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Bc Packer Essay

1330 words - 6 pages

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To: Mr. Mclvor,

From: Echo - im89011

Subject: B.C. PACKERS CASE MEMO

Date: May 5, 2011

Case Background

Canadian cat food market showed arising opportunity in 1987. B.C. Packer, the famous market leader in both canned salmon and tuna provider was considering the possibility of entering the Canadian cat food market, in order to get more profit from its by-product instead of just cover its cost by selling commodity bulk of fish meal. Therefore, a study with ...view middle of the document...

See CHART 1. Of course the estimation is based on some researches and best estimation.

Advantages and limitations

As leader of canned of fisheries producers, B.C. Packer got lower cost position on raw materials. By-products from Philippines plant could be directly used, chicken and beef could be got from their other divisions. So investment won’t be a high amount for expanding plant capacity, which is about $250,000. Besides, they have smooth and mature channel to distribute the new products.

The excess capacity is only about 1728 tons on current production. Moreover, the line is only support for can with 90g package, to add a new line for the other package, there will be a one-time cost of $20,000.

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Analysis on best estimation

Premium class is a niche market. Of course, all players would like to get into this market since its attractive profit. But the problem is most of them are lack of technology to achieve, including B.C. Packer. To solve the problem, it will cause the player a high R&D cost. I don’t think it is a wise idea to consider getting into this market.

See EXHIBIT 2. After deducting fix cost, gourmet brands product would still have 48% CM and national brand product would have 39% CM.

The break-even is higher than all excess capacity in price brand calculation, which means even full utilization won’t cover the fix cost. The break-even of national brand is almost meet full utilization of the by-products, which means there is no space for growing if we could get higher share from the market. It seems that gourmet brands product could be more attractive. So I did my analysis start from gourmet market.

NPV analysis

Some assumptions: Market price will be decline 5% from the 3rd year 10% Advertising cost decrease will happen from the 5th, benefit from the long term

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Sales growth almost meets the market growth Working capital: 85% of annual operating cost 20% return rate

Assume market share is only 7% of gourmet market in 1989 when the company spent $650,000 advertising for promotion. NPV still shows a good result in the following 10 years....

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