Chocolates El Ray Business Case Review

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Chocolates El Rey Case
Chocolates El Rey, a medium sized Venezuelan chocolate company, produces top-quality chocolate made with single-origin Venezuelan cocoa beans. Jorge Redmond, the CEO of Chocolates El Rey, called a meeting with senior management in late November 2006 to discuss the company’s growth strategy. El Rey can accomplish this task through many ways; growing the United States industrial market using its own brand name, relocating their plants to low-income countries, or to scale up the retail segment in the United States by using multi-origin cocoa bean chocolate. Each of these viable alternatives to expand El Rey have positive and negative side effects. El Rey has come a long way since its founding in 1929; yet, the company has to address limiting factors in order to become recognized worldwide.

Chocolates El Rey is a Venezuelan Multi-Latina corporation that manufactures, transports, and sells chocolates and other baking goods. José Rafael Zozaya and his father-in-law Carmelo Tuozzo both started the company in 1929 under the original name Tuozzo Zozaya and Company. A product line that started with only chocolate bars for hot cocoa in the food services sector has expanded many types of cocoa powders, chocolate bars, drops, and discs. The modernity of the company came when Jorge Redmond joined the company as a partner in 1973 and then bought out both Zozaya and Tuozzo in 1976. Redmond is responsible for the growth of Chocolates El Rey with the principal vision to “build a world-renowned business spanning cocoa production to the marketing of chocolate.”

Redmond’s vision can be attributed as the reason that El Rey branched out of their singular segment of food services into retail, industrial, and beverage markets. Growth in all segments was paired with increased profits until 2001 when the company was faced with sizable debt due to a lack of capital investments and machinery constraints. The following three years had results marginally above the break-even but were followed by three years of substantial recorded profits. In an effort to continue the trend, the board of directors of Chocolates El Rey demanded growth and Redmond was faced with the task of deciding where to allocate new resources. El Rey has developed the lion’s share of both the Venezuelan domestic food services market and the industrial segment with 70 and 75 percent of the market respectively. In smaller beverage segments, Chocolates El Rey is ranked second in the domestic market.

When analyzing the retail market in Venezuela, of the $45.3 million in sales, Nestlé holds the majority of the market share at 65% while El Rey only has 2.5%. The small market share can be partially attributed to the view of El Rey products as a luxury good, making them sensitive to the sporadic income of Venezuelan consumers. The cost of production of El Rey’s products is primarily attributed to the strict use of single-origin beans. The high product cost confines El Rey’s growth and entry into other markets. The company is facing many different problems limiting their growth, El Rey’s main objective. Being that they are a small company, they will benefit from expansion. El Rey is a company that has seen success with limited resources and money to expand. Given new ideas and opportunities, El Rey can maximize on the marketing strategy to expand its product line into the United States. In order to achieve this, El Rey needs to market their brand to different target segments and international markets. El Rey is a single origin company leaving them with scarce resources and little space to begin expansion. Venezuela also suffers from a limited supply of cocoa beans, which continues to inhibit the company’s ability to grow. At the end of the 1990s El Rey’s growth plan was to venture into the production of cocoa at an experimental hacienda called San Joaquin. This project was started as research devoted to finding ways to accelerate the cocoa...
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