Carvel in Beijing

Carvel In Beijing

Part (1)

Diagnosis

Company History

Carvel Corporation had one of the oldest and most endearing histories of all the ice cream companies in the U.S.

 Thomas Andreas Carvel as was born July 14, 1906, in Athanassos Greece 1910 his family immigrated to Danbury, New York City in 1920. When he was a child he has always dreamed of owning his own frozen custard shop. Mr. Carvel used a combination of fresh ice cream and innovative products and manufacturing techniques to establish himself as the local, family-oriented ice cream parlor in the New York City area.

 In1934 when he borrowed $ 100 dollars from his future wife Agnes Stewart, and bought a trailer load of custard ,The first year he grossed $3,500

 1939 his yearly gross income was $6,000 a year and he became known as the "Ice Cream King of the East"

 Tom Carvel developed his own freezer model, known as the batch freezer under the trade name "Custard King" he sold about 71 freezers for $2,900 each

 Carvel makes the "creamiest" ice cream on the market and maintains itself as the fourth largest ice cream chain in the United States.

 in 1947, Mr. Carvel used a combination of fresh ice cream and innovative products and manufacturing techniques to establish himself as the local, family-oriented ice cream parlor in the New York City area. Mr. Carvel franchised his first store and proceeded to become one of the pioneers in fast food franchising. In fact, it was only after Tom Carvel refused his partnership offer that Ray Kroc used Mr. Carvel's store design as the model for his McDonald's chain.

 1960s and 70s, Mr. Carvel used his folksy and savvy style to dominate the greater New York area. By standardizing procedures and providing franchisees with exclusive product designs and marketing

 1980s, there were over 800 Carvel stores in operation along the East Coast and in some Midwestern states such as Ohio and Wisconsin. Included in the company chain were over 40 stores in California.

 Phil Fang (yang Dengsheng), the Taiwanese general manager of the Beijing operation, faced similar pressure. Slow sales reduced the company's opportunity to break from the myriad of small brands and establish itself as the first truly national brand in China. Moreover, with Baskin-Robbins, First, as a Taiwanese manager of a three-part joint venture, Fang was pulled by each partner's differing business perspectives. Most important, though, Fang questioned the American management's decision to price and market the product as strictly an American ice cream. At times, Fang felt that the Americans did not appreciate the complexities and subtleties of doing business in China. Now, as the company faced its first summer sales period, Fang would have to make some long-lasting business decisions. Each manager quietly felt he understood the problem. Demadis believed that the product was by far the best quality ice cream in Beijing; the company simply needed to improve the marketing and retailing of the product. He wanted Carvel Beijing to increase the products price and, in turn,

Performance indicators

1980s, the recession and the strain on Tom Carvel to manage his business began to take its effect on the franchise. Sales and quality control began to decline, and events forced Mr. Carvel to consider changes.In 1989, at age 88, faced with diminishing sales and increasing store closures, Tom Carvel reluctantly sold his company to Investcorp, a Bahrainian-based investment banking group. The Investcorp strategy centered on acquiring previously gainful companies whose profitability had diminished in recent years due to recession. Following that strategy, between 1988 and 1992 Investcorp had purchased Macy's, Sax Fifth Avenue, Tilecorp,

 . Exhibit 1 shows Carvel's organizational arrangements in Asia.

Market Share & Growth

1994, in the face of industry-wide declines, It was Steve Fellingham who decided to bring Carvel to China. After an initial backing by Investcorp of $4 million, Fellingham negotiated a joint venture in which Carvel Corporation established two new enterprises. These two new enterprises were Carvel Asia, headed by Tony Wang (Wang Da Dong), and Carvel Beijing, headed by Phil Fang, Financially, Phil Fang did not anticipate reaching break-even sales until 1996, and the company's slow start in 1995 jeopardized even that prediction.His biggest problem continued to be slow sales growth and slow customer attachment to the high margin cakes. As the Income Statement for 1994 in Carvel Beijing operated at a net loss of nearly (¥1,070,000) in 1994.For 1995, Fang had requested an additional $800,000 from the joint venture partners and set the following objectives for the year:

 Sales of ¥13 million

 100,000 cakes sold

 68 total sales outlets by year end

As mentioned earlier, the company's poor cash flow forced Fang to reconsider his growth strategy. He would not be able to count on large retail stores like in the U.S. Instead, he planned on operating many smaller outlets that would demand less initial cash investment. His budgeted breakdown for projected outlets by the end of 1995 underlined this strategy. By the calendar and fiscal year end of 1995, Fang aimed to have the following outlet distribution:

These goals, however, were jeopardized by continual negative cash flow, which in February 1995 totaled (¥400,000).

Clearly, as the Projected Budget for 1995 , nearly 60 percent of Fang's investment from the joint venture partners would go toward rent and the purchase of new equipment. In fact, by April Fang had already realized that the cash crunch he was under was going to force him to revise his budget plans or to request more capital from the joint venture partners. Fang's Projected 1995 Profit & Loss Statement reveals several factors that contributed to this problem.

Customer Satisfaction

The most striking fact to emerge was that Chinese consumers were very intelligent shoppers who valued quality and long