Analysis of Prince Edward Island Preserve Company Case Study

This assignment analyzes the case study of Prince Edward Island Preserve Company, including SWOT analysis, financial analysis, and recommendations for the company's future direction and long-term growth.

The Prince Edward Island Preserve Company: Turnaround
COURSE: DFST4440
INSTRUCTOR:
DATE: FEBRUARY 11, 2018
STUDENT NAME:

Executive Summary
This main purpose of this assignment is to analysis the case study of Prince Edward
Island Preserve Company. The analysis will be dealing with the operations of the
company and depict internal strengths and weakness of the company. The analysis of
the company will be including SWOT analysis, financial analysis of the company
considering the financial statement of the company. The company is facing certain
problems and the assignment will be identifying and also recommending alternatives
which can combat the identified problems of the company. The assessment will also be
identifying the most appropriate alternative and also suggest the implementation of the
same.

Table of Contents
Introduction.....................................................................................................................1
Problem Statement (5 marks)........................................................................................1
Analysis (20 marks)........................................................................................................1
Issues (5 marks).............................................................................................................1
Alternatives (10 marks)..................................................................................................1
Recommendations (5 marks).........................................................................................1
Implementation Plan (5 marks)......................................................................................1
Conclusion......................................................................................................................1
Exhibits..............................................................................................................................2
Exhibit A.........................................................................................................................2
Exhibit B.........................................................................................................................2
References.........................................................................................................................3

Introduction
The Prince Edward Island Preserves Company (PEI Preserves) is a
manufacturer and retailer of specialty food products located in New Glasgow, P.E.I. The
company is founded by Bruce MacNaughton in 1985 which produces high quality
specialty foods such as jams preserves, honeys, teas, and coffees using only the
highest quality farm gate produce and ingredients. PEI Preserves then diversified and
expanded to a wider range of services including restaurants, gift shops, and gardens
and had gained popularity not only in other provinces in the country but also globally.
Despite the company’s success and recognition in its products, it had failed to secure
the company’s financial need and had gone into receivership in May 2007. Although
MacNaughton had been able to repurchase the New Glasgow shop/café, the adjacent
garden property and inventory, PEI preserves needed a feasible product-market
strategy to turn around his company.
Since the company had been “built on gut and emotion, rather than analysis,”
MacNaughton acknowledged that it is not sufficient for the future. Presented with many
growth options to expand its manufacturing and serve a larger market size, the New
Glasgow factory’s capacity is too small to meet the demands of a larger market. Given
the time constraints and lowest net income to revenue ratio, MacNaughton has some
major decisions to make. The company needs to have a clear vision, strategy goal and
objective critical to the future direction and long-term growth of the company. With a
proper analysis on the external and internal (SWOT) environment, MacNaughton can
improve PEI Preserve’s competitive business position.
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Problem Statement
PEI Preserves Company’s over diversification and lack of strategy has led to financial
losses and an urgent need for direction. Although the company was founded on instinct
rather than analysis, the company needs a feasible product-market strategy maximize.
Analysis
SWOT Analysis
PEI Preserves should include SWOT analysis in strategy planning to identify the
internal and external factors helpful in matching the firm’s resources and capabilities to
the competitive environment that it operates.
Strengths
 MacNaughton’s charisma and personal customer interaction creates a great
experience to people especially tourists when visiting the New Glasgow site.
 Capability to source the greatest quality fruits and raw materials and producing
unique and high-quality specialty food products different from its competitors due
to its higher fruit content and with champagne, liqueur or whiskey that is not
currently in the market.
 Customer brand loyalty due to its unique food products that consumers buy will
regardless of the competition.
 Broad product mix which includes a wide range of specialized products.
 Respectable local reputation helps attracts visitors that comes during the
summer months.
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 Food products not subject to the 5% national goods and services tax or PEI’s
10% provincial sales tax which gives and advantage over other gift products that
firms would normally be stressing.
Weaknesses
 Inefficient management due to Bruce MacNaughton frugality and not hiring a
management team that could assist him in planning and implementing strategies
that the company needed to prosper.
 Difficulty to attract and retain quality staff due to seasonal operation.
 Seasonal business structure since Prince Edward Island is mostly a summer
vacation destination and most of the company’s income is generated during this
time only.
 Limited product promotion since PEI preserves limit itself to personal contact and
customer mail order.
 Cash flow shortage due to the seasonal nature of the business since a large
percentage of the income is generated during the summer when visitors are at
the island.
Opportunities
 Increasing demand for high-end product both locally and globally.
 Expansion to two different regions such as Toronto and Japan which can help
the company with the cash shortage.
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 Extensive distribution channel including store wholesale in other provinces in the
country, hotel chains, and major airlines that will help expand the company’s
brand.
