Rituals is a unique Dutch luxury cosmetics company which was founded in 2000. Their main inspiration are ancient beauty rituals from all around the world, such as the Asian Lotus flower and the Moroccan Hammam. '' They are everywhere: at any given moment, of every single day, waiting to be discovered, eager to share the beauty within them.'' Today Rituals has more than 600 stores across 27 countries in Europe, Asia, Middle East and North America and strives to open 1,000 stores by 2020. Rituals' products can also be found in department stores, Urban Spas, hotels and shop-in-shops in over 120 airports. Throughout this report we will be taking a look at the logistics process of Rituals. In chapter 1 we will describe the internal analysis, this includes the vision, mission and strategy of the company. Next, there will be an external analysis conducted in chapter 2. In the third chapter the supply chain process and the quality management of Rituals with be explained. Chapter 4 we will analyze the value proposition of Rituals and its stance on the triple bottom line: Profit, People and Planet. Furthermore, the fifth chapter will examine the financial position and profitability of Rituals.
Lastly, chapter 6 will clarify what can be improved and our recommendations for the company.
1.1 Introduction Rituals is a company known worldwide for their luxury cosmetics. In this case several subjects will be described to understand Rituals and its values. In the first chapter the vision, mission and strategy will be outlined. After that the planning hierarchy will be shown and the values of Rituals will be explained. Finally, there will be a conclusion which shows the supply chain matters of Rituals. 1.2 Vision Statement “They are present always and everywhere: every moment of the day, ready to be discovered again. It is in the small things in life, the daily routines which can be easily taken for granted.” Rituals helps its customer to experience these moments and helps them to take a step back. It does these things in a mindful manner. If it is about taking a long bath or creating a comfortable atmosphere, Rituals is there to help with its exclusive scents and perfumes from Asia. Rituals helps people find happiness in the small things in life. (Rituals, 2018) 1.3 Mission Statement According to stockerpartnership.com core values are “the organization's essential and enduring tenets – a small set of timeless guiding principles that require no external justification.‘' Rituals' core values are the following: Quality and Care: Rituals' goal is to have its products made with the best and safest ingredients which will be tested by the best dermatologists. To reach this goal it has made the decision to remove harmful ingredients. Responsible for planet earth: Rituals strives to use materials that are natural, recyclable and non-harmful to the environment. Organic ingredients are used whenever possible. Care for our people, Respect for our planet and Promises in our products: Firstly, to show its clients that it cares about them, Rituals attaches great importance to moral and ethical values and it expects its external suppliers to do the same. Secondly, as a matter of respect for our planet, Rituals has developed an “Eco Chic System” to sustain new products. Offering refill packaging is one these initiatives. And lastly, Rituals promises its customers animal testing will not be used to test its products. Therefore, volunteers are recruited to create high-quality and safe products. (Rituals, 2018) Rituals' core purpose: The core purpose of the Rituals states: “We're not here to sell you beauty, we are here to make you feel good”
Rituals' BHAG; Big, Hairy, Audacious goal: Rituals' BHAG target for the upcoming 5 to 10 years is to be the go to store for presents in the Netherlands. Another BHAG is to expand to more countries and strengthen Rituals in the foreign countries they already operate in.
Vivid Description: “Helping people enjoy the little things in life.” For Rituals to stay the successful company it is, natural products and sustainability are important drivers. Rituals is about positivity, calmness and energy. All products are based on natural products and this natural style is maintained throughout all the Ritual outlets. (The Dermreview, 2018) 1.4 Strategy The company's strategy is based on the mission and vision. The company's short-term goals or objectives should result in achieving the corporate mission and vision. The strategy of the company is to run and operate company-owned stores and therefore Rituals does not offer the Franchise system in new countries or any of the other countries where it currently has retail stores. (Rituals, 2018) 1.5 Planning Hierarchy The planning hierarchy of Rituals is constructed as follows:
Mission level: ‘'Quality and care are important to us. That is why we continuously strive to improve and better our products in ways that serve the environment, people and the world. We use organic ingredients whenever possible. For all that nature can't provide, we use safe alternatives. You will find no parabens in any of our products.'' (Rituals, 2018)
Strategic level: Rituals' aim to avoid unnecessary waste as much as possible, hereby the focus on three pillars: Reduce, Re-use and Recycle. Its journey to greener practices is improving every day for its customers and the planet's well-being.
