Task 2 - FOR CATH

CASE STUDY

Part 1

You are the Marketing Manager for ‘Cocoa Delights’, a chain of 15 gourmet dark chocolate stores in Melbourne,

specialising in creating handmade dark chocolate products. The organisation is close to reaching its set goals and

looking to activate the next phase in its development. The CEO has asked you to undertake an organisational review.

To help you get started, the CEO has provided you with:

 The Cocoa Delights marketing plan (December 2018)

 An excerpt of the annual report by the Chair (December 2018)

 A subsequent interview

 The latest report for the industry.

You review the annual report and note the following statement by the Chair of the Board.

Within the next 5 years, Cocoa Delights will become a national retail brand that satisfies our customers with a range

of unique, high quality dark chocolate, as well as providing exceptional customer service from our highly skilled and

dedicated staff.

At the time of the annual report, the Chair of the Board was interviewed by a reporter who made the recording

available on their website. You watch and listen to the interview and hear the following statements by the Chair of the

Board.

Cocoa Delights has always been daring and unconventional. Creativity and innovation have always been our strength

and the cornerstone of our success. For our stakeholders, we have always been about stewardship and adhering to

professional and moral standards of conduct in all that we do. For employees, we are committed to encouraging self-

directed teams; we cultivate leadership and maintain high levels of safety. Externally, we are committed to sustainable

environmental practices and offering meaningful value to our customers.

By 2023, I see Cocoa Delights as being a significant retail presence in every Australian capital city, starting with 22

stores in the greater Melbourne area and growing to 100 stores Australia wide.

Our market strength is our ability to source the finest cocoa beans at prices that customers believe represent value for

them but also provide the organisation with the required margins and financial returns.

During your interview with the CEO, you ask about the changes taking place in legislation that could impact on Cocoa

Delight’s operation. The CEO explains:

There is a big push by governments on the issue of sustainability. This focuses mostly on the environmental issues of

waste management and energy conservation. In the past, Cocoa Delights stores have been deliberately designed to be

bright and comfortable places to shop. This meant a significant cost in electricity usage to run the lights and air-

conditioners. With the new laws, we are going to have to find ways to provide customers with what they want, without

the high electricity usage.

Another issue that the government is looking at is having the country of manufacture clearly stated on imported

products, although at present the government is allowing the industry to self-regulate rather than pass laws. Cocoa

Delights has always practiced this activity and is proud to be Australian made. We see this as an opportunity to increase

our market- share, as some of our competitors are selling chocolate products that are imported from countries with a

poor reputation for quality and employment ethics.

You then ask about the new phase in the strategic plan, which the CEO describes as a big step:

We now need to change our focus from local suppliers of services to national ones, and to think about opportunities

to save money by gaining a wider geographic benefit and choosing media with a national reach.

When asked about the current marketing plan against actual results for the year, the CEO reports:

We achieved our store growth and sales growth but our gross profit margins are currently sitting on 46%. I think we

are still below the threshold for gourmet chocolate and hot drinks, which we predict should be at an average gross

profit of 63%. Expansion in sales and cost effectiveness are key issues here. We have spent $60,000 on radio

advertising and $280,000 overall, including PR, magazines and direct marketing. While this radio advertising

expenditure achieved sales results, it was at a significant cost that was not initially planned for. PR has been particularly

useful, resulting in many write-ups on our unique offer.

The customer loyalty lists had achieved a total of 34,500 and a survey indicates that 58% of people in the target market

recognise the Cocoa Delights brand and what it represents.

Overall, our SWOT analysis in 2018 is still valid for today. Not much has changed in that regard.

Studying the latest report for the industry, you note the following differences between Cocoa Delights’ marketing plan

from 2018 and their current situation.

 Interest rates are in fact rising.

 Unemployment has also risen to 5.8%.

 The social trend towards people eating chocolate is growing stronger than anticipated.

 Broadband rollout has been delayed, putting on hold some of the organisation’s internet marketing

plans.

Part 2

The Chair of the Board outlined the organisation’s vision in the following statement:

‘By 2024, I see Cocoa Delights with a significant retail presence in every Australian capital city, starting with 22 stores

in the greater Melbourne area and growing to 100 stores Australia wide’

To achieve this vision, the Board has been exploring various options, including:

 Funding and running the expansion program as a wholly-owned operation

 Franchising

 Taking up the option of a joint venture

The CEO has approached you to examine the two options of either franchising and joint venture partner, and provide

a report on each. The CEO has provided you with a consultant’s report on the franchising option, and a proposal

from Haigh’s Chocolates on the joint venture option.

You have been asked to prepare a PEST analysis on the operating environment for both proposals, and then examine

issues of costs and benefits, risk, fit and potential impact of each of the proposals.

Using the latest industry analysis, you identify the following aspects of the operating environment.