Threats
 Highly competitive market since the gift and specialization food industry has a
few but large players, all competing in the quality, taste, and plan to attract
consumers.
 Array of possible substitutes due to many competitors trying to replicate its
products.
 Competitive pricing capacity due to high priced products, many competitors will
try to lower their prices to attract PEI preserves customers.
 Foreign market awareness and adaptability due to varied consumer preferences
from one to country to another, thus a clear understanding of the geographical
market that the firm want to enter should be considered carefully.
Financial Analysis
As evident from the exhibit five, an outline relating to the financial workings has
been provided for the PEI Preserve Co. An illustrations obtained from the exhibit five
states that the sales have grown by 14.3%. During the financial year of 2008 the
company has reported a sales figure for Café 494160 while in the subsequent year of
2009 the total amount of sales stood 565,000 marking a rise of approximately 14.3 per
cent. On the other hand, the cost of sales has increasingly rose by 28% representing
that the gross margin has grown slowly and steadily (Scott, 2015). Exhibit five also
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represents that the company has reported shortage of cash. This is because the cash
from the operating line stood negatively to -55000.
An assertion can be bought forward in this regard by stating that the firm faces
severe shortage of cash. The major factor contributing to the shortage of cash is
because of the seasonal nature of the manufacturing operations (Leuz, & Wysocki,
2016). Additionally, PEI Preserve Co has failed to secure the appropriate finance to
meet the short term business obligations. The major reason contributing to the shortage
of cash is because of the higher amount of interest paid by the company on the
operating loan. Additionally, the exhibit five represents that the interest and bank
charges also included the interest paid by the company on the long term debt and
principle. Consequently, the total amount of bank charges stood 95,124 representing a
greater level of debt undertaken by PEI Preserve Co.
The financial analysis provides that the rise in earnings prior to interest and tax
was on the higher side in respect to the growth reported on sales. The rise on sales was
reported low in respect to the rise in total assets (Nobes, 2014). An assertion can be
bought forward by stating that the rise in sales was higher because of the rise in price
by 10% instead of the other factors.
Issues
Identify issues based on the above analysis.
Some of the key issues that were faced by Prince Edward Island Preserve are listed
below:
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 Problems relating to cash flow of organization- The success of the diversified
products also came with the problems and financing factor was not suitable for
the needs of company. Several periods of severe cash shortages were
associated with the seasonal nature of manufacturing operations. There was a
considerable growth in deficit and the company and in the beginning of 2007,
company lost $ 313000. Cash shortage was witnessed in department of cafe and
diary bar. Difficulties were witnessed in making payment to creditors and the line
of credit by bank was reduced to zero (Sheth & Sisodia, 2015).
 Over diversification- It is ascertained from the case study that numerous
products were developed by company ranging from variety of preserves along
with mustard, vinegar, honey and repackaged tea. There was the development of
diverse product lines. Preferences of consumers were widely diversified. 50%
total market demand for jam was occupied by Strawberry jam and there was
introduction of more and more varieties of jam simultaneously. Prince Edward
Island Reserve had also developed other line of products such as speciality food
market and gift and gourmet. Moreover, it also introduced some luxury products
that could be sold with a proper marketing strategy and over the years, several
forms of diversification occurred. This made problematic for company to
concentrate of their specification and targeting a particular segment of market.
When the customers are presented with too many choices then there is a
possibility of shutting down and diversification at product level is somewhat risky.
 Lack of efficiency in operation- Operations of business of restaurant was
questionable because gross margin was increasing at slower pace. This slow
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increase in gross margin was questionable cost of sales increased more than
growth in sales. Process of production of company is labour incentives and this
has lower down the productivity of organization. There is no automation of
bottling process resulting from decorative fringe that is required to be done by
labours. However, there is no guarantee that the product has the requirement of
fringe for the bottling process is essential. Moreover, no proper cost benefit
analysis was performed by the restaurant and this has resulted in the loss from
operations. The main area of concern was the operations of company and it was
perceived that the management is not able to take the advantage of opportunities
for making the operation process efficient (Houston et al., 2014).
 Lack of strategy- There is no viable strategy for marketing the products of
Prince Edward Island Preserve. It was required by the organization to formulate
proper corporate strategy because the industry in which organization is operating
is considerably different from that of speciality foods and gifts. The restaurant
business of the organization was not the suitable strategy as a part of expansion
of business (Baldacchino, 2015). Therefore, the reason associated with the
business making loss and negative generation of cash flow in certain department
is inappropriate formulation of their strategy.
Alternatives
Alternative 1
Rethinking of the corporate strategy: One of the options of the PEI Preserve Co is
that at the current stage the company is required to think about the corporate strategy
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whether the firm wishes to continue the business of restaurant. The market of restaurant
is considered to be entirely different from the gifts and speciality food market having
little collaborations (Luez & Wysocki, 2016). Even though the restaurant industry is
bringing constant amount of revenues across the year for PEI Preserve Co the
management is proving as the threat for the company and this is the major
disadvantage.
