Case Study Report: The Chocolate Factory

Introduction

The Real Chocolate Company is considered to be among the best performing players in the chocolate industry.  It specialises in gourmet chocolate and predictions show that its sales are expected to hit the $1.8 billion mark in 2010.  The increase in demand for gourmet chocolate due to the antioxidants it contains and the placement of its product in mass market channels are said to be critical to the levels of development it has attained.  The company offers up to 300 varieties of chocolates though this is increased in Easter and Valentine seasons.  The organisation is led by the goal of Real Chocolate Company being the premier retail chocolatier in the United States though it operates in both US and Canada.  Though it was an entrepreneurial start up, by using approaches like franchising and relevance to the needs and expectations of the market it has developed to be one of the fastest growing firms in the small companies segment.

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External Analysis

There is no question on the levels of growth that the real chocolate company has attained over the last few years.  The company has in 2007 recorded a 12% rise in revenue to move its earnings to 31.6 million.  In the same fiscal period the earning from its franchised stores rose by 9% to $ 108.9 million.  2007 has been the best year in the chocolate factory’s history and if it can maintain the same levels of performance or even better then it is headed for greater success.

A critical factor that has played a role in the levels of success attained by the chocolate factory is the increased awareness on the antioxidant property of chocolate.  Health is a social factor that has a bearing on individual perception and a wave that is currently being experienced in awareness on physical health will only serves to broaden the segments that the factory operates in (See App. 1).  Moreover, health as an issue concerns everyone thus this is an opportunity that the chocolate factory can harness to gain success.  The viability of the opportunity is proven by the fact that more people are increasingly becoming aware on the need for physical fitness due to high levels of educational attainment and availability.

Another area that is fast gaining relevance in the opportunities that exist in the Real Chocolate Company’s operational environment is lifestyles.  The real chocolate company has in the past been implementing strategies that put into close consideration the nature of the environment and its effects on lifestyle.  The increase in varieties of chocolates that the company offers in Easter and Valentine seasons shows that the company is appreciative of the perception of chocolate in the market.  Moreover, there is an increase in focus placed on non-traditional candy holidays which is an opportunity for increased sales.  By developing more awareness on both candy and non candy holidays, the chocolate factory will be able to develop a wider market base. In addition, changes in demography and relationship between premium chocolate consumers and high income groups which currently shows no correlation presents a wider definition of Real Chocolate Company’s market segment and by developing relevant strategies the organisation should harness the independence of buyers’ propensity from their income.

The chocolate and confectionery industry is at the centre of what is referred to as a growing problem.  Obesity is fast becoming a key issue and the levels of sugar associated with chocolates do not in any way help the situation.  As it currently stands, chocolate and confectionery industry played have to comply with numerous regulations which include health, safety, sanitation and franchise operations.  Many states in the US have proposed vending machine restriction while others are in the process of enacting legislations concerned with reducing the levels of lead in candy.  An increase in the number of legislations expected to deal with lead, vending machines and the role played by chocolate in the high levels of obesity will affect the organisations operations negatively.  Moreover, signing of the CAFTA agreement by President Bush in 2005 increased the availability of sugar in the US which effectively opened up the industry for new players.  It is expected that the industry which is already competitive will experience an influx new entrants which may increase the levels of competition to a whole new level (See App. 2).  It is worth noting that though high levels of competition is important in ensuring innovation and market satisfaction, the cost of operations in a competitive environment is high and the sales tend to be low.  This is a key threat to the chocolate factory in considerations of its goal of being the premier chocolatier in the US.

Internal Analysis

A critical factor that affects the chocolate and confectionery industry is relevance to the expectation and need of the market.  The Real Chocolate Company has been able to succeed in the rather competitive and fragmented industry due to its relevance to the needs and expectation of the market.  The chocolate industry appears not to be affected by price considerations as shown in the lack of correlation between premium chocolate buyers and their earnings.  Thus, the development of strategies that are aimed at development of value from price should never be apart of the organisation agenda.  This factor bring a whole new dimension to competition in that issues of quality and accuracy in addressing the needs and other non price dimensions to competitions have to be employed to realise success.

The real chocolate company has developed its brand name and reputation for quality in the market for years.  Its approach to customer management is considered to be one of its most important sources of competitive advantage. An important tool that an organisation can use to effectively operate in competitive segment or industry is reputation.  The Real Chocolate Company has developed a reputation for quality and good customer service which it should endeavour to uphold and improve.  In operating in an industry that is highly competitive, there is need to ensure that distribution channels are developed in manner that ensures availability of products to the customers.  Diversification is especially important in ensuring that the needs of the market are addressed especially in a competitive business segment (See App. 3).  Franchising and development of over 300 varieties of chocolates under the same brand name are therefore critical factors that will help the organisation deal with the high levels of competition.  The approach that the organisation implements where products are developed with consideration on the nature of the market is important in accurately meeting the needs of the market.  The Real Chocolate Company has recently developed a line of sugar free and no sugar added sweets which relates closely to increase in market demand for sugar free products.  It is clear that the Real Chocolate Company develops strategies that are guided by research on the market and this should be maintained if it is to continue in the same growth path.

