GIUSEPPE'S ORIGINAL SAUSAGE COMPANY

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GIUSEPPE’S

ORIGINAL

SAUSAGE

COMPANY




TABLE OF CONTENTS

Company Background and History

The Vision and Mission Statement

The Objectives

1. Financial

. Strategic

Analysis and Evaluation

1. Industry and Competitive Analysis

• Dominant Characteristics

• The 5 Competitive Forces

• The Driving Forces

• Competitive Position of Major Companies � Strategic Map

• Key Success Factors

• Industry Prospects and Overall Attractiveness

. Internal and External Situation of the Company

• The Current Strategy

• SWOT Analysis

• The Price Structure

• The Strength of the Company’s Competitive Position �

The Weighted Competitive Strength Assessment

Financial Analysis

Company’s financial difficulties

Income statement

Revenues

Ratios



Recommendations

COMPANY BACKGROUND AND HISTORY

“The art of making sausage came naturally to Cotrone. He began by making custom sausages out of the kitchen in his home in the early 10s. His original customers included friends, associates, and patrons at the restaurant where he worked as a bartender. In addition to serving specialty sausages at the bar, Cotrone also sold them from a cooler he kept in his car. Customer demand soon exceeded Cotrones production capabilities, so he made plans to open a full-scale sausage company outside his home.

Giuseppe’s Original Sausage Company began to take shape in late 11. As his personal capital dwindled, Cotrone had no choice but to initiate a search for external investors.

In late 1, Giuseppe’s opened its doors to business, with sales to Seessel’s (a local upscale grocery chain) and local restaurants. Sales were slow during the initial years. The outside investors Cotrone has recruited kept Giuseppe’s afloat through the lean times before sales began to slowly increase by the mid-10s. While Cotrone focused the majority of his attention on sales to local restaurants, Seessel’s, and Kroger (a national retail grocery chain) during the mid-10s, he also developed a flyer that featured his specialty sausages and could be sent or given to his ever-expanding individual customers.

By late 17, Giuseppe’s had sales of over $50,000 due to larger-order quantities from an expanding customer base, including the newly established Tunica, Mississippi, casinos. Giuseppe’s staff included a plant manager, a full-time sausage maker, and a pert-time salesperson.”

THE VISION AND MISSION STATEMENT

Through the Master Strategist Approach, the CEO came up with two vision statements. First, “he had a vision of operating a sausage company in which he could create a variety of different sausages using exotic meats and spices”. The second vision “was to grow the business to a stage where he could afford to hire the necessary staff to run the day-to-day operations”.

Already, we can identify a problem here. Indeed, the vision statement is too vague. It doesn’t tell us the firm’s values or purpose. It doesn’t have a core group of customers, actually, it doesn’t even take the customers into consideration.

We could restate the vision as being the following “be recognized as the national leader in the specialty sausage industry, to produce the highest quality product possible, and to keep abreast of all its customers changing tastes and preferences”.

THE OBJECTIVES

1. FINANCIAL

• Hire a food broker to help the company to expand its volume of sales

• Hire a part-time bookkeeper to manage the books

• Invest time to operationalize the computer’s system (Microsoft Office, Small Business Edition)

• Identify its primary customers based on the sales and profits (retail segment, food service, individual customers)

• Increase revenues

• Realize a profit margin

• Increase the quick ratio

. STRATEGIC

• Increase the market share

• Increase the brand recognition

• Expand the geographic coverage

• Create new varieties of sausages to suit customers tastes

ANALYSIS AND EVALUATION (we are in 17)

1. INDUSTRY AND COMPETITIVE ANALYSIS

DOMINANT CHARACTERISTICS

• The size of the market exceeds $ million.

• The sausage industry is a competitive market. Approximately 5 to 0 major brands are sold in the Memphis retail market.

• The direct competitors are identified as being the larger regional and national companies such as Bryan, Jimmy Dean, and Johnsonville. Their prices range from $1. to $..

• The total market had grown at a rate of 18.% from 16, 15.5% in Memphis.

• The buyers are divided into two major segments the retail and the food service. The retail segment of the market is composed of supermarkets like Piggly Wiggly, Kroger, and Seessel’s. Most supermarkets have a demand from their customers for specialty and ethnic products. The food service segment consists of restaurants, education facilities, and large food-preparation companies. Restaurants and casinos represent a niche market where high quality and unique flavored sausages are desirable.

• It is very easy to enter the market (this is explained later on). The cost of exiting the industry differs among companies due to their capital investments. It varies based on their commitments to plant, equipment, and distribution chain.

