GROUP 4Bastasa, Christian!Dar, Roma Ann!Gotangco, Jerome!Gravador, Mona!Guzman, Rachel!Surrio, Clarice Ann!Strategic Marketing!USTGS!
Outline• The Story!• The Challenge!• Recommended Strategy!
The Story• Joe Whinney, CEO!• “To do for cacao what Starbuckshad done for coffee”!`!• The ﬁrst, organic, Bean-to-BarChocolate Factory in the US!• Quality, Sustainability & Fair Trade!• Theobroma Cacao!• March 2006!• Fair-Trade Certiﬁed, single-origin,blended dark chocolate bars!• Fremont, Seattle!
The “Theonistas”“I think it’s disturbing that cacao tree onlygrows in certain underdeveloped parts of theworld, where those who grow the cocoa treeshardly have eaten the chocolate that resultsfrom what they have grown. It is a disparityTheo will spend its existence bridging.”!“That a majority of cocoa farmers have nevertasted chocolate! Theo is righting this wrong.”!“I was shocked to learn what a hugepercentage of the world’s cacao is produced byslave labor and children. As a chocolate lover,it is satisfying to work for a company that isbucking this shameful trend.”!
“High-end organic chocolate!Products: Food with high-cocoa content”!
Gourmet Chocolate Competitors Compe&tor Year Founded Compe&tor Year Founded Askinosie Chocolate 2005 Amano Ar4san 2006 Cabaret Brewed 2003 Charles Chocolate 2007 Chocolove 1998 Chuao Chocolate 2002 Cocoa Pete’s 2002 Dagoba Organic 2001 DeVries Chocolate 2005 Endangered Species 1993 Ithaca Fine Fran’s Chocolate 1993 2002 Chocolate Jacques Torres Joseph Schmidt 2000 1983 Chocolate Confec4ons Malie Kai N/A Michael Mischer 2004 Noka Chocolate 2004 Patric Chocolate 2006 Recchiu4 1997 Scharfeen Berger 1996 Confec4ons Taza Chocolate 2005 Tcho 2007 Vermont Nut Free Theo Chocolate 2004 Chocolates 1998
Competitors (Market Share) Firm Brand Weight Retail Prices Theo Dark Chocolate (Organic) 3 oz $4.00 Cadbury Green & Black (Organic) 3 oz $3.69 Hershey Bar 2.6 oz $1.19 Hershey Symphony 4.25 oz $1.69 Extra Dark 3.25 oz $2.50 Nestle Crunch 4.40 oz $1.25 Twix 3.02 oz $1.19 Mars Snickers 3.25 oz $1.19
Success Factors • Unique value proposition – the only organic, fair-trade, bean-to-bar chocolate factory in the US! • Growing brand strength! • Numerous awards! • Endorsement/partnership with celebrities and environment personalities like:! • Jane Goodall! • Ben Afﬂeck – Eastern Congo Initiative ! • Passionate and competent Theonistas!
Success Factors • Based in Fremont, Seattle – one of the most liberal,educated, wealthy cities in the US; home of Starbucks,Amazon.com, Nordsrtorm – a hotbed for start-upbusinesses!• Seattle has become a hub for "green" industry and amodel for sustainable development!• 2006 - Al Gore’s Inconvenient Truth!• Social Networks take over the Internet (early – mid-2000s) !
Success Factors • US is the largest chocolate market!• Market demand for certiﬁed organic coca developedrapidly from 2003-2009!• Increase in global demand for organic food - fastestgrowing sector of the US food industry!• Popularity of natural/organic grocery stores in the US:Whole Foods, Trader Joe’s!• Big retail chains with increased organic offering(Walgreens, Walmart, Costco, Safeway)!
Tenets / U.S.P.• All ingredients that are grown sustainably!• Sustainable packaging and printing methods!• Green energy sources to power the factory!• Partnering with growers by ensuring they earn a living wageand have access to education for their families!• Honoring and respecting employees and suppliers!• Educating about social and environmental accountability 7days a week thru public tours of the artisan factory!• Production process as core competency: bean-to-bar , madein small batches (artisan)!
The Challenges• Catering to its niche market had not been proﬁtable, canTheo afford to continue to target just these customers?! • IF YES, how to reach more of them to become more proﬁtable?! • IF NO, who should they target now given the total population/market for chocolate consumers/buyers, considering the different reasons why people buy chocolates!• Seasonal nature of chocolate!• Large competitors shifted to high-margin health-basedchocolate products by acquiring other niche/organicchocolate producers!
The Challenges• Distribution and direct-to-retail costs run as high as 50%of the price of a bar impacting returns!• Distribution and transportation issues!• Theo is too small and not well-known enough to attract“Class A” food brokers!• Factory tours made stafﬁng the store a challenge – needto hire more!
