Chocolatier Ltd - Candy Company

Case 1 : CHOCOLATIER Ltd.

The company is a well-established producer and marketer of the finest boxed chocolates, started ten years ago by two partners, Miguel Dizon and Raul Gomez. Prior to their partnership, Dizon was a marketing vice-president and Gomez was a comptroller in a candy company with a national distribution. The two men agreed at the onset that Dizon would handle distribution and marketing while Gomez would look after production, accounting, and company finances. Overall planning and major decisions would be agreed upon by both.

The partners decided to position the company product in the medium-high price range. They were successful in developing and selling quality chocolates and enjoyed an edge over their competition. Their single manufacturing plant served a densely populated market. With increasing customer acceptance, 20 retail outlets were opened. Until recently, growth seemed limited only by financial resources. In the past months, however, each partner unearthed information that raised concern to both. In reviewing costs, Gomez discovered that production costs per pound of candy were rising with each new retail outlet opened. He realized that the company has outgrown the production expertise of the present management staff.

Dizon's revelation was even more disturbing. He noted that sales had begun to drop off in several of the stores. He found that in each instance, an aggressive competitor with a lower-priced line had moved into their territory. When he met with Gomez, Dizon observed, "People can't taste quality anymore. I feel strongly that we should develop a cheaper line as quickly as possible, to sell for around half our present price. We should cut our production of the premium line to half its present rate and use the extra cocoa beans for our new line." Gomez agreed to look into recipes, costs, and schedules.

A week later, Gomez met with Dizon again, this time to report his findings. "Our kitchen has developed two recipes that we can make at a lower price. We think each recipe will satisfy the public, but neither comes near our premium line in terms of quality. We have names to suggest for each new formulation: Chocodant and Chocomer. The only new equipment we will need is a mixer and a molder, and I have located both, available on a lease agreement with immediate delivery. I have put some costs together, that include the leasing arrangement, new boxes, and all other expected production expenses. I have put this information, schedule, etc., on this memo, which you can look over before we decide. However, I think it is only fair to tell you that I have done some pencil pushing and I don't think this lower priced line makes for good business. You will see that every 100 pounds of the premium line now yields P86.00 in contribution, while Chocodant will yield