2. Company Overview
• Small well-established company
• Operating in drinks vending industry (B2B)
• Complete drinks vending package
• £4.8 million annual turnover
• Operating in three divisions:
– Commercial
– Public
– Industrial
2
3. Financial Performance
• Favourable Sales growth from years 1-4
• Reducing Gross Margins (%) and (£)
• For example:
In year 1 the company was selling far less
than they are currently but making more
profit!
3
4. Sector Overview
• COMMERCIAL
– Sales declined by 14% over last 5 years
– Poorest performing in terms of revenue
• PUBLIC
– Sales increased by 36% over last 5 years
• INDUSTRIAL
– Sales increased by 23% over last 5 years
– Sales more than triple that of any other sector
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5. Market Analysis
• UK VENDING MARKET:
– Coffee & Cold drinks experience rapid growth
– Social & Political trends towards healthy lifestyles
Education
Healthcare
– Ethical tea and coffee boost sector value
– Smoothies 513% growth from 2003-08
5
6. Competitor Analysis
• UK VENDING MARKET:
–Selecta largest vending company in Europe
Bunzl Vending Services
AutoBar
Manchester Vending Services
– Complete packages of benefits
– Vending Machine Support
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7. Product Development
• Changes in vending machine
• Broadening the product range
• Changing the coffee range
• Changes in cup design
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8. Customer Choice Factors
8
COMMERCIAL PUBLIC INDUSTRIAL
Price
Reliability
Quality/Taste
Price
Availability
Reliability
Quality/Taste
After-sales
Service
10. Strategic Objectives
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Operational Objectives
1. To achieve 5% increase in total sales within the next 5 years
2. To increase market share by 30% over the next 10 years
3. To increase Profits by 10% within the next 5 years
1. To introduce 5 "healthy lines" to 30% of our customers within the
public sector within the next 3 years
2. To increase the number of clients within the industrial sector by
5% over the next 3 years
3. To introduce 4 "ethical tea and coffee" lines to 20% of our
customers within the commercial sector within the next 3 years
11. Financial Forecast
• New product range and machines resulting in
increased sales
• Savings on coffee and cups improving gross
margins (% and £)
• Gross Margin (£) projected to increase by
£322,000 over next 2 years.
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Established in early 1950’s.
Grown to become a national organisation operating in a number of market sectors
Complete drinks vending package:
- Supplying both cups with ingredients and/or vending machines for their automatic dispensing
- In common with other vending companies, CupCo makes no money on the sales of the vending machines.
- All profits come from the sales of beverages that are vended through its machines.
Commercial
60% of the total drinks volume consumed out of the home.
Includes; Hotels, Pubs, Restaurants
Sells direct to some customers. Others buy through wholesalers and cash-and-carrys.
Public
12% of the total drinks volume consumed out of the home
Includes; Hospitals, Nursing homes, Education
Industrial
Includes a variety of different sized organisations.
Larger organisations tend to require more complex vending systems.
As you can see in CHART 1, the company has experienced favourable sales growth from years 1-4, with a slight reduction in year 5.
On the surface, CupCo appears to be performing well. However, if you take a look at Chart 2, this illustrates the organisation's Gross Margins (%), for each of the sectors Scott outlined.
As you can see, the company has experienced a significant decline in the last 5 years - in some sectors more than others. This has had a knock-on effect on the Gross Margin (actual)
For example, in Year 1, the company was selling less - and making more profit!!!
Recent years have seen the vending business become more competitive. Major suppliers offering large companies substantial packages of benefits including the provision of vending machines and a host of small companies offering low-cost vending machine support on a regional basis.
The likely reason for cutting these margins, is to allow the company to compete on price in a competitive market.
As a result, CupCo has seen its profitability shrink and sales growth level off.
It is essential for the business to understand the relative importance of each sector…
Although the Commercial Sector accounts for 60% of the market. It only accounts for 18% of CupCo's sales and has experienced a 14% decline in sales over the past 5 years, therefore making it the companies poorest performing sector in terms of revenue.
The Public sector accounts for 15% of CupCo's sales. Sales in the sector have increased by 36% over the last 5 years, despite a slight decline in Year 5.
The industrial sector makes up 67% of CupCo's sales. Changes in this sector will have the biggest impact upon CupCo's overall performance.
We're now going to take a look at 'why' the sectors have experienced this….
When looking at the UK Vending Market, Coffee & Cold drinks have experienced the rapid growth in an market currently in decline…. On the go lifestyles.
Recently, the education sector has been hit by moves towards healthy living.
Initiatives such as those by Jamie Oliver and, more recently, national guidelines on food prepared in schools have led to some institutions removing all vending machines from their site.
