Case Study: Prince Edward Island Preserve Company Prince Edward Island Preserve Co Ltd (P E I Preserves) manufactures high-quality, high price point specialty preserves and related products—vinegars, sauces, etc. It has to choose from a variety of expansion options including retail outlets in Toronto or Tokyo, automated bottling and increased production. It is recommended that the company increase production and emphasize its competitive advantage—its reputation for natural quality. Current Strategy
Prince Edward Island Preserve Co Ltd (P E I Preserves), is anticipating annual sales of one million dollars for the first time in its short history. Over the first four years of its existence it has expanded from one retail outlet at its manufacturing plant in New Glasgow to include a second retail outlet and two restaurants. It is anticipated that expansion will continue in the future. Consideration is being given to a wide range of options for future growth. P E I Preserves retail outlets in Tokyo and Toronto are possibilities. Increased wholesaling and use of distributors is an alternative.
Expansion of the mail-order business has also been proposed. As well hotel chains and major airlines have expressed an interest in single serving sized jars and large volume purchases (300,000 units). Overall, the company is poised to expand but has little focus. Essentially, it is considering any and all of its diverse operations for expansion. This lack of focus is not surprising considering the ad hoc manner in which the company was born and has grown. P E I Preserves was founded when Bruce McNaughton, having lost $25,000 on a failed restaurant decided to convert his sole asset, 100 kilograms of strawberries, into Christmas gifts.
Gradually, as opportunities presented themselves the company expanded. It was hoped that it’s most recent venture, a retail outlet in the CP Prince Edward Hotel in Charlottetown, would increase the company’s profile and provide off-season sales. Acknowledging Bruce McNaughton’s lack of business training and his ‘seat of the pants’ approach also demands one credit his initiative and perseverance. McNaughton has grown this business from less than nothing, from the failure of a previous enterprise.
However, at this point the business requires analysis and McNaughton’s energy must be focused on a rational and logical alternative not wasted on a multitude of initiatives or focused on an inappropriate course of action. Guided by appropriate analysis McNaughton’s ‘gut and emotion’ can take P E I Preserves to the next level. Environment Geography is a key element of P E I Preserves’ environment. The company is linked to P E I and its reputation for pastoral beauty, to the global image of Anne of Green Gables and, to a lesser extend, to the less well-known reputation for quality of P E I strawberries.
However, this geographic association also limits its reach and public awareness of P E I Preserves. Overall, however, these are all very positive associations. At the same time the reliance on tourism for ‘walk-in’ customers and the seasonal nature of fruit production have made the company predominantly a ‘seasonal’ enterprise. Its current high price point/quality marketing strategy also introduces it to a variety of competitors. Predominantly these are British and European products that employ the cachet of their point of origin to justify their high price point.
Other products, some not even manufactured in P E I compete for the linkage to the image and marketing effort associated with Lucy Maud Montgomery. Capabilities As noted above the development of P EI Preserves has occurred largely outside of any classical market analysis or business plan. Nonetheless, presumably on the basis of Bruce McNaughton’s intuition, the company has equipped itself with the rudiments of a business strategy. Simply put, there is a great deal of latent capability or potential. The association with P E I, Anne of Green Gables, and natural quality is the basis of a marketing strategy of differentiation.
Closer association with these images, a natural fit for P E I Preserves, has tremendous marketing potential. At this particular point in its history P E I Preserves also has latent financial capabilities. Specifically, it has the ability to raise $100,000 to finance its eventual expansion. It also has a great deal of under-utilized production capacity. At present the processing plant only operates one shift, five days a week for five months of the year. Therefore, production could easily be doubled or even tripled very efficiently and cost-effectively.
Using two shifts, seven days a week while still only manufacturing five months of the year could triple production. In a similar fashion, bottling is currently not automated. Automation of the bottling process would facilitate packaging of larger production runs. With a capital investment in only bottling mechanization P E I Preserves could increase its production substantially. Strategic Alternatives Essentially, P E I Preserves has three basic options (relating to how it determines to invest the $100,000). Further, if it chooses option three (increase production and automate bottling) a set of sub-options emerge. 1. Invest in Tokyo store
Japanese tourists comprise a phenomenally large proportion of the visitors to P E I and to P E I Preserves’ various outlets. The island, its reputation and P E I Preserves products are well known in Japan. This fact, coupled with a high standard of living, a tradition of profuse gift giving and interest in North American products all indicates that a retail outlet in Japan might be successful. 2. Invest in Toronto store McNaughton believes that Toronto offers size, a market aware of P E I and, potentially, huge volumes of sales. The company has also had success in the past selling its product through a distributor in Ontario. . Increase production and automate The company’s third option is to abandon plans for a distant retail location. Alternately, the available funds can be directed to automating the bottling process. At the same time the company can begin to utilize its excess production capacity and increase its annual volume. Sales of this increased volume could access a variety of alternatives (the aforementioned sub-options): A. Reassess use of distributors throughout North America. B. Analyze profitability of large-scale orders for hotels and airlines. C. Emphasize mail order sales and initiate a Web presence and e-commerce.
Recommendations and Justification P E I Preserves should pursue option #3. Increase production and automate. Subsequently, it should follow two courses of action to develop increased sales. In the short-term it should improve the quality of its catalog and the range of its distribution. The catalog is productive. Therefore, its distribution should be increased significantly. At the same time a Website will enhance the visibility of the company and offers the potential for further mail order-like sales at relatively low cost. At the same time, looking to the longer term, it needs to consider bulk orders from hotel chains and airlines.
Increases in sales in these two sectors of the market are also likely to level out the seasonal variation in revenue. Neither one of them is linked to tourism to P E I. or restricted to a particular season. All of these efforts must repeatedly emphasize that P E I Preserves epitomizes the natural perfection of P E I. Automating bottling offers the potential for efficiencies in production and cost savings. These savings will subsequently be reflected in all of the company’s activities. In this sense rationalizing production is a more fundamental strategic program than merely opening a retail outlet elsewhere.
Automating bottling will lower costs, particularly when the ribbon is abandoned. (At point of sale, in company retail outlets sales staff can decorate the bottles on-site. That this labour consuming process is done manually in the factory is incorrect. ) Automated bottling will also make the process more consistent and less prone to employee variability and changing costs. Moreover, automating bottling does not demand that productive capacity be increased. Rather, it simply provides the opportunity to utilize previously underutilized productive capacity.