"We are facing a decision that may well affect the future of our company. I expect that each of you has adequate information to support your arguments I don't want to spend our time talking about what might be without actual data."
Giacomo Salvetti, CEO of Cafes Monte Bianco, had called the second meeting to delineate the future of the company. Manufacturing private brand coffees for supermarkets in Italy had saved Cafes Monte Bianco three years ago. However, it was not clear to him whether the company should continue to invest in this market.
Cafes Monte Bianco's top management team was all in the room with the exception of Roberto Bianchi, R&D manager, who was in Colombia. The rest f the team were Giovanni Calvaro, marketing director; Paolo Cantara, manufacturing director; Dino Bastico, financial officer; and Carla Salvetti, director of strategic planning.
Cafes Monte Bianco, located in Milan, was a manufacturer and distributor of premium coffee. Monte Bianco coffees, distributed throughout Europe, had a reputation for producing some of the finest coffees on the continent. The company had been founded in the early part of the century by Mario Salvetti, grandfather of the current CEO. Mario Salvetti, after spending several decades in South America working at coffee plantations, had come back to Italy to combine the best beans that he had encountered during his career. Quickly, Monte Bianco's coffee became known around Milan for its taste and high quality. Mario passed this knowledge to his son, Ruggero, who passed it on to Giacomo. The Salvetti's family had owned the company for over eighty years.
Every year, Giacomo spent two months traveling around the world visiting coffee plantations, learning about new beans, and maintaining his relationships with coffee producers. The company also had a laboratory with five people who tried new combinations of flavors and tested quality standards for products already in the market. These people were in close contact with producers and also traveled frequently to visit plantations.
The Future of Cafes Monte Bianco
Giacomo, intent on surpassing his grandfather's success and making a name for himself, wanted to grow the business aggressively. Over the past five years, he had expanded capacity building an expensive, state-of-the-art facility. The performance of Cafes Monte Bianco had been excellent during 2000 (see Exhibit 1 for pro forma financial statements). An important reason for the success was the manufacturing of private brands for two supermarket chains in Italy. Although Giacomo had at first opposed the idea, the market downturn in 1998 convinced him that private brands were a good alternative to fill up capacity and cover fixed costs.
Several retailers had approached Monte Bianco with requests to supply coffee that could be distributed under their private brand label. If the company was to serve them, however, it would have to reduce its presence in the premium coffee market in 2001 to handle increased private brand capacity requirements. The theoretical capacity of all coffee production for 2000 was 350,000 kilograms per month. The last phase of the expansion, just finished in December 2000, had added additional capacity of 150,000 kilograms per month. The cost of this expansion was six billion liras with an expected life of 15 years.
The previous week, Giacomo had met with his top management team to discuss how to allocate manufacturing capacity. The discussion had been very emotional, with managers arguing passionately in favor of their view. Carla Salvetti, Giacomo’s cousin, argued forcefully for a full transition to private brands. Private brands, she said, had saved the company during the last recession when the demand for premium coffee dried up. On the other Roberto Bianchi argued that premium coffee was the essence of Monte Bianco. He believed that giving all production capacity to private brands...