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    TerraCycle Inc

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    © All Rights Reserved
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    24 visualizzazioni15 pagine

    TerraCycle Inc

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    TerraCycle Inc

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    TerraCycle Inc. TerraCyele Inc. 48 By Andrew Smith, under the supervision of Elizabeth M.A. Grasby vas amar 206 snd Bay Caton chi fan cha oer of Teac Inet in he fe considering the company’s future opportunities. ‘TerraQyde located in Trenton, New Jersey, focused gn seling busines practi that would ll for the cretion of profit as wel as help to minimize the impact om, and to even replenish, natural resources, TerraQyce’s main All Purpose Plant Food, was an all-natural fertilizer used to foster growth in plants, TerraCycle had experi- ‘enced some positive feedback fr this product line, and alternatives for expansion were now under consideration, An alternative was altering the for- mula of the fertilizer to focus on specific types of. plants Two different product formulas were being considered: cin orchid product and an African she wanted to projec the potential financial results for the two new products as well as project the ‘company's overall results. With this information, she would beable to determine the most appropri- ate course of action forthe future. Eco-Capitalism In recent years, thee had been a trend in North ‘America to focus more on the environment and humanity's effect pon it. There was a realization that the globe had a finite amount of resources and, as such, individuals and companies would need to rethink their impact onthe environment and make ‘concerted effort to minimize this impact. ‘This point of view was taken one step Fur- thee with the new and emerging concept of eco- capitalism, was a belie that not ‘only shoulda business's impact on environmental resources be reduced, but alo steps should be taken to renew these resources, as long as these tctions were profitable, When facing alternative methods of production, if one method created a profitable by-product, profi-oriented companies ‘would certainly choose this method. The concept of eco-capitalism took the same point of view, with a slight twist: the by-products were con- ‘ered poole if the alded the envionment and provided a return forthe company. TerraCycle Inc. A Brief History A strong belief in eco-capitalism-was what led to the creation of TeraCyele nein the fallof 2001 by ‘Tom Szaky an Jon Beyer. Both men were Princeton University (US.A,) students, and the company cones dered for abuses pla compet tion, The partners had arranged wit Dining Seto pated al ost vich ‘was then fed to wormsin a prototype “worm gin.” tions for environmentally sustaina ‘TerraCycle operated a vom within the Bco- Comples’s greeahouse, further experi- mentation wit the proces, the partners developed the end product the All Purpose Plant Food. Inthe spring of 20, Say tok an exended leave of absence from Princeton in order to pursue the business on a full-time basis. Operating on relatively tight budge, the business was funded ‘with prize money from busines plan competitions and angel investors? Growth was slow in the early stages but in May 2, eral perce «max bee thyough when The Home Depot agreed to begin selling TerraCyce Plant Food online. This growth Versione (A) 2010-04-20 42 CHAPTER 2: MARKET ANALYSIS continued as TeraCycle's products were picked up bby a number of companies across North Am: including Whole Foods, Home Depot Canada, ‘Walmart Canada, Wild Oats, and Do-It-Best Committed obeingthe" ultimate” co-capitalist corporation, TerraCyele applied this concept to all its business practices. Its products wilized an all natural environmentally Iriendly production pro cessand were packaged using waste, stich as recycled pop bottles. This unique concept and its innovative nature, a well as TerraCyele’s environmental focus, had always been a source of praise for the company. The noble concept caught people's attention, and TerraCyele routinely received public recognition and positive press coverage for it efforts, Most recently, Rea Herring magazine named TerraCycle one of the 100 most innovative companies, and Home Depot Canada awarded ‘TerraCyele the Environmental Stevardship Award, one of only two company-wide awards presented by Home Depot Canada TerraCycle Products The first product developed anil sol by Terra was All Purpose lant Food (ee Exhibit 1), an organic liquid plant food. The production of this plant food (see Exhibit 2) started with source-separated organic Suc: wentereln waste that was fed to worms. The result was separated into a fine, particle-sized m con Unlh Time Time elapsed: lapsed: 3weoks 7 days ‘once the mixture was completely liquefied, it vas packaged into reycled