Starbucks – Storm in an instant coffee cup

Business Turnaround Strategy – February 15, 2009

Will a ‘transformational product’ help Starbucks turnaround?

Starbucks will begin selling a new product, called Via. Via is an instant coffee product wherein coffee loving consumers can brew the coffee by emptying the granules into hot water (which will replicate the taste of Starbucks coffee).

Starbucks CEO Howard Schultz had already cited this announcement as a game changer which would deliver innovation, competition, and value in
Starbucks’ turnaround strategy. Starbucks’ top management is confident that Via is a ‘transformational product’ in the $17 billion instant coffee market and the new product had significant potential for Starbucks.

Starbucks’ falling profits and consistent Innovation

In recent years, Starbucks’ profits had started to decline. This was due to over-expansion and ever increasing competition from competitors like McDonald’s and Dunkin Donuts. With consumers spending less Starbucks had to close its stores.

The company’s efforts to attract customers with new products such as breakfast foods, Vivanno smoothies, Pike Place Roast have not taken off in a manner that it had expected. (Also read: Starbucks for a dollar, Storm in a coffee cup?)
This recent attempt with instant coffee may take the same path with soluble coffee being deemed as poor quality. Starbucks however claims that Via tastes just as good as brewed coffee. Analysts feel that the attempt will generate only short term revenues for the company.

The new product will be put to test soon. If it also fails then Schultz will have to rethink re-franchising, or selling existing stores to employees which till now he and other Starbucks management feel will result in brand dilution and losing control over the brand.

Case Studies in Coffee Retailing (PDF files)

A bit of UPS History, some UPS and some downs

Business Management Article – January 31, 2008

UPS reported a fourth-quarter (2007) net loss of $2.58 billion, compared with a net profit of $1.13 billion, a year earlier. The quarterly loss was mainly due to a $6.1 billion pension-related charge.

United Parcel Service Inc (UPS), the world’s largest package delivery company has come a long way from being a private messenger and delivery service in 1907 to becoming an integrated supply chain management and logistics solutions provider. It has been so successful in transforming itself from a small regional parcel delivery service into a global company that today (like FedEx), UPS is seen as an indicator of U.S. economic health. The reason of course is that companies and consumers ship more packages in a healthy economy.

A bit of UPS History

In 1907, James E. (“Jim”) Casey (James Casey) felt that there was an increasing need for private messenger and delivery services. Casey started his company in Seattle, Washington and named it ‘American Messenger Company’. In 1913, Casey merged his company with a competitor, Evert McCabe, to form Merchants Parcel Delivery (MPD). In 1919, the name was changed to United Parcel Service when the company made its first expansion beyond Seattle to Oakland, California. ‘United’ implied that operations in various cities were part of the same organization, ‘Parcel’ identified the nature of the business, and ‘Service’ what was offered.

By 1992, UPS was delivering 11.5 million packages and documents a day for more than one million regular customers to more than 200 countries. In 2002, this figure reached more than 13 million packages and documents per business day with delivery volume, 3.4 billion packages and documents.

UPS – Many firsts

In 2007, UPS became the first package carrier to offer its customers a paperless international shipping option as well as a package return capability to 98 countries and territories. But the series of firsts started much before. In 1922, UPS became one of the few companies in the United States to offer common carrier service, a service that many other private carriers, or even the parcel post did not offer. Common carrier service was like retail store delivery service and mainly featured automatic daily pickup calls, acceptance of checks made out to the shipper in payment of C.O.D.s, additional delivery attempts, automatic return of undeliverables, and streamlined documentation with weekly billing. In 1924 UPS introduced the first conveyor belt system for handling packages. In 1995 UPS acquired a company called SonicAir, making UPS the first company to offer same-day, “next flight-out” service and guaranteed 8 a.m. overnight delivery…

Unilever’s Thirty-Day Action Plans

August, 2009 – Business Strategy, Strategic Management Article

Polman wants to increase the speed of decision-making in the sprawling company, which is known for its cautious culture. “Thirty-Day Action Plans” introduced under his reign, for example, are designed to make executives act quickly to fix problems with individual products. – The Wall Street Journal, August 2009.

New Business Strategy at Unilever – drive volume with lower prices and aggressive marketing spending

Unilever’s mission statement reads “add vitality to life”. For now, the Anglo-Dutch consumer goods giant has added vitality to its own operations with “Thirty-Day Action Plans”. These plans introduced by Mr. Paul Polman, the new chief executive of Unilever were intended to make executives take quick action to fix problems with individual products. Paul Polman in fact reversed the strategy of his predecessor.

