Class – or Mass?
A. Executive Summary: Neptune Gourmet Seafood is currently struggling with what appears to be a temporary problem of excess inventory. A combination of new coastline regulations and an investment in new fishing vessel technology and freezer trawlers has increased their average catch size while demand in the current segment has not grown as quickly. The Neptune management team is faced with a decision of how to clear out its excess inventory that is not moving fast enough under its Neptune Gold branding. My recommendation is to launch a mass-market product under a different product line in order to monetize excess inventory and position Neptune to capture more of the North American seafood market share. Going forward Neptune management must be more cautious in matching investment in production to growth in market demands.
B. Situation Analysis Summary: Neptune Gourmet Seafood is currently North America’s third largest seafood producer with 4% in market share. Tagged “The Best Seafood on the Water Planet”, Neptune has a reputation to maintain and focuses heavily on its product to keep its customers satisfied. Neptune has done a great job reaching a variety of customer. 30% of revenues from grocery chains, 33% from wholesalers distributing across the U.S., and the remaining third coming from sales to the biggest cruise lines and also choice restaurants within 250 miles of Neptune’s headquarters.
Through the situation analysis it is apparent that the root cause for excess inventory is a rapid growth in production capacity due to technological investment but less significant growth in its single high-end market segment (See Root Cause Analysis in Appendix D). The two sides of the decision to either cut prices or introduce a new line are best highlighted by the interests and concerns of Jim Hargrove and Rita Sanchez: (See full Stakeholder Analysis in Appendix A for details) * Hargrove argued that the company could not sustain slashing prices by 40-50% since Neptune’s contribution margin had fallen from 25% 22% 20% from 2004 to 2006. Additionally, discounting prices or introducing mass-market brand would tarnish image. * Rita Sanchez argued that with $63 million invested in the 6 new fishing vessels there was no way they could sit idle and not continue fishing and growing inventory total. She argued that selling the excess inventory at a loss was better than not selling it at all.
C. Importance of Decision: While the decision for Neptune of what to do with its current excess inventory is vital for short-term financial health, the decision to launch a new lower-end product line will be crucial in terms of the company’s long-term positioning. As the analysis has shown, Neptune’s investment in technology and commitment to product improvement has provided a strong supply of quality product, however, its strong growth in the high-end market does not match its increase in supply. Successfully introducing a mass-market product line while maintaining its high-end Gold product line could potentially help Neptune capture hundreds of millions more of the $20 billion North American seafood industry. If it fails to make the right strategic move at this fork in the road Neptune may continue to lose margins on wasted inventory and be placed in a weaker position where it may need to respond to competitor action.
D. Evaluation Criteria and definitions
The following criteria are used in evaluating what is best for Neptune Gourmet Seafood 1. Financial Short term – will the alternative create strong cash flow in the short term? 2. Financial Long term – will the alternative create strong cash flow in the long term? 3. Quality of goods produced – will the alternative create or maintain the high quality Neptune customers are accustomed to? 4. Brand Image – will brand image be damaged by the alternative? 5. Competitor’s Response – will competitors respond to the alternative and...
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