Operational level: Operating in more than 600 shops in the Netherlands an in 27 other countries, Rituals is aiming to reach 1,000 stores by 2020.
The planning hierarchy of Rituals is well thought out. Nowadays, people are more environmentally conscious and value eco-friendly companies. Rituals' initiative to Reduce, Re-use and Recycle creates a strategic advantage from similar brands. Besides, being an environmentally conscious company, Rituals' understands the importance of safety, as these products are used on people's skin. All of its products are dermatologically tested and free from harmful substances. This planning hierarchy has proven to be successful as Rituals is a growing company and will continue to do so.
1.6 Drivers Behind the Supply Chain
The drivers behind the supply chain of Rituals are mainly focused on sustainability, fair trade, safety and innovation. One of its core value are ‘' We care for your well-being and the world we all share.'' Rituals makes sure all of its products are dermatologically tested and free of harmful substances such as parabens, phthalates, MIT, Sodium Lauryl Sulfate & micro plastics. Besides having products that are safe to use, Rituals keeps a close eye on its packaging CO2 footprint, water, and energy use are. ‘'98% of our finished products are made in Europe. We produce our products as close to home as possible and hereby keep transport related fuel consumption and carbon emissions to a minimum.'' According to the Fisher's matrix, the supply chain of Rituals is responsive because it sells innovative products. ‘'We combine the best of nature and advanced science to create trusted, high performing products that do what they promise.'' (Rachelle Dieteren, Manager Rituals, 2018)
1.7 Values "We're not here to sell you beauty, we are here to make you feel good." The values of Rituals are based on three elements: quality, durability and safety. Rituals is constantly innovating its products, to ensure they are better and more sustainable for the people, environment and for the world around us. The power of Rituals is to help its consumers to enjoy the little moments and to be aware of these moments. This can be anywhere at any given moment. 1.8 End customer
The end customers are the most important for the Rituals. Its goal is to make its customers escape the daily stress and make them enjoy their daily routines by experiencing Asian and middle eastern rituals in their own home. Furthermore, Rituals is very involved in reducing the impact people have on this planet and therefore it is trying to make its product with only natural ingredients. (Rachelle Dieteren, Manager Rituals, 2018)
1.9 Bricks and Clicks Rituals does business both online and offline. There are multiple brick-a-mortar stores where its products are sold. Stores can be found in city-centers, airports, department stores and even at train stations. In order to keep up with its main competitor, The Bodyshop, Rituals has to act on basis of bricks and clicks. In the last decade “clicks” have become a very important factor in successfully doing business. Customers and potential customers can access Rituals' products from their own computer, laptop or tablet. Furthermore, Rituals is able to provide its customers with all the needed information. In store they manage this by well trained and skilled staff, online they manage this by clear product descriptions. (Cloosterman, 2017)
This chapter will explain an analyzation of the supply chain structure of Rituals. First, the logistic network will be discussed. Then, the way the operations support their position in the marketplace will be explained. The integration of the suppliers and customers into the supply chain management of Rituals will be researched as well. Lastly, the policy concerning the suppliers of Rituals will be analyzed.
2.2 Rituals' Supply Chain
Rituals has 600 shops and more than 1400 selling points in department stores worldwide and are often located at A-locations in different cities and airports. Rituals is situated in 27 countries and has a network through the entire world. The headquarters is located in Amsterdam, The Netherlands.
Offering luxury cosmetics based on Asian and middle eastern rituals, the company has developed a team specialised in testing and selecting the preferred rituals. First step for the company is to select the best natural ingredients based on its core values. These raw materials are then transported to Rituals' partners which manufacture them into the end products. Being checked and approved to be distributed, partners will transport the products to all the Rituals shops and further selling points. In these shops customers are welcomed by Rituals employees and assisted in the purchase process.
