdeveloped
regarding superpremium ice cream, even though Haagen-Dazs has already gained entry to the markets
and substantial market share. However, these approaches towards international markets have to be very
carefully considered: entering the unstable Russian market is more risky than for example the European
market. The customers attitude towards the product in Europe differs from the United States. Product
and MARKETING STRATEGY will have to be adapted to the specific market.
7 Future Outlook
If the company should decide to follow the proposed strategic OPTIONS , the following developments
are likely to occur in the future:

International expansion: Increase in sales volume is vital to the company. It will enable it to profit
from economies of scale and higher profitability at the new production facilities, which are currently not
operating to capacity.

Product competitiveness: Constant product innovation will secure sales by adapting to the
changing consumer environment.

Product locations: By OPENING

new channels of distribution overall consumption and therefore

sales volume will increase.

Cost structure: Driving down production costs will increase profitability, shareholder value, and
competitive position.

Employee satisfaction: The employee turnover rate will remain low due to good working
environment and other benefits enabling the company to ride down the learning curve and profit from
employee experience.
8 Recommendations to the Investor
As stated in section 3, the company is still very healthy and has good prospects for future success. The
study group believes that a long-term INVESTMENT into the company will be profitable. However, if the

investor should decide to increase its stake in the company, the study group advises to support some
strategies vital to the companys competitive advantage and future profitability. These key points are:
1.

International

expansion:

international MARKETS
2.

The

U.S.

market

is

reaching

maturity.

The

entry

into

at earlier stages of the lifecycle will secure future growth.

Reduction of cost of sales: A lower cost structure increases profitability, shareholder equity, and
ability to stay competitive.

3.

Reshaping of the internal structure: People are the biggest asset! By restructuring, work
efficiency, employee satisfaction and overall company performance can be increased.
9 Conclusion
The study team believes that there are no companies who manage to stay on the road of success and
profitability without any challenges to face. When major INVESTMENTS are made, minor temporary
losses have to be expected. B&J are still at the top of the superpremium ice-cream industry. The study
group believes that the investor should have confidence in investing further into the company.
10
10.1 S.W.O.T. Analysis

Appendix

Strengths

High

Weaknesses

product

Lack

of

leadership

Innovative flavours / variety of products

High

cost

structure

MARKETING

Quality

(Ben)

structure

(salaries,

employee

through social activity _ lowbenefits)

marketing

costs Dreyer exclusive distributor no control over

High employee satisfaction ("Joy Committee", distribution


salaries)

High

channel

Social responsibility: difficulties in establishing


customer

loyalty

Big

Differentiation

("the

family") supplier

market SHARE

relationships

and

slow

product

(42%) development

("chunkiness") Plants not working to capacity (16hrs per day, 6

Employee involvement / strong team culture days

per

week)

Low turnover rate (12%): increased learning Production equipment not up-to-date (vs. social
effects

Low

reduced

gearing

ratio

training
_

high

High liquidity ($20 million)

cost responsibility),

labour-intensive

credibility Out of house production: Edys Grand IceCream _ lack of control over production
Low shareholder value _ reluctant TO INVEST
Low international focus

OPPORTUNITIES

New

Threats

flavours

Bad

publicity

("all

natural")

Low-fat,

low-cholesterol

ice-cream

Rising

Diversity and uniqueness driving competitive


factor

(reputation,

full-time

R&D

Go

New

health

consciousness

Weakening

economy

team) Dreyer strong distributor - loss could have

international "material
markets:

adverse

effect"

restaurants Entry of Dreyer into superpremium market

Large production capacity (St. Albans: +166%)

Shifts

New production plant: get production back in- Pressure


house

resources)]

New CEO

in

on

Demand

prices [Haagen-Dazs

Increased

(larger

competition

Size _ lose control/company policy


10.2 P.E.S.T.-L.I.C.E. Analysis
Political

Economical

Political stable situation in main MARKET


(U.S.A.)

