Mgmt 612 - Prince Edward Island Preserve Co

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Financial analysis

According to the reading it shows Prince Edward Island Preserve Co. sales had increased by 12.41% from 1990 to 1991 however; cost of sales had risen by 16.40%, meaning that gross margins rose at a less speed. The restaurant business made the loss, which implies that their functions are questionable. The company also faces severe cash shortages because of the seasonal behavior of the manufacturing functions and because it does not have a safe financing suitable for their requirements. The development of earnings before interest and tax was greater than the development of sales. However, the development of the sales was less than the development of total assets. This implies that the development in sales was because of increase in price, instead of other factors.

Recommendation and implementation plan

Since Prince Edwards Island Preserve Company already has the competitive advantage by being a first person player in the market segment it has the opportunity to continue its growth. Because the findings from the VRINE test shows the resources and abilities of the company are softly certifying the test proves that the business model is weak and that the long-term competitive benefit of PEIPC is questionable.

The first recommendation would be to rethink how the core resources of firm and abilities could be build more ‘VRINE’- add more differentiators, decrease imitation by patenting or trade marking certain features, add value by putting a quality seal or meeting a licensing standard, continue developing new products etc.

The second recommendation would be to decrease seasonality in the business by exploiting the Japanese corporate consumer market or describing the low seasonally needed products. This reduction in seasonality will allow PEIPC to employ quality staff on full-time scale¸ which will correct the abilities of the human capital in the firm, and decrease work from Bruce.

The third recommendation would be for Bruce to visit Japan as soon as possible, and start putting up clear systems for targeting the Tokyo market through the retail store there. This idea of a retail store should be up and running within 1 years’ time. One of the main reason Bruce should take advantage of the Tokyo market first is due to it would immeasurably advantage PEIPC would have by decreasing their seasonal reliance on cash and raise awareness of the company in Japan itself. By manufacturing on the large scale, the company may also be capable to advantage from economies of scale, which could correct their situation in the global marketplace. Catering to hotels and airlines would be the probability if new machinery and tool is bought to fulfill their product requirements. Recruiting a marketing manager would also allow PEIPC to attend different trade shows and exhibit their products.

Key Question

The key question that Prince Edward Island Preserve Co. is currently seeking to find an answer to is whether it should pursue consumers in the Toronto and/or Tokyo market, and if so, how. According to MacNaughton’s interest in Japan was due to the fact that a large number of visitors to PEIPC were Japanese therefore he believes it will be a good idea to expand to Japan. It is believed that we have been provided with sufficient information regarding these two markets, and several reasons why PEIPC should/should not pursue each of them.

Tokyo Market

The importance of the Japanese market for PEIPC is obvious by the large number of Japanese visitors who come to Prince Edward Island annually, and the fact that PEI Preserve Co.’s largest export shipment was to Japan. Another reason to expand to Japan would be because PEIPC’s gifts fall below the Yen2000 common price point, they could be successful in the Japanese gifts market. Theme parks are a notable market for PEIPC 20 theme parks have opened in Japan, and another 16 are expected to open in 1991-1992. It is said that tailoring products to the Japanese market could mean expanding sales by 10% annually.

However, there are a handful of risks and disadvantages of tapping into the Tokyo market. Firstly, Bruce has never visited Japan, and is currently debating whether he should visit the country in the coming year. Most information collected about Japan was from a friend, and hence the credibility of this information is debatable. Understanding the Japanese consumer market is extremely important before making any decisions product flavor, size, packaging and design matter. Secondly, several dozen firms already import jam with a mix of distribution channels. There are extremely high import duties for jams averaging 28%. This would make it extremely difficult for international manufacturers like PEIPC to compete in the local Japanese market. Another difficulty is the cost of renting a location - retail space in one of Tokyo’s major shopping districts would cost $75 to $160 per square meter ($1600 to $3400 per month for a shop equivalent in size to that in CP Prince Edward Hotel). Furthermore, a deposit of at least $25000 would be required. The retail staff salaries in Tokyo are also higher than in PEIPC

Toronto Market

With 3 million people, Toronto is Canada’s largest city and economic center. The city has Canada’s busiest airport through which 15 million people enter and leave the country annually and 20 million people visit Toronto for business or vacation annually. PEIPC benefits in marketing and brand awareness due to its local awareness. Specialty domestic producers tended to have limited distribution areas, meaning that PEIPC had a significant opportunity to expand its network of distribution. Because other specialty imports were from France or England, there would be a tariff of 15% on their imports. This would give PEIPC a significant advantage. Compared to Tokyo, the cost of renting 22 sq. meters would be approximately $2530 per month in a major suburban shopping mall.

However, rents could be higher in the downtown Toronto. These higher rents may have to be accepted if a higher customer base is required by PEIPC Furthermore, there is no sales agent for PEIPC in Toronto at present. This means that the company will have to begin fresh marketing campaign, and hope that its consumers’ current awareness through its exposure in other cities of Canada will give it a boost in Toronto. Competition will also be a concern, as the market is well-served by mass market and specialty jam producers at all price points, both local and imported. Retail staff salaries in Toronto are also higher than in PEI, but perhaps lower than in Tokyo.