After Rituals' enormous growth in the late 2000's, the company decided to switch over to dual sourcing since it does not have its own factories, warehouses and laboratories. This means it has to rely on partners to deliver its product according to its values. Benefits of dual sourcing in this matter is the risk which is strategically spread and better purchase conditions. (Marcel van Groningen, 2011)
2.3 Position in the Marketplace Rituals is a big leader in the segment of luxury cosmetics, particularly in the Netherlands. The products are luxurious but affordable, which attracts a large target group. Rituals' Research and Development department does a lot of research on developing new products and staying innovative. This to satisfy the needs of the consumer of Rituals and to explore new products which can be added to Rituals' assortment. Rituals invests huge amounts of money for this department to keep its position as innovator in the marketplace. In the Netherlands there are only two real competitors, the Body Shop and Lush Cosmetics. These companies have a similar approach and product. (Rituals, 2018) 2.4 Suppliers and Customers
Rituals has a varying assortment of cosmetics such as shower gel, candles and make-up and only uses natural materials for its products. The company has a franchise structure, shop-in-shop structure and own stores, this means that the suppliers depend on what kind of structure is applied. For example, if it is a franchise store Rituals will supply the store itself. The products of Rituals are made with Asian natural resources.
The assortment of Rituals is very wide, which means Rituals has multiple target groups worldwide. However, Rituals does have a focus target group. Rituals aims for unisex and uni-age. The target group has a high education, a good job, and is in the upper middle class. It is an active target group, whom love to travel and has classy hobbies. The target group finds personal health care important and an important part of their life, which means they value the quality of the products and are willing to pay more for it.
2.5 Basic Logistic Structure
Almost all the raw materials come from Asia, where they are prepared for export. This is done by sea vessel. Once it has entered the designated country, further transport is done by train, truck and boat. In the Netherlands Rituals puts most of its trust in “Wim Bosman Group” when it comes to the logistics part. Wim Bosman Group does not only provide transport within the Netherlands to the 65 stores, it also provides warehousing. The warehouse is located in ‘s-Heerenberg. Some of Rituals' products are in a special category when it comes to warehousing and distributing. These products are classified as somewhat dangerous, think of candles etc. Wim Bosman Group is specialized in the handling of these products. Furthermore, pricewise, capacity-wise and competences-wise Wim Bosman Group was the best logistics partner for Rituals. In order to make sure the products are delivered on time at the designated stores, Rituals and Wim Bosman Group made a deal that all products have to be delivered before the store opens. (De Leverancier, 2015)
2.6 Logistic Concepts and Patterns
Given the continued growth of Rituals, planning is extremely important in its supply chain. Therefor the company makes use of various concepts and systems to optimize its work on the short and long term. The below described are used to reach the best results.
MRP (Materials Requirement Planning):
MRP deals with future demand, which indicates the future requirement of raw materials and helps decide on safety stock. Since Rituals is growing continuously, it is important to have a system which updates required materials and safety stock in contrast to its new demand.
ERP (Enterprise Resource Planning):
ERP is a database which is used to improve the companies' result, increase its productivity, to improve effectiveness and reduce operational costs. All information entered in this database by Rituals will lead to better results.
ECR (Efficient Customers Response), QR (Quick Response) and CPFR (Collaborative Planning Forecasting and Replenishment):
ECR, QR and CPFR can only be effective because of the existence of CRM (Customer Relationship Management). CRM is there to gain customers loyalty which leads to less difficulty in the making and/or adjustments of planning.
Implementation of Slim4:
Given the growth, Rituals has decided to start implementing Slim4 in the company, a software which optimizes the inventory of Rituals. With this software inventory rotation has increased by 15% while availability stabilized, and the assortment had grown by 20%. (Van Groningen, 2011)
2.7 Importance of Social Media and Internet
In the current retail environment Internet and Social Media are important tools. Especially when your competitors make great use of these tools. Social Media accounts are very useful to get a message across, to show the company's aesthetic, promote new products and deals, and to have closer contact with your customers. Rituals implements these tools to its fullest, it even chose to use Social Media rather than regular advertising. Rituals states that Social Media attracts customers to its physical stores, this is done by giving discounts which are only available after a “follow” or a “like”.
In-store Rituals uses barely no modern technology, like virtual reality or smart shelves. This has to do with the authentic atmosphere Rituals wants to create. Entering a Rituals store should feel like, according to Rachelle Dieteren, entering a Yoga Retreat in a jungle in Asia. (RetailNews, 2012)
According to Mark Hoppenbrouwers, Supply Chain Director of Rituals, innovation is an important factor in success. In this chapter the manufacturing process will be outlined and explained. We will also take a look at quality management and its efforts to improve process quality through programs such as Business Process Management (BPM) and Business Process improvement (BPI).