• There is no need for fast technological innovation because the technology of sausage production is a standard in the industry (although technological changes might lower the time and cost of production). The technology to produce sausages is very basic and easy to learn.

• There is a need for specific distribution channels in order to access the market. It is very important to gain relationships with brokers to facilitate sales in both the restaurant and supermarket segments.

• The economies of scales in this industry imply the following

- Producing more sausages lowers the cost of production per sausage

- Purchasing in bulk lowers the cost of raw materials

- Shipping out product in bulk lowers the cost of shipment

• The capital requirements for entering the industry are low. One could

manufacture sausage out of one’s own kitchen.

• Due to the nature of this specialty industry, the companies can maintain low

cost but charge premium prices, which increases the overall profit margin.

THE 5 COMPETITIVE FORCES

1. Rivalry between competitive sellers

Competition among the sellers centers on price, but also on other features like special promotions, advertising, and the variety of product offerings. Rivals establish themselves through value, brand recognition and nutrition. The company’s sales in 17 amounted $57,65. In the same year, the retail segment exceeded $ million in sales, giving Giuseppe’s a market share of about 1.8%.



. The ease of entry of new companies

As the market for dinner sausage continued to grow, new entrants were expected. As evidenced by Guiseppe’s it was possible for a new company to enter the industry in a relatively short time. Government regulations (USDA regulations) erected some barriers to entry, but the major barrier came from the ability of the large companies to wage significant marketing campaigns. This comes out of the existence of economies of scale the sales of the market leaders allow them to afford fierce and expensive advertising campaigns, since they can spread out the costs, which puts the new entrants in a situation of cost disadvantage. Other barriers would be customer loyalty and brand preferences, and the specialized know-how of a company (recipes). The ease of entry is a threat to existing companies due to the low capital requirements and due to the small importance of the learning curve. In addition, all new entrants have the ability to compete for deals with the brokers and distributors.

. Substitute products

The threat of substitute products is extremely high. Substitutes of worse, equal, and better quality are easily available in large supply and variety and at attractive prices.

These include products such as hamburgers, pork, chicken, etc… Basically, the sausage can be replaced by any other dish. Buyers would have no problems switching to substitutes since there is a great variety to choose from, available at all quality and price levels, and able to satisfy most if not all tastes.

4. The power of suppliers

Meat is available from many suppliers capable to fill the order. With a number of suppliers to choose from, the buyers have a bargaining advantage over the suppliers. But the fact that there are no good substitutes for the meat needed to manufacture the sausage, especially if there is a seek for quality, places the buyer in a situation where he is limited to a single type of supplier in the industry. Although there are many ingredients needed, meat is the primary ingredient and therefore it dominates the industry. This will result in a lower bargaining advantage for the buyers and therefore a higher power of suppliers.

An outside supplier provides a cost advantage over vertical integration. Indeed, it would be far too costly for sausage manufacturers to house, feed, slaughter, and prepare its own livestock. This increases suppliers’ leverage.

It is strategically important to have a working relationship with your supplier to ensure “just in time” delivery of the product. This is directly related to the quality of the manufactured product being distributed. It also reduces the need for storage and related cost of housing the product. The companies with the best working relationship with their suppliers have a higher strategic value. The more reliable and prompt delivery of the desired amount at the best price and quality, will add to the overall quality of the manufactured product all the while being the most time and cost effective.

5. The power of buyers

Since there is competition and since there are many substitute products, the bargaining power of the buyers is strong.

Should economic times worsen, purchases will sag because the product is not a necessity.

THE DRIVING FORCES

• As we previously said, the long-term industry growth rate is still increasing.

• There was an incredible economic impact on the Mid-South. The growth of the casinos in Tunica, Mississippi caused significant changes in the local and surrounding economy by expanding the tourism industry. Due to the changes in the economy the amount of meals purchased at commercial restaurants per person were at an all time high in 16.

• Giuseppe’s witnessed two major changes in societal values and lifestyles. The first one was the explosion of interest in ethnic specialty foods (especially Italian food that is consumed by 84% of the surveyed customers). That was a great opportunity for Giuseppe’s to come up with new surprising sausages tastes (Mild Italian, Hot Turkey Italian, Andouille, Cajun Style, etc…). Product innovation is necessary to survive in the specialty sausage industry. Creating a wide differentiation of the product among rivals broadens the industry customer base. The second one was the changing role of the sausage in the Memphis area. The notion that sausages were cooked only for breakfast was being replaced with the idea that sausage represented an attractive alternative dinner meat. Basically, those two changes implied greater consumption of specialty sausages.

