Mba 610 Managerial Economics Energy Gel Case

Energy Gel Case

Regent University

Abstract

Energy products are becoming much more than a beverage. HPC recognizes this and has created an energy bar line that is projected to remain profitable in the years to come. HPC will also create a gel-type sports nutritional product called Energy Gel. To avoid substantial upfront investments, the energy gel project will utilize unused portions of the energy bar’s manufacturing processes that share many similarities. In this paper, I will discuss how costs associated with usage of existing excess capacity of the mixing devices, including potential overhead, will be allocated. I will choose an evaluation proposal from different members of HPC’s management team that will assure HPC’s future growth in the competitive energy supplement market.

Energy Gel Case

After careful consideration, I recommend that HPC move forward on the most important development in the carbohydrate energy-food market since Pillsbury introduced the Space Food Stick in the 1960s. I am talking about an entirely new kind of sports nutrition product that is easier to handle during exercise, takes less energy to consume, and metabolizes much faster than our Quickpro energy bars (Raviv, 2007, p. 2). I am talking about a vicious substance anchored around real fruit with added carbohydrates and electrolytes that boosts energy levels in 90% of runners who try it, according to the head coach of the Boston Athletic Association running club, Mike Pieroni (Raviv, 2007, p. 3). This trail into gel-type nutritional supplements will be blazed by our vice president of business development, Harry Wickler. Wickler has identified similarities in our products’ manufacturing processes that will save HPC a significant amount of upfront investments. Wickler’s direct cost basis will assure HPC’s future growth in the increasingly competitive energy supplement market (Raviv, 2007, p. 3). Our competitors may have a 4-year head start, but we will quickly narrow the gap by eliminating hidden-cost fallacies by utilizing underused mixing machinery with opportunity costs that will no longer be ignored (Froeb, Brian, Shor, &, Ward, 2016, p. 34). Powerbar calls their version PowerGel. Clif Bar calls their version Clif Shot. We will call our version, ENERGY GEL.

Market Analysis

Launching a product in an established industry is extremely difficult. Customers have an expectation of what a product should be and how it should compare to products that are already in the market (Windels, 2014, para. 1). Energy Gel produces a completely new category within the energy food segment. Category creators experience much faster growth and receive much higher valuations from investors than companies bringing only incremental innovations to the market. Athletes will consume our energy gel before, during and after exercising (Raviv, 2007, p. 3). Its thick, almost frosting-like texture will be the glue that holds long runs together.

Energy Food Trends. Consumers are beginning to transition from a passive approach to an aggressive approach to health. They now strive towards a higher quality of life through health and wellness (Bizzozero, 2017, para. 2). The cornerstone element of health and wellness today is energy-which is becoming much more than a beverage. According to ACNielson, supermarket sales of energy bars grew 35 percent in 2000 (Raviv, 2007, p. 2). HPC expects this energy bar market to continue to grow at 10 percent per year in 2001 and 2002, 9 percent in 2003, and 8 percent the years after (Raviv, 2007, p. 2). Consumers call for the assistance of sustained, balanced energy; HPC answers this call with QuickPro energy bars, and its new gel product.

Size of Market. According to a 1999 Recreational Participation Report conducted by a Washington, D.C.- based nonprofit called The Outdoor Foundation, the number of endurance athletes is growing considerably (Voss, 2000, para. 2). The report estimated that the number of Americans who competed in running, jogging and/or trail running increased from 22.5 million in the early 1990’s to over 35 million in 1999; they also forecasted an increase to 41.1 million in 2007 and then to 57.5 million by 2013 (Voss, 2000, para. 3). These new recreational endurance athletes will be searching for a legitimate product to get them through lengthy workouts or training for physically demanding events. Several growing entrepreneurial companies have introduced comparable products, but no major food or energy drink company has yet to enter this expanding and profitable market (Raviv, 2007, p. 1). HPC will no longer sit on the sidelines while new entrants create breakthrough products; we have the resources, capabilities, and business leaders to drive an innovative new product such as energy gel. Our privately held competitors may have entered the energy gel arena first, but HPC will use this pressure to further its growth in the increasingly competitive energy food market.

HPC’s competence, capacity & alignment for gels

Most big companies lack the imagination to create new categories; they are unwilling to see beyond what they are selling today. To create new products, we must transcend beyond what we are currently selling. HPC did just this in 1989, when it expanded into the energy bar market (Raviv, 2007, p. 1). Our introduction of energy bars was our most profitable new product expansion in 11 years, amounting to more than 20 percent of divisional revenues by October 2000 (Raviv, 2007, p. 1). HPC will mirror this success once more, this time by leveraging the loyalty of existing Quickpro customers to buy additional, related products such as Energy Gel (Savage, 2013, para. 4).

Corporate Strength. HPC’s energy bar line is projected to remain profitable in the years to come. Past and projected future performance of the energy bar product line are shown below in Exhibit 1. As demand for our units rise each year, the gap between our sales and cost of goods sold widens from 21.6 million (45.3 – 23.7) in 1996 to a projected 70.2 million (137.1 – 66.9) by 2005; this gap represents the past and potential productivity of our Energy Bar division. The combined advertising, selling, and general/admin expenses sit around 14.9 million in 1996 and 36.4 million in 2005; this “double and nearly a half” expense (2.44) of past and future projections for 9 years does not compare to the potential profit in the same time. Taking these current and projected calculations and adding in the cost of goods sold would still leave HPC substantial current and projected earnings. The net income of 1996 is 4.4 million and is projected to sit around the 22 million in 2005; this is an increase of quintuple (5), and demonstrates HPC financial strengths in the energy foods department.