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F RO ZEN YOGURT
Group 1
Lai Pui Yi 51492628
Wong Man Yee 51492420
Jieru Ding 40031241
Yeung Wan Nga 51816800
Oct 2010
Competitive Environment 3
GMI’s Strategy 4
Suggestions 6
Competitive Environment
Yogurt Shops Impulse Locations
Shops make their Franchise operations Food service opera- Soft-serve trade is
living from the soft- replaced many inde- tors are adding soft- only performance
serve business & pendent yogurt serve yogurt to their topspin to them,
must innovate -- shops -- if shops business, they ac- they are unwilling to
GMI could offer cannot sustain, it counted for 2/3 of take risks -- poten-
more innovative could eventually the soft-serve mar- tial sales growth is
products to them to hurt GMI’s sales ket -- it is a very im- limited, GMI might
boost its sales. from them. portant segment for need to target shops
GMI. more while main-
taining sales from
impulse locations.
From the table above, it clearly shows that impulse locations capture the majority of soft-
serve yogurt market, but the yogurt is not their main business and they are unwilling to put
on more risks. This implies that the potential sales growth from impulse locations is limited,
GMI should not put too much effort on boosting sales from this segment, although it is still
important for maintaining stable sales.
Compared to impulse locations, although independent shops are facing competition from
franchise operations, this actually increases their demand and makes them a high-potential
market segment for GMI. Therefore, GMI need to gradually shift their main focus from
impulse costumers to independent shops.
Colombo does not charge for merchandising and provides the same large scale merchandis-
ing to both segments. However, many impulse locations did not use the kits.
GMI offers graduated price promotions to both segments, typically $5 per case, averaged $3;
it is only targeted to impulse locations though.
The statement above shows that, since the calculation is based on sales dollars, cost and net
income per case does not differ between the two segments. Based on such perception, we
observed that net incomes from both segments are the same in terms of the percentage of
sales revenue, 17.4%, which means that both segments have the same level of profitability
and efficiency.
However, solely using sales dollar to allocate costs is inappropriate in this case as some indi-
rect costs are not solely depending on sales dollars.
*Items using different calculation %om last statement are shown in bold.
The reconsolidated statement above using ABC method clearly shows that two segments
actually did not perform similarly.
First, In COGS, although the cost to produce is the same for both segments, since the pick/
pack and shipping costs vary with whether the order was for a pallet, and impulse segment
placed majority of its orders individually whereas yogurt shops in full pallets. Since individ-
ual orders are more expensive to ship than pallets, so this leads to 88 percent of the shipping
cost consumed by impulse costumers. Apparently, there is space to reduce this cost.
Second, impulse segment also consumed 97 percent of total merchandising cost, compared
with 80 percent of total sales they contribute. And the real problem is that these customers
are actually not so interested in those kits GMI’s offered for free. Therefore, the majority of
this cost is really an unnecessary waste; GMI’s could have spent the money else where.
Third, the SG&A allocation was too low as sales representatives actually used three times as
much time on the yogurt than estimated. Therefore, using sales dollars would inflate net in-
In addition to the over-weighted cost consume by impulse segment, sales from shops are too
low. We believe that this is because our sales representatives ignored them in order to focus
on impulse segment. However there’s opportunity to boost its sales in the future.
Overall, profitability of yogurt shops, $5.87, overrides impulse segment, $0.69. Although im-
pulse segment contributed 80% of total sales, it only generated 28.8% of total profit. Obvi-
ously, GMI should think about how to reduce costs of impulse segment and further boost
sales of yogurt shops.
Suggestions
From all the analysis above, we suggest that GMI should solve the following problems to
operate more efficiently and increase its profits:
• Reduce the time sales representatives spent on impulse customers, e.g. providing train-
ing for salesforce to increase efficiency and cut SG&A costs.
• Consolidate individual orders into larger ones to reduce shipping costs -- an example is
offering extra price cut when impulse locations buy cases in pallets.
• Only offer marketing kits based upon request or start charging them for the kits to re-
duce marketing expenses, which is aimed at cutting merchandising costs.
• Establish new training program for salesforce or set up a separate team to specialize in
the area and rebuild the relationship with shops.
• Offer incentives to boost the sales, e.g. graduated discount based on size of the order.
• Offer more recipes to raise their interest in the product and therefore boost the sales.