two-lterand 20-Duid-ounce? pop bottles and shipped to customers. Unlike other competitive feilizers, TerraCyeles Plant Food not only had a far more natural and ily fiend production process, but also this production proces helped to eliminate organic waste and used recyeled pop bottles, thus reducing the impact ofthis waste on the environment ‘TerraCyete had also found a noble way to ol- lect the recycled pop bottles used for packaging. In 2005, the company launched a program called the Bottle Brigade. This program allowed schools, charities and other nonprofit groups throughout North America to collect 20-fuid-ounce pop bot- tles and remit these pop bottles to TerraCyce, In ‘return, TerraCycle would ether give the group five «ents per bottle or make a donation on the organ- iaation’s behalf to the Nature Conservancy that saved one square meter of rain forest per bottle submitted, Overtime, ths program would provide a large supply of bottles; however, it had yet to pro- vide the major supply ofthe bottles for erraCyele, ‘TerraCycle developed and sold other environ- mentally friendly gardening products, such as Water-Less and ProFusion, Water-Less, a gel form of the All Purpose Plant Food, provided similar fertilization, but the gel would remain to absorb and release liquid over a longer period of time, “$579,887, Oiice & administrative 3,585 TewtaCycle Inc. 43 reducing the need to water, ProFusion wasafectil- izer specifically formulated for soil-less hydro gardens. Similar to TerraCyck’s other products, these were also packaged in reused packaging sue as recycled oil containers forthe ProFusion prod- uct, These products were still in their infancy and were offered om a limited basis only to fita specific need and at the request of a customer. a result, sales ofthese other products were negligible when compared to the All Purpose Plant Food sales TerraCycle’s Historical Financial Performance TerraCyee was still inthe growth phase ofthe busi- ness and, as such, the financial results achieved had not yet reached the anticipated levels of success (see Exhibit 3 and Exhibit 4 for fiscal 2004 and fiscal 2005 financial statements). The eco-capitalist phil- cosophy, however, was beginning to shoss a great deal of promise for the company. In addition to the moral benefits of running an environmentally for- ward business, TerraCycle was experiencing posi- tive signs of groveth. To date, production levels had not yet reached economies of scae,* resulting in disproportionatey high costs and ensuing losses. “The sales growth achieved more recently, however, appeared to be an indication that a mote efficient level of production might be within sight. 335,142 13% 67342 (Continued) 44 CHAPTER 2: MARKET ANALYSIS Insurance 54315 Hh Advetsing 15283 Research & development lazer Property overhead! 92.846 Telephone 6 2602 comynurications Professional feeslicenses 47.38 Travelivehicles 74514 Interest expense 18,218 Ainotization 30.166 Misceaneous 188 Netincome before tes eames IEARTERTAX 9 4 NETING ‘Tos maybe ff du ound, 2. tas items such seis, ee. 3, Should Taye beri to genet income, Coton ape paying income tac ata eof 25 pent, Less: Acum, amor, Fed asets (510s) 94307 Patents & trademarks Accounts pyabe Sales payable Insurance payable. «Demand loan? TearaCycle Ine. 45 |. Represents an amount de rom the company’s et shueholer, elting tothe pure of ees B preted shires 2. Represents a oa oo Zoltan Seay Uat wy be ele paid ay tine. Zo Saky indicated he ud moines cling te lan {inthe ear ute. Ti oun bes interest 12 pecent per ann, The Competition The gardening industry was a diverse one, with a wide range of customers’ needsand preferencesas ‘well as varying levels of expertise and experience. Gross sales (see Exhibit 5 for industry statistics) \wete significant, and this attracted a sizable num- ber of competitors, ranging fiom small local busi- nesses to large multinational companies. Large ‘multinational companies would often operate under multiple brand names, some of sshich competed against each other. The plant food seg dominated by two large competitors, The Scotts Miracle-Gro Company and Spectrum Brands. The Scotts Miracle-Gro Company ‘The Scotts Miracle-Gro Company (Scotts) offered a wide variety of gardening products under diferent brand names. Scotts operated globally, was a pub- liely traded company, and was quite large, both financially and in terms of number of employees Scotts focused on the lawn and garden market. The products offered by Scotts were the number-one: selling products in almost every mvathet in which they competed. In fiscal 2005, Scotts achieved net sales of $2.3 billion (see Exhibit 5 for Scotts’ ratio 46 CHAPTER 2: MARKET ANALYSIS “ris Bre Scotts Miracle-Gro || Speetrum Brands 363% 376% 377% 35.0% Row 36.4% 61% TSH 2TH 2A 8 TES Se a 282% 26.1% aE | 1, Cute sing cost of yods sll Indust Ratio Sore: The Rink Management