Case Analysis

15P00018
Section C
Introduction

Ben & Jerrys Homemade Ice Cream was incorporated in the year 1977 with
Ben Cohen and Jerry Greenfield at its helm. It had gained a reputation for
mix-in flavors of ice creams along with having flavor differentiation a vital
factor in growth of its product lines. By 1995, Ben & Jerrys became the
second biggest maker of super-premium ice cream in the US capturing 43%
of market share. Till early 1993, the company revenue grew from a meagre
of $12000 investment to $36,705,000. However, in the year December 1994,
company witnessed first quarterly loss even though the per capita
consumption of ice cream and related products have reached all-time high of
24.1quarts. In such a scenario, Bob Holland was roped in as the new CEO of
the company and thus the onus of developing strategies fell on his shoulder.
It has been seen in the past that ice cream consumers tended to be loyal to
particular flavors as well as the brands. Ben & Jerrys had traditionally been a
maker of super premium ice cream and gained a reputation for mix-in
flavors whereas its main competitor Haagen-Dazs served the smooth
flavors which cost almost one third less than mix flavors but were sold at the
same selling price.

Qualitative & Quantitative Facts

Incorporated on December 16, 1997 by Ben Cohen and Jerry Greenfield

Believed in measuring companys performance with a two-part bottom
line: financial and social performance
Operating segment: Super premium ice cream
Feb, 1999:Bob Holland replaced Ben Cohen as CEO
Known for unconventional mix-in flavors
Commitment to social causes and collective management
Ben & Jerry used to manufacture 60% of its ice cream and rest 40%
was manufacture by Dreyers Grand
Distribution was mainly done through Dreyers Grand Ice Cream, Inc.
and Suts Premium Ice Cream
Ben & Jerry also had franchised retail stores, known as scoop shops
 Growth in super premium segment has fallen down to 4% but premium
segment was growing at 11% Ben and Jerrys core product was super
premium ice-cream
Consumers were becoming more health and value conscious
Super premium segment having just 13% of the market had 2 large
competitors with no more scope to grow as they both controlled 93% of
the market
Outsourcing of 40% of the manufacturing capacity to Dreyer's is very
much vulnerable to Ben & Jerry's
Having 52% of the sale distribution through Dryer's who is a
competitor is bad in the Long term.
High focus on high fat content super-premium category & limited
presence in the tow fat category
Operational inefficiencies due to complexity created by a large no of
product variant 44+.
Conservative debt to equity ratio was maintained.
Same selling price charged for both the smooth and mix-in flavors
although significant variation in the production cost.
Ingredients were sourced as a social cause from various regions. But
Ben & May's was blamed as exploiting the resources for it financial
gains.
Launch of Smooth" line of ice creams as head-on to the market leader
just because Ben was tired of chewing Mix-ins.

Key Issues

Operational Issues
 Significant increase in number of Pint products increased complexity,
inefficiencies in production planning, purchasing and inventory
management highlighted & reduction in gross margin
Operating profit came down to 1.874 % from 8.443 %
Shortage of some flavors and overstock due to inefficient demand
forecasting
Significant delays due to automatic handling process and refrigerant
equipment at the new plant at St. Albans
Abandonment of automated systems resulted in $6.8 million write down;
led to loss in 4th quarter of 1994 (first time reported loss)
Difficulties involved in manufacturing ice cream in large chunks
Completely outsourced distribution networks -> high costs
Reliance on two primary distributors (Dreyers Grand Ice Cream Inc. and
Suts Premium Ice Cream) and other local distributors

Strategic Issues

Increase in competition

From premium segment as more consumers trading down to less

expensive products

From super premium market

o Haagen-Dazs (by Pillsbury): 50% market share

o Launch of super premium products by major food packaged

companies like Kraft (Frusen Gladje) as consumers value quality
over price in this segment

Vulnerability to Dreyers own plans for expansion due to reliance on it

for production

No formal market research or test market procedures mostly relied on

founders own ideas and tastes

Reduction in market for super premium segment (highest fat content)

due to increase in health consciousness
 Non-motivating and non-attractive human resource policies i.e. 7-to-1
salary ratio: Barrier to hiring competent professionals and limited
incentives for promotion of existing employees.