3.2 Supply Chain Process
‘'Rituals is constantly developing new products. A range that surprises. A new make-up line based on gemstones was launched recently. Technology is not the first priority when we develop a new product. We first look for an inspiring story. As regards the make-up, we went to China and ancient Egypt, where powdered gemstones have been used as beauty products for many centuries. Cleopatra was one of the first women to use them. We take a story like this and then build our product around it. This is how every product has its ritual.” Rituals products are sold in the Rituals outlets, shop-in-shops in major department stores, in hotels and by various airlines. “We do not advertise, but we do distribute. You see Rituals everywhere and there is always an outlet nearby''
3.3 Quality Management
Rituals states that all its products are 100% safe, dermatologically tested and free of harmful substances such as parabens, phthalates, MIT, Sodium Lauryl Sulfate & micro plastics. Rituals has also never tested its products on animals since the beginning in 2000. ‘'We combine the best of nature and advanced science to create trusted, high performing products that do what they promise. We strive to use as much natural ingredients as possible and for properties that nature can't provide or when it's more environmentally friendly, we choose lab-made alternatives.''
3.4 Critical Process Steps
As mentioned before in chapter 1, one of Rituals' core values is the respect and care it wants to give to its customers and to the planet. Therefor two of the five process steps may be very critical.
The first critical process is the raw materials phase of the supply chain process. Caring for its customers and their well-being, the best natural ingredients need to be tested and selected. Therefore, Rituals has a specialized team that travels to countries to select these ingredients, all this to make sure only the best of the best will be transported to the factories.
The second critical process is the manufacturing phase. In this phase it is important previous selected ingredients are used well to meet the requirements that are set by Rituals. Furthermore, partner factories need to meet certain standards. These factories need to produce the products in a “green” way. This means that it has to be sustainable, and with the least amount of waste possible.
BPM → ‘'Business process management (BPM) is the discipline of improving a business process from end to end by analyzing it, modelling how it works in different scenarios, executing improvements, monitoring the improved process and continually optimizing it.''
BPM is used for continuous business process improvement. The goal for companies is to take control of their business processes and to constantly optimize a more efficient way of producing. BPM consists of several components;
• Design the business process as it should ideally exist and analyze the process as it currently exists and what is needed to improve it;
• Model, or consider, how the business process operates in different scenarios;
• Implement, or execute, improvement solutions, including standardization and process automation;
• Monitor improvements; and
• Continue to optimize the business process. (searchcio.techtarget, 2018)
BPM allows Rituals to really understand the processes that take place inside the company. It gives the management team the chance to analyze every process from end to end. Due to deep analysis's, improvements can be made on an ongoing basis. This will give them the ability to have a bigger impact on the outcomes.
4.1 Introduction It will take Rituals more than just producing and selling for them to be successful. Nowadays, customer service is the factor that makes a business stand out from its competitors. In this chapter, the value proposition will be explained along with its way of sustainability.
4.2 Business Canvas Model
4.3 Value Creation and Added Value
Added value is not fixed or tangible, it is a perceived benefit. This means value is in the mind of the beholder. There are three strategies when it comes to creating value. These are “New Value”, “More Value”, and “Better Value”. Creating new value is the hardest strategy, Rituals is mostly out of the phase of creating new value. Its products are known products within a certain sector. Rituals has been in this sector since its establishment. The company focuses on creating more value and better value. Rituals creates more value through its special gift packages. More value is generated by either keeping the purchase price the same while delivering more with every purchase, or by lowering the purchase price and delivering the same quantity. Rituals applies both strategies on a regular base, by selling gift packages, travel size packages, advantage packages, and many more.
Better value is created through developing the quality of Rituals' existing products. Rituals is constantly developing, not only its products but every aspect of the company. It provides training to its employees, which makes sure the employees can deliver the best representation of the product and are able to sell the full experience. The raw materials are constantly being analyzed and developed. Rituals is keen on a high-quality product, therefore they are constantly developing. All in all, the company wants to sell more than just the product, it wants to give its clients and customers a full experience.
