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Instruction for Nantucket Nectars

Questions

1. Identify the key issues faced by the company?

Distribution-difficult to distribute key products with affordable prices


a. Lack relationship with stores
b. Costly to do it yourselflose 2 million when do own distribution even team up with
Arizona Ice tea
Low margin- cost of ingredients
a. Could not anticipated growth so did not secure contract with suppliers
b. Use pure crane sugar and 4 times amount of juice compare to competitors
c. Bad harvest-no cranberies
Competition- many new brands and larger company with distinctive advantages enter the
market

2. Explain the industry landscape and competitive situation of the company?

Rivalry High - Frequent product innovation. This increases competition amongst existing
players, as firms need to ensure they are constantly adding new varieties and requires
spending in R&D for new product development. - Proliferation of brands and flavors. This
leads to confusion of customers and make it difficult for players to establish brand loyalty. It
also means that considerable spend is required in order to generate brand equity and stand
out from the competition.
Barriers to Entry Moderate - High capital investment requirements for starting up. Market
entry requires new companies to build their own production / bottling facilities and
distribution networks. This can be bypassed through contracting third party bottlers and
distributors. - Economies of scale lowered an established player's cost structure. The size of
established players and their strong buying power for raw materials results in a lower cost
structure for them vs. new entrants. - Established players use large advertising and
promotions budgets to deter entry of new players.
Buyer Power High - Due to the large number of companies producing beverage brands,
there is fierce competition on shelf space in retail outlets, which gives bargaining power to
customers (supermarkets, convenience stores, etc). Many customers ask for slotting fees. -
Low switching costs
Supplier Power Low - Numerous sources of supply exist for raw materials, thereby reducing
the bargaining power of suppliers. However, larger player have a relative advantage in
procurement, causing smaller players to have low bargaining power with suppliers.

Superior quality and taste juice product to target the New Age beverage market. Nantucket juices
had four times the juice content of other major brands and have replaced the high fructose corn
syrup with only pure cane sugar.

A compelling story behind their brand, focusing on the entrepreneurial nature of the business and
the owner's mantra of making the highest quality and best tasting juice in a bottle.
Management knowledge of the Northeast geographic region, the single serve business and their
reach in the non-traditional trade segment (delis, educational institutions, and health and gourmet
stores).

First mover advantage. Nantucket Nectars was among the early players to catch the "New Age"
wave emerging in the beverage segment and establish

3. What are the key relationships that have helped Tom and Tom build this business to date?
o High quality products and brand stories+ varieties of product lines
4. What relationships do they need to develop in order to continue to thrive in this business?
Strategic partnership- enhance NN competitive advantages ex. Distribution and bottling
Develop relationship with suppliers- gain secure crops contract +suppliers partnership in
order to produce with competitive cost level
Distribution- penetrate the distribution channels ex. Super market reliable
distributors
Marketing- shift from low cost marketing strategies to effective marketing to building
brand equity
5. What are the pros and cons of remaining independent? Going public? Selling the company?

Pros Cons
Maintain the
quality of product Less growth as money
Grow at your own is not abundantly
Remaining Independent pace available for expansion
Maintain the laid The lack of a good
back culture of distribution program
the company
IPO would help
raise the capital
required for
Need for added
Growth
disclosure for Investors
Increase in public
Provide periodic
awareness of the
financial reporting
Going Public company
Cost of complying with
Founders and VC
regulatory
can use this to
requirements are very
cash in the
high
company and
formulate an exit
strategy.
Selling the Company Founders can Valuation of the
make back the company may be less
money that was because of the exit
invested in the timing.
business. Marketing of the
Liability and risk company would
is transferred to change.
the buyer. The laid back culture of
the company would
change.
The new owners might
replace the
management team and
the employees

6. If the management decides to sell the business, how should they think about their role after the
sales?
Consider timing of sales
Decide to go stock sales/ asset sales
Gather info
Prospective buyers
Making sales
Closing deal
7. What should management do? If they decide to sell the business, who should they sell the
business to? Assess each potential bidder.
Investment banker
Announce in beverage sectors that they want to sell company if the right prices come
along.
Bidding process:
o Round 1 : premiernaly discussion with prospective buyers who really interest in
company
o Round 2: buyers from round 1 + NN exchange financial info. And value of
company
o Round 3: left company from round 1+2 put together proposal and let NN
chooses the best one

8. As an advisor to Tom and Tom, what do you propose is the minimum bid they should accept?