Developing products that are highly relevant to the needs of the market is a process in quality management that aids gain of competitive advantage.  Marketing and promotion strategies are important in ensuring the presence of products is transmitted to the market.  Marketing in a competitive segment should implement multiple platforms and the organisation creatively starts its marketing with the alluring smell of chocolate that attract customers to its premises. Attractive packaging and promotion strategies that display its products as fun are some of the strategies that the organisation implement in marketing and promoting its products in the segments it operates in.  The organisation’s participation in community activities though not a formal marketing strategy serves to develop its name in the market segment it operates in.

A notable feature is the manner in which the organisation has developed geographically and developed new brands to address the needs of the different market segments.  Diversification as an approach to business operations appears to be the strategy that the organisation employs in driving to its goal of being the premier chocolatier in the US.  However, the cost that comes with diversification and risks considering the price of chocolate fluctuates highly creates a challenge in operations.  The expected high rates of growth may present management challenge and therefore a risk of failure if the growth is not complemented by relevant resource acquirements and strategic plans.

Clear Picture of Problems

Understanding a problem is the fast stage in developing a solution.  In as much as the Real Chocolate Company appears to be operating at a level above other industry players there are a number of challenges presented on consideration on the nature of its operational environment.  The challenges that the organisation is likely to be faced with are a result of changes in the nature of its operational environment and the approach that the organisation employs to operations.

A look at Real Chocolate Company’s microenvironment and macroenvironment shows that changes in government policies and consciousness on health is bound to affect the segments that the organisation operate in.  Legislations that have been proposed to ban the use of vending machines in some states will reduce the avenues that the organisation has in distributing its product.  An increase in awareness on the effects of lead on the environment which has pushed some states into proposing legislations aimed at reducing the levels of lead in chocolate is likely to increase the cost of production.  Moreover, an increase in awareness on obesity and its risks resulting from high prevalence of obesity in the US may shift the interest of the market to the nonsugar segments from segments that have been central to the growth levels the organisation has attained.  To add to the complexity of the situation, an influx of new entrants is expected due to increase in availability of sugar.

In addition to the expected entry of new industry players and tough government legislations that may lead to increased cost of production, the approach that the organisation employs is quite resource intensive.  Intensive marketing and development of quality products require considerable input and resources which may not be easy to access considering the expected increase in cost of operations.  The diversification strategies that the organisation has been employing to develop its market and industry segment are risky due to the volatile nature of the environment that the organisation operates in.

Strategic Options

Problems that the Real Chocolate Company is faced with can be summarised as trying to develop in an environment that is becoming more unfriendly by employing an approach that is at risk of being irrelevant thus placing the organisation at risk of failure.  There are several options that the organisation can implement to try and address the problems that it is faced with.

One possible avenue that the organisation can employ to address the challenges that it is faced with is it employ an approach that is less divergent.  Diversification strategies are primarily to blame for the threat that the organisation is placed in due to the highly volatile operational environment.  Moreover, diversification is quite costly especially managing the different areas that the organisation operates in.  Reducing the geographic distribution and the number of segments that the organisation operates in could minimise the negative effects that the unbecoming operational environment has on its operation.

The Real Chocolate Company is considered to be one of the largest companies in the segments it operates in.  Owing to the success that it has attained in operations and the revenues that the organisation projects it will be making in the next five years the organisation should deal with the competition in the industry and market segments by buying out competition.  Acquiring other competitors would provide the organisation with a competition free market while developing its market base and therefore it will be able to deal with the threat of new entrants while using the reputation it has developed in ensuring it succeeds in the segments it operates in.

The Real Chocolate Company further has the option of developing its strategies with consideration on its vision and therefore ensuring continuity.  The vision has been guiding the organisation since its inception and has been central to the levels of development it has attained so far.  The organisation is yet to attain its vision thus the relevance of the vision is still as pronounced as when the organisation first came into being.  If the vision has been able to aid the organisation to unprecedented levels of development then it should be able to deal with the problem presented by the environment and therefore address all possible avenues that the organisation has in being the leading chocolatier in the US.

Since the organisation has developed its systems by channelling its resource to opportunities and dealing with threats then the same should be done to deal with the threat of government policies.  Politicians have in the past been corrupted into passing laws that support certain industry players thus allocating some of Real Chocolate Company resources to influencing politicians in the affected states into not passing legislation regarding the levels of lead in chocolate and ban on vending machines would deal with the cost that the organisation would otherwise have to incur if the laws are passed.