What makes Rituals stand out from its competitors is the mindfulness way of living it provides its customers. (Leadership Now, 2013)
4.4 People, Planet and Profit For a long-time profit has been the most important objective of many companies. People have become equally as important. Rituals has signed a 'Rituals Code of Conduct', with this it ensures that there is no part of child-labor, discrimination and unsafe working conditions. Rituals guarantees salaries and has committed to a clean work environment. It also founded a foundation by the name of Tiny Miracles, this initiative helps communities in Mumbai, India break out of poverty and supports the realization of a fully self-supporting community. In the more recent years the importance of the planet is growing at a fast pace. Rituals believes in the three pillars: Reduce, Re-use and Recycle, and have made a commitment to continuously find new ways to reduce its impact on the planet. The LCA Centre was asked to conduct Life Cycle Assessment (LCA) studies on all our product packaging. Which means that they keep a close eye on the exact CO2 footprint are on packaging, water, and energy use. 98% of the finished products are made in Europe in an effort to keep transport relates fuel and carbon emissions at a minimum. Rituals is currently trying to reach their goal of 100% recyclable packaging by 2023.
4.5 Gains and Pains
Studying the core values of Rituals, several gains came up. First of all, the care shown to its customers and their moral and ethical values. The company shows this by only using natural ingredients and more important, Rituals product are not tested on animals. They are rather tested on volunteers who are recruited for this. Besides this, Rituals believes in Reducing, Re-using and Recycling to help the planet by being innovative. However, striving to be socially responsible and offering higher quality products leads to higher prices. This might be pain with lots of competition on the market with lower prices. Furthermore, Rituals choose not to make use of active advertisement contrary to its competitors.
4.6 CSR (ISO 26000) and Environmental Issues (ISO 14000)
‘'ISO 26000 gives guidance on SR. It integrates international expertise on social responsibility – what it means, what issues an organization needs to address in order to operate in a socially responsible manner, and what is best practice in implementing SR.'' (iso, n.d)
Rituals has always felt the need to be socially responsible, and they keep on making more improvements due to innovation. All of Rituals' gift sets are packed in reusable boxes, their goal for 2023 is to have 100% recyclable packaging for every product. Their social responsibility approach is starting from their raw materials all the way up to their packaging. All of the wood that Rituals use is sourced from sustainably managed forests in Europe and is officially PEPC certified
In this chapter, the financial position will be defined. The financial position will consist of ratios, balance sheet, profit and loss account, and the Du Pont equation. These financial statements are provided by Rituals' financial documents over the year 2016.
5.2 Financial Position
Ratio analysis is used to help us evaluate the company's financial and operating performance. 5 categories of some of the financial ratios will be made; Short-term solvency (liquidity ratios), Long-term solvency (financial leverage ratios), Asset management (turnover ratios) and Profitability ratios.
Short-term solvency (liquidity ratios) Short-term solvency ratios provide us information about the company's ability to meet its short term obligations Current Ratio
(current assets / current liabilities) 112,152,000 / 123,926,000 = 0.9 A current ratio between 1.5 and 3 is considered a good current ratio, the higher the ratio the more able the company is to pay their short-term liabilities. Rituals has a current ratio of 0.9, this doesn't necessarily mean the company is unable to not pay their short-term obligations at all, however, this will have a big effect on their investors.
((current ratio – inventory) / current liabilities) (112,152,000 - 45,793,000) / 123,926,000 = 0.54
A good quick ratio is usually higher than 1.0. Rituals' quick ratio is 0.54, The quick ratio is a bit lower than the current ratio, so inventory seems to be an important component of current assets.
Cash Ratio (cash / current liabilities) 33,109,000 / 45,793,000 = 0.72 times Rituals carries a relatively high cash balance, this means that the company has enough cash to pay a big part of their obligations.
Net Working Capital Ratio ((current assets – current liabilities) / total assets) (112,152,000 - 123,926,000) / 189,595,000 = -0.06 A good net working capital ratio is a positive ratio. Rituals has a negative net working capital ratio, the company is not generating enough money to pay their short-term liabilities.
Long-term solvency (financial leverage ratios) Long-term solvency ratios provide us information about the company's ability to meet its long term obligations.
