Pieta Luxury Chocolates

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PETER ABEL, THE YOUNG MANAGING director of his family's firm, was pleased with the way he; had revitalized the firm after he took over in 1989. Since formed in 1923, Pieta had sold its luxury Belgian chocolates through its own small shops. It had a high reputation within the trade and many devoted customers. lr was the country's largest luxury chocolate manufacturer, but until Peter took over, the company had stagnated. In his opinion, Pieta should he more like other leading family firms such as Cadbury, Ferrero and Mars.

When he took over, he launched the company into new ventures. Franchising widened distribution to some small shops which now had corners devoted to Pieta's range. He felt these did not compete with Pieta's own shops because the franchisees were CTNs (confectioners, tobacconists and newsagents), where people made many impulse purchases. These contrasted with Pieta's shops, which people visited to make purchases for a special occasion or as an indulgence. Other distribution channels that were developed included own-label to Marks & Spencer in the United Kingdom, direct mailing for special occasions and exporting (see Exhibit 21.1).

There were some new Pieta shops and 20 per cent of the old ones were refurbished. The refurbishment rate was slower than he would have liked, for he knew that many of the shops were poorly located, cluttered and overcrowded. The well-sited shops often had queues trailing out of the their doors when they were busy, but most did not do so well. The company had not kept pace with changes in shopping and geodemographies. Most of Pieta's shops were on secondary sites in declining industrial towns. Other new channel opportunities, such as 'shop-in-shop' outlets and international expansion, had also been largely ignored.

However, the product range was now wider. The chocolate market was seasonal, so the shops sold ice creams to help summer sales. The outlets also carried a range of greetings cards and Pieta gift vouchers to make them more of a one-stop shop. Soon he would be introducing coun tlin.es aimed at the mass market.

EXHIBIT 21.1 CHANNEL PERFORMANCE

YEAR SALES TONNAGE

OWN

CTN

M & S OWN

DlkECT

NlIMBEK OF

SHOPS

FRANCHISE

LABEL

MAIL

EXPORT

OWN SHOPS

1989

6,049

1

3

3

3

128

1990

7,203

92

255

136

11

130

1991

8,351

392

661

167

24

130

1992

9,933

1,002

636

172

149

132

1993

11,845

1,303

462

205

184

138

1994

14,753

1,259

868

205

167

148

Gross

margin (%)

55

45

37

35

33

Net profit. (%)

6

14

7

3

(6)

EXHIBIT 21.2 COMPANY PERFORMANCE (BER M)

YEAR

SALES GROSS PROFIT

NET PROFIT NET ASSETS

EQUITY

DEBT

1984

2,262

1,285

282

1,218

809

409

1985

2,222

1.215

308

1,305

885

420

1986

2,783

1,568

387

1,503

1,043

460

1.987

3,461

1,961

636

1,896

1,241

655

1988

4,270

2,405

723

2,373

1,488

885

1989

5,653

3,005

779

2,931

1,735

1,196

1990

7,091

4,066

951

3,425

2,002

1,423

1991

8,821

4,696

793

4,228

2,217

2,011

1992

10,887

5,803

975

4,749

2,661

2,088

1993

12,826

6,891

1,123

6,201

2,594

3,607

1994

15,551

9,064

1,372

7,515

3,113

4,402

EXHIBIT 21.3 ECONOMIC PERFORMANCE

YEAH

RETAIL

CTN

COST OF

COST OF

COST OF

SALES

SALES

LIVING

DEttT

equity

(INDEX)

(INDEX)

(INDEX)

(%)

<O/f 1

1984

100

100

100

11

13

1985

108

107

109

9

12

1986

133

121

117

11

17

1987

151

131

128

14

18

1988

175

155

148

16

23

1989

208

191

184

17

28

1990

238

223

213

17

21

1991

271

257

251

12

20

1992

310

285

274

13

26

1993

345

297

311

16

23

1994

389

351

360

16

25

As a result of his efforts, Peter was able to present a dynamic set of results to his family shareholders (see Exhibit 21.2). lie was angry to find that some shareholders were not as supportive as they had been. Some worried about the company's reputation being spoilt by it becoming less exclusive. Others were anxious about the new injection of equity he was requesting, lie thought it odd that the strategy they had supported and hacked financially two years ago was now in question. Tie reminded them how well the firm had done despite the tough economic climate over the last few years (see Exhibit 21.3). The company was now more professional than it had ever been. He had just introduced a new tier of senior people to manage the day-to-day operations of the company. These were not family members, but were bright and very well qualified and had broad experience within the industry. With them in place he would have more time to think about and initiate other ways of developing the company.

QUESTION'S

1. Comment on Abel's expansion strategy and I'ieta's performance since he took over.

2. Argue the case for further expansion wanted by Abel.

3. What is the scope for channel innovation in the industry?

4. How is Abel's strategy endangering Pieta's future performance and brand image? What, if anything, has Abel been neglecting?

5. Track the changes in C3 (capital cost covered) and EVA (economic value added) for Pieta over the last ten years. Marketing Highlight 16.3 shows how to do it.

6. Comment on the C1 and EVA trends and compare them with the impression given by the growth in profits and sales. What strategies of Abel's explain the performance that the C1 and EVA reveal? Should the trend be changed and, if so, how could it be changed?

SOURCE: From company records. All daces, figures and names have been changed for commercial reasons.

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