Overall, consumer spending was up in the final quarter of 2005. Spending by households, which accounts for almost two-thirds of GDP, rose by 0.7 per cent in the three months to December. This is the largest quarter-on-quarter increase since autumn 2004 - matching a strong rise in retail sales at the end of last year - and is a sign that consumer spending grew after a slow start to 2005 (Isidore).
SOCIAL
Demographics is essentially population characteristics. It is the statistics on individuals in a region in terms of age, sex, marital status, income, ethnicity, and other personal attributes that may determine buying patterns. Understanding this basic information about a population can help a firm determine whether or not its products or service will appeal to customers and how many potential customers for these products or services might have (Barney, pg. 35).
From 1990 to 2000 the population increased by 13 percent in the United States. 75.1 percent of the nations 284.1 million people are White compared to 12.5 percent Hispanic or Latino, and 12.3 percent Black or African American. Educational attainment of the population 25 years and over for the United States is up. In 1990, 75 percent had earned a high school diploma or more, and 20.3 percent had earned a bachelors degree or more. In 2000, those stats increased to 80.4 percent, now have a high school diploma or more, and 24.4 percent have a bachelors degree or more. Of the 284.1 million people, 143.4 million were female and 138.1 million male (Census).
Overall, the number of households in the United States increased 15 percent, from 91.9 million in 1990 to 105.5 million in 2000. Family households increased 11 percent, from 64.5 million in 1990 to 71.8 million in 2000, while non-family households increased faster, 23 percent, from 27.4 million in 1990 to 33.7 million in 2000 (Census).
Of the U.S population, 26 percent are 18 years old or younger, and 62 percent are 18-64 years old, both of which grew about 13 percent from 1990 to 2000. The labor force grew as well. With 217 million people ages 16 years and over, 63.9 percent are in the labor force. Median household income in 1999 was $42,000, up 7.7 percent from 1989 in real terms (after adjusting for 29.8 percent inflation over the period). Median household income by age of householder in 1999 shows, ages 25-34 with $41,414, 35-44 with $50,654, and 45-54 with $56,300 (Census).
“The U.S. ice cream market grew 24% between 1998 and 2003, as manufacturers aggressively launched new products and extensions to existing product lines. However, the market is driven by children, and the Census Bureau projections of declining youth populations through 2010 will force manufacturers to develop products attractive to indulging adults” (Findarticles). Ice cream is without a doubt an American favorite with 93% of all households surveyed consume ice cream products. Yet, households with children are lead consumers of ice cream, with 34% of such households consuming four or more quarts of ice cream per month, compared to 20% of households without children. Frozen novelties were 20% more likely to be purchased by households with children than those without (Findarticles).
The future for ice cream looks bright for such a mature market, with sales projected to grow 7% in constant prices from 2003 to 2008 (FindArticles). Some of the factors that will influence growth are trends of indulgent-seekers and health conscience consumers, purchasing both super-premium products and low-calorie, low-sugar and low-carb products. Also, manufacturers of frozen novelty products are focusing on adults, expected to yield the highest growth rates (Findarticles).
TECHNOLOGY
Innovation in ice cream manufacturing has been due to increased production capabilities through more efficient plants. Different production steps are taken to improve the quality and texture of the ice cream. Also product development has created new, creamier, better tasting ice cream. For the health conscious consumer, new low-carb, low-fat, and low-sugar ice cream has been introduced, and still contains great flavor. Other innovations include, dip-n-dot ice cream, the ice cream that is formed into little bb shaped balls, and ice cream, that when taken out of the freezer does not melt to a liquid, but a jelly.
Development in software, such as online analytical processing (OLAP), has allowed companies finance, sales, and quality assurance departments to share information on consumer response to the products, promotional activities, diverse supplier usage and more (B&J). The software allows quick responses and enables companies to adapt to consumer needs and demands much faster. Also the internet has improved customer service with online company information and frequently asked questions forums.
PRODUCT LIFE CYCLE
The ice cream and frozen dessert manufacturing industry has become mature in the United States. The growth of the industry has slowed, and the major manufacturers are being bought out by such companies as Unilever and Nestle. Current products in this industry have moved towards being refined and improved, such as using higher quality ingredients or adding more flavor. Process innovation has also improved dramatically. With increased technology, and automated machinery ice cream manufacturers can make a lot more ice cream in a lot less time, for less money.
PORTERS FIVE FORCES
THREAT OF ENTRY
“The first environmental threat identified in the five forces framework is the threat of new entry. New entrants are firms that have either recently begun operations in an industry or that threaten to begin operations in an industry soon”(Barney, pg. 43). There are four barriers to entry when analyzing an industry that should be taken into consideration. They are; economies of scale, product differentiation, cost advantages independent of scale, and government regulation of entry.