Rsscaiva (RHA) Anal Sateen! Suis 2006-2007, Compettors Rat Souee Al earpiive tos ave been deed fom the copies Fil 2006 Ral Reet statistics). One of its products, Miracle-Gro, had become the dominant plant food in the industry, enjoying a teemendous amount of brand name recognition and customer loyalty. Mirale-Gro was a concentrate of which a small amount was added towaterand used to feed plants Unlike TerraCycle’s plant food but similar to most plant foods, Miracle Gro was not derived from anall-natural production process nd did not contain all-natural ingredient. Spectrum Brands Spectrum Brands (Spectrum), the other major competitor in the plant food segment of the market, ao provided a wide range of gardening products under different brand names.” Spectrum ‘was a publicly traded company with over 10,000 cmployeesand annual sales in thearca of $2.8 billion (see Exhibit 5 for Spectrum ratio statistics). Spec- tcum’s product lines which posed the largest threat to TerraCyele, were the Peters Professional ine and the Garden Safe line of products. The Peters Profes- sional line was alin of granular fertilizers designed for home gardening. This brand had diferent ferti- iner mixes that could be used for diferent types of plants. Variegated Violet and Orchid Plant Food ‘were two ofthe enilizer mixes being sold by Peters Professional atthe time. The Garden Saf line as a naturally derived liquid frtlizer mix, a similar product to TerraCyce's AllPurpose Plant Food. This productline, however was nota well known among, Its direc competitors inthe markt, and it dd not representa very large market share. Do-It-Yourself Composters Avober compettor for Tepes product was do-it-yourself composters. They used home composting to generate nutrient-rich sols used for hhome gardening, thereby reducing the need to buy fertilizers, Among a variety of reasons, these gat- ddeners composted at least partially for environ- ‘mental concerns, but they primarily used this ‘method asa means of reducing ther overall level of their gardening Although not dificult, composting took sometime, space, and effort in order for it to work effectively and the result was still not gener- ally as potent as vermicompost! ‘The Consumers Tae podas were ot ted Gr om mercial growers; instead, the end users for Tepes Al Pps Plat Pod produc wer individual- gardeners, fertilizing their plants and gardens, ‘TerraCycle did not sell to these end consumers sold to retailers that sold 2005, Walmart US.A, represented 44 percent of Te- ‘raCycle's total sales; Home Depot US.A., 16 percent; ‘Walmart Canads, 15 pereent; and Home Depot ‘Canada, 13 percent. The remaining 12 percent of sales. ‘were made to other retailers including Home Hard- ‘ware, Whole Foods, and True Value, Retailers were given credit terms of net 60 ays, no discounts by TeraCycle and all sales were made on credit, Often, some retailers took longer TenaCycle inc. 47 than 60 days to pay, but TerraCydle could sce tt eto penta dea tthe some een of negotiating Inciding eraCje Tracy ofen mae pec series erie thay dee een such as providing products in special orbengleent wih produ runes enjoyed great thal of the spate, Future Expectations for Terracycle ‘The New Products Orchid Plant Food would be split evenly among the United States and Canadian customers. Both prod ucts would be sold inthe 20-Suid-ounce bottle for- rat, Based on TerraCyde's wholesale selling price of $2.84 per bottle for each ofthe Aftican Violet and Orchid products? Cotton anticipated that both products would sellin equal quantities and tha the {otal new product sles would be between 30000 and 110,000 bottles. Since both products would be sold to-current customers, the current credit terms of net (60 days,no discounts would be extended to these two ‘new products, andi was expected that all customers ‘would take fll advantage ofthese credit terms. ‘With such rapid growth experienced in fiscal 2005, managing customers’ accounts had been an ‘issue; however, Cotton projected that with a focus in this area, customer payments for all products ‘would return to the results experienced in fiscal 2004. Inventory and accounts payable levels had ‘also suffered during TerraCycle’s 2005 growth period, Although she did not believe that Tera Cycle could reach fiscal 2005 industry levels inthe 48 CHAPTER 2: MARKET ANALYSIS short-term, Cotton was confident that with proper attention, TerraCyele would be able to reach levels of 85 days" for inventory and 64 days! for ‘would be required in order to produce and sel the new products however, Cotton thought that 10 percent of TerraCycle’s operating expenses should be allocated to these products. The research and development costs reported on the fiscal 2005 income statement were the only costs incurred to create the two new products. “TerraCyele did not have a great deal of excess cash available for specially promoting the new 0 Cotton