a. What are Sorrell Ridge's sources of negotiating power and weaknesses? What about Bromar’s? This case is about the slotting allowance when Allied Old English Company wants to introduce the Sorrell Ridge spreadable fruit product into the California market. Considering the factors including product itself, market, distribution channels, consumers’ needs& demand, competitor’s profiles, we analyzed the negotiating power and weakness of Sorrel Ridge and Bromar. Sorrell Ridge’s power:
1) Uniqueness of product itself: Comparing to its competitors’ products, Sorrel Ridge could be a diabetic diet. 2) Volume of the Product itself: it holds 60% of retail sales in the all-fruit segment. 3) Consumers’ needs: People are concerned about healthy food. And 44% consumers were single brand users. 5) Distribution Channels: All-fruit jams were distributed in only 40% of the country’s supermarkets and concentrated in the northeast. The potential market of Sorrell Ridge is big. Sorrell Ridge’s weaknesses:
1) Product itself: 90% new products failed and withdraw within a year. 2) Market: Comparing with other players in the market, Sorrell Ridge is a new player in California, and has no customer base. 3) Distribution Channels: Sorrell Ridge has no sales force.
4) Distribution Channels alternatives: Selling through grocery distributors or a middleman would cause the retail price to be 25% higher. Bromar’s power:
1) It is the No. 2 broker in southern California.
2) Market: Grocery trade has increasing power compared with manufacturers. 3) No retailer published a schedule of slotting charges or publicly stated what a slot bought. 4) It handled large volume accounts including Starkist Tuna, ect. 5) It had a staff of 400 people so that it could provide complete and frequent coverage of grocery stores in the market. 6) It assigned an account executive to each customer, managing the product line and working with supermarket chain buyers, etc. to customize merchandising and marketing plans for each store. Bromar’s weaknesses:
1) Since it had ceased to represent a jam manufacturer, a new manufacturer could be a new opportunity for Bromar. 2) There were several other smaller food brokers and six distributors in southern California. Based on the analysis above, we think that relatively speaking, Bromar has more power in this negotiation. For Sorrell Ridge, it needs to focus on its strength of product to secure the distribution for Sorrell Ridge in stores accounting for 90% of grocery volume within three months and a relatively reasonable cost. b. Should Pressman agree to the first year program summarized on page 1 and laid out in Exhibit 10? If not, what should she do? Be prepared to take the roles of both the broker and Carol Pressman in a discussion of the appropriate level for slotting fees and the entire first year marketing program for Sorrell Ridge in LA. We use two kinds of assumptions in the evaluation of the feasibility for the entire first year program. The only difference in these two assumptions lies in the cost of goods sold. Details are as follows. In the first assumption, we choose to use the data in Exhibit 4, which shows the income statement for the Sorrel Ridge brand. In the entity of cost of goods sold, it stated that 2,700,000 dollars are paid. And going back to Exhibit 3, which shows the sorrel Ridge Sales during 1982 to 1987, we found that 430,000 cases are sold in 1986. Thus, by a simple division, we assume the cost of goods per case is 2,700,000/430,000, which is $6.279/case. Pressman estimates a sale of 90,000 cases in California if the first-year program is being accepted. According to this program, half of the 90,000 cases will be sold at a price of $17.16 while the other half will enjoy a discount of $2.80 per case. Thus, the expected revenue should be 90000*17.16-45000*2.8 = $1,418,400. The expenses should be the sum of several aspects, which are the cost of goods sold...