Polman took over the company in January 2009. He was the first CEO who was not promoted form the internal ranks. He spent most of his career at Procter & Gamble Co. His first job at Unilever was to fire up dwindling sales volumes at Unilever. Earlier last year, Mr. Patrick Cescau, former CEO had increased prices to counter recession. However, this drove sales down as consumers stopped buying Unilever’s products. Polman initiated a different strategy. He wanted to drive volume with lower prices and aggressive marketing spending. In the past few years, Unilever had already cut down on its massive portfolio of brands. The company now wanted to concentrate its efforts at innovation on a smaller number of bigger brands. With the new idea of “30-day plans”, a plan was meant for each product innovation or attempt at troubleshooting. If the plan did not yield results after a month, it was very likely to be discarded.

How does Unilever’s “Thirty-Day Action Plans” work?

In South Africa, Unilever’s laundry detergent sales had dipped. On analysis, company executives found that the product was under threat with competition from a cheap local brand. Unilever executives immediately framed an action plan to counter the threat. The company very quickly introduced a cheaper version of its Surf detergent with fewer features. This plan worked as the brand proved very popular.

Download Case Study PDF

Download Management Case Study on Restructuring at Unilever

Keywords: Unilever, Thirty-Day Action Plans, Paul Polman, Patrick Cescau, Consumer Goods Giant

Get more information on Unilever’s strategies, decision-making, marketing, brand management, innovation, acquisition strategies, corporate culture and human resource management in this book: Renewing Unilever: Transformation and Tradition

Wal-Mart’s Great Value Brand Makeover

Brand Strategy – Retailing- March, 2009

What is ‘Great Value’ brand?

In 1993, Wal-Mart launched the Great Value store brand. ‘Great Value’ is the largest grocery brand and the biggest brand that Wal-Mart has with thousands of products spanning 100 categories. Wal-Mart has more than 5,250 of its Great Value private-label products.

What did Wal-Mart do to its store brand?

Wal-Mart improved its private label offering – the Great Value line of products. Wal-Mart worked with both the suppliers and its customers for over a year to assess the quality of more than 5,250 of its Great Value private-label products against top national brands.

Features of Wal-Mart’s Brand Makeover:

  • Altered the formulas for 750 everyday items, mostly foods. E.g. The kids’ breakfast cereal was made crisper.
  • Product Innovation: Introduced new products which were designed using consumer feedback. Wal-Mart trained customers to do comparisons and give feedback on what they were looking for. E.g. New unusual flavors like mocha mud slide and cake batter introduced in the Great Value all-natural ice cream range. 80 new products under the Great Value line, such as thin-crust pizza, fat-free caramel swirl ice cream, and organic cage-free eggs.
  • New packaging design to provide a more consistent, consumer-friendly image. E.g. More prominent nutritional information with nearly all labels in both English and Spanish languages.

Why did Wal-Mart overhaul its oldest and biggest store brand?

Private Label Store Brands vs. National Brands

Consumers prefer buying private label store brands instead of national brands in times of economic uncertainty. Why? Simple, because they match the quality of national brands and that too at lower prices. Data tracker Nielsen reported that, in 2008, sales of private-label items increased 10% compared to a 2.6% increase for branded goods. An industry trade group, the Food Marketing Institute found that, in 2008, around 64% of buyers (59% in 2007) said they often or always preferred a store brand as compared to a national one. This is an indication that the initial hesitation shoppers had towards store brand products is disappearing and very quickly.

Advantages of Private-label brands/products

  • Typically cost less (5% to 20%) than name-brand products.
  • Higher profit margins for retailers owing to lower overhead costs and zero marketing expenses.

How private labels are faring at other retailers?

  • Kroger’s private-label collection set a new record when it touched 27% of overall sales in its most recent quarter.
  • Safeway’s ‘O Organics’ store brand is very successful. The retailer is now licensing it for use by other retailers.
Keywords: Wal-Mart, groceries, retailing, generic label, private label store brands, brand strategy, national brands

Is the Adidas Reebok merger working?

