CASE STUDY REPORT

Charles Chocolates

Instructor: Jorge Oceguera

Submitter: Hua Qian 100107295

NABU 470/61

April 6, 2016
INTRODUCTION

As the premium chocolate leader in Maine, Charles Chocolates(Charles) needs a

growth plan supported by both top-management and employees. Company should
seize the fleeting opportunities and tackle the current issues in management,
production, distribution and marketing. Should they further penetrate the home
market or expand to the outside? How could they broaden their market size without
sacrificing brand integrity?

EXTERNAL ANALYSIS

INDUSTRY OVERVIEW
In 2012, the U.S. premium chocolate market was US$2.7 billion, which occupied 14 per
cent of the whole U.S. chocolate market. It had higher margins with annual growth of 10 per
cent(Zietsma, 2014).
The demand was growing in ethically produced cocoa, organic chocolate and dark
chocolate due to its heart-healthy benefits. Whilst, consumer and employees increasingly
demand corporate social responsibility and environmental concerns(Zietsma, 2014).
FIVE FORCES ANALYSIS

The Porter’s Five Forces analyses premium chocolate market consisting of international
and regional chocolate manufacturers. The key buyers will be taken as affluent customers
and providers of high-quality cocoa bean as the key suppliers.
It’s indicated that the major competitive strengths are moderate. The premium chocolate
industry offers good prospects of attractive profit.

EXHIBIT 1: Forces Driving Competition in the Premium Chocolate Market in U.S.2012

 Strength of Rivalry
Charles has two main international competitors - Godiva and Lindt as well as two main
regional rivals - Delice and Cardon’s. Charles produces the highest quality hand-wrap
chocolates with premium price, and it has developed loyal customers in Maine. However,
most people have never heard of Charles and switching cost of brands is low outside the
province. Some multiple national chocolate companies like Hershey’s and Cadburys also
move into the market with strong productivities and advertising capability.
Overall, the degree of rivalry is assessed as moderate locally and strong outside. If
Charles plan to expand their market outside of Maine, the strength of competitors will be
stronger.

Threat of New Entrants

Local consumers have strong brand loyalty to Charles’ products. With its unique taste,
consumers will have high switching cost if they choose a new brand.
Some MNCs had moved into the premium chocolate market through acquisitions. They
have enough capital to purchase equipments and raw materials to expand their business in
new market.
Overall, the threat of new entrants is assessed as moderate.

Threat of Substitutes
Few substitutes that are benefit to human health are available in the premium chocolate
market. In the general chocolate market consumers can choose non-chocolate snacks,
candies, ice cream to substitute milk chocolate. Due to the increasing awareness of healthy
food, many consumers consider chocolate as unhealthy with too much calories.
Overall, the threat of substitute is weak to moderate.

Buyer Power
For the premium chocolate market, the loyal customers have weak bargaining power
with high costs of switching. Whilst, these customers are mostly affluent people who are not
very price-sensitive. Since there are only two main local competitors, the buyer bargaining
power is weak in Maine for Charles.
Nevertheless, Charles plan to broaden their geographic coverage or produce general
chocolate products. They will face big challenges from international competitors. Consumers
will have many alternative choices with the similar quality of chocolate.
Overall, the buyer bargaining power is assessed as moderate.

Supplier Power
According to company’s present situation, Charles’ high-end chocolates rely on a few
suppliers who provide high quality cocoa. Cocoa beans grown in the tropical areas are often
at risk of heavy weather. However, there are many global suppliers who can provide similar
quality of cocoa beans.
Overall, the high quality of raw material supplier power is moderate.
INTERNAL ANALYSIS

Main Resources & Capabilities

Charles was New England’s oldest chocolate company with many loyal customers
around the world. It has a 24,000-square-foot factory in Portland and 11 wholly owned retail
stores. There were 75 retail and 35 production employees and 20 employees in
management, administration and sales. Company has intangible assets of goodwill and
trademarks which occupy 20% of total assets in 2011. Approximately 30 per cent of sales
came from wholesale accounts. Charles produced unique and high-end quality of
hand-wrapped chocolates deliver customers memorable shopping experiences(Zietsma,
2014).
The new president Steve Parkland who has an empowering style and a strong
commitment to values and integrity. His career had involved stints in marketing and sales in
addition to operation (Zietsma, 2014).

Financial Performance

EXHIBIT 2: Charles Chocolate Finance Statement

 Notables items in 2010 and 2011 financial reports include cash which decreased by
85% in 2011 due to purchase of PPE and repayment of long-term debt.
The efficiency ratio is around 50% either year, which is much higher than its competitors’
of 15% to 25%, indicating the need to cut expenses and reduce company’s long-term assets
to increase current assets.
The company yields a relatively high ROA and ROE; but the days of inventory is
considered low compared with average industry level which explains its out-of-stock
situations during the peak season.