Strong brand names are what consumers use to associate with a specific product, and brand awareness can be reached through advertising, reputation and prior experience. Developing consumer loyalty and brand awareness can be costly. “The brand of ice cream clearly is more important to some: females, consumers over the age of 45, African-Americans and Hispanics report the brand is the most important determining factor in what ice cream to purchase. Because of the expanding number of Americans over 45 (thanks to the aging Baby Boomer population) and the increasing proportion of African-Americans and Hispanic-Americans, manufacturers will need to aggressively pursue these loyal customers” (findarticles).
However, vanilla still remains the dominant flavor in this market with over 27 percent of market share, and chocolate with 12 percent. With such a huge percent of the market, product differentiation is not as important in terms of price. Generic store brands, such as the Safeway brand, or Fred Myer brand, can enter the market and produce original flavors and compete as long as the price competes.
Product differentiation is going to be higher in the upper end ice cream market or the super premium market. This is where brand awareness and product quality is important. Flavors and dynamic combinations of peoples favorite candies are what help sell these super premium ice creams. Also the industry is constantly adapting to new demands between health conscience and self-indulgence consumers. Increased competition and the increased consumer demand for a variety of frozen dessert products, combined with limited shelf space within supermarkets has made market entry harder and has already forced some brands out of the markets, the ability to introduce innovative new flavours on a periodic basis is also a significant competitive factor (Findarticles).
Proprietary technology, and learning-curve cost advantages are all relatively low barriers to entry. The manufacturing process involved in making ice cream has been around for many decades and the process has become universal. However, access to raw materials may have some barrier to entry. Milk production could fluctuate enough to put a serious price on gaining access to this material, and companies that have been in the industry longer are more likely to have favorable access to dairy. With the introduction of the CAFTA-DR, access to sugar is going to increase giving all companies in this industry more availability to sugar, which is a main ingredient in ice cream.
Managerial know how also might be a barrier to entry. Such know-how as distribution tactics, marketing tactics, and production tactics are all skills that could potentially give huge cost advantages to the more experienced company. There is a considerable amount of knowledge needed to understanding the day to day basis of interactions with suppliers and customers, being innovative and creative, and how to manufacture high quality ice cream at a low price.
THREAT OF RIVALY
“Four major manufacturers hold 40% of the market: Unilever, Ice Cream Partners USA, Dreyers Ice Cream and Blue Bell Creameries. Market leader Unilever has some of the top brands in this market, including Good Humor-Breyers and Ben & Jerry's, but faces strong competition from second-ranked Dreyers, which acquired the Nestle USA line of ice cream products in June 2003 (Findarticles). Private label accounted for nearly 18% of sales, as supermarkets and mass merchandisers caught on to the value of ice cream sales. The remaining 40% of sales are from regional and local companies (Findarticles).
Medium rivalry is strong due to a number of factors. Ben & Jerry's and Haagen-Dazs dominate the global super-premium ice cream market. Each of these competitors has approximately 42% of the market, with the remaining 15% being divided up between a number of smaller firms that compete on either a local or national basis (Findarticles). Overall, the threat of rivalry exists. On the national stage, it is lower because it is dominated by just four companies, but on the regional stage it is much higher. Supermarkets, mass merchandisers, local and regional companies account for 58 percent of sales in the ice cream industry. This leaves a huge opportunity for companies to develop their own brand of ice cream and put it on the shelf.
Industry growth boomed between 1998 and 2003, growing nearly 25 percent. However, this growth rate is expected to slow down and grow almost 7 percent through 2008 (Findarticles). With private label manufacturers increasingly focusing on single, traditional flavored ice cream, manufacturers are opting to increase differentiation for premium products by introducing new lines featuring unusual combinations of flavors. This trend is aimed at a more demanding consumer, willing both to experiment with new taste sensations and to pay a higher price for more sophisticated products. Consumer taste is constantly changing as are the availability of choices on the shelf. Companies are forced to stay on top of consumer demand and preference in order to stay on top of the competition.
THREAT OF SUBSITITUTE
One threat of substitute for ice cream and frozen dessert manufacturing would be any dry baked dessert. This includes cakes, pies, and cookies. Ice cream is a dessert , its an indulgence, a treat, and therefore any type of dessert could readily replace ice cream and frozen desserts. Children are a major determining factor in the sale of ice cream, and can easily substitute an ice cream treat, with a hand full of Oreo cookies, some Chips Ahoy’, or a Homerun Pie. However, during a hot summer day, nothing really can hit the spot like a cold scoop of ice cream.