March 05, 2008 – Business Management Article

Adidas plus Reebok is equal to better competition with giant Nike

In 2006, Adidas (the German athletic apparel and the world’s second-biggest sports goods maker after Nike) acquired Reebok in a US$3.1 billion deal. The merger was aimed at helping Adidas increase its share in the U.S. market and better compete with market leader Nike Inc. and fourth ranked Puma AG. At the time experts felt that the merger made sense. But the key challenge was to unite Adidas’s German culture of control, engineering, and production and Reebok’s U.S. marketing- driven culture.

The Reebok acquisition was seen as a key factor in growing the Adidas brand in developing and fashion-oriented markets of Asia like China, Korea, and Malaysia. Moreover, Reebok already had marketing tie-ups in China (with Yao Ming) and Adidas did not have to cover all China segments. Read a blog post Adidas and Reebok Merger Case Study

Download full-text of management case study on adidas and Reebok merger (PDF file)

Adidas – Fourth Quarter 2007 performance

Adidas AG reported its fourth quarter results for 2007 (October-December, 2007). The results were helped by lower purchasing costs resulting from its acquisition of Reebok and improved sales.

Its net income rose to €21 million (US$31.9 million) from €13 million a year earlier. Sales increased to €2.4 billion (US$3.7 billion) compared with nearly €2.3 billion in 2006. In 2007, total yearly earnings were €551 million (US$837.9 million), up 14 percent from €483 million in 2006. Sales for the year rose marginally to €10.3 billion (US$15.6 billion) from €10 billion in 2006.

Adidas vs. Reebok unit performance

The Adidas brand had sales worth €7.1 billion (US$10.8 billion) while Reebok had sales worth €2.3 billion (US$3.5 billion). Last year, in 2006 the Adidas brand had sales worth €6.6 billion to Reebok’s €2.5 billion.

Year-end order backlog represents firm future revenues from contracts signed up to that date. Order backlog is a key indicator of future sales for retailers and Reebok’s lower order backlog remains the key question mark. Order backlog of brand Adidas was excellent up 17 percent which can be partly attributed to the Euro 2008 soccer championship and Beijing Olympics this year. However, Reebok’s order backlog was down 8 percent (down 20 percent in North America). Nike reported worldwide futures orders for athletic footwear and apparel (scheduled for delivery from December 2007 through April 2008) totaling $6.5 billion, 13 percent higher than such orders reported for the same period last year.

Meanwhile, Nike announced (Mar 3, 2008) that it has completed its acquisition of Umbro Plc. Nike’s Umbro takeover is an effort to consolidate its position in the football market where Adidas has performed well. Last year, Nike’s CEO Mark Parker outlined a brave plan to increase the company’s business to $23 billion in revenue by 2011. Will Nike do it or will the Adidas-Reebok merger spoil its plans, still remains to be seen.

Keywords: Adidas, Athletic Apparel and Sporting Goods, Mergers and Acquisitions, Nike, Reebok

Warren Buffett – Lunch with the Investment Leader

June 29, 2008 – Leadership and Entrepreneurship Article

Warren Edward Buffett, Chairman and Chief executive of Berkshire Hathaway Inc. and admired by many analysts for his shrewd business acumen is primarily known for his investing success. Over the years, Buffett developed his own tenets of buying a business or stock. Not only his investments, but companies acquired by Berkshire Hathaway also performed consistently over the years. Berkshire owns more than 60 subsidiaries including insurance, clothing, furniture, jewelry and candy companies, restaurants, natural gas and corporate jet firms and has major investments in such companies as Coca-Cola Co., Anheuser-Busch Cos. and Wells Fargo & Co. Also read Leadership case study on Warren Buffett (10 pages, PDF file).

He is known as the "Oracle of Omaha" and generally considered to be the world’s most successful investor with a net worth around U.S. Dollars 62 Billion. He has figured consistently among the top five in the Forbes magazine’s list of the 400 richest Americans (the elite Forbes 400). Buffett is also known for his philanthropy and in 2006, he announced his plan to give away the bulk of his nearly $49 billion fortune over time.

It may then not come as a surprise, that last year, $650,100 was the price for a lunch with the great leader in an auction on eBay. Buffett has been auctioning off lunches online for six years. He offers only one lunch a year. The auction benefits the Glide Foundation, which provides social services to the poor and homeless in San Francisco. It is anybody’s guess how high the bidding will go this year. Well to end the surprise, in the most expensive charity auction ever held on eBay, a Chinese investment fund manager (Zhao Danyang) won the chance to have lunch with billionaire Warren Buffett by bidding $2.1 million. The most expensive charity item ever sold on eBay earlier was a Harley Davidson motorcycle for $800,100. The motorcycle was autographed by celebrities that TV show host Jay Leno offered in 2005 for tsunami relief.

