AQA A2 Business Studies. BUSS3 - Strategies for Success Revision Workshop

Transcription

1 AQA A2 Business Studies BUSS3 - Strategies for Success Revision Workshop

2 Moments Group helps people celebrate. The British love giving cards, chocolates and other gifts on special occasions. Moments Group meets that demand throughout the UK. Moments Group was formed after the merger in 2010 of two large retailers Occasions Cards plc and Downtons plc. The share prices of these two had fallen sharply since 2008 and shareholders were happy to accept a merger deal which was financed by a large US venture capital firm (Premier Capital). Moments Group is now a private limited company, with the majority of shares held by Premier Capital. The remaining shares are held by the management team and by thousands of staff who have joined an employee share ownership trust. After the merger, Moments Group has two separate business divisions, with overall control provided by a small central team: Division Business Activities The largest mass-market retailer of greetings cards and related gift products in the UK with over 600 stores in prime locations in high streets and shopping centres. The market leading specialist retailer of chocolates and related gift products in the UK, operating from around 600 stores and concessions. Downtons is also a major manufacturer of chocolate products with two factories in Northampton and Cardiff. Moments Group is chaired on a non-executive basis by Tony Delaney (72), the founder of Occasions Cards - Premier Capital insisted on the recruitment of a new CEO. Max Webb was appointed Group CEO in early Max was previously the Marketing Director of Premier Foods, a leading manufacturer of well-loved branded grocery products including Hovis & Mr Kipling. Strategic review and the Transformation Plan For Premier Capital, their main objective is to achieve significant efficiency savings from the merger as well as re-establish the group on a growth path after a period of stagnating sales and sharp falls in profitability. They will seek to sell the business in 3-5 years time. Following his appointment, Max has conducted an in-depth review of the strategic positions of the two divisions, both of which have struggled in the face of sharp decline in UK consumer confidence and intense competition. A key challenge for Max is to identify strategies to improve the competitiveness of the two businesses which have quite distinct cultures and business models. 2 AQA A2 BUSS3 Revision Workshop

3 Whilst both Occasions Cards and Downtons are market leaders, they have suffered like other retailers from being mass-market specialists. Although the two brands trade from locations covering almost all the UK, customers have much greater choice these days. They can pick up birthday cards at Tesco, buy gift chocolates from Sainsbury s or order personalised gifts on demand from many online providers such as Moonpig. As one of the largest multi-site retailers in the UK with a combined portfolio of over 1,200 outlets, the group needs effective workforce planning, particularly since both businesses have high fixed costs (store rents and staff costs). The economic downturn has hit many poorer-performing stores, taking the worst below their breakeven point. In the face of declining profit margins, Max sees the merger as an opportunity to restructure the organisational structures of the group. He sees the model used by Downtons as being the better approach. Downtons has adopted a decentralised approach to retail management and almost half their outlets are now run by franchisees. Downtons culture of treating shops as profit centres, long-term investment in training and customer service is also something that Max would like to replicate across the group. Max believes that the best approach for the group is to focus on core activities which allow shop staff to focus on engaging with customers. He has identified opportunities to rationalise the manufacturing capacity of Downtons and also to outsource central warehousing and distribution. Max also believes that both brands need to be revitalised. His previous experience at Hovis, where he masterminded the hugely successful 15m TV advertising re-launch in 2008, is behind his proposal to invest in and reposition each brand as a retailer of premium and innovative gift products. He proposes a significant increase in the marketing budget together with greater investment in new product development. Max also wants to reposition the business as a major player by diversifying into the online market for gifts. An internal project team has developed a plan for the launch of Moments Direct a new online portal for personalised gifts which requires an investment of 10 million. In his presentation to the Board and Premier Capital, Max has identified the key elements of what he has described as a Transformation Plan which is intended to provide a series of clear strategies for long-term success. A summary of the plan is provided overleaf. 3

4 Overall aims for the business: A diversified organisation with higher profit quality Revitalised premium brands and product ranges with stronger growth potential An empowered workforce that delivers outstanding customer service A flexible and efficient operation Key challenges facing the Group: Both brands operate in mature mass markets facing strong competition Retail stores are spread across many different types of location, ranging from mega malls to factory outlets, cafes and high street stores Customer shopping behaviour has changed significantly in the last decade The major grocery supermarkets have grown their share significantly in both markets Online specialists have taken a large share of the gift personalisation market segment The business is too seasonal (Easter, Christmas, Mothers Day and Valentine s Day) Rising input costs placing sustained pressure on profit margins High fixed costs from current organisational structure Staff morale in poor-performing stores is deteriorating as trading worsens Proposed elements of the Transformation Plan: Estimated Cost Annual Benefit m m Close 500 owned stores over the next 4 years & replace with franchises Reposition Occasions and Downtons brands with major advertising campaign & investment in new product development Launch Moments Direct - online gift purchasing and personalisation Outsourcing warehousing and distribution Consolidate factory production (Downtons) into one location Total AQA A2 BUSS3 Revision Workshop

5 Statistical Appendices Appendix A: Organisational Data Tony Delaney Chairman Max Webb CEO Sonia Sinfield Group Finance Zoe Jones- Bishop Group Marketing Fiona Peacock Group HRM Brandon Burrow Occasions Cards MD Matt McGuire Downtons MD Occasions Cards Downtons Industry Avg Levels of hierarchy Organisational structure Centralised Decentralised n/a Labour turnover 26% 9% 18% Employees that belong to a trade union 5% 55% 13% Average span of control Temp staff as % of permanent 30% 16% 15% Average store manager pay 25,690 30,145 28,162 Appendix B: Marketing Data Occasions Cards Downtons UK market growth rate (retail) p.a. -2% 1% % of revenues from new products 4% 11% Annual marketing budget 2million 5million Market share (existing market) 15% 6% Main competitors Card Factory, WH Smith, Tesco, Sainsbury s, Moonpig.com Cadbury, Hotel Chocolat, Lindt, Ferrero Rocher, Green & Blacks 5

6 Appendix C: Financial Data millions Occasions Cards Downtons Revenue (Turnover) Operating profit / loss Number of stores - owned Number of stores - franchisees Average performance UK retail average Occasions Cards Downtons Return on capital employed 26% 32% 24% Acid test Stock turnover Appendix D: Investment Data for Transformation Plan Data in m Year Cash inflow Cash outflow % discount factors: Year 1: 0.91 Year 2: 0.83 Year 3: 0.75 Appendix E: Operations Data Occasions Cards Downtons % of revenue spent on new product development 1% 4% Number of suppliers Number of product lines 10, Proportion of online sales 0.5% 5.8% Factory capacity utilisation n/a 78% 6 AQA A2 BUSS3 Revision Workshop