• Companies that elected to enter the low-fat segment of the sausage market had created a shift in the marketing techniques. Towards the customer’s growing health and nutrition concerns, Giuseppe’s was in a good position since some of it sausage varieties ranged only 7grams of fat per pound (most sausages range between 15 to 5 grams). Marketing to new customers changes the size and shape of the industry. This changes the competitive structure of the industry by forcing the competitors to revise their marketing strategies.

• The entry of major firms would not significantly alter the competitive structure of the industry because of the large sizes of many current participants and the fact that the industry is in a growth cycle.

The exit of major firms would increase competition among rivals for the exiting firm’s customers, causing the competitive structure of the industry to change.

• Growing buyer preferences for differentiated products changes the competitive structure of the industry. Because it is a specialty industry, purchases are based on differentiation, not on price. With growing preferences for differentiated products the market will grow, changing market share and revenues among the participants.

• The increasing globalization is a problem for the company since it is present only in a regional area. Many companies go global, creating increasing competition and market saturation in a once void area.

COMPETITIVE POSITION OF MAJOR COMPANIES-STRATEGIC MAP



1. Johnsonville

. Bryan

. Healthy Choice

4. Mr. Turkey

5. Jimmy Dean

6. King Cotton

7. John Morrill

8. Giuseppe’s

KEY SUCCESS FACTORS

Manufacturing related KSFs

• Manufacturing quality � companies in thee industry must be able to produce quality products based upon taste, fat content, and freshness.

• Manufacturing flexibility � companies need to be able to react quickly to changing demands in the industry.

Distribution related KSFs

• Network strength � companies need to have a strong business relationship with retailers, distributors and suppliers to help market and distribute the product, as well as to benefit from prompt delivery of raw materials.

• Ample space on retailer shelves � having ample space on supermarket and specialty shop display shelves makes the product known to customers.

Marketing related KSFs

• Breadth of product line and selection � to survive companies need to have a broad selection of sausages available to customers. In the specialty sausage industry, customers are looking for products that are different from the norm.

• Attractive styling/packaging � companies need to make their packaging stylish for the product to stand out and catch the eye of the customers. They also need to make sure they package the product properly to ensure freshness. Having instructions and nutrition facts on the package allows the customer to make a proper decision on whether or not to buy the product.

Organizational capability KSFs

• Ability to respond quickly to shifting market conditions � companies should have the ability to create new sausage products to match the changing customers needs.

Other KSFs

• Image and reputation � companies need to have a reputation with customers as producers of fresh and quality sausages.

Giuseppe’s position towards the KSFs is stressed out in the SWOT analysis.

INDUSTRY PROSPECTS AND OVERALL ATTRACTIVENESS

• Again, as we said before, the industry is in a growth phase.

• The driving forces will create a positive impact on profit potential

• The demand is neither dependable on the product nor really stable.

• The competitors are strong in regards of their size, geographic coverage, access to advertising, and prices, but might be weak on the quality and on the breadth of their product lines.

• A major uncertainty for this industry is when the growth cycle will end and the maturity stage will begin. Changing from a growth to a maturity stage would create intense rivalry among competitors in the industry and would cause many of the current competitors to drop out. Therefore, they will need to have some type of action plan ready to defend against diminished growth or a stable market demand.

. INTERNAL AND EXTERNAL SITUATION OF THE COMPANY

THE CURRENT STRATEGY

In order to evaluate how well the current strategy is working, we will use the three testing strategies

• The goodness to fit test � Giuseppe’s achieves to fulfill the current demand for great quality specialty sausages. They also defend themselves from threats with their special and unique recipes that are hard to replicate.

• The competitive advantage test � Giuseppe’s competitive advantages consist of the breadth of the product line with unique recipes and their local brand name that stands for quality.

• The Performance test � Giuseppe’s is not performing well financially. The company didn’t achieve its financial objectives. It lost money and still cannot keep its accounts consistently. It also failed to meet its key strategic objectives effectively. Poor implementation and lack of discipline are the primary reasons for failure.

Giuseppe’s inbound logistics strategy is not working very well presently. The company has yet to find a way to effectively use “just in time” inventory.

Giuseppe’s operations strategy is not effectively in place because they have been unable to produce to the capacity the sausage making machines.

Giuseppe’s outbound logistics strategy is working effectively for their direct mail customers. This is due to the ease of using UPS and FedEx. Contracting food retail and service brokers would permit the company to fully implement its outbound logistics strategy. Currently this is not the case.

Giuseppe’s currently doesn’t have a marketing or advertising strategy. This lack of a competent marketing plan is a definite weakness.

