Ben & Jerry

BEN AND JERRY’S HOMEMADE ICE CREAM INC.: A PERIOD OF TRANSITION CASE ANALYSIS

Background: Ben & Jerry’s Homemade Inc. (B&J) is one of the leading players in the super premium icecream market in the US. It currently holds 42% of its market share. It benefits from its high product quality, marketing strategy, high employee satisfaction, social image and overall good financial situation while at the same time it also suffers from high costs of sale, poor policies towards distributors and suppliers, and lack of international focus. While the company made a net loss of $1.9 million in 1994, this was due to an asset write-down of $6.8 million and the introduction of a new line of ice-cream which both can be regarded as nonrecurring events. B&J, with its highly differentiated product with luxury character is not as affected by the downturn even with a slowing American economy and with it reduced ice-cream sales. However, the company faces the risk of falling behind strong competition. In order to strengthen its competitive position it will have to drive down the cost of sales, expand internationally, and expand domestically. The purpose of this strategic plan is to identify and suggest the optimal solution for B&J to gain a strong competitive position in terms of market share and profitability in its business area. We believe that B&J should adopt ways to   

Strengthen its current market position Expand in domestic as well as international market and Reduce production costs.

Current position of the company The company Ben and Jerry can still be considered healthy even though the company made its first yearly loss in 1994, it. The loss is mainly due to a few "one-off" factors. 1. A large portion of the debt can be accounted for by the asset write-down of $6.8 million. This happened mainly due to problems with automated handling processes and refrigeration equipment. 2. The introduction of the "Smooth, No Chunks" line in the same year also resulted in some extra advertising and introduction costs. The low debt-over-assets ratio and high liquidity ($20 million) proves the company's ability for further investment and/or international expansion. The performance record compared to the industry average also proves this point.

Issues relevant in present scenario before entry of new CEO  Social environment: 1. They were scrutinized over their social initiatives and were accused of harming the local tribal culture. 2. Apple Pie issue, they had to terminate sourcing from New York Bakery due to fall in demand for the concerned flavor.

 Economic issues: 1. They were spending a lot of resources in transporting to their production facilities in Dreyer’s. Ben and Jerry’s promised to use dairy products from local Vermont in all their offerings and hence it needed a lot of shipment and inventory management and logistics. This increased their operational costs. 2. Mix-in flavors which dominated the product portfolio were operationally inefficient in terms of costs. 3. Problems due to diverse product line (44 flavors), with no information with regard to which flavors were perceived well and market research. 4. Ben and Jerry’s suffered a failure when it tried to include automated handling facilities and refrigeration equipment in its St. Alban’s, which led to a 6.8 Mn write-down.

 Human Resources issues: 1. The 7 to 1 ratio that was followed as part of the company HR policy was leading to poor quality of top and middle management. While the lower grade staff were happy being paid more than industry average, the higher-grade officers were taking a huge cut and hence Ben and Jerry’s was not able to attract the best applicants as they found better offers elsewhere

 Marketing and Advertisement Issues: 1. By 1994, there were over 100 scoop shops in US, 4 in Canada,1 in Israel and 1 in Karelia, they were not very profit making as they had never exceeded 10% of revenues. In 1994, they were only contributed towards 3% of sales

What steps can Bob Holland take to handle these imminent issues as the CEO of the company? The owners and founders of the organization accepted that they had limited knowledge in the field on business and hence had no clue what they should do to run a business efficiently. And although they faced quite a success in their venture they did not rely on their naivety to continue and wanted an expert to handle the business. So, Bob Holland can look into these issues and follow the following steps to remove them.

 Social environment: 1.

2.

