Advanced Management Accounting - Colombo Frozen Yogurt
BAO3312 - Advanced Management Accounting
- Colombo Frozen Yogurt -
Presented for Gillian Vesty
Subject Tutor
Victoria University
Presented by
Andrew Donato 3564797
Thomas Tuszynski 3534883
Tutorials
Thursday 16:00 – 17:00
Thursday 15:00 – 16:00
Submitted on
Thursday 18th September 2003
Table of Contents
Background
Colombo Frozen Yogurt was acquired by General Mills Incorporated (GMI) in 1994 so GMI could strengthen its product line-up with a small addition to marketing costs. General Mills is a large food service corporation, worth $11.5 billion in net sales, that prides itself on ‘innovation beyond the kitchen’ (GMI Website, 2003). In Australia, some of GMI’s branded products that are merchandised in local supermarkets and shops, are Betty Crocker, Old El Paso Mexican Foods, Fruit Roll-ups and Wheaties Breakfast Cereal. $2.9 Billion of net sales are in the cold perishables section of the food market which includes brands that are known in Australia such as Yopliat, Go-Gurt and the subject of this report, Colombo frozen yoghurts. Colombo entered the ice cream market with an innovative frozen yogurt product, which was considered a healthier alternative to ice-cream.
Competitive Environment
Shop Locations
Originally Colombo chose to market mainly to independent shop owners (Jane Suly, 2000. pg. 67). Profit-maximisation was achieved through the new and repeat guests of the shops and therefore profits were calculated on a per-square-foot basis. Colombo also relied on customer referrals, whereby the total experience of the product brought them back again and advocated to others that the product was of exceptional quality. To compete with other shops, Colombo introduced differentiated products, such as; smoothies, boosters and granitas.
Impulse Locations
The ice-cream market experienced a change in the early 90’s where soft-serve yoghurt, was added to food service operators such as; cafeterias, colleges, and buffets. As the industry expanded, in the late 90’s two-thirds of the soft-serve markets were a result of impulse locations. However, impulse location’s core business is made up on the sales of many other items, and frozen soft-serve yoghurt is only considered an additional product line. This meant that independent impulse locations relied on purchasing quality products at a reasonable price. Therefore, buyers were sensitive at the cost per serving, and also had difficulty understanding profits that they had made from the frozen yoghurts.
Colombo Marketing Plan
The Colombo marketing plan used a diverse range of strategies to make the acquisition of General Mills a successful one. Before the purchase of Colombo yoghurt, the GMI Foodservice Division, was already marketing a wide-range of products, Colombo was added to the list. GMI’s sales force covered both shop and impulse locations (Jane Suly, 2000, pg. 68).
Sales Force
The Colombo sales force was integrated into the Foodservice sales force to become one. The reaction from the sales assistants whose responsibility it was to market and sell the frozen yoghurt was mixed. Shops were considered reasonably easy to sell to, however, some felt that time was lost assisting impulse customers how to use the machinery.
Merchandising Promotions
The use of neon signs, and other forms of advertising, and the costs incurred to display these forms of advertising, was charged to shops. These signs were used as a tool to encourage potential customers to enter the shop and purchase the frozen yoghurt. Previously, General Mills provided the advertising to shops at no cost, however, they then stopped charging for it. Sales people were well aware that many impulse locations did not even display the advertising, which ultimately did not have an effect on profits, as impulse locations accounted for two-thirds of the soft-serve market.
Pricing Promotions
The most reliable marketing tool to that of Colombo was the use of promotional events. Although the deals were generally within the vicinity of $3-5, General Mills used these promotions as an opportunity to take advantage to sell products that might otherwise be featured. Price was not considered a factor to shops, however, the shops were always well aware that promotions were to take place, and ultimately, took advantage of the situation.
ABC at Colombo
Activity Base Costing (ABC) allocates overhead costs to a product or service, based on the costs of activities that are needed to make a product or conduct a service (Ingram, Albright, Hill, 2001, pg. 177). The information gathered on the costs of a product or service are supposed to be much more accurate than any other forms of traditional costing. This is because a particular product or service that may require more value addition than compared to another product or service. With traditional methods of costing, other products that are made by that company may carry 1 product burden and therefore that 1 product may not be as profitable as once thought. Hence ABC provides management more accurate costs so they can make strategic decisions such as to stay with a particular customer, to stay in a particular market or to stay with a particular product. The list of strategic decisions can be endless.
With GMI’s acquisition of Colombo, the cost structure for Colombo’s frozen yoghurt was also affected. Under a traditional method of costing, Table 1 shows Colombo’s individual product costs.