Giuseppe’s current strategy does not protect the company against external threats and internal weaknesses.

SWOT ANALYSIS

STRENGTHS

• High product quality

• A wide breadth of the product line

• Product innovation skills

• A good reputation

• Flexible production capabilities

• Product freshness

• Keeping its work facilities and sausage-making areas above the required standards stipulated by the USDA and local health department regulations

WEAKNESSES

• No clear strategic direction

• Lack of managerial depth and talent

• Poor overall financial position

• Poor overall promotional strategy

• Weak distribution network

• Unable to handle credit card sales to individuals

• Small plant capacity

OPPORTUNITIES

• Increase the market share and grow revenues while the industry is in a growth cycle

• Ability to serve additional customer groups by developing new products. Indeed, as we said above, Giuseppes could develop a low-fat sausage variety in order to capture a new customer group consumers that have health and dietary concerns.

• Increase its market share by joining the e-business

• Due to the changing view of sausages as no longer just being served for breakfast, this creates an opportunity because the changing role of sausages in the Memphis area presents growth for all sausage manufacturers

• In 17 the most meals were consumed per person a year at restaurants than previous years and there are a high number of Italian restaurants in the Memphis area that are potential customers of Giuseppe’s

• Expand into gourmet and specialty shops

• Become the first mover in the e-commerce segment of the market (that would also permit to acquire wider brand recognition)

THREATS

• Competitors’ relative size and coverage

• Competitors’ accessibility to hard advertising

• Rigid distribution channels that have to be used

• New entrants to the specialty sausage industry

• Patents are not available on food products

THE PRICE STRUCTURE

Since we don’t have the data to be able to develop a concrete value chain, we will use the non-numerical data available in order to assess the price structure of the company and compare it to its rivals.

• Inbound logistics � Giuseppe’s is not taking advantage of the economies of scale by buying the raw materials in bulk. This is a huge cost disadvantage that the rivals take advantage of.

• Operations � Giuseppe’s has a similar operation workflow to the rest of the industry. Only there is the fact that Giuseppe’s doesn’t operate the machines at full capacity. This is a disadvantage compared to the competitors.

• Outbound logistics � Giuseppe’s ship their packages via UPS and FedEx. Currently they don’t use the broker/distributor channel, which reduces their costs, but also their revenues and competitiveness.

• Marketing � Giuseppe’s principally use word of mouth to market their brand. This does not require any cost. The competitors spend a lot of money on advertising. They also benefit from the brokers abilities to market their products.

• Research and Development � Giuseppe’s are not having any R&D expenses contrary to their competitors.

• Profit margin � Giuseppe’s has no profit margin, while its competitors do.

Giuseppe’s costs are higher than many of its rivals. One of the main reasons for this is the inability to take part of the economies of scale, due to low volume of sale and commitment to high quality standards.

THE STRENGTH OF THE COMPETITIVE POSITION �

THE WEIGHTED COMPETITIVE STRENGHT ASSESSMENT

Key success

Factor weight Giuseppes Jimmy Dean Johnsonville Bryan

rating weighted score rating weighted score rating weighted score rating weighted score

Manufacturing

Quality 0.5 10 .5 10 .5 8 .6 8 .6



Manufacturing

flexibility 0.5 10 .5 0.675 0.45 6 1.5



Network

Strength 0.15 0.45 10 1.5 8 1. 8 1.



Ample space

on retailers

shelves 0.05 0.05 0.5 7 0.175 7 0.175





Attractive

packaging 0.05 8 0.4 8 0.4 8 0.4 8 0.4



Breadth of

product line

and selection 0.5 10 .5 0.675 0.675 6 1.5





Weighted overall

Strength

Rating 1.00 8.65 6.75 5.5 7.075





Giuseppe’s has the ability to be a competitive force in the Memphis specialty sausage industry due to the quality of their product, the breadth of their product line and their manufacturing flexibility.

FINANCIAL ANALYSIS

According to the Income Statement and Balance Sheet, we notice that Giuseppe’s is performing poorly. Why? The company has high cost of production and huge expenses. They lost money and market share the last two years. They also do not perform well in boosting their competitive market share and they can not keep accounts consistently. The lack of financial management has affected the company ability to earn profit. Guiseppe’s financial goals is to stay in a market with high growth stage abd still produce a high quality brands. Also lack of technology and efficient software to keep track of records affected the company, resulted in missing invoices and poor profit.