THREAT OF SUPPLIERS
Milk is very important ingredient in the production of ice cream. Although, the suppliers’ industry of milk is not dominated by small number of firms, they still pose a threat to ice cream manufacturers. If the production of milk fluctuates or declines it can cause a serious price increase in milk, which has an astounding cost affect on the manufacturers. So if the production of milk declines and the demand for ice cream increases or even stays constant, costs are going to increase and it will be passed on to the consumer. If cost increase and the price of ice cream goes up, it could have an substantial affect on sales revenue.
Also the threat of suppliers exist in the quality of their product. Super premium ice cream requires high quality raw materials to produce the best tasting ice cream. Therefore ice cream manufacturers demand high quality milk, sugar, etc.. So to make super luxury ice cream, manufactures need quality materials, so suppliers have the power here to put up their costs.
Suppliers are also huge threat because they are not threaten by substitutes. As of right now there is not a direct substitute for milk that can produce the same high quality taste, that consumers are looking for. Therefore, suppliers pose as a threat to ice cream manufacturer because there is no high quality substitute for milk. The threat of forward vertical integration is relatively low. Also firms are important customers to the suppliers because a major component of sales for dairy farmers comes from ice cream manufacturing. In 2004, about 8% of the milk produced in the U.S. was used to make frozen dairy products (IDFA). Since dairy farming has become less of a profitable industry, all business is important and losing the demand from ice cream manufacturers could have a huge impact on dairy farmers.
THREAT OF BUYERS
The number of buyers in this industry is large and growing. Around the nation supermarkets, small retail stores, convenience stores, restaurants, hotels, gas stations, and more are looking to buy ice cream products. The annual market value of the frozen dessert market is valued at over $21 billion. Some of the giant retail stores that purchase big name brands of ice cream, have large amounts of influence and can make significant requirements and demands on the product they purchase. If the supplier fails to meet these demands, buyers will take their business else where.
That’s also why it is important for nation wide brands like Dryers, or Ben and Jerry’s to diversify their portfolio of buyers. They need to have an array of different buyers from Wal-Mart to Blockbuster and everywhere in-between. Including hitting college campus convenience stores, regional supermarkets and local gas stations. Another trend is for ice cream manufacturers to open there own scoop shops, where the sell their own ice cream by the scoop. Consumers aged 18-24 prefer to eat ice cream at shops like Baskin Robbins or Ben & Jerry's rather than at home (findarticles). In 2002, total U.S. sales of ice cream and frozen desserts reached $20.5 billion. Of that total, $8.1 billion was spent on products for "at home" consumption, while $12.5 billion was spent on "away from home" frozen dessert purchases (scoop shops, foodservice and other retail sales outlets) (IDFA). This is a growing market segment that can produce significant sales revenue for ice cream manufacturer that are willing to take the risk of entering into the scoop shop market.
Shelf space in supermarkets and other retail stores are very limited. This is going to encourage buyers to buy the product that consumers are buying and that is selling the best. For the super premium ice cream it is all about product differentiation, its about quality, its about taste, its about selection. However, original flavors still command the market with nearly 30 percent of the market going to vanilla, and 12 percent with chocolate (IDFA). This leaves less room for product differentiation and leaves a bigger threat from the buyers.
Also supermarket grocery stores, which accounted for 86 percent of packaged ice cream sales, typically have low profit margins, anywhere from 1-3 percent. This means the products sold to the buyers are a significant percentage of a buyer’s final costs, and are constantly going to be concerned about the costs of their supplies and on the lookout for cheaper alternatives. Another big threat is the growing trend of backward vertical integration, where regional grocery stores and retail stores have been producing their own ice cream. Safeway and Fred Myer, as well as Albertsons, and many others all have store brand ice cream that typically sells at a competitive price
VALUE CHAIN ANALYSIS
One way to identify potentially valuable resources and capabilities controlled by a firm is to study that firm’s value chain. In this case, I will be analyzing Ben and Jerry’s Homemade, Inc.. A value chain describes the full range of activities which are required to bring a product or service from conception, through the intermediary of production, and delivery to final consumers.
The inbound logistics and production of the ice cream is through a number of stages. The first stage in the value chain is the shipment of heavy cream and condensed skim milk to the Waterbury and St. Albans manufacturing facilities. The cream and milk is then pumped into four 6,000 gallon storage silos that are held at 36 degrees until ready to be made into ice cream. Then the mixing takes place in a 1,000 gallon blender where milk, egg yolk, cream, and sugar are blended together. The mix is then pasteurized and homogenized to kill the bacteria and provide a smooth, consistent texture. The mixture is then placed into flavor vats where the magic happens. These vats hold 500 gallons of mix and it is in the vats where the flavors are mixed in. Once the flavor is added it is then pumped into two freezers that can freeze up to 700 gallons of ice cream mix per hour (B&J Manufacturing).