anticipated that an additional $10,000 foreach ofthe African Violet and Orchid Plant Food could be budgeted for promotions annu- ally, Since these promotion costs were incurred ‘throughout the year ifsales were Low, total promo- tions costs would be cut to25 percent ofthe planned ‘amount, Promotion costs were pad in cash, ‘The bottles used to package both the Aftican Violet and Orchid would cost an average ‘of 35 cents a botle. The safety cap foreach African Violet product bottle would cost seven cents, Instead of the safety cap, the Orchid Plant Food ‘would be sold with aspray head. These spray heads would cost 27 cents each. Labor costs for hourly $1.97 per gallon The cost of the which alo doubled as «stand-alone shelf dplay, ‘would be 40 cents per bottle. ‘The product sold inthe United States would hhave an all-English label; whereas, the product sold in Canada would have an Engish/French label, The English labels forthe Afican Violet product would cost 15 cents each, and the English/French labels ‘would cast 44 cents each. The Englsh/French label cos for the Orchid product would be the same as that of the Aftican Violet Plant Food; however cach English lbel for the Orchid Plant Food would cost Meents, Cotton was confident that, over time, with increased efficiency and economies of scale, some of the above costs for both African Violet and Orchid Plant Food would be reduced; however, {n the near fature,Teracyele would have to manage with the costs as listed, Current Operations ition to new products sales, Cotton expected ssales growth for TerraCycle’s existing products. Cotton did not expect annual percentage sales ‘growth to be as dramatic as it was from fiscal 2004 to fiscal 2005; however, she did believe it was rea- sonable to assume that half this evel of sales growth ‘would be achieved in fiscal 2006, With the sales of the two new products and the expanded sales ofits ‘current products Cotton believed that TerraCycle ‘would begin to reach economies of scale; con- sequently, she anticipated cost of goods sold would decrease for existing products to 65 percent of sles, and the percentage change in operating expenses ‘between fiscal 2005 and fiscal 2006 would be lar to that experienced between fiscal 2004 and fiscal 2005, Cotton estimated that cash on hand would remain the same, but many of the other assets ‘would change. In addition to the expected changes. In the working capital accounts, Cotton antil- pated that the loan due from the shareholder ‘would be collected, She also thought that prepaid ‘expenses would increase by 50 percent, given the ‘companys growth. Finally, due to the increased sales, more manufacturing facilities would be needed for increased production, TerraCycle would purchase $47,710 worth of additional manufactur- ing equipment. Amortization of these and other fixed assets for fiscal 2006 was expected to be $28,475, There was no change expected in patents and trademarks. Amortization ofthese patents and trademarks was expected to total $1,770 for fiscal 2006. This amortization had been included inthe estimated increase in operating expenses, For fiscal 2006, the only change in Ubi, other than the change in the working capital accounts, would be the elimination of the Insur- ance Payable account. There were no anticipated changes to the equity accounts; although, if finan- cing was needed, Cotton would have to evaluate whether to finance through debt or through equity. If the decision was to finance through equity, the company would have to issue additional shares at 25 cents per share. Promotion Campaign TerraCyrle had always enjoyed a great del of pos tive press coverage due to the environmentally fiendly nature ofits business andthe youth ofits founders. This press coverage was invaluable in the early development stages ofthe busines since i 7 about TerraCyele's mission, as well as advertising its products, More recently, TerraCycle had spent more on advertising in order to continue to grow and develop the company presence and image even farther. Cotton was considering a revamp of the ‘organization's promotional campaign for both current and potentially new product ins. Cotton wanted to consider the benefits and Aawbacks of using ether a “push” or “pull” stat gy for marketing TenraCyel's products. Ako, she needed to seile on the message that TecraCyele should use in any future marketing plan. Finally, Cotton wanted to conser some erative promo tional eas that would provide the best turn for the cost With the slim promotions budgets for ‘TerraQyele’s products, Cotton wanted to ensure that whatever promotion plan was chosen, t would provide the company and its new prodcts with “ihe biggest bang for the buck” ti oe 49 The Decision Cotion knew this would be difficult challenge. Although she knew history did not predict the future, she wanted to learn from TerraC k's past performance what hd led to