Limited Sales Contribution of Scoop shops Accounted for only 3% of

total sales in 1994 and never exceeded 10% of total revenue

Key Problem

Declining Sales in a highly competitive market

Competitor Analysis & Recommended Framework

Haagen-Dazs Dreyers Grand Breyers

Oldest and Mainly operated Main competitor

largest brand in in premium of Dreyers in
super-premium segment premium
segment segment
Extensive
Distributed 50% distribution Purchased by
of its product network Unilever PLC
directly
Manufactured Became a direct
Started using other firms threat to super-
advertising and products premium
discounting segment
heavily Started
expanding Had
New product line overseas approximately
Cordials $500 million in
appealed to It planned to sales and 12% of
consumers increase more on the premium
advertising and market
Strong overseas promotions
presence

As the case mentions that various market giants are coking to enter
the ice cream industry such as Unilever and Nestle They are getting
 more aggressive about this business thus a company like Ben &Jerry
could really use every strong marketing and sales guy to be
competitive player in the market
In spite of the various players in the market they are having the first
mover advantage in the previous times. At the present also they
should target the market with the new flavors of ice cream developed
by them, because on a whole competing the companies having deep
pockets in the existing domain of market will not be easy for them.
Market was fragmented with no unifying force. Many regions had a
host of local and regional companies this will cater to everyone's taste
buds and increase sales.
With the help of cost cutting it the term of the wages and work force
volume they could increase the duration of their existence, but should
ensure that during this course of time they should work out something
to increase the market share or else they are bound to fail
The case clearly states that ice cream sales in supermarkets were five
times more profitable per square feet compared to other goods Ben
and Jerry could buy refrigeration space and place these in strategic
locations in supermarkets to improve sales.
Since, US market was saturated and it seems that Latin America and
Asian market is going to see a boom as population as well as per capita
income is increasing. They can go for establishing the production unit
their or could export their finished goods. This will give them an
emerging market as well as they could easily attain an economy of
scales

Alternative Solutions

Expanding into the growing markets of ice cream novelties and low and
non-fat ice cream alternatives as one of the super-premium frozen
yoghurt in 1992 with very little advertising grew to the number one
position in the US in 1994. As the people are becoming more health
conscious and given the facts that FDA had mandated a new food
 labeling standards according to which manufacturers are required to
clearly list ingredients and nutritional information, the frozen yogurt
was poised for more growth and it had already captured 17% of the
market share, up from 21% in 1992.
Entering the Premium market Segment with a new brand name as the
growth of Super premium market segment has slowed down to around
4% by 1994 while the premium segment annual growth rate of
11%.This would require Ben & Jerry to enhance its production
capabilities by going forward with its new plant at St. Albans Vermont.
But $6.8 million had to be written off and this resulted in fourth quarter
loss in 1994.
Joint venture with Dreyers to enter the premium market so that their
production and distribution capabilities can be used by Ben & Jerrys
Homemade Ice Cream Inc.
Outsource additional production requirements and distribution to other
players in the super premium market segment.
Acquiring minority stake in Dreyers as Ben & Jerrys is excessively
dependent on the former for production and distribution. Dreyers
accounted for 52% of Ben & Jerrys total sales and also produced 40%
of its ice cream at its plant in Indiana.
Strengthening the franchise model and expanding business via food
service outlets.

Key Solution

What Ben & Jerry can do is to enter into a joint venture with Dreyers to
enter the premium market segment. For the super-premium markets the
franchise model has to be strengthened and business via food service outlets
can be expanded. The manufacturing of super-premium products at Dreyers
can be shifted completely to the new plant. For this, they will also need to
improve the organizational structure.
Since Ben & Jerrys Homemade Ice Cream Inc. is not in a position to
increase its production capabilities and cannot reduce its dependence
 on Dreyers, it would be beneficial entering into a joint venture so that
relations between the two companies could improve
Dreyers would also be interested in the joint venture since of late its
been suffering losses, creating a win-win situation for both
Better relations mean increased operational efficiency through better
production and distribution both in the super premium as well as
premium market segments
It could also tap the higher growth opportunities in the premium
market segment (11%). This would also mean that there is enough
scope for expansion in the premium market segment
Franchise model would ensure that Ben & Jerrys could save on costs
and at the same time have a better brand presence and higher market
penetration. The only critical factor to be concerned with is ensuring
the product quality across the stores.
Stock option plans should be introduced for employees and the
organizational structure should be clearly laid out. The salary structure
should be in aligned well to the job levels taking into consideration the
mid-level employees as well.
Create teams for Forecasting and Market Research

Recommendations

Improvements should be done at various stages :

Market Research

For flavor differentiation, companies should rely more on market

research through surveys, expert opinions, trend analysis,
competitor analysis etc.

Enter into premium and regular segments

By acquisition of already existing players

To reduce complexity : improvement in production planning and

inventory management
 Direct Distribution will help improve connectivity to larger
masses and will be cost effective