Background
Valentino chocolates are made in Turin, Italy. They are recognised as luxury products with a delicious and unique taste. Some of Valentino’s finest chocolates are handmade and have won many international awards. Expansion The company started by selling raw chocolate to other chocolate manufacturers. These manufacturers then used it to make their own products. Later, Valentino began selling packaged chocolates directly to the public and created the Valentino brand.
The company expanded fast. It now has almost 300 employees, 75 company-owned shops, and a turnover of € 90 million. However, in the last two years, sales growth has slowed down and costs have risen. This has caused a fall in profits (see Chart 1).
Chart 1
Summary of the last three years’ results Last Year Two years ago Three years ago Turnover €90. 5m Pre-tax profits €6. 4m €87. 2m €8. 2m €62. 6m €8. 9m ? Reasons for falling pro? ts Prices There is widespread price cutting in the industry. Production Factory machines often break down. Demand Demand for its Classic Bar is falling. Valentino’s new products, biscuits and cakes, are not selling well. Staff morale Sales staff are becoming demotivated.
Chart 2
Valentino’s main products (as a % of turnover) Valentino Classic Bars Packaged chocolates Chocolate drinks Raw chocolate Exclusive handmade chocolates Biscuits and Cakes. The future The company’s owners want Valentino to become an international business. They believe it makes the finest chocolates in the world. This year they have set aside €1. million to invest in their company. Their problem is to decide how to spend the money so that the company will continue to expand. The future Recently, a well-known business journal did a profile of the company. It ended as follows: Valentino can continue to grow, but only if it develops new products and ? nds new markets.
Chart 3
Investment options Option 1 Extend the factory 2 Buy new machinery 3 Invest in more research and development 4 Buy out a local competitor 5 Estabilish a factory in the US 6 Launch a marketing campaign Cost €500,000 €200,000 €200,000 €1. 5 million €1. 3 million €500,000 Benefit Increase the factory’s capacity by 30% End the delays caused by the old machines breaking down Develop new products such as a low-fat chocolate drink, new biscuits/cakes Reduce local competition Manufacture chocolates in a major new market Increase sales of all products
Chart 4
Investment options Option 7 Finance a market survey and research trips to the US 8 Invest in an existing group of cafes 9 Set up online sales Cost €100,000 Benefit Assess the market potential for Valentino products. Contact agents Become a partner in cafes wich sell and promote Valentino chocolates Increase sales and profits €500,000 €150,000 10 Buy a new fleet of cars €500,000 Increase motivation of the sales staff.
