Objective:
Ganong Bros. Limited (GBL) is a privately owned confectionery firm in St. Stephen, New Brunswick. I, David Ganong am the owner and operator of this business. For the past two years this business has not been profitable which is creating a great concern for the company. My main objectives are to become profitable by increasing revenues by fifty percent.
Analysis:
PEST:
While taking a look at the political aspect of the environment, it is evident that free trade in this industry had a huge impact on GBL. Before free trade Canadian companies were protected from foreign companies coming into Canada and taking the market share. High tariff fees for companies coming to Canada did this. It was as high as 15% and as low as 7.5% for Canadian companies going into the United States. The elimination of this tariff creates more competition and it is a huge concern for GBL. The economical aspect of this environment is the level of difficulty to penetrate the U.S market due to not being able to handle the demand. For the social aspect of the industry, it is apparent that confectionery products have decreased due to a lower proportion of children in Canada. As well as the growing number of health conscious individuals within Canada has negatively impacted the market. The technological trends require more automation, more buying leverage for supplies, and more volume to cover fixed costs.
Porter’s Five Forces:
Threat of new entrants is very high because of free trade; Canada lost their tariff differential. This allows for foreign business owners to easily enter the Canadian market and take part of the market. There is very high threat of substitutes since consumers are able to choose from an array of different snacks from chips and gummies to chocolate. There is also the possibility that the consumer will not go for junk food due to healthy living. Therefore substitutes are very high.
Bargaining power of suppliers is high because there are many manufacturers of cocoa, which allows for GBL and other companies to choose the best one that fits their company. Bargaining power of buyers is also very high because consumers have a wide variety of choices when it comes to chocolate due to the industry competitors. Industry rivalry is high because there are many companies focusing on this market, as it is a pretty big industry.
Alternatives:
Alternative 1:
Since GBL has limited financial flexibility, they do not have enough money required to take the business to the next level. Therefore the first alternative they could choose is alternative financing. The alternate financing option would be partnering with an international chocolate firm in which would take a minority position within GBL. The pros to this alternative is that it is feasible for the company as GBL could keep their business in St. Stephen and build the firm from there by giving the company resources that it lacks. This will allow for more resources as well as keeping the community alive. The cons to this alternative are it will no longer stay a family business due to the international partner. There is also the concern of the international partner being unsatisfied. If the partner does get unsatisfied it could result in relocation of GBL or even selling GBL to a larger company.
Alternative 2:
The second alternative consisted of contract packs. This is used in many companies that are in similar situations as GBL. GBL would sign a long-term contract with the supplying firm to get the financing they need to purchase manufacturing equipment and raw material. This is simply having a supplying firm manufacture a good for GBL. This would increase productivity by outsource the certain product which leaves more time to focus on other product lines. GBL would also remain in St. Stephan and will remain privately owned. The downside to this option would be that GBL would be stuck in a long-term contract with the possibility of the industry failing.
Alternative 3:
Becoming more proactive in the private label sector was another option for GBL. The firm was predicting that the private label trend would grow in Canada. If GBL becomes more of a private label company they would be able to create a much wider product line for GBL in which they could have more sales and be more profitable. They would increase their sales by having consumer demand for quality goods at a lower cost then the name brand products. This could also give GBL the opportunity to have more market share in the industry. The disadvantages to this option are that GBL would no longer be known, as it would be replaced with the Private label name. They would also have a lower gross margin due to the cheaper listing price of the private label.
Alternative 4:
The fourth option for GBL is relocating the company and operations. Ontario has most of the Canadian population as well as a larger portion of GBL’s market. If GBL relocated to Ontario the pros would be having that greater portion of the market within the area that would lower distribution costs. This would also place GBL in a central location where it would be helpful in the distribution of their products. Moving the factory also creates a threat to the company because it will not necessarily increase sales. This could have a negative affect GBL by decreasing profits. It will also take away jobs from the community of St. Stephens, which GBL did not want to do. Also, this approach would be the most costly option, which could be detrimental to the company’s success.
Alternative 5:
The last alternative is the consolidation of manufacturing and shared ownership. This would bring together three firms with similar products and create on combined company. Each firm would be responsible for selling their own products under the name of the new company in which all three firms formed. This will allow for GBL to keep producing their products. It will also widen the product line because each firm is producing something different. GBL will no longer be a family oriented business. This is also a high-risk operation because if this company fails GBL would be in serious trouble.
Recommendation:
Moving forward, I think GBL should choose the second alternative, contract packs. This alternative allows GBL to continue to run their business as a privately owned operation as well as they can continue with the family culture that already exists. GBL would also stay in St. Stephens, which is exactly what they wanted. With GBL staying within the community, it helps tremendously because it continues to employs many locals and that is very important for David Ganong. This option will also allow GBL to focus on other product lines that could help expand their product variety in order to increase sales. This long-term contract will help GBL obtain the specialized manufacturing machinery and raw materials. With the contract, it provides GBL with the financial stability to focus on the other products in their product line while not worrying about their outsourced product. This will give GBL a steady stream of revenue that they do not need to worry too much about. With this revenue stream, it gives GBL the financials in order to make a profit on other products as well. With this being said GBL would have to find reliable companies to sign these long-term contracts. I suggest that GBL continues to find contracts in order to grow their sales. Having more contracts will allow GBL with the capital it needs to keep expanding their products, which in return will result in more growth for the company.