Weakening

economy

Total annual sales in U.S. supermarkets for the


ice cream and frozen-yoghurt market as a whole
in

1994:

$3.6

billion,

$415

million

in

superpremium, $550 million in frozen-yoghurt


market.

Ice-cream

market:

low

growth

Demand Shift towards lower-priced products


Low TAX
Social

Rising

health

Technological

consciousness

Demographics of target group

High

New

labelling

of

innovation

International

requirements

rBGH

rate

Low barrier to imitation

Legal

environment

treated

by

FDA Only little international activity (Canada, Israel,


milk Russia, UK), but ice-cream market international

Fine for waste dumping (Waterbury)


Culture

Rising

Seasonal Demand

health

Environment

consciousness Environmental awareness _ recycled paper


board cups

10.3 Five Forces Analysis


(1) Risk of new entry by potential competitors
_: High entry barriers (image, customer loyalty) for new companies, possibility of ice-cream manufacturers
to enter superpremium market.
(2) Degree of rivalry among established companies within an industry
_: Haagen-Dazs (vast resources)
(3) Bargaining power of buyers
_: Strong competition by Haagen-Dazs, but innovation advantage Dreyer: 54 (52) % of net sales in 1993
(1994)
(4) Bargaining power of suppliers
_: Dependent on B&J, small, large in number
(5) Threat of substitute products
_: Premium ice creams
Chart 10.3-1
10.4 Gearing Ratio Calculation
1994

Long-term

1993

1992

1991

1990

32419

18002

2641

2787

8948

120295

106361

88207

43056

34299

27%

17%

3%

6%

26%

Debt

Total Assets

Table 10.4-1
10.5
10.5.1 ...towards cost of sales
$ Decrease in cost of sales

Sensitivity

Analysis

0%

1%

Net sales

148802

148802

Cost of sales

109760

108662

Gross profit

39042

40140

Income before TAX

(3761)

(2663)

Decrease in loss

29.2%

Table 10.5-1
10.5.2 ...towards administration costs with the asset write-down
1%
Decrease

2%

3%

in

Administration
Expenses

Gross profit

39042

39042

39042

Admin Expenses

35891

35528

35165

Assets Write-off

6779

6779

6779

Other Income

229

229

229

Loss before TAX

3399

3036

2673

Decrease in Loss

9.6%

19.3%

28.9%

Table 10.5-2
10.5.3 ...towards administration costs without the asset write-down
Decrease in

1%

2%

3%

Administration
Expenses

Gross Profit

39042

39042

39042

Administration costs

35891

35528

35165

Asset write-down

Other income

229

229

229

Cleared gross profit

3380

3743

4106

Decrease in loss

12%

24%

36%

Table 10.5-3
10.6 Gantt chart
Chart 10.6-1
11 References

Case Study: Hill, J and Jones, G (1998) Strategic Management - An integrated Approach,
Houghton Mifflin, Boston, MA

Ben & Jerrys Homemade Inc. Website: http://www.benjerry.com 1999 CS


1 Source: Case Study
2 Using sales PROMOTION

(Source: Case Study)

3 Competing ice-cream manufacturers are now able to imitate successful flavours within 60 days.
4 Source: Case Study
5 "Joy committees"
6 Source: Case Study: 26% above average
7 Dreyer Grand Ice-Cream
8 Ben Cohen, Jerry Greenfield, Fred Lager, and Jeffrey Furman
9 Source: Case Study
10 Without the asset write-down, B&J made a gross profit of $3.018 million in 1994.
11 Source: Ben & Jerrys Homemade Inc. Website
12 Source: Case Study
13 The net profit margin of B&J is 5.1%, compared to the industry average of 3.4% (Case Study)
14 Presence in restaurants, at sport events, small stands in high street malls.
15 Source: Case Study
16 1.5% decrease in pint volume

17 A timetable for the implementation of these strategies is included in appendix Chart 10.6-1.
18 The study group suggests Pizza Hut, Applebees, Chilis, etc.
19 Baseball-hats, coffee-mugs, fridge-magnets, mouse-pads, etc.
20 Source: Case Study