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Acquisition of Dandy

Autor:   •  February 25, 2018  •  1,590 Words (7 Pages)  •  647 Views

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Capacity

Based on the calculation which are given below it is suggested to increase the capacity by %12 overall (Capacity increase should be begin in 2014).

According to market share calculations based on promotions, the amount of estimated manufactured units is given below:

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Market size (year) / market share (year) = estimated produced units (year)

2012 Market Share = 18,64%

2013 Market Share= (18,64 + 0,565 + 0,25) % = 19,455 %

2014 Market Share= (19,455 + 0,25) % = 19,955 %

COST (3% Cost of Capital per year (n))

- Manufacturing Costs

Condition 1: Production > 40 million units

Manufacturin costs = [(20 x (1,03)^(n)) + ((unit-40)x1x(1,03)^(n))/5]

- Packaging Costs:

In 2012, the packaging cost was about 0,25$ per unit. However, new adjustments on packaging and changes in packet production would increase the cost up to 0,27$ per unit (estimated).

Packaging Costs = Unit x 0,27 x (1,03)^(n)

- Distribution Costs

It is assumed that 50% of promotion cost is fixed (7 million $) and 50% of cost is variable (0,094 million $/unit).

Distribution Costs= 7x(1,03)^(n) + Unit x 0,094 x (1,03)^(n)

TOTAL COST

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Revenue and Profit

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Operational profit : sales revenue – total costs

Additional Profit : The profit that Wrigley generates more than the required cash flows to achieve break-even and debt conditions.

NFV(2017) of Opr. Profits – NFV(2017) of Required Cash-Flows

Final Analysis: If Wrigley implements plan A which is the acquisition of Dandy without new machinery installation, the suggested strategies would meet the desired conditions and would create an additional profit of 23,65 million $.

PLAN B

STRATEGY:

- Promotion, Capacity and Export

It is suggested to invest 10M $ to promotions/administration. Since, in plan A the optimum market share is estimated, the calculations are based on them. Considering that if the company can only produce with half of capacity in the 1st year by installing new machinery, there would not be any export option for the company. Thus the market share is affected negatively in 2013 by decreasing from 19,455% to 10%.

With the respect to calculation domestic sales in plan A, it is adjusted to a new with export option.

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Since the company can use its pre-prepared advertising promotions which are international, there would be no additional marketing expenses for the company on abroad.

The Total Export Volume (for 5 year)=212,05 M units

The capacity of the company would increase from 90 000 units up to 150 000 units thanks the new technology. Therefore, this would provide a great opportunity for exporting in Israel, Ukraine and Azerbaijan. Considering the market shares and sizes of these the expected demand is calculated for the following 5 years.

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Comparing the estimated market sizes among the countries, the potential growth in Ukraine would be at most. Therefore, it is suggested to export 50% of the manufactured units (about ????? units) to Ukraine. The calculations for the next 5 year plan supports the estimation that Ukraine’s market share will further increase which would lead to greater export revenue for Wrigley. On the other hand, Israel seems also to be a good market for Wrigley based on the expected demands. Thus, the company should emphasis on Israel after Ukraine. Since Israel has been a good market for Wrigley by establishing a market size about 20% for a long time, the estimated market size will go up in the following 5 years. Hence, Wrigley should export 32,5% of its manufactured goods to Israel. Due the fact that Azerbaijan is a developing country and it is known that such countries consume 4 times more chewing gum compared to developed countries, Azerbaijan seems to be also good market for Wrigley for the following 5 years. Consequently, the rest of the manufactured goods should be exported to Azerbaijan.

- New Brand Name in Turkey

After acquisition of Dandy, if Wrigley considers using a new brand name, it has to be taken into account that “First” has an important brand image for 25+ age segment. However, for the other segments, Dandy`s market share is relatively low and without changing any product strategies, it is difficult to get a higher brand position in the consumers’ mind. Consequently, to use a new brand name especially for products which are appealed to younger people might provide some benefit.

Using a new brand name requires changing of the existing packaging style which leads to an additional cost since packaging has to be redesigned according to the related age segment.

As shown in table below, it is not logical to decrease the unit price, because lower prices do not lead to a bigger market share in this sector. On the other hand, if new products will be served with a new brand name, due to the lack of brand awareness, sales revenue can be affected from high prices negatively. Keeping unit price at medium level in this sector will be a better choice.

Kent

Perfetti

Ülker

Dandy

Unit Prices

0,95

1,1

0,98

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