Warren Buffett, Leadership, Investment Leader, Oracle of Omaha

Daimler, Chrysler and the Failed Merger

March 10, 2008 – Business Management Article

Daimler 2007 Profit Rises

Mercedes-Benz maker, Daimler AG and the world’s second-largest maker of luxury vehicles reported profits in its fourth-quarter results for 2007. The good results this quarter have come after selling the Chrysler division in the U.S. and cutting jobs at Mercedes-Benz Cars. Without Chrysler, Daimler reported profits of 1.7 billion euros (£1.3 billion) for the fourth quarter and a net profit of 4 billion euros for the year (3.8 billion euros in 2006). Sales rose to 99.4 billion euros ($144.98 billion) from 99.2 billion euros, with 2.1 million automobiles sold globally. In May last year, after a decade of disappointing results, Daimler finally sold Chrysler to private equity firm Cerberus Capital for £3.74 billion.

With the North American car and truck market struggling this year from the impact of falling house prices in the wake of the sub-prime crisis, Daimler is banking on demand from China, India and Russia. Daimler, the Stuttgart-based company expects the North American truck market to recover in the second half of the year.

Daimler Chrysler Merger Failure

In 1926, the merger of two German automobile manufacturers Benz & Co. and Daimler Motor Company formed Stuttgart-based, German company Daimler-Benz. Its Mercedes cars were arguably the best example of German quality and engineering.

In 1998, Daimler-Benz and U.S. based Chrysler Corporation, two leading global car manufacturers, agreed to combine their businesses in what was perceived to be a ‘merger of equals’. Jurgen Schrempp, CEO of Daimler-Benz and Robert Eaton, Chairman and CEO of Chrysler Corporation met to discuss the possible merger.

The merged entity ranked third (after GM and Ford) in the world in terms of revenues, market capitalization and earnings, and fifth (after GM, Ford, Toyota and Volkswagen) in the number of units (passenger-cars and commercial vehicles combined) sold. In 1998, co-chairmen and co-CEOs, Schrempp and Eaton led the merged company to revenues of $155.3 billion and sold 4 million cars and trucks. But in 2000, it suffered third quarter losses of more than half a billion dollars, and projections of even higher losses in the fourth quarter and into 2001. In early 2001, the merged company announced that it would slash 26,000 jobs at its ailing Chrysler division.

Daimler, Chrysler and cultural differences

The Daimler Chrysler merger proved to be a costly mistake for both the companies. Daimler was driven to despair, and to a loss, by its merger with Chrysler. Last year, the merged group reported a loss of 12 million euros.

Analysts felt that though strategically, the merger made good business sense. But contrasting cultures and management styles hindered the realization of the synergies. Daimler-Benz attempted to run Chrysler USA operations in the same way as it would run its German operations. Daimler-Benz was characterized by methodical decision-making. On the other hand, the US based Chrysler encouraged creativity. While Chrysler represented American adaptability and valued efficiency and equal empowerment Daimler-Benz valued a more traditional respect for hierarchy and centralized decision-making.

Related Automotive Updates:
Nissan and Chrysler joint relationship
Toyota overtakes Ford Sales

Automotive, Chrysler, Daimler, Mergers and Acquisitions

Is Dell’s Retail Strategy paying off?

January 17, 2008 – Business Management Article

Dell’s Turnaround Strategy working…

Ever since founder Michael Dell returned as CEO a year ago, Dell has forayed into retail, made more acquisitions and focussed on cutting costs. IDC reported that Dell is back to double-digit percentage growth in global PC shipments in the fourth quarter. Dell’s worldwide shipments shrank 8.4 percent last year.

Dell leaves behind HP as Largest PC Supplier in the U.S.