Total Debt Ratio (total asset – total equity) / total asset (189,595,000 - 52,199,000) / 189,595,000 = 0.72 → 72% Rituals finances 72% of their assets with debt. Debt/Equity Ratio (Total liabilities / total equity) (189,595,000 - 52,199,000) / 52,199,000 = 2.63 times
Equity Multiplier Ratio (total assets / total equity) 189,595,000 / 52,199,000 = 3.63 times Long-term Debt Ratio (long-term debt / (long-term debt + total equity)) 10,829,000 / (10,829,000 + 52,199,000) = 0.17 → 17.18%
Asset management (turnover ratios)
Asset Management Ratios attempt to measure the firm's success in managing its assets to generate sales. It measures how effectively and efficiently the business is managing their assets.
Total Asset Turnover Ratio Sales / Total Assets 399,031,000 / 189,595,000 = 2.10
NWC Turnover Ratio Sales / NWC 399,031,000 / (112,152,000 - 123,926,000) = -33.89 times
Fixed Asset Turnover Ratio Sales / net fixed asset 399,031,000 / 77,443,000 = 5.15 times
Profitability ratios Profitability ratios show a business overall efficiency and performance.
Profit margin Ratio
(net income / sales) 45,578,000 / 399,031,000 = 0.1142 → 11.42%
profit margin ratio measures how well the company controls the costs required to generate the revenues. It shows how much the company earns for every euro in sales. (Rituals earns €11.42 for each euro in sales.)
Return on Assets (ROA) Ratio
(net income / total assets) 45,578,000 / 189,595,000 = 0.2403 → 24.03%
The return on assets (ROA) ratio measures the profitability of a company in relation to its TA (total asset), and also indicates how well the business is performing by comparing their net income to the capital that is invested in the the company's assets
Return on Equity (ROE) Ratio (net income / total equity) 45,578,000 / 52,199,000 = 0.8731 → 87.31%
This ratio is very important to the company's investors. Return on equity ratio measures the ability of a firm to generate profits from its shareholders investments. The higher the ratio the better for the investors since this indicates how much profit each euro common stockholders' equity generates.
These ratios form a good financial overview for stakeholder and others to make decisions. Rituals is not scoring very high on short-term solvency (liquidity ratios), however it is scoring well on the other solvency ratios. Some of these ratios form a Du-pont analysis, the du-pont analysis is shown below.
5.3 Financial Statements
Balance sheet & Income Statement Rituals 2017
R.O.A: 0.24 Equity Multiplier: 3.63
Profit Margin: 0.11 Total Asset Turnover: 2.10
Net Income: 45.578.00 Sales: 399.031.000 Sales: 399.031.000 Total Asset: 189.595.000 Total Costs: 336.483.00 Sales: 399.031.000. Fixed Assets: 77.443.000 Current Assets: 112,152,000
‘'DuPont analysis is a useful technique used to decompose the different drivers of the return on equity (ROE). Decomposition of ROE allows investors to focus their research on the distinct company performance indicators otherwise cursory evaluation.''
6. Conclusion and Recommendations
Rituals is a growing cosmetic brand selling all around the world. The business has many competitors, however its sustainability approach and quality makes it differentiate from other cosmetic brands. Rituals must keep investing in innovative ways to differ them from the others at all times.
Rituals has 600 shops and more than 1400 selling points in department stores worldwide and are often located at A-locations in different cities and airports. Rituals is choosing not to make use of active advertisement, this can be a big weakness since advertisement is becoming a more important factor in cosmetic brands. The brand is known for wanting to make its customers aware of its care towards their ethical morals and values, however this cannot be done without any active advertisement since this comes with a higher selling price. Investing more in active advertisement will eventually lead to more customers.
Rituals is constantly improving and is willing to do whatever it takes to reach its goals. This is a big gain for the company, since this is what made it so successful to this day. We recommend to keep on investing in new methods and new ways to make products more sustainable.
Rituals has grown a lot in the past few years, our analysis on the financial chapter has shown us that the business is quite generating well, however there are some ratios that might frightened some of the stakeholders. This can obviously have a great impact on the business.
As for forward or backward vertical integration, we do not recommend backward integration since Rituals does not have its own factory, warehouses and laboratories. This will eventually lead to more costs which is not preferable. In contrary, forward vertical integration is recommended. Rituals will then have the opportunity to invest more in marketing and
...(download the rest of the essay above)