The first step that Bob Holland should do is to build back the trust with the community as it is absolutely necessary to be in coherence with the external environment to maintain a stable internal environment. So, he should extend help to many local producers of nuts and fruits so that they can gain mutual benefit. He can start a community program where Ben and Jerry’s will search for potential independent producers in the locality and help them be a part of this big business. This will help uplift the brand value of Ben and Jerry’s as a social friend. Simultaneously he may appoint a group for internal enquiry if at all the accusations were true and then take the necessary steps to stop them. Instead of terminating relationship with New York bakery altogether, Ben and Jerry can issue a study to know what other potential flavors are there where they can use the resources of the bakery. Since they have been an old partner, it will be easier to work with them instead of searching for another source. A taste survey on the potential market can give an idea of what the customers are wanting and accordingly align a product with New York bakery. Long healthy relation with suppliers help build and sustain a company.

 Economic issues: 1. In order to reduce operational costs due to far away manufacturing centers, He may look for opportunities nearby to open a second center. 2. He can ask his team to conduct a survey on which flavors are taking the greatest hit and which are their best-sellers. Accordingly, they can remove the loss-making flavors from their product offerings and use more resources in producing the flavors that earn profit.

3. They can also conduct study on what flavors are not present now in their portfolio but are in high demand among consumers. Then he can appoint a R&D team to develop new flavors in alignment with the demands and launch them in their product line. 4. Move to low fat offerings to cater to the health-conscious consumers, while vying on increasing the market share of its yogurt offerings. 5. Gradually move towards the smooth ice creams as they are operationally efficient, use marketing tactics to increase their sales while also increase prices for its mix-ins. 6. In order to avoid sunk costs such as the use of technology that lay defunct now, Bob Holland should educate the employees to conduct thorough study of future proposal and their probable consequences, both good and bad. Such ideas may look good but all should not be viable and such infeasible ideas should not be allowed to eat away cash.

 Human Resources issues: 1. To hire better people in the middle and top management, Bob Holland should restructure the pay policy in alignment with industry standards. For lower grade employees who were being paid higher than average, he may introduce variable pay and performance bonus. In this way, he will be able to keep both top and lower management happy. While top management is being paid higher, they will not be leaving the organization and the lower management will not feel deprived as they are given the opportunity to earn as before provided they work hard.

 Marketing and Advertisement Issues: 1. Study the scoop shops across different locations and eliminate the ones which are incurring losses 2. Instead of spending in scoop shops and other franchises, partner with more number of cafeterias and fine dining restaurants. Launch your premium products in these locations and charge high amount as the consumers eating in fine-diners are not price-sensitive. This can help increase revenue 3. With the increase in health-conscious customers, partner with more private hospitals and offer low fat frozen desserts in these locations

 Administrative steps: Decisions regarding the internal running of the company can be taken up. There is potential to cut down the cost of sales to improve the competitive position. There is no indication about the composition of the cost of sales in the information provided, especially no information about the structure of the administration costs. However, a few words about the labor costs can be said. Since the leadership of the company believes in a labor-intensive production, labor costs are a main part of the overall cost structure. To reduce those costs, the company could: 1. 2. 3. 4. 5. 6.

Reduce the wages Shift work force to the new St. Albans production plant. Reduce the financial and non-financial employee benefits. Reduce working hours as long as production capacity exceeds market demand Not increase the wages until they reach industry average Reduce the work force volume and implement more labor efficient production means.

On the sales side of the production, more emphasis could be made on: 1. Non-fat Sorbet flavors 2. Increasing demand for super premium high-fat flavors 3. Expansion or withdrawal from specialty flavors (Peace Pops)

Proposed Strategies The following is a list of feasible strategic options, in line with the company’s social mission. 1. 2. 3. 4.

Reshaping internal structure Restructuring of distribution; channels, distributors Concentration on key markets International expansion

Ben & Jerry should adopt ways to expand total market demand, and at the same time protect its current market share through good defensive and offensive actions. Through strategic internal and external changes, B&J can improve the situation of high cost structure. The options can be divided into home market and international operations. Internationally, it can either expand in order to profit from the growth of the market, or it can focus on the home market to avoid the risks and additional expenses of international expansion. Part of B&J’s long-term strategy should be to become a market leader, using its competencies in R&D, new production plant and strong brand image. While trying to expand total market share, B&J should increase their marketing expenditure, maintain product quality and innovate flavors. B&J has to continuously defend its current business against rival attacks.