According to the latest industry report, interest rates are rising in the short-term but expected to level out at sustainable

levels for the coming three years. Disposable income has reduced due to rising interest rates, however, this shortfall

is expected to be recovered in the long-term, with wage increases expected to outstrip inflation rates by 2%.

Unemployment levels are also increasing and expected to climb steadily to 6% in the coming years.

The Government is currently passing legislation that requires businesses to monitor and reduce their waste and energy

use. Significant penalties are planned for businesses that don’t comply with the new directive.

Technological developments with the broadband rollout across Australia have been delayed, although the rollout is

continuing and will be completed in the next three years. Internet retailing options are expanding, and most ‘bricks

and mortar’ retailers are taking advantage of this new technology.

Cocoa Delights will try to capitalise on the social trend of consumers being more health conscious, by promoting the

health benefits of dark chocolates and offer the largest range of dark chocolate varieties and products.

You review the consultant’s report on the franchising option with the CEO and note the following:

 The franchising concept will result in fast growth and could achieve the 100 store target within three

years. Franchisees bring their own capital and they provide a ready solution to the store manager shortage.

 Introduction of greater legal issues, with each store operating on a separate legal agreement.

 Current store managers are encouraged to run the store ‘as if it were their own business’ but the lack

of an equivalent financial reward does not inspire many managers to put in the hours required. Franchising

continues this theme but achieves greater results due to the increased rewards for hard-working store

managers.

 Potentially greater conflict between local-minded business owners and the interests of a national

brand.

 Proven Melbourne stores provide easy marketing and acceptance of franchise sales.

 Significant government laws protect franchisees, increasing the need for strict compliance by the

organisation.

 Expansion would start in Sydney and move to a new city once profitability is reached in Sydney.

You also review the proposal by Haigh’s Chocolates with the CEO and note the following:

 Haigh’s Chocolates overview: Mid-sized operations of only a few stores per city. Haigh’s sell

chocolates at mid-ranged prices. No imported goods. Extensive advertising. Medium to high quality product.

Currently has stores in Melbourne, Sydney and Adelaide.

 View themselves as operating in different market segments within the same industry.

 Haigh’s already understands the markets in the three established capital cities, and are looking to

open a few stores soon in Brisbane. They have the necessary contacts for essential services, council

compliance and state government compliance issues.

 There may be a conflict of interest between what is good for Haigh’s and what is good for Cocoa

Delights.

 The rollout to 100 stores is expected to take 5–7 years.

 Advertising would be cheaper, given that they already access media via extensive advertising for

Haigh’s Chocolates.

 Joint brand advertising could be conducted because the market segments are complementary rather

than competitive.

 Customers could enjoy greater access to all of the product groups, including the cheaper range of

chocolate.

 Association with a mass produced product and brand could impact negatively on Cocoa Delights’

premier reputation for quality chocolate.

 Haigh’s Chocolates will help establish Cocoa Delights’ brand awareness with access to low-cost

combined media buys in other capital cities.

 Haigh’s Chocolates will share advertising space on billboard, advertising and PR articles.

 Concerns over Haigh’s Chocolate’s past advertising practices.

 Joint industry-wide promotions will allow Cocoa Delights to establish early traction in its goals for

market share in other capital cities.

Part 3

The CEO has informed you that the Board have considered your analysis of the two expansion opportunities

(franchising or joint venture), along with their own assessment of a wholly-owned company expansion, and decided

to go ahead with the joint venture proposed by Haigh’s Chocolates.

The CEO has asked you to develop some marketing objectives for the expansion plan.

You arrange a meeting with the CEO and take along Cocoa Delights’ marketing plan from 2018 and the Haigh’s

proposal to help you determine the new marketing objectives.

You note the targets in the Cocoa Delights Marketing Plan for 2018 focus on building brand awareness amongst

customers. The CEO explains that this is a benchmark that Cocoa Delights would like to achieve in all markets in

which it operates. This is in keeping with the Chair of the Board’s statement, ‘By 2024, I see Cocoa Delights with a

significant presence in retail chocolate in every Australian capital city’.

The CEO states that, in Melbourne, it was brand awareness that helped to secure the key objectives of market

penetration and share, and that this should continue to be the goal. Brand awareness will be achieved by the joint

venture TV advertising campaign, costing the company $1.1 million in each new market. This money has been set

aside in the budget, as has provisions for an increase in staff for the marketing department to help manage the

campaign. Priorities for the plan are to ensure that the branding exercise complies with the Competition and Consumer

Act 2018, and that it is not associated with activities that are not in the community’s best interests. Established markets

will allocate 20% of the advertising budget for brand awareness rather than product promotion.

Managing brand awareness is an overall company responsibility. All managers and executives will be charged with the

responsibility to display the brand prominently in stores, advertising, packaging, staff uniforms, vehicles and in PR

articles. The key to managing this target will be regular feedback from surveys and research conducted by national

consultants Holt & Burrows.

