Table of content:
Description of the super-premium ice-cream-market
General corporate strategies
Social company image
Analysis of Ben & Jerry’s strategy
Five Forces Model of Competition
Rivalry among competing sellers
Potential new entrants
Key success factors
The acquisition by Unilever and the impacts on the strategy
Expansion into the Japanese market
The Japanese market for super-premium ice-cream
Analysis of the expansion
Ben & Jerry’s is one of the best known super-premium ice-cream manufactures in the United States. In 1998 Ben & Jerry’s expanded its business to Japan, the second largest ice cream market in the world. It was a significant step in the company’s history and strategic orientation. In the beginning they had to face several problems which had to be solved before entering the market. This planning phase took from 1994 to 1996 followed by a test market phase in 1997. One of the mayor problems was to find a partner who could provide an adequate distribution network. Ben & Jerry’s finally decided to enter the market with the help of Seven-Eleven Japan Co. Ltd., which is a franchise convenience store chain of about 8,000 stores in Japan. This made it possible for Ben and Jerry’s to offer their ice-cream to a lot of people without building up their own distribution network. The company could also make use of the experience of Seven-Eleven who obviously can better assess the Japanese’s need and habits.
In 2000 Ben and Jerry’s was acquired by Unilever, a multinational food and personal products company. This acquisition gives Ben and Jerry’s the possibility of using the existing distribution channels and reduce the dependency on other companies. Also with Unilever as its parent company the company has a new financial strength which allows them to expand marketing strategies and research and development.
Based on the following analysis Ben and Jerry’s is very good positioned in the markets they are competing in. The company uses its strengths and the opportunities in order to fight against potential threats and weaknesses they face due to the lack of huge market share.
Ben & Jerry’s is the leader in the super-premium ice-cream industry. The company is famous for its innovative flavors, unique taste and fancy marketing. Ben & Jerry’s combines an obligation to provide high quality, all natural ice-cream with social and environmental responsibility. This report will analyze the general corporate strategies in order to identify the company’s strengths and weaknesses, its key success factors, the strength of its micro-economic environment and how the expansion in the Japanese market fits into this strategies. Also potential impacts on the company’s strategic vision in light of the acquisition by Unilever will be discussed.
Description of the super-premium ice-cream-market
Ben & Jerry’s operates in the highly competitive super-premium ice-cream, frozen yogurt and sorbet business. Generally super-premium ice-cream is characterized by a greater richness and density than other kinds of ice-cream and is therefore sold at a relatively high price. Häagen-Dazs and Dreyer’s Grand Ice-cream Company, which introduced its super-premium ice-cream line in the fall of 1999, are the company’s primary competitors1. Healthy Choice, Nestlé and Starbucks can be mentioned as other significant competitors.
Ben & Jerry's Homemade, Inc. manufacturer of super-premium ice-cream, frozen yogurt and sorbet, was founded in 1978 in a gas station in Burlington, Vermont, by Ben Cohen and Jerry Greenfield with a $12,000 investment. The company is now a leading ice-cream manufacturing company known globally for its innovative flavors and all natural ingredients made from fresh Vermont milk and cream2 with its headquarter still Vermont.
Manufacturing of all Ben & Jerry’s frozen dessert products occurs in the company’s three plants located in Vermont. The company distributes ice-cream, low fat ice-cream, frozen yogurt, sorbet and novelty products nationwide as well as in selected foreign countries in supermarkets, grocery stores, convenience stores, franchised Ben & Jerry's scoop shops, restaurants and other places. Outside of Vermont, the products were distributed primarily through Dreyer’s and later through independent regional ice-cream distributors3 and today through Unilever’s distribution network.
Unilever, a multinational food and personal products company acquired Ben & Jerry’s in spring 2000 (see cnnfn.com article and SEC file in Appendix). The Ben & Jerry's Board of Directors accepted Unilever's offer of $43.60 per share for all of the 8.4 million outstanding shares, valuing the transaction at $326 million4. Under the terms of the agreement, Ben & Jerry's will operate separately from Unilever's current U.S. ice- cream business. There will be an independent Board of Directors, which will focus on providing leadership for Ben & Jerry's social mission and brand integrity. Both co- based in Vermont5.
Ben & Jerry’s adopted a three-part mission statement formalizing the company’s business philosophy. According to the company’s home page, the mission statement is as follows6:
Product Mission: to make, distribute and sell the finest quality all natural ice-cream and related products in a wide variety of innovative flavors made from Vermont dairy products.
