Monte Bianco case
Cafes Monte Bianco was born as a manufacturer and distributor of premium coffee and thanks to this strategy, achieved a competitive advantage throughout Europe. Managers are considering to produce only private brand and leave production of premium coffee. Each of them entails some important aspect linked to the objective of Giacomo Salvetti to expand the capacity of business: produce premium brand was the strength point of company since the beginning ; manufacturing private brand had saved Cafes Monte Bianco when the market of premium brand was very volatile and it can guarantee a stability of sales volume ( at least while the contract is operative). In according to the analysis of profit plan there are some negative aspects using this strategy. The stability of demand allows to company to use full capacity of production: considering a initial stock of 174000 kg, expected sales for 2001 would be of 6,000,000 kg for a grade D coffee; at this level of sales correspond a unit cost of 6600 liras and a total fixed costs of 3 319 500 thousands of liras. The figure 1 shows results in according to the strategy of manufacturing only private brand, achieved with a projected balance sheet and income statement of the next year.
As can we see this strategy on one side allows to reduce administrative, R&D and selling costs ( in particular marketing costs will be zero), but on the other side there is an increase of COGS about 29%: this involves a reduction in profits of 50,77%. Another disadvantage of this approach has emerged from the forecast cash flows during 2001 resulting from the different payment terms that characterize the two types of clients: Private brand for 90 days, while the premium brand for 30 days; the shift to produce only private brand causes negatives cash flows in some months, due to a different intensity of the demand during the year ( in particular demand declines much in the summer months) and a high...
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