The Challenges • Theo now has 40 employees but is unproﬁtable for the past 3 years (July 2006 – June 2009)! • The vision and strategy are laudable but are they viable?! • Can Theo withstand more unproﬁtable quarters in order to achieve its vision?! • The bedrock upon which Theo had built its foundation – socially responsible business practices throughout the value chain – had yet to prove that it is strong enough to support a proﬁtable business! • Decide whether Theo could continue to operate with its current business model or whether growth necessitated compromise on its principles on some level!
Sales by Channel, Q4 FY09 % of Total (Q4) 4% Theo Retail Store 39% 39% Direct (to retailers) Distribu4on Co packing 18%
Theo Chocolate Financials 2006 - 2009 Year 1 (2006) Year 2 (2007) Year 3 (2009) Net Sales $1,125,808 $2,669,264 $3,096,194 Gross Margin 157,294 767,179 857,788 % of Net Sales 13.6% 28.7% 27.7% Sales & Marke&ng 504,634 940,693 1,097,359 Expenses General & Admin 749,619 1,018,024 1,079,063 Expenses Total Opera&ng 1,254,253 1,958,717 2,176,422 Expenses OPEX as % of Net 111.4% 73.4% 70.3% Sales Opera&ng Income ($1,096,959) ($1,191,358) ($1,318,634) (Loss) Net Income (Loss) ($1,241,901) ($1,368,125) ($1,499,450)
Theo Chocolate Net Sales by Quarter Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Qtr ‘06 ‘06 ‘07 ‘07 ‘07 ‘07 ‘08 ‘08 ‘08 ‘08 ‘09 ‘09 Ending Q3 Q4 Q1 Q Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 CY06 CY06 CY07 2CY07 CY07 CY07 CY08 CY08 FY09 FY09 FY09 FY09 Net Sales ($000, 150 310 330 340 450 700 850 670 620 970 690 801 rounded oﬀ) Δ over same quarter n/a n/a 1142% 1142% 206% 123% 159% 99% 38% 40% -‐19% 21% in prev. year
Theo Chocolate PESTEL Matrix Poli&cal Economic Socio-‐Cultural • As a food company, it is 1. US economic recession 1. Shie in consumer regulated by the US and uncertainty has preference for organic/ FDA. aﬀected spending natural food products. • Countries of its habits of ci4zens. 2. Percep4on that suppliers have history 2. Weakening value of US chocolate do not of civil unrest dollar has eﬀect on promote a healthy • Peru and Ecuador had a interna4onal trade. lifestyle. history of 3 wars in the 3. “It’s just chocolate.” 20th century. Technological Environmental Legal 1. Social Media inﬂuence 1. Cacao can only be 1. Export laws of the people on purchasing grown 15-‐20 degrees supplier countries. decisions. above and below the 2. Theo has to ensure that 2. Online presence of equator. all its suppliers are law-‐ companies to connect 2. Cacao is a seasonal abiding to s4ck to its directly with consumers crop. credo of suppor4ng 3. Pervasiveness of mobile 3. Climate change can only “fair-‐trade” crops. technology. aﬀect crop produc4on.
Recommendations Theo now has 40 employees but is unproﬁtable for the past 3 years (July 2006 – June 2009)! The vision and strategy are laudable but are they viable? - YES! Can Theo withstand more unproﬁtable quarters in order to achieve its vision? – NO, should do something about it (strategy)! Decide whether Theo could continue to operate with its current business model or whether growth necessitated compromise on its principles on some level – NO, must not compromise the very reason the Company exists, just like Starbucks, Theo can ﬁght for its life without losing its soul - there are other ways to become proﬁtable!
Recommendations Distribution and direct-to-retail costs run as high as 50% of the price of a bar impacting returns! Distribution and transportation issues! Theo is too small and not well-known enough to attract class A brokers! Factory tours made stafﬁng the store a challenge – need to hire more!
Recommendations Current Desired Performance Performance
Recommendations Structure System Performance Gap Capability Culture
Structure President & CEO VP – Sales & COO CFO Marke4ng Retail Store Head of Manager & Staﬀ Confec4ons Head of Agents & Reps Engineering Roas4ng Team Shie Management
Capability Training and Development for all Theonistas! Succession Plan! Culture! Leaders and mangers must continue to inspireeveryone they touch, consistently acting as rolemodels, walking their talk – their passion to live theTheo mission at all times!