One of Dell’s Turnaround move was switching from a direct sales model to selling PCs through retailers like Best Buy and Wal-Mart. Dell’s new retail sales strategy is starting to pay off in the U.S. where Dell sold 15.2 percent more PCs than a year earlier. This figure is more than overall U.S. market growth of 8.8 percent and HP’s 9.8 percent. Dell shipped 5.5 million units in the U.S. Competitor HP’s (Hewlett-Packard)growth slowed. HP shipped 4.5 million units. But still Dell remained in the No. 2 market-share spot globally (Dell shipped 14.6 percent of the global PC market; a total of 11.3 million units). HP kept the No. 1 market share spot with 19 percent. HP remained the world’s largest PC dealer, topping Dell, Acer and Lenovo, according to figures from both firms. Taiwan’s Acer held 9.6 percent of the worldwide PC market and is aggressively expanding. Acer in October 2007, purchased Gateway Inc in the United States after which Acer’s PC shipments increased 60.3 percent. Apple Inc, held 5.7 percent of the U.S. market with its computers sales increasing by 30.9 percent in the fourth quarter. Lenovo made slower growth in the global market and is struggling to retain its core audience of business users.

Acer, Dell, Direct to consumer model, HP, Lenovo, PC Manufacturing

EBay’s Ethical Supply Chain

Business Ethics and Supply Chains

EBay and Ethical sourcing

In September 2008, EBay, the online auction giant, launched an ethically sourced online marketplace for selling products that have a positive impact on people and the planet. The project is a collaboration of eBay and World of Good. It includes a nonprofit development organization along with a corporate arm called World of Good Inc.

Socially responsible shopping – Tailored shopping impact

The online marketplace aims to give socially responsible shoppers a chance to buy great products that also help mankind and the planet. Customers can also customize their shopping impact (regardless of the social causes most important to them) by shopping for items with different attributes spanning 15 categories. Items are broadly classified as People PositiveTM and Eco PositiveTM.

Products for sale – Organic, made from recycled material and animal friendly

Sellers at the website (www.worldofgood.com) are verified by third parties known as trust providers. The goal is to meet a core set of ethical and environmental standards. Items for sale on the site include clothing, jewelry, coffee, tea, pottery, accessories and home decor items. These items are organic (e.g. organic clothing) and made from recycled materials. Beauty products sold on the site are ‘animal-friendly’ and some products are made by artisans from developing countries. Even food items are offered on the site.

Ethical consumer experiences with Unique GoodprintTM labeling system

A labeling system known as GoodprintTM gives each product on the site a unique nutritional label. This helps customers easily identify the positive social and environmental impact on each buy/purchase they make. They can assess if their purchase aids: economic empowerment, helps preservation of animal species, conserves energy, or is made of recycled, organic and/or sustainable materials.

Facilitating ongoing dialogue between buyers and sellers

The marketplace, an online community, not only helps bring together products, people, and organizations all in one place but also facilitates a dialogue (about ethical shopping) between them and Trust Providers via related blogs, articles, and forums.

EBay, founded in 1995, has more than 84 million active users worldwide. The items offered on WorldofGood.com are also made available on eBay.com.

Download related PDF files of management case studies on eBay:

eBay CEO Meg Whitman plans to retire

January 22, 2008 – Business Management Article

Margaret Whitman, the chief executive (CEO) of eBay, is planning to retire so as to breathe fresh life into the company and a much needed radical reinvention of eBay. In March, Ms. Whitman, 51, will have served in the position for 10 years.

Whitman, ranks 22nd on Forbes.com’s list of the world’s most powerful women. In October 2002, Fortune Magazine ranked Whitman, as the world’s third most powerful women in business, after Carly Fiorina and Oprah Winfrey. Under her leadership, eBay’s revenues and profits doubled every year.

Whitman, joined eBay as chief executive in 1998. Under her leadership and her strong belief in eBay’s business model and its customers, Revenues increased from $4 million to $1 billion by late 2002. Whitman led eBay towards success even when many dotcoms crashed.

“In the beginning, I was certainly not an entrepreneur who came up with the idea, but I think I was fairly entrepreneurial in trying to figure out how to bring that idea to life and build a backbone for the company that could take it to the next level,” Whitman commenting on her journey from a novice to a leader in the dotcom world.

Margaret C. Whitman was born in August 1956. She was popularly known as Meg Whitman and ‘darling of the Internet’. Whitman, a studious and clever student, and the youngest child of a Wall Street executive grew up in Long Island, New York. She graduated in Economics from Princeton University. She received an MBA from Harvard Business School in 1979. Whitman began her working career at Procter & Gamble from 1979 to 1981 and then worked for companies like Bain & Company and Walt Disney Company. Meg Whitman accepted the 2007 Lifetime Achievement Award for the community of buyers and sellers that make up eBay.

eBay, Leadership and Entrepreneurship, Margaret Whitman
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