Case: Tropical Delight Softdrinks
Tropical Delight Softdrinks, a small Canadian company based in Vancouver, B.C., marketed a line of unusual, tropical softdrinks in the Vancouver, B.C. area. It had a narrow line of products; three flavours (mango, guava and leechy) of soft drinks. All three flavours were relatively unknown in Canada but were popular in tropical countries and in most parts of Asia and South Asia. For example, Guava, a fruit common in Asia and South America, was strong in flavour and its pinkish juice was popular in many countries. The soft drinks were made with 30% real juice, which made them appealing to consumers who liked natural content in their soft drinks. While most Canadians were familiar with mangoes, guavas and leechies were unknown to most of them. The products were also relatively healthy, as they contained real fruit juices. TDS had been in operations since 1999
TDS had relatively small share of the market; its annual sales was expected to reach $600,000.00 in 2003. Sales had been going up steadily (though slowly); sales in 2002 was $525,000.00. Unit sales had also been growing steadily – from 190,000 bottles in 2000 to 280,000 bottles in 2001 to 350,000 bottles in 2002; Mr. Parmar expected sales to reach 400,000 bottles in 2003. The major costs were for the fruit concentrates, which had to be imported from foreign countries. The concentrate cost the company about $0.20 per bottle; the next major cost was the bottle and the label on it – together, they cost the company $0.10 per bottle. The company also distributed its soft drinks itself at a cost of five cents for each bottle to local convenience stores (mostly ethnic ones) and one supermarket chain using its own truck. Labour costs were ten cents a bottle; other costs (e.g., water, sugar, etc), cost the company another five cents per bottle.
TDS was interested in expanding its operations. To date, the company had limited its operations to the greater Vancouver area (population: 1, 967,500; ethnic population of Asian/other relevant groups: 590,000). It had hired a consultant who suggested that the company consider the following options: (1) expand to other cities in Canada such as Toronto with a large minority population (of Toronto’s 4.65 million people, 1.15 million were of Asian/other relevant minority origins); (2) expand within Vancouver by attracting other consumers; (3) expand to other parts of British Columbia (total population of BC: 3.87 million; total Asian/other relevant groups in BC: 700,000).
The owner, Mr. K. Parmar, knew that he had to consider the costs involved with each option carefully. His company was relatively small; he had already invested a lot of money into it by borrowing from his parents (to buy equipment) and still had to pay off $10,000 of that loan. He employed a factory manager (salary: $60,000/year), a secretary ($25,000/year) and one salesperson who contacted the various retailers (salary: $45,000/year). The plant and office cost $40,000 a year to maintain. He knew that if he wanted to attract other consumers in Vancouver, he would have to spend some money on promotion; he estimated that he could manage by spending an additional $ 150,000 (he was only spending $30,000 now to advertise in ethnic media). Expanding to other parts of British Columbia would cost an additional 5 cents in transportation costs (per bottle) and another $20,000 in promotional costs. If he were to expand his operations to Toronto, he would have to spend another 10 cents/bottle on shipping, and may have to spend at least $80,000 on advertising in ethnic media. He might also have to hire a salesperson in Toronto at a cost of $50,000/year and spend another $10,000 or so in setting up an answering service and other related services.
Mr. Parmar was also worried about his production capacity; he knew that he could handle another 100,000 bottles a year without additional investment, but anything more than that would require an additional $100,000 in plant and machinery. Mr. Parmar also wondered if the majority population would be interested in the flavours that his company produced. While he knew that he could raise the money, he also knew that it would stretch his resources. He wondered if he should just stay with his current target market and continue to sell just in the Greater Vancouver area. He had never tried selling to the local ethnic restaurants there; furthermore, he felt that there is some room to grow in the market.
Questions (Use the case format; the questions are just to provide you with some guidance):
1. Conduct a SWOT analysis on TDS. What are your general conclusions from this analysis (5)?
2. How would you segment the market for TDS’s products (3)?
3. What are Mr. Parmar’s main options (3)?
4. Conduct a breakeven analysis for each option (6). How much would you expect TDS to sell under each scenario in 2003 (8)? Make sure you provide the logic for your predictions.
5. What decision criteria would you use to evaluate the alternatives (5)?
6. If you were Mr. Parmar, which alternative would you choose and why (10)?