Social Mission: to operate the company in a way that actively recognizes the central role that business plays in the structure of society by initiating innovative ways to improve the quality of life of a broad community: local, national, and international.
Economic Mission: to operate the company on a sound financial basis of profitable growth, increasing value to our shareholders and creating career opportunities and financial rewards for our employees. Underlying this mission is the determination to seek innovative ways of addressing all three components, while holding a deep respect for employees and the community at large.
General corporate strategies
Ben & Jerry's corporate strategies attempt to implement the three part of the mission statement described above: developing a high-quality product, achieving economic strategies are focused strategies based primarily on product differentiation (mainly through funky marketing and unique flavors) and a high level of quality in the production process (especially through the use of all natural ingredients). Although focused differentiation strategies target a narrow buyer segment, this strategy helps Ben & Jerry’s to gain a strong competitive advantage as it can offer consumers something they recognize as something different from rival competitors7 - innovative super-premium ice-cream flavors that taste different and consist of all natural, high quality ingredients. In addition to product differentiation from other ice-cream competitors, Ben & Jerry’s General corporate strategies differentiate themselves via several other key success factors such as promoting a company image of social activism, creating customer loyalty and developing creative advertising campaigns.
Social company image
Several examples show how Ben & Jerry’s implements its corporate strategies. For example, the company donates approximately 7% of pretax profits to philanthropic causes through the Ben & Jerry’s Foundation8. The company also donates free ice- cream during public events and community celebrations - like on this year’s Free Cone Day on April 22, 2002.
Developing customer loyalty is another strategic move to gain a competitive advantage and to prevent that other companies can easily enter the market9. Ben & Jerry’s has made significant efforts to achieve a positive reputation and image with buyers through its frequent promotional campaigns and donations to social foundations (i.e. Ben & Jerry Foundation). One of the most famous marketing events is the Free Cone Day - one day of free Ben & Jerry's scoops. This event was established in 1979 and is now a nationwide annual celebration at Ben & Jerry's scoop shops10. This years celebration was held on April 22 and caused a huge line in front of Ben & Jerry's scoop shop at Horton Plaza.
One way of gaining a competitive advantage is the use of a differentiation strategy to provide a better product for which buyers are willing to pay a higher price. Strange flavor names such as Chubby Hubby, Wavy Gravy, Phish Food, and Chunky Monkey also set Ben & Jerry’s apart from the ice-cream products of rival companies. Also the use of all natural ingredients makes Ben & Jerry's ice-cream unique.
Ben & Jerry’s use of all natural ingredients, high product quality, cyclic introduction of new flavors and the local social image are essential elements of the company’s marketing strategy. The company’s Waterbury ice-cream factory is one of the most
strategy is the use of unusual flavor names and the fancy appearance of their ice-cream pints. Even if they are still number two in the premium ice-cream market they have a strong differentiation to the market leader Häagen-Dazs through their marketing and positioning of their products as “trendy” ice-cream.
Analysis of Ben & Jerry’s strategy
Five Forces Model of Competition
The strength of external forces on the ice-cream industry will be shown through Porter’s Five Forces Model of Competition, which is based on the following five factors: rivalry among competing sellers, bargaining power of buyers, bargaining power of suppliers of key inputs, substitute products and potential new entrants to the market.12 Figure 1 summarizes the competitive strength of these forces on the ice-cream industry.
Rivalry among competing sellers
The principal competitors in the super-premium ice-cream industry are large, diversified companies with greater resources than Ben & Jerry’s. The most important competitors are Dreyer’s and Häagen-Dazs. The rivalry can be characterized as intense within the super-premium ice-cream industry, given that numerous competitors exist, the switching costs to rival brands are low for the customers and the tactics to increase sales employed by Ben & Jerry’s main rivals threatens to boost rivals’ volume of production and sales.
The suppliers to the ice-cream industry are dairy farmers, paper container manufacturers, and suppliers of various flavors. Such suppliers are a moderate competitive force, given that the ice-cream industry they are supplying is a key customer and that there are multiple suppliers throughout the nation a producer of ice- cream can choose from. Therefore, the ice-cream suppliers have only moderate power to negotiate prices.
