Cookieman Entr 3100

Critical Issues

In order for Cookie Man to maintain their market share, they must address the following critical issues:

• How to increase sales to promote growth of the company?

Situational Analysis

[pic 1]

Cookie Man’s unique selling point is that they produce “freshly baked” cookies, giving them little to no competition in the freshly baked goods segment. Their market share in the entire Indian cookie market is 0.19%^[1] with 80% being dominated by three big corporations. [pic 2]

Despite its success, Cookie Man faces several issues that are jeopardizing the financial status of the company. Firstly, the cookie segment in the food industry has a high threat of substitution. Customers can easily change to other products such as chocolate or Mithai. Secondly, the increased competition from change in consumer preferences towards internet distribution puts the company in unfavourable position. Cookie Man sells “freshly baked” cookies, thus online distribution channel would not be feasible^[a]. Lastly, Cookie Man’s high operating cost and wastage affects the company’s profit margin. This enormous expenditure resulted in only constant breakeven every year despite their 15 years of operation and high volume of sales. Given the years of experience, Cookie Man has pre-established marketing and promotional plans^[b]. [pic 3]

In conclusion, given that “freshly baked goods market is in the growth stage of its lifecycle, Cookie Man would want to focus on increasing sales of their locations and continue to take advantage of the increasing demand for aspiration products.

Decision Criteria

1. Increase sales by 15% by the end of 2015 fiscal year.[pic 4]

Option Analysis

Option #1: Grow Organically. Opening 10 stores within the next year as well as avoiding the closure of 10 stores will bring us to 80 stores open by 2015.

Total costs include 272,779,405.71 IRN^[2]. Net profits total 49,654,880 IRN, and gross sales total 322,434,285.71 IRN^[c]. This is a sales increase of 14% and does not meet our decision criteria.

This option has moderate risk with moderate reward. If we continue to grow based on these past trends our operating costs will continue to increase at a significant rate due to fluctuating variable costs. We want to increase the amount of stores in high footfall areas and not in tier I and II communities. This is why we will only open 10 stores within the next year. Expanding without looking further into other aspects of our business will not be enough to ensure sustainable growth.^[d][pic 5]

Option #2: Increase Reach. Increasing reach would mean placing Cookie Man on shelves in grocery stores, and entering the organized sector that is already dominated by three major companies. Cookie Man is known as a premium product that delivers freshness, and increasing reach would take away from their quality. Competing with these already established, bulk producing, organizations is a huge risk as return is not guaranteed. [pic 6]

The cost of purchasing shelf space in India is based on relationships between stores and suppliers, and therefore retailers to not advertise listing prices (Cunha, 2010). Considering that Cookie Man is barely breaking even right now, the cost of advertising and shelving is too expensive.^[e][pic 7]

Option #3: Explore new product lines. Tea is India’s most popular drink; the annual consumption is 837,000 tonnes (BBC, 2014). Based on researched, about 74% of the Indian adult population, and nearly 90% (cite) of Indian households, are regular tea drinkers (Jain, 2012). Thus, given the large market segment, Cookie Man should consider implementing tea as a complementary product. When Starbucks introduced complementary products in 2013, their sales increased by 13% in just one quarter (Patton, 2013). They complimented hot drinks with snacks, and Cookie man would do the opposite ^[f]by complementing cookies with tea. [pic 8][pic 9]

With this decision, we can estimate that sales could increase by at least 15% over ^[g]the duration of a year, with a sales increase of 36,738,000 IRN. Total costs are 10,733,619IRN, with a net profit of 26,004,381IRN^[3].

This option has little risk compared to the reward. This risk in this option is taking on another product line and adding to our expenses, but the sales generated offset this risk but expanding our current services and reaching new customers. Furthermore, the cost per cup of tea is only 2.53IRN (Annu, n.d.). Assuming we purchase 64^[4] cups of tea to cater for the number of customer per day per store, the breakeven would be 3 cups per day per store which is easily achievable.