Eco-Products, Inc.

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CAPSTONE CASE 1: ECO-PRODUCTS, INC.

End-of-Case Assignments: Suggested Discussions and Analyses

A. Describe Eco-Products’ early history (1990 through 2003). Would you view the firm during that period as being a life-style business, an entrepreneurial venture, or? Why?

Steve Savage and his father founded the company in 1990 with the intent to provide eco-friendly paper and janitorial supplies. They chose to locate the business in Boulder, Colorado, a community known for its support of environmental initiatives and natural products. However, consumers were slow to adopt eco-friendly products. Margins were low and salaries were small. Friends and family supplied funds for business operations. This early history was suggestive of a life-style business.

B. Discuss Eco-Products’ revenue growth-based “business model” that evolved over the 2004 through early 2008 period in terms of (a) production versus distribution, (b) product line development, (c) branding, etc.

The company remained a local marketer of green janitorial paper and building supplies until 2004 when the company was set on a new course with both business supply and building supply divisions. The management team was expanded and sales in the business supply division grew rapidly as a result of a focus on brand and Internet strategies.

a) In 2004-05 Eco-Products remained primarily a distributor of eco-friendly products such as biodegradable disposable drinking cups, etc. that were purchased from a variety of manufacturers. As the business focus shifted from retail sales to wholesale distribution, pressure increased to produce their own brand of eco-friendly products. Product suppliers were selected in China and Taiwan.

b) Steve Savage emphasized the development of a signature Eco-Products line from a Polylactide (PLA) resin from renewable resources such as corn and sugarcane. This allowed the firm to offer a full, uniquely designed line of environmentally friendly products. However, lead times were long since orders from the Asian original equipment manufacturers took from 7 to 12 weeks to be filed.

c) As wholesale distribution grew, existing product manufacturers restricted Eco-Products’ ability to sell many products in the wholesale marketplace. After identifying Asian manufacturers, the “Eco-Products” branded line of compostable cups and food containers hit the market in March, 2007.

C. What is the size of the domestic and global markets for foodservice disposable packaging? Who are the major competitors producing/selling environmentally-friendly food service products. What intellectual property or competitive advantages does Eco-Products, Inc. possess?

The global food service disposable industry produces an estimated $30 billion in sales annually. Biodegradable products represented the fastest growing segment of the industry and had sales estimated to exceed $700 million in 2008. Eco-Products previously carried the Fabri-Kal, International Paper, and Georgia Pacific paper product lines. These firms became direct competitors when Econ-Products decided to produce its own eco-friendly products line. It is difficult to produce intellectual property or competitive advantages in an industry where product production technology is reasonable simple and where there are several major competitors. Eco-Products had an available Asian production source for producing products from a PLA resin, as well as their own “brand” of compostable products.

D. Exhibits 2 and 3 present Eco-Products’ financial statement information for 2005, 2006, and 2007. Prepare a ratio analysis of the firm’s financial performance over the 2005-07 period.

Note: the financial statements for 2005 and 2006 were unaudited. For 2007, the income statement and statement of cash flow were “reviewed” while the balance sheet was “audited.” As a result, some discrepancies exist when trying to reconcile changes in some of the...
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