The power of buyers is relatively high because buyers are a large group, consisting of individual customers, supermarkets and restaurants - both nationwide and globally. Since retailers purchase ice-cream products in large quantities, this gives buyers substantial power over negotiating the price. In addition, there are many ice-cream products to choose from, so the switching costs of buyers to competing brands are relatively low. In order to defend against this competitive force, a company’s strategy must include strong product differentiation so that buyers are less able to switch to competing products without suffer large costs.
There are a lot of products in the frozen food industry (pop-stacles, pies, and cake) the consumers can choose from. It is very easy for the buyers to switch to substitute products which is an indicator of the strength of this competitive force. Since substitute products are readily available and lower priced compared to the relatively high priced super-premium ice-cream, the competitive pressures caused by substitute products are strong.
Potential new entrants
The barriers to entry into the ice-cream industry are moderate due to the brand preferences and customer loyalty for larger and more established rival companies. For smaller more “innovative” companies the barriers are high due to the need of establishing a new taste and brand name. Although Ben Cohen and Jerry Greenfield launched their ice-cream business from a gas station they had to rely on a rival company’s distribution channels which made them dependent on others.
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Figure 1: Model of the Five Competitive Forces
As shown above, some competitive forces on the ice-cream industry are relatively strong. However, Ben & Jerry’s differentiation strategy makes it possible for the company to defend against these forces and to gain a competitive advantage over their main competitors. The use of higher quality ingredients has created a unique brand image that helps develop customer loyalty. Ben & Jerry’s product differentiation strategy also allows the company to fight against the threats of substitute products that do not have comparable flavors.
The stakeholder concerns over health and nutrition is a strong force on the icecream industry. Sensitive consumer awareness and demand for low-cholesterol or lowfat foods can force companies to respond with ingredient substitutions and differentiated product lines to stay in business. Ben & Jerry’s, introduction of a low-fat ice-cream line brings the company in a better position to attract those consumers who are willing to pay a higher price for healthier products. If this strategic moves works well the company could gain a significant competitive advantage over those companies that resist incorporating socially progressive values into their strategies.
Another tool to analyze strategies of the company is by examining the strengths and weaknesses of its internal resources, and then identifying the external threats and opportunities13. By developing a clear understanding of these factors, one can evaluate where the company should go from here. The following table identifies these forces. As the following table shows, Ben & Jerry’s environmental and corporate strategies are well integrated, and that this integration is crucial to the future success of the company.
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Key success factors
A successful strategy encompasses the company’s efforts to be competent on all of the industry’s key success factors and to excel on at least one factor14. In the highly competitive super-premium ice-cream industry, the key factors of success are a good distribution network, product differentiation, customer loyalty and unique advertising. As shown in Figure 2, Ben & Jerry’s do extremely well in these key factors, and has good skills on product differentiation to gain a competitive advantage.
1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C., Commission File Number 0-13544 Business description
2 http://lib.benjerry.com/timeline.html, accessed April 21, 2002
4 http://lib.benjerry.com/timeline.html, accessed April 21, 2002 founders will continue to be involved with Ben & Jerry's, and the company will still be
5 http://www.cnnfn.com, accessed April 25, 2002
6 http://www.benjerry.com/mission.htm, accessed March 26, 2002 growth and profitability, and incorporating social activism. The General corporate
7 Thomson and Strickland, Strategic Management, 2001, p.168
8 http://www.hoovers.com/co/capsule/3/0,2163,12763,00.html, accessed April 25, 2002
9 Moore, Writers on Strategy and Strategic Management, 2001 p.43
10 http://lib.benjerry.com/timeline.html, accessed April 21, 2002 popular tourist attraction in Vermont11. Another strength of Ben & Jerry’s marketing
11 http://www.benjerry.com/tourinfo.tmpl, accessed April 21, 2002
12 Moore, Writers on Strategy and Strategic Management, 2001 p.38
13 Thomson and Strickland, Strategic Management, 2001
14 Moore, Writers on Strategy and Strategic Management, 2001, p. 243
A convenience store chain attempts to be responsive and provide customers what they need, when they need it, where they need it. What are some different ways that a convenience store supply chain can be responsive? What are some risks in each case?