As the income statement collectively presents the financial performance both the
restaurant it is difficult to gain the information which of the unit is yielding higher amount
of profit for both the locations or just one of the unit. By gaining additional amount of
information on the cost and revenues, PEI Preserve Co might be able to determine this
options better. On the positive side discontinuing the business of restaurant would
assist PEI Preserve Co in easing out the pressure on the vital resources of both the
financial and the non-financial aspects (Martínez et al., 2015). By enhancing the
financial health of PEI Preserve Co the firm would be in the better position of
undertaking more rapid expansion in the areas of gifts and speciality foods market. This
could be attained by expanding the business in Tokyo. Additionally, the Tokyo
expansion can be gained through merely approaching the new banks that might be
interested in offering finance to PEI Preserve Co at the favourable interest rate.
Alternative 2
Issuing preferred shares and expanding in the local market of Tokyo: The PEI
Preserve Co can issue preferred shares though it might not be considered as the tax
efficient method of raising finance but would provide the firm with much needed cash in
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meeting the short term obligations. An alternative option for PEI Preserve Co is to
exploit the market of Tokyo. This is because the local market of Tokyo would provide
PEI Preserve Co to gain massive advantage through lower cost of transport and
marketing collaboration.
The growing market of Tokyo would help the company in attracting the local
consumer and consequently the firm can gain significant amount of market share
(Deegan, 2013). Furthermore, another alternative for PEI Preserve Co is to open the
retail store at the Japanese airport as this would enable the firm in attracting millions of
tourists. On denoting the fact that The PEI Preserve Co does not have any sales agent
in Tokyo. Therefore, it can be considered that opening a retail store at the Japanese
airport and expanding the consumer base in Tokyo might be a better method of
attracting several distributors in and around Tokyo. This would help in creating an
alliance which could provide the opportunity of exploiting the Tokyo market.
Alternative 3
Setting up the manufacturing unit in Japan: A different alternative for The PEI
Preserve Co is that the company might consider setting up the manufacturing unit
locally in Japan. The firm can additionally consider outsourcing manufacturing package
as this would help in lower the import duties and margins for middleman which would
represents a higher profit from the Japanese market (Schaltegger & Burritt, 2017).
Nevertheless, if the The PEI Preserve Co undertakes the decision of outsourcing, they
must ensure controlling the quality. This is because the cost reducing outsourcing is
pursued instead of undertaking the reducing outsourcing.
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Additionally, a large number of evidences has been obtained where the market of
Tokyo is regarded as the growing market for the PEI Preserve Co. Even though the
market might appear unknown for PEI Preserve Co but Bruce MacNoughton can learn
about the Japanese market and specialty food market by learning about the culture
(Zhang & Andrew, 2014). Problems might arise relating to the high import tariff and rent
in Tokyo which is unfavourable for the PEI Preserve Co but it can be a good market to
exploit based on the presence of higher population density.
Recommendation
The general recommendations which can be provided to improve the overall efficiency
of the company are given below:
1. The company needs to critically think and change the operational process of the
company such as reduce the over diversification which the company is currently
engaged in and also overall improve the quality of the products of the company
which can be shown by putting quality seals and meeting the licensing standard
of domestic and foreign markets (Hooker, 2012).
2. Another issue which the company faces is the seasonality problem in the
products which the company is producing. The company can further expand into
foreign markets where by introducing the products can reduce the overall
seasonality problem of the company (Chang & Chou, 2013). For example, the
company has access to Japan’s market and therefore the company can tap into
the Japanese consumer market and reduce the problem of seasonality.
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3. The company needs to send executives to japan in order to set up an effective
retail and distribution system which can facilitate appropriate supply of the
products of PEI Preserves in the market of japan (Armstrong et al., 2015).
4. Another problem which the company faces is the crisis of liquidity requirements.
The company needs to select the sources through which the company can have
access to required funds. The sources of the funds can be equity and debt that is
the company can issue shares or take up loans from a bank or other financial
institution (Panigrahi, 2013). The business can tie up with a bank to provide to
the financing requirements of the company.
5. The company also needs to determine whether the restaurant business of the
company is profitable or not and then decide whether to continue with the
business or sell off the business.
The alternatives as provided above clearly states that the company needs to expand
in the market of Japan and also set up retail and distribution system and it is
recommended that the company should focus on the expansion of the business in
foreign markets. The company as per the plan should expand the markets in japan.
Implementation Plan
The company should be focusing on the expansion plan of the business into new
markets. The targeted market of the company is Japan as the management of the
company is of the view that the Japanese consumer market has potential and if they
can successfully implement the business strategies in the Japanese market. Moreover,
with the expansion of the business in Japanese market the issue of seasonality which
the company faces can be reduced. The company first needs to analyze the market of
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Japan and ensure that the market is suitable for the products of the company. The
management of the company needs to set an effective retail system which can support
the distribution system for the product of the company.