You also note that the sales analysis of existing Melbourne stores shows handmade chocolate at 45%, partly handmade

at 25%, machine made chocolate at 15%, together with the hot beverages at 15%. The CEO explains that, initially,

the handmade chocolate gains early traction with the market, followed by uptake in other categories. For this reason,

the CEO suggests that a target of 30% for machine made chocolate would indicate that the new markets were on

track to achieve the overall sales target.

Often a new customer’s first purchase is from the Dark Decadence range, and this provides an opportunity to sign

them up for a loyalty program. Therefore, the initial advertising budget will feature items from this category, and also

be the focus of the front entrance prominent display during the initial period.

In terms of market share, the vision of the company is to dominate the markets in which Cocoa Delights operates.

The CEO explains that Cocoa Delights has approximately 18 % of the Melbourne gourmet chocolate market, and

they expect to replicate and increase this rate in the long-term for every capital city in which they operate. From a

position of dominance, the company is able to achieve its sales targets, as well as the gross margins required to succeed.

A full marketing plan will be developed, with resources including access to Holt & Burrows and 5% of turnover

allocated to finance the budget to achieve this target. The company will need to ensure that it complies with the

competition rules set by the ACCC for the market dominant player. To achieve this share, it is very important that

stores achieve their break-even target of $3 million. It is estimated that new markets will need to achieve about 15%

market share before break-even sales levels are secured.

Working closely in this area with the joint venture partner should open doors to established marketing channels that

will ensure the achievement of this target. Legal agreements with Haigh’s Chocolates, covering a Cocoa Delights veto

right, will ensure that all marketing is conducted in a clearly defined ethical and legislative compliant way. The following

notes are from your Haigh’s Chocolates proposal review:

o Haigh’s Chocolates overview: Mid-sized operations of only a few stores per city. Haigh’s sell

chocolates at mid ranged prices. No imported goods. Extensive advertising. Medium to high quality product.

Currently has stores in Melbourne, Sydney & Adelaide. Strong in the replacement segment rather than new

and refurbished dwellings.

o View themselves as operating in different market segments within the same industry.

o Haigh’s already understands the markets in the three established capital cities, and are looking to

open a few stores soon in Brisbane. They have the necessary contacts for essential services and council/ state

government compliance issues.

o There may be a conflict of interest between what is good for Haigh’s and what is good for Cocoa

Delights.

o The rollout to 100 stores is expected to take 5–7 years.

o Advertising would be cheaper, given that they already access media via extensive advertising for

Haigh’s Chocolates.

o Joint brand advertising could be conducted because the market segments are complimentary rather

than competitive.

o Customers could enjoy greater access to all of the product groups, including the cheaper range of

chocolate.

o Association with a mass producer could impact negatively on Cocoa Delights’ premier reputation for

quality chocolate.

o Haigh’s Chocolates will help establish Cocoa Delights’ brand awareness with access to low-cost

combined media buys in other capital cities.

o Haigh’s Chocolates will share advertising space on billboard, advertising and PR articles.

o Concerns over Haigh’s Chocolate’s past advertising practices.

o Joint industry-wide promotions will allow Cocoa Delights to establish early traction in its goals for

market share in other capital cities.

01 - Requirements and Instructions for TASK 2.docx

Requirements:

Font: Times New Roman

Size: Font size 12

7 APA Style reference and In-text citation

225 words for each number

ONLY READ THE PART 2 OF THE CASE STUDY in order to carry out this task. Your task is to research and outlining your findings. Use the following points as a guide to your research.

2.1 Cost and benefits (You need to do both a and b. Especially letter b)

a. You need to explain the Cocoa Delight Company’s franchise concept/

b. What are the benefits gained? (Example: market penetration, joint venture)

- Write the benefit in a word format and you have to link that in Financial benefit

- Write the financial benefit in figures meaning in “Financial format”.

- Please make sure that the benefit outweighs the cost

2.2 Risk (Note: For this Risk only, you can only choose either a or b

a. (You can do the risk in the objective or you want to talk about those)

b. You can discuss the risk that involves conflicts of interest, or conflict of interest in supplies, or conflicts of interest in other areas, etc.)

2.3 Fit

a. Explain how it fits into the current business environment (e.g. look into the store manager roles, franchisees roles, etc).

b. How are we are going to fit in joint venture with Haigh’s Chocolates. Are the join venture going to be smoothly or will there be a change on how we run our stores competing to Haigh’s Chocolates.

c. Or If we are doing it on our own (Cocoa Delights’ Company) in expanding our stores, how are we managing it in terms of store manager roles, or franchising roles, managers can become store owner, etc.

2.4 Impact

a. Explain the possible impacts to the company? (e.g. expansion, impacts on government laws) If we going to be extending with our own franchising, Impacts on regulation, Impacts on legislation, or codes of practices, or if your prices are going to go up or down, etc.