A convenience store can be more responsive by doing exactly what Seven-Eleven Japan is doing; many locations, rapid replenishment, appropriate technology deployment, and an equally responsive supplier (vertical integration for many of their SKUs). The risks associated with this system are the costs coupled with demand uncertainty. If demand patterns change dramatically, or the customer base changes, then Seven-Eleven is left with an operation that is not needed. Offering variety of services in the case of this case study Seven Eleven offered attractive services to customers such as ski lift voucher pass, payment of mail order purchases, internet shopping, a meal service delivery, automatic teller machines installation in each store, pick up online services, electronic money service that allow customers to prepay and use a card or cell phone to make payments etc. on the other hand, a short coming might result due to the failure of one or more information system due to failure or break down.
Seven-Eleven’s supply chain strategy in Japan can be described as attempting to micro-match supply and demand using rapid replenishment. What are some risks associated with this choice?
What has 7-Eleven done in its choice of facility location, inventory management, transportation, and information infrastructure to develop capabilities that support its supply chain strategy in Japan?
7-Eleven implemented a Total Information System through which the company could efficiently share its information thus making its supply chain responsive. The system was installed within each store, headquarters, suppliers and vendors. And also the system linked all the stores with each other. The Total Information System comprises of POS registers, Integrated Services Digital Network (ISDN), Graphic order terminal, scanner terminal and store computers. The data related to the sales as well as the purchaser is collected through the POS register for analysis. For efficient management of the inventory, the graphic order terminal, scanner terminal and store computers are used thus assists in improving both the efficiency and responsiveness.
The store owner or the manager makes use of the graphic order terminal to place orders so as to replenish inventory in order of their arrangement on the store shelf. The owner had access to analysis of waste, 10 day and 10 week sales trends SKU, sales trends of new products, sales analysis by day and time etc that help him in forecasting demand. On the other hand, the Scanner terminal receives products from a distribution center and therefore monitors inventory by checking whether the order received matches with the original order placed. The store computer helps in tracking store inventory.
Trucks are used to transport goods to the stores. 7-Eleven makes use of a flexible distribution system which means that it can alter the delivery schedules according to the varying customer demand. Also, the suppliers send orders via trucks to the distribution centers. The latter cross docks inventory from supplier truck to distribution trucks. Moreover, to maintain the quality of the products, the distribution trucks are temperature controlled of four categories for different types of products such as frozen/ chilled foods, processed foods etc.
The facility location of 7-Eleven comprises of two types namely, the distribution centers and retail stores. 7-Eleven follows a market or area dominance strategy through which it forms clusters of stores in the area where already a 7- eleven store exists rather than having a handful of stores dispersed over a wide geographical area. Among the clusters there’s a distribution center which is surrounded by 7-Eleven stores. Approximately, there are 50-60 stores in each cluster.
7-Eleven does not allow direct store delivery in Japan but has all products flow through its distribution center. What benefit does 7-Eleven derive from this policy? When is direct store delivery more appropriate?
7-Eleven has the policy of delivering its products to the retail stores via the distribution centers. Through these distribution centers, the replenishment cycles are reduced and a proper sales record can be maintained and monitored. Through the Point of Sale registers, signals can be transmitted to both the distribution centre and the supplier hence orders can be organized accordingly. Also, orders are sent directly to the distribution centre so that they can be allotted to the appropriate vehicle. A combined delivery system is used by 7- Eleven, in which four groups of temperature-controlled trucks are used to send fresh products. The trucks are sent several times a day during peak hours in order to avoid delays.
Also, confidence is maintained between the supply chain partners and an additional person is not needed while the load is being received and checked. The process reduces delivery time. However this system might require a number of daily deliveries, but the number of trucks needed is much lesser therefore it reduces the delivery cost and facilitates a more prompt fresh food delivery. And hence the stock is continuously replenished. This network process ensures flexibility in the sense that it can alter the delivery schedules due to any demand fluctuations. There is a twelve-hour limit upon the restocking of food items.
The disadvantages however include that the retail stores will have little control when the restocking takes place. Also, a number of stores rely on just one combined distribution centre. Also, if the system goes down while the delivery is at CDC, then all the stores can be affected and timely deliveries might not be possible. Hence accurate forecasts are needed. Direct delivery system might be a useful technique as the stores follow variant patterns. If the demand increases and a store require a greater number of deliveries then the demand can be met more efficiently as the deliveries can be made directly to the stores.
What do you think about the 7dream concept for 7-Eleven Japan? From a supply chain perspective, is it likely to be more successful in Japan or the United States? Why?