System – 4Ps of Marketing Expand Distribu&on Channels – local (US) and interna&onal PLACE customers Study the possibility of crea4ng a Starbucks-‐like store where chocolate drinks are served, instead of coﬀee or partner with Starbucks in providing their Signature Hot Chocolate Customers converted as Brand Ambassadors by building a PROMOTION Founda4on where customers could volunteer and interact with others With bigger market to serve, produc4on will increase – should PRICE strive to u4lize 100% capacity from the current 33% -‐ due to economy of scale, price could be reduced PRODUCT Expand Product Lines to expand market served
Recommendations Catering to its niche market had not been proﬁtable, can Theoafford to continue to target just these customers?! If yes, how to reach more of them to become more proﬁtable?! Promotion: Intensify marketing campaign! Place: Expand Distribution Channels - Local (US) and International Markets!
Recommendations If no, who should they target now given the total population / marketfor chocolate consumers / buyers, considering the different reasonswhy people buy chocolates! Promotion: Intensify marketing campaign! Place: Expand Distribution Channels –! Local (US) and International Markets! Price: With bigger market, can produce more, economy of scale, price can be lowered! Product: Expand Product Line, capture all markets for chocolate buyers, one market at a time!
Recommendations WHY BUY END INFLUENCER BUYER CHOCOLATE CONSUMER For consump4on Doctors / Medical Reps. Adults / Teens Children / Partner Companies Adults (CSR, ER Programs) School Cafeteria / Hotels, Restaurants, Bakeshops Events Schools Endorsers For gie-‐giving / Flower shops Corporate Recipients give-‐away Partner Companies Accounts (CSR, ER Programs) Less fortunate Travel Agencies , Hotels Individual: Hosts children Restaurants for all occasions Schools, Churches Endorsers X-‐Deals -‐ Movie Theaters (premier nights for ﬁlms like The Inconvenient Truth)
Recommendations END WHY BUY CHOCOLATE INFLUENCER BUYER CONSUMER Chocolate Drink as an Partner Companies Corporate Accounts Anyone alterna4ve to coﬀee (CSR, ER Programs) – oﬃce vending Hotels, Restaurants machine, oﬃce Endorsers mee4ngs/ conferences Individuals Use chocolate as ﬂavor Company Purchaser Manufacturers Anyone to other food and drinks such as cakes, alcoholic drinks, medicines, vitamins Use chocolate for Beauty Salons, Spa Teens / Adults Teens / Adults beauty products Derma Clinics (hair & body) Manufacturers of beauty products
Recommendations Other Products INFLUENCER BUYER END CONSUMER Chocolate Partner Companies Corporate Accounts Teens University -‐ (ER Programs) Adults including online Hotels, Restaurants, Individuals For professional program Schools and personal (video learning conference) Factory Tours Partner with Travel Corporate Accounts Children / Teens / Agencies, Schools, Adults Companies (ER Program) Individuals
Recommendations The Six Stages of the Buyer Experience Cycle (In which stage are the biggest blocks to customer sa&sfac&on?) Purchase Delivery Use Supplements Maintenance Disposal The Six Stages U&lity Levers Customer Produc&vity Simplicity Convenience Risk Fun & Image Environmental Friendliness
Purchase How long does it take to ﬁnd the needed Local & Interna4onal Markets product? Is the place of purchase arrac4ve and Physical – distributors, retail stores, accessible? bookstores, specialty stores, drugstores, How rapidly can you make a purchase? brokers, agents, tourist des4na4ons – souvenir shops Online – website, social network sites Delivery How long does it take to get the product Six Sigma & ISO Standardized Manual of delivered? Policies & Procedures Do buyers need to arrange delivery themselves? How costly and diﬃcult is it? How diﬃcult is it to unpack and install the new products? Use How eﬀec4ve are the product’s features Health Beneﬁts – an4oxidant, an4-‐ and func4ons? depressant (comfort food), reduce heart Does the product deliver far more power or diseases, lower cholesterol op4ons than required by the average users? As a symbol of love / aﬀec4on (gie) Is the product easy to store when not in use? As a way to support CSR / social and Does the product require training / expert environmental responsibility ini4a4ves assistance? INNOVATION – will not melt even if not in refrigerators (room temperature); will not arract ants
Supplements Do you need other products to make this No, but there are complements – like wine product work? How costly are they? (eg Theo Pairing Kit) How easy are they to obtain? How much 4me do they take? Maintenance Does the product require external Not upgrade but wide range of op4ons – eg maintenance? How costly? with nuts, with alcohol How easy is it to maintain and upgrade the product? Disposal Does the use of the product create waste Packaging materials are biodegradable items? How easy is it to dispose the product? How costly is the disposal? Are there legal or environmental issues in disposing of the product safely?
Strategy Canvass FACTORS OF COMPETITION Taste Variety Price Unique Flavors Availability Health Beneﬁts Packaging Mel&ng Temperature Brand Image Package Size