SWOT
Strength Weakness
Superior product quality Low productivity
Home loyal customer and strong No efficiency measurement
brand Old fashion package
Strong family value Sales Data distortions
Rich Heritage Poor demand forecasting
Loyal employee base Long Days of inventory
Low employee turnover Out-of-stocks or over stock
Competitive wages Resistant employees
Ample financial resources to grow Labor shortage in Portland
Slowdown in market growth
Long online order process time
 Niche market
High price
Weak brand fame outside Maine

Opportunity Threat
Active nightlife in Portland Young consumer changing preference
Franchising Tourist may stop coming to Portland
Online business Competition from MNCs
Gift market
Cruise ship passengers
Extend product line in Maine
New market outside Maine
Acquisition & Joint ventures
Outsource

Customer Value Proposition

With the highest quality and unique heritage, Charles’ chocolates deliver excellent
customer retail experience through store decoration, free samples, aromas, taste and
service(Zietsma, 2014).

First Action
In short term, the new president should tackle some urgent issues.
● Currently there exists overlap of management responsibility as Wong and Bird both
take charge of product development and purchasing & sales planning. The new
president should dissolve the conflict between them two and clarify their
subordinates.
● Company need more national sales managers to oversee the sales agents across
the United States. Charles should train them to follow the company’s’ code of
conduct.
● The new president should build rewarding policy to encourage employees to share
innovative ideas and participate in company’s decision-making.
● Company should oversee its products in small accounts to make sure no expired
products are sold by employing new account superviser.
 ● Company should recruit new employees in Sandwich Heaven and extend its
evening hours service.

PROMISING OPPORTUNITIES
One major advantage of franchise is its strict control over quality. Company can franchise
Sandwich which was purchased with $1,198,500 in 2009. It contributed $1,199,156 in 2010
and $1,185,048 in 2011. It can make more profit with alcohol selling if company recruits
more people and extends its evening hours. They also can open their franchising stores
along east coastline which close to the factory in Portland.
Charles can extend its product line to take advantage of its strong brand awareness in
Maine. Company can produce some ethical or no-chocolate food to occupy more market
share.
Since, Charles has gained successful experiences in the market of the East Coastline. It
is a good choice for them to open new stores in the West Coastline which attracts large
amount of tourists.
The corporate gift market is another potential profitable section for Charles with its big
size of order. Company also can open more booths at the cruise ship terminal to attach
more tourists.

Growth Plan
The growth plan is based on the anticipation of the board of directors for double or
triples the size of the company in 10 years.

1 The company needs high productivity and better production tracking to cope with the
altering demand in different seasons. New technologies and production procedures should
be introduced to the factory and replace hand packing in order to boost productivity and
keep track of work efficiency. As the company experiences out-of-stock issues and inventory
data distortion, new supply chain principles, such as Lean production, Just-In-Time and
TQM, should be adopted to improve management,better forecast demand and proper lead
time. New information system could also be installed to connect plant, warehouse and POS.

2 It’s imperative for Charles to allocate their resources more efficiently and modify what
distribution channels to focus on. The company should invest in segments that are
experiencing economic growth as sales in Portland, its current biggest retail market, has
been declining. For example, enter new markets like New England and eastern shore cities
and increase brand name recognition. It’s possible to construct one more plant in one of the
cities to further support production needs and help broaden the market.
Selling and G&A expenses incurred in Sandwich Heaven is to be cut short. Approve only
those that contribute to strategy execution.
In addition to the 11 direct selling stores, the company could franchise chocolate stores in
different markets.
Online business of Charles has not yet gone up with the trend and it requires better online
ordering presence and less processing time. Online sales could be promoted by website ads
or social media campaign.

3 Charles ought to build a stronger focus on packaging, marketing, and advertising. While
maintaining strong position in premium chocolate market, the company should change
packaging or create new lines of moderate price to appeal to younger demographic without
diluting the brand image. Other marketing approaches include special deals or limited
editions of chocolate in stores, organizing or sponsoring events, partnering with corporates
with special offers or cross-industry marketing with enterprises aiming at similar target
consumers, especially in underperforming markets like Boston.

4 The company should also emphasize on reinforcing its structure and facilitate cohesive
coordination between management and employees to support strategy and create value. In
addition to solving the problem between Wong and Bird, Parkland should lessen Wong’s
responsibility in solely managing the production planning system by outsourcing, for
instance.
As one sales manager based in Boston oversees 8 sales agents across the country, the
company should designate more sales managers as well as hire and train new sale
representatives who understand Charles company culture and share company value.
While maintaining a work atmosphere of caring and mutual respect, employee training and
monitoring of empowered employee performance should also be introduced to optimize
company capacity.

.
Conclusion
In order to double the size of the company in 10 years, Charles should utilize its core
competency to increase production, broaden distribution channels, explore new
markets, optimize marketing and advertising as well as reinforce company structure
without sacrificing its value and integrity.

Reference
Zietsma, C. (2014, 11 17). Charles Chocolates. IVEY Publishing, p. 2.