As per the market analysis of Japan, the annual consumption of jam in Japanese
market is around 80000 tons in approx. Therefore it can be clearly identified that the
market of Japan is clearly favorable for setting up the business of jam which is one of
the activities which the PEI Preserves is engaged in. The imports of japan as per
previous estimates show that the market almost makes around 8 to 9 percent of imports
out of total imports for jam products. Various companies import jam products and
utilizes the distribution system to take advantage of the favourable conditions present
for the jam market. The company needs to analyze the market of Japan and also
analyze the taste and preference patterns of the consumers. Importer who are engaged
in the importing business in japan have been earning sales of 10 per cent. The
management of the company needs to consider the following factors while considering
setting up business in new market:
1. Diversification as per preference: The management of the company should
consider the taste and preference pattern of the local consumers of the market.
In the case of jams, strawberry jams occupy the maximum percentage of market
shares in comparison to other types of jams but it all depends on the taste and
preference pattern of the consumers (Oyedijo, 2012).
2. Amount on supply: Another consideration is the amount or quantity which is on
offer. In normal circumstances the quantity which is on offer is 650 grams, 440
grams and 250 grams. The quantity of jam which is on offer depends on the
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marketability conditions, infrastructure and also on the local demand in the
country.
3. Price of the product: The management of the company also needs to decide on
the price of the product as per the local conditions and demand and supply
analysis in the country.
4. Marketing Strategies of the Company: The marketing strategies of the company
includes the sales promotion activities which the company engages in in order to
maximise the sales of the product. In any new market the companies need to
ensure that there are appropriate system of distribution and also appropriate
infrastructure required for effective operation of the business (Morgan, Katsikeas
& Vorhies, 2012).
The need for infrastructure and incorporating proper distribution system is to be
supervised by the president of the company that is Bruce MacNaughton. Bruce needs to
travel to japan personally and ensure that proper infrastructures are present in the
market which the company can utilize in order to expand and operate efficiently in the
new market. The president will also be making preparations of setting up the company’s
own distribution system, and also select potential sites for opening a retail store for the
company. As per the plan of the management, the retail store and distribution system
need to be developed and establish in a period one years time. The main factor which
attracted the company to invest in Tokyo project is due to the immense benefit PEI
Preserve Co. will be getting as such will be reducing the seasonality problem which the
company is facing, and also bulid a brand name of the company in the market of Japan.
The company will also be benefitting from the economies of scale which are present in
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the market of japan if the company engages in large scale production utilizing the
resources of the country considering the distribution system and supply chain system of
the country.
The risks which any company faces when entering a new market is the risks of
competitors. PEI preserves co will also be facing tough competitions from the
established companies of Japan. Moreover it will also have to compete with companies
which are engaged in the business of importing jam products and distributing the same
in the local market of japans.
The management of the PEI preserves also needs to address the other issues which
the company faces which are given below:
1. Liquidity issues: The company faces serious liquidity issues which the
management of the company needs to address if the company wants to improve
the overall business efficiency of the company. The management of the company
can finance the liquidity requirements by either taking a loan from banks or
financial institutions or can issue equity shares which can raise the capital as
required by the company.
2. Operating Structure: The company needs to improve the core operating structure
which the company is presently using. The company needs to critically rethink
the operating system of the company and further redesign the operating structure
of the company.
3. Infrastructure: The management of the company needs to improve the
infrastructure and distribution system which the company is currently operating
with and also there is scope of improvement in the marketing strategies of the
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business such as introduction of promotional strategies and also introducing
promotional strategies such gifts, lucky draw.
Conclusion
Thus it can be concluded that the PEI Preserves can make improvements in the
strategies of the company which can lead to the overall development of the overall
business. The company best option is to expand the business of the company in new
markets as in this case the market of Japan is considered where the business is
planning to expand. The company is also planning to issue preference shares in order
to raise the capital requirement of the company. The infrastructure of the company and
the distribution and supply chain system of the company is also to be adjusted as per
the requirement of the new market. As per the analysis of the case study, it will be in the
best interest of the company if the president of the company himself goes to survey the
new market and also set up a new retail store in the new market after analyzing the
market and potential store locations in the country.
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Exhibits
Exhibit A: Revenue Vs. Expenses
$-
$100,000.00
$200,000.00
$300,000.00
$400,000.00
$500,000.00
$600,000.00
$700,000.00
$800,000.00
Cafe/Bar Retail Wholesale Mail Order
Exhibit B: Profit Contribution Percentages
15%
57%
18%
10%
Café/Bar Retail Wholesale Mail Order
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