In February 2000, 7-Eleven established 7dream.com, an ecommerce company, the goal of which was to exploit the existing distribution system and the fact that stores were easily accessible to most Japanese Stores served as drop-off and collection points for the customers and proved successful as 92% of their customers preferred to just pick up their goods from the local convenience store which they ordered online rather than have them delivered to their homes. This was understandable given the frequency with which Japanese customers visit their local convenience store. 7dream hoped to build on this preference along with the synergies from the existing distribution system as the company required an effective and efficient supply chain to cater to the demand of the customers who ordered online and provide the company with a time frame for delivery.
From a supply chain perspective, it is believed that the 7dream concept is likely to be more successful in Japan than in the United States. The reason for saying so is that, the Japanese market is much smaller as compared to that of United State. In 2008, there were 12,071 stores in Japan where as the stores were nearly half the number in U.S that is 6,262. The density of stores in Japan was hence greater as the area of Japan is much smaller as compared to that of the U.S. and therefore, in Japan the company had a greater customer reach as 7–Eleven stores are easily accessible throughout Japan.
The ecommerce company itself could probably be a greater success in U.S. however; it would be a better idea if the orders are directly sent home rather than have them delivered to the nearest 7-Eleven store. In this way, the company can tap in to a bigger market that is the U.S. market but get the goods delivered to the customer’s doorstep would be a better idea. Also, the stores in the U.S. were replenished using direct store delivery (DSD) by some manufacturers, with the remaining products delivered by wholesalers. DSD accounted for about half the total volume, with the rest coming from the wholesalers. This meant that direct delivery is a more popular concept in the U.S.
Keeping into consideration the current strategy of the 7dream concept, it is more likely to be successful in Japan than in the United States. However, if the strategy is molded according to the U.S. market, it can become a greater success.
7-Eleven is attempting to duplicate the supply chain structure that has succeeded in Japan in the United States with the introduction of CDC’s. What are the pros and cons of this approach? Keep in mind that stores are also replenished by wholesalers and DSD by manufacturers.
After 7 Eleven acquired Southland Corporation they tried to improve their operations in America. The main improvement was an introduction of a new component in the supply chain completely novel to the US market. This component, the Combined Distribution Centers (CDCs), was however used in Japan at that time. Initially the stores in US used the Direct Store Delivery (DSD) in which stores were replenished by manufacturers accounting for half of the goods volume and the rest half was done by whole sellers. CDC delivered perishable products like bread, sandwiches and the rest of the bakery products. Pros
Using CDC all perishable -food items would be delivered by a single distributor which would increase overall efficiency. Having fresh-food items at 7-Eleven convenience stores helped in users getting variety of fresh food from convenient locations. Uncertainty of delivery times was minimized by systematic delivery system. The inventory costs were low as fresh food items cannot be inventoried. With daily replenishment of fresh-food items, the stock would be fresh and it reduced consumer concerns of stale items to a large extent. Centralization gave a greater control to the management and more processes were now under the supervision of the company hence improving efficiency.
There could have been a difference in quality delivered through CDC and DSD. DSD was a tested system so company might be unwilling to shift to the new system as there is always a reluctance to change. In US stores fresh products may not sell very well.
Training would be required for all the supply chain members as the new system tends to be more time sensitive. Manufacturers might not be willing to go with the idea of CDC’s as they might lose on their relative dollar revenues and with the loss in revenues they might also reduce control. As the new system would be very time specific, the supply chain might not be very responsive and if updates are required the company might lose on its sales.
The United States has food service distributors that also replenish convenience stores. What are the pros and cons to having a distributor replenish convenience stores versus a company like 7-Eleven managing its own distribution function?
With the outsourcing decision in mind an organization always tries to outsource activities that lie beyond their core competencies and their scarce resources are wasted in performing tasks that they are not specialized at. With outsourcing the organization tries to focus on activities that they can do best. The advantage is that managing the distribution is the sole headache of the distributor and with his specialized expertise it might be more cost effective. However outsourcing does have its repercussions as well. The control over the quality of items and the replenishment time might not be as effective as doing the distribution yourself.
With the outsourcing of distribution the communication gap can affect the replenishment distribution. However taking the advancements in communication and technology this statement may be rendered void. Convenience stores are successfully communicating with their distributors and make uninterrupted storage of data and information transmission from 3PL WMS to internal systems for real-time visibility of stock in hand and customer service. Moreover outsourcing decisions affect both the efficiency and responsiveness of the supply chain. A retail store can achieve improved efficiency by having a distributor replenish its stock, but he does not put his heart and effect they can have on their long term aims.