Evaluation of Strategic Options

There are four possible options that the organisation could use in dealing with the problems that it is faced with.  Reducing the organisation levels of diversification may reduce its costs of operation.  Smaller organisations spend little and have few management problems, and they gain equally reduced returns (David 2004).  By reducing the levels of diversification the organisation will not be able to compete with the other more diverse competitors and will in no way address the negative effects of government policies that threat to reduce the size of the segments that it operates in while increasing cost of operations (See App. 5).  Buying out competition will develop an organisation that has a larger asset base and can therefore easily deal with the threat of less developed new entrants.  However, this will complicate the management of problems resulting from high levels of diversity.  Influencing politician not to pass the legislation that would lead to an increase in operational costs and thinning of the market segment would deal with this threat.  However, the threat of entry of new players will still be at large and the move will place the reputation that the organisation has been developing over the years it has been operational into jeopardy.

The approach that is best suited to addressing the issues that the organisation is faced with is ensuring that the strategies that it develops are relevant to its vision.  The organisation has managed to attain success by the application of strategies that are guided by its vision.  Consideration on the nature of the operational development and the internal system that an organisation implements and developing strategies that are as per the organization’s vision in this case developing into a premier chocolatier in the US should aid the organisation through the tough times.

Description of the Selected Strategy

Strategic management and planning stress on the relevance of the vision in development of operational strategies thus more emphasis should be placed on the vision.  The vision under this consideration is the guideline that will ensure objectives developed and strategies employed are relevant to the organisational objectives and the nature of the organisation.  Creativity is especially important in developing strategies that will deal with the threats posed by the operational environment while putting into consideration the objectives of the organisation in dealing with the problems and the internal system that the organisation has developed (David 2004).  Moreover, consideration on the vision paves way for a systemic approach to the problems which ensures that it is addressed better than it would have been with the application of the linear approaches.

It should be remembered that the organisation has not diagnosed a problem in its diversification approach rather there is the risk of it becoming more complex with time.  On the other hand, politicians in enacting policies that seek to ban vending machines and controlling levels of lead allowed in chocolate are acting in the interest of the society and therefore the market segments that the organisation is interested in.  Thus, this is a change imposed on the organisation by the macroenvironment that it will have to deal with rather than avert.

The nature of  changes in the macroenvironment environment are such that they affect all industry players and therefore the organisation that will adapt to the changes and even harness the opportunities presented by changes stand to gain.  Changes in the environment and nature of the industry led to the organisations appreciating of mass systems and harnessing an increase in awareness in the antioxidant property of gourmet chocolate.  By focussing on strategies that will aid its being the leading chocolatier in the US, the organisation will be able to develop strategies that are highly relevant to the nature of the environment and its internal systems.

Action Plan

A vision guided approach to the problem is systemic and therefore in need of allocation of organizational time and resources.  The organisation already has a clearly defined vision which will act as a guideline in coming up with the solution.  A multitude of approaches are proposed and thereafter relevance to the vision ascertained.  The approaches are developed with consideration on a clearly defined problem and the effect that the problem may have on the organisation.  Research tools and proper communication systems are critical at this stage.   The development of clearly laid out objectives that will address the problem and strategies that will be implemented should be resultant of the process.  Next, the strategies are put into action where the organisation provides resources that are organised and managed in a manner that will ensure the attainment of the pre-set objectives.  Management and resource defined in the formulation phase are presented and leaders tasked with ensuring that the strategies that have been developed are implemented.  In developing the strategies, it is important that the organisation sets target that will be used in assessing if the goals are being addressed and what progress is being made.  Assessment is done after a defined time and progress that has been attained noted.  If the progress falls short of the expected or targeted, there is thus need to ensure that the strategies are redesigned in a manner that will ensure the objectives are addressed more accurately (See App. 4).  Due to importance of issues that Real Chocolate Company is faced with, the formulation phase should take 2 months and the implementation of the strategies done thereafter.  The initial phase of implementation should be characterised by shorter evaluation interval which become larger as they take root.  The shortest interval should be one month.

Conclusion

The Real Chocolate Company success is a result of good strategies that it developed in the past.  The organisation is well placed in the industry and market segments that it operates in and should use its advantage over other players in an ethical manner to ensure it develops a robust culture and systems of operation that put into consideration the internal and external environment.   The strategies it puts into place have a bearing on its future and not just the present thus as much as current issues must be addressed it would do the organisation a lot of good if it considered the impact the strategies have on the organisation’s future.

Appendix 1

Appendix 2

Porter’s Five Force Model

Appendix 3

Ansoff’s Model

Appendix 4

Appendix Five

References

David, FR 2004, Strategic Management: Concepts, 10th ed., Prentice Hall, London.

 

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