the company’s pos tive growth so that she could apply these best practices to future plans. She was intersted in analyzing the company’s past performance from profitability, liquidity, and eash flow perspectives. Cotton would also have to assess the financial potential of the two new products, Orchid Plant Food and African Violet Plant Food, before decid- ng wheter o proceed with both nee procts or not to proceed at al Since both products would be Tounched simultaneously, she knew this would entail am examination of the products combined Projected results, Cotton also wanted o create st of financial projections for the company whi would reflect her decisions. Cotton also wanted to develop an elfctive promotion plan for ‘TerraCycl's products. Finally if further financing ‘was going to be required, Cotton wanted to con sider the benefits and drawbacks of debt versus equity financings well a the likelihood of actu- ally being able to obtain the required fina Cotton had always enjoyed assessing TeraCyele's past performance and strategizing for the futur, and she looked forward to the current task andits outcomes. ics Condacing «compte ashy anasto Tee's pray ee What ae | sesyien conga mh the onpeton? conducted, nz voul raat ‘be pated relative to Suen ay forthe nw nae colenings? en ye 6 hat qsltae fects might sft th decsion to deo one both of te new dc? 62 CHAPTER 3: DATA WAREHOUSING Conroy's Acura: Customer Lifetime Value and Return on Marketing ‘By Mike Moffat, under the supervision of Professor Kyle 8, Murray In the fall of 2006, Terrence Conroy, president of Wis deenhip were spun, If the dep were to remain Conroy needed to find a oostefiecve way to increase sales. His viwpresident of sls, ahd De Lia, was con- tinually coming up with new marketing schemes to boos sales. But Conroy had difficulty determining how succesfl past marketing efforts had been in increasing profitability. He needed a way to put the numbers into context History of the Dealership Conroy’ Acura was founded in November 1986 by Ross Conroy,a veteran of the car industry who aso ‘owned General Motors dealershipand an American Motors (AMC) dealership. Conroy’ Acura was the first Acura dealership to open in Toronto and one ofthe first in North America. Located in down- town Toronto, Conroy's Acura sold both new and pre-owned vehicles, and its service department was Ursicated to Acre In 1999, Ross son, Terrence Conroy, became ‘of Conroy's Acura. Along with Terrence Conroy and De Lint, he dederhp had a staf of nine salespeople, two administrative assistants! receptions, and sx technicians who worked in the service Conroy’ Acura was an independently owned dealership that held a franchise agreement with Honda, Acuras parent company. Conroy's Acura purchased Its inventory directly from Honde's Canadian distributor and sold the carsat a markup, (Copright © 2008 ey Management Services Conroy's Acura aso sold pre-owned automobiles, the majority of which were obtained through trade-ins from consumers. The Marketplace Conroy's Acura ad « numberof competitor in the marketplace, the most obvious were the dozen or so cther Acura dealerships within a 30-klometer radius. Conroy's Acura competed directly with dealerships that sold cars comparable to Acura's offerings, such as Saab, Volkswagen, and, most nota- by, Honda. Conroy believed the four biggest com- petitors in the Toronto market were BMW, ‘Mercedes-Benz, Lexus, and Infiniti, BMW and ‘Mercedes-Benz, two German brands tended to price ‘ther carshigher than Acura, Lexus, the hanary brand ‘of Toyota, and Infinit the luxury brand of Nissan, tended piel casi saerage as Arn ‘Competition bad grown fierce over the past few years, because of the advent of the Internet, ‘which made it much easier for consumers to com parison shop. ‘The Cars (Conroy's Acura sold six models of new cas: Acura CSX—average sales price: $31,860 “The Acura CSK was an entry-level ary cay, siml- lar to the Honda Civic. It competed against cars such as the Volkswagen Jetta and the Nissan Sentra. Veran: (4) 2008-02-04 Conroy's Acura: Customer Lifetime Value and Return on Marketing 63 Acura RS: sales price: $35,100 ‘A small sporty sedan, the Acura RSX competed wih as uch tthe Mish lpr andthe ‘Volkswagen Golf Acura TSX—sverage sales price: $42,984 ‘The Acura TSK competed in the entry-level luxury ‘market with the BMW 3 series, the Mercedez-Benz_ ‘C-Class, the Audi Ad and the Lexus iS, Acura TL—sverage sales price: $49,680 ‘The Acura TL was a mid-sized laxuy car many eompetion, dang the lal G35 the Lexus BS, the Saab 9-3, the Mercedes-Benz E-Class and the Volvo $60. The Acura TL was far and away Conroy Acuashighest-elling cat Acura MDX—average sales prices $61,776 ‘The Acura MDX was a sport utility vehicle (SUV), ‘hich had an SUV appearance but a unibody con- struction typically seen in cars. Other mid-sized

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