NHS Wales are to ban vending machines selling high in fat, salt and sugar (HFSS) foods and drinks.
However, other products such as water, pure fruit juices and low-fat yoghurts are still allowed
Moves such as the arrival of ethical tea and coffee, as well as branded coffee have also been helpful in boosting the value of the sector.
Political and social trends present both opportunities and threats to CupCo. Political initiatives and social moves towards healthy lifestyles pose a threat to the business' current operations. These changes also present opportunities for possible product development.
Smoothies 513% growth from 2003-08
In terms of competition Selecta is the largest vending services company in Europe
Market leader in the UK and Ireland.
Other companies in the industry include…
Compared to these companies, CupCo has a relatively small market share.
These companies operate in the same sectors at CupCo, and due to their vast size are able to offer complete packages of benefits to customers at a competitive price.
Some small companies are able to offer low-cost vending machine support on a regional basis
Everything that Scott and I have discussed has effected the performance of CupCo. It has to take action in order to ensure its long-term survival. Steve will now run through some potential options with you….
Due to the declining profitability of CupCo, the business is faced with some important decisions, involving changes to its product range, in order for the company to become more competitive.
There are a number of product development considerations, each of which has cost and timing implications:
Changes in vending machine
The company could introduce new vending machines, able to supply larger offices, and a wider range of drinks, especially cold. Such a development would require eight months' work and cost around £100,000.
Broadening the product range
The company could look for further products to widen the product range by considering some of the recent trends in drinks vending. The table in Appendix 5 helps demonstrate some of these trends.
Changing the coffee range
A reduction in the quality of coffee could improve margins by 10 percent.
Changes in cup design
The current CupCo cup is designed to provide greater insulation to the consumer than the competitive products, and as a result is substantially more expensive. Reducing the material content of the cup could improve margins by a further 10 percent.
Start exercise.
In order for us to give firm recommendations of future action, it was essential for us to complete a segmentation matrix (Williams, 2006), which can be found in the appendices of our report.
When looking at each of our segments to try and identify the key factors that are likely to influence their choice of drinks supplier – it became apparent that we needed to take this a step further to ‘get into the heads’ of the consumer of the product, as their requirements would ultimately determine the organisations CCFs.
We also completed a Targeting Decision Matrix. This assisting us in developing not just hygiene factors, but motivational factors too – things that are likely to influence the purchasing decision of members of the Decision Making Unit.
These are things such as a tailored service for each organisation, possibly looking in the future at vending machine support and involving the customer in our decision making through feedback.
Here are our findings…
You may ask why quality/taste isn’t a CCF for the public sector… We made this decision based on the consumer’s expectations at the time of purchase. Given that the public sector primarily caters for hospital and schools – we asked ourselves what we would expect in these environments. Would we expect a high quality cup of coffee in either of these locations? Probably not. Price and Availability are therefore our key factors. This presents an opportunity to lower the quality of the coffee and increase profit margins for the sector by having a competitive advantage of price over other competitors in the market.
Purchasing vending machine can be used across all sectors. Ability to dispense more drinks could result in increased sales.
Broadening product range - in light of social and market trends (smoothies and healthy shite). Not appropriate for industrial, not a CCF.
Public Sector - essential to consider CCFs and what you expect, dependant upon the purchasing situation.
E.G. When you're in a hospital - you expect crap coffee!!
Changes in cup - apply to all. When people buy a drink from a vending machine - the benefit they are seeking (refreshment) comes from the drink and not the cup. Therefore although this may be a USP for CupCo, it is unlikely to affect sales either way.
We've now got some further recommendations based on the social and market trends discussed earlier.
Commercial
The introduction of a new vending system that will broaden the product range will address consumer choice factors identified for the sector.
Further product development addressing the changes towards healthy eating and drinking will also increase consumer satisfaction
Focus on healthy product range
Targeting hotels, sandwich bars and leisure clubs
Public
Focus on healthy product range for education
Healthy incentives schools
5-a-day
every child matters
Industrial
Maintain
Larger outlets = heavy competition.
Therefore target smaller to reduce threat.
76% of outlets in sector have 100 or fewer employees – potential opportunity?
In light of our recommendations we have created a financial forecast for years 6 and 7.
Chart 3 illustrates the anticipated increase in sales
Chart 4 illustrates the projected increase in Gross Margin (%)
Company aims to reposition is 'healthy vending company' - developing a competitive advantage. Particularly in Commercial and Public sectors.
Industrial sector doing OK… Maintain….
Increased gross margins
Reputation… increased sales.