Even if lack of financial management affected the company; Giuseppe’s revenue growth has grown every year. Giuseppe’s Original Sausage Company had sales in 17 of $ 57,65. The dinner sausage industry in Memphis was $1.5 market millions as of 17. The market share of the company in Memphis was 47.55%. What also hurt Giuseppe’s Profit margins is the competitive copying and interband price comparisons served to limit the premium that could be realized on a consistent basis.



14 = Sales of $ 6,11

15 = Sales of $ 164,17 ( + 15%)

16 = Sales of $ 1,0 ( + 1%)

17 = Sales of $ 57,44 ( + %)

The reasons of this growth is that small companies such as Giuseppe could offer a wider variety of specialty dinner sausage in smaller volumes whereas large companies such as Bryan, or Jimmy Dean tended to concentrate on fewer var

FINANCIAL RATIO ANALYSIS

LiquidityRatio

Years

CURRENT RATIO

14 15 16 17



1.4556



1.7017



1.1604



.5845

QUICK RATIO



1.047704



1.1861



0.617



1.77011

Profitability Ratio

OPERATING PROFIT MARGIN



-0.46567



0.010717



-0.045



0.0418

NET PROFIT MARGIN



-0.5



-0.0111



-0.0551



-0.00068

RETURN ON ASSETS



-1.0074



-0.0858



-0.1561



-0.007

RETURN ON EQUITY



-1.68547



-0.0518



-0.474



-0.00578

Market Value

Earnings per share -610 -018 -11654 -176

RECOMMENDATIONS

• Close few product lines

- Close the product line of items with sales below $100

- Close the product line of nonsausage items (Potato Salad and Kraut)

- Close few of the sausage varieties that have high ingredient cost, but do not generate

a lot of sales like the Seafood Boudin, Duck, and Crawfish Boudin.

All the recommendations above would permit Giuseppe’s to concentrate on the items that produce higher sales. The save of production costs would increase the profits; or it can be invested in professional services and advertising.

• Produce low-fat sausages (between 1.5 and 5 grams)

Closing the few items cited above would permit Giuseppe’s to produce low-fat sausages. By staying within the 1.5 to 5 grams of fat, Giuseppe’s helps supermarkets target their health conscious customers and works on expanding its customers’ range.

• Provide the employees adequate training

While a computer and a basic business software had been purchased, neither Cotrone nor his staff had been able to invest the necessary time to set up and operate the computer system to its potential contribution. The CEO has to supply his employees with the adequate training to operate the software package so that the business and finance can be monitored and followed day-in-day-out. An adequate use of the software would show Giuseppe’s strengths and weakness as well as his progress. It would achieve a more efficient accounting system. Keeping records, would help Giuseppe’s to control his operating costs and bring them down.

• Hire a food broker

The majority of food-service operators in Memphis purchase their products primarily from Alliant or Sysco, which control over 80% of the Memphis food-service market. Sysco indicated it would consider a new specialty product, especially on a regional basis, only if it was offered by a broker. Giuseppe’s provides a wide variety of products that meets the needs of the brokers’ customers. Another advantage is that, due to their expertise, brokers are a valuable source of marketing information and marketing ideas that are not easily accessible to small manufacturers. Hiring a food broker can help Giuseppe’s expand sales volume and regional brand recognition.

• Handle credit card sales

Giuseppe’s supplies fresh quality sausages to customers in a convenient way by allowing mail order customers to purchase anything within its product line, but it doesn’t have the ability to handle credit card sales to those customers. Having the ability to handle credit card sales might induce customers to buy more of its products. It can also induce customers used to pay in plastic to buy Giuseppe’s products.

• Create a customer service department

Although Giuseppe’s does try to maintain high customer satisfaction, at the present time it does not have a customer service representative. With only three employees, it will take some time before it does. By creating a customer service department, Giuseppe’s would create long-term relations with major customers and also with the “butterfly” customers. It would also work on creating a favorable image and reputation.

• Expand into gourmet and specialty shops

Giuseppe’s needs to add its product line to the gourmet and specialty stores in the Memphis area to gain a name recognition and reputation as a gourmet specialty sausage, giving it further differentiation from other sausages.

• Expand into the e-commerce

The technological changes of the last decades that converted the Internet into an every-day tool might make a change for Giuseppe’s. The company could try to expand itself on the web. Advancing technology in e-commerce allows for easy direct sales through the internet. Developing a web page is rather cheap and easy. The company already uses FedEx and UPS services to deliver its sausages to its customers. Operating on the web would help the company increasing its customer’s base and creating brand recognition. It could include a customer service, which would work on creating long-term relations with customers. Currently, there are no such companies using e-commerce, therefore Giuseppe’s would benefit from the “first mover advantage”.



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