Once the ice cream is frozen at 22 degrees, plain vanilla and chocolate are sent to be packaged and ice cream that is going to have additional flavor is sent to the chunk feeder. The chunk feeder uses a hopper and an auger to evenly disperse chunks of different candies, cookies, or fruits into the ice cream mix. This is how chocolate chip cookie dough, Cherry Garcia, and Chocolate Fudge Brownie are made. For swirled ice cream it is put through what is called a variegator, and it pumps the chocolate, caramel, or peanut butter into the ice cream with a perfect swirl affect (B&J Manufacturing).
Once all of the flavoring is finished it is then ready to be put into pint containers. This is done by the machine called an automatic filler that fills 120 pints a minute. When the pints are filled and capped they are sent through a machine called the spiral hardener. The process is called hardening and takes 3 hours to take the pint from 22 degrees to about 10 degrees below zero. After the pints are hardened they are then flipped, separated into eight pint groups, and then shrink wrapped and packaged onto pallets for shipment (B&J Manufacturing).
The outbound logistics which is the warehousing and distribution is outsourced. Ben and Jerry’s uses competitor Dryers, which is 90 percent owned by Nestle, to distribute Ben & Jerry's products for the grocery channel in all of Dreyer's company-operated markets across the country. Dreyer’s currently distributes Ben & Jerry's in the Midwest and Northwest and the new agreement expands this distribution throughout Dreyer's national direct-store-delivery system. The two companies will also work together to expand Dreyer's existing role as a Ben & Jerry's distributor in other, non-grocery channels, such as convenience stores (AllBusiness).
Ben and Jerry’s has unusual marketing tactics that market through a number of different support campaigns. Some of the campaigns includes, the global warming campaign in concert with the Dave Matthews Band, the Sierra Club, the World Wildlife Fund, and the Union of Concerned Scientist. They also developed flavors in sponsor of the Tom Joyner Foundation that supports scholarships at traditionally black colleges. Their fleet of 7 scoop trucks gave out over 250,000 samples in 2001. The trucks supported local organizations either by donating ice cream or by selling ice cream to fundraise for nonprofit groups (B&J Manufacturing). Of their sponsorships in 2001, 25 percent of them were for social mission related sponsorships. Basically, all of Ben and Jerry’s marketing tactics are through supporting foundations that are out to improve communities, the environment, and help the unfortunate.
Sales of Ben and Jerry’s products take place in a number of different national stores, regional stores, local grocery stores, convenience stores, restaurants, and more. Ben and Jerry’s also has franchised scoop shops where they sell their product by the scoop. Their product is sold internationally all over the world in more than 20 different countries, much to the help of their parent company Unilever.
Ben and Jerry’s customer service is supported by their website where anyone can attain company information, frequently asked questions, and even suggest new innovative flavors. You can find where the nearest Ben and Jerry’s product is being sold to you through its store locater, nutritional information, and even go to their flavor graveyard to see which flavors they no longer produce. Ben and Jerry’s also offers Ice Cream By Mail (ICBM), where you can have next day delivery on all of your favorite flavors by ordering them online (B&J Manufacturing.
These primary activities are then supported by infrastructure activities, technology, and human resource management and development. The firms infrastructure activity is driven by corporate planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting and finance department. The technology activities includes research, development, and product innovation. These activities assist the firm in accomplishing its primary activities, which is the purchasing, production, distributing, marketing and selling of their products.
VRIO FRAMEWORK
One of Ben and Jerry’s biggest resources is its brand name and since 1978, Ben and Jerry’s has become synonymous with ice cream. Brand awareness is an asset that possesses intangible value to the firm. It is valuable, rare, and is built over time, by the impressions one has of the company, and its products or services. Since a brand name is built overtime it becomes costly to imitate. As a result their brand provides a sustainable competitive advantage in the industry.
Their high quality ice cream is another resource for Ben and Jerry’s. The ice cream that they produce is made with only the finest ingredients, including milk that is made from untreated cows. Their menu totals over 50 great ice cream, frozen yogurt & sorbet products. Not only are their products made from the finest ingredients, but they also come in creative, great tasting flavors, like Cherry Garcia, Chunky Monkey Ice Cream, and Half Baked Ice Cream. Ben and Jerry’s flavors are constantly changing, and even customers can submit their own flavors on the website. So, not only are their products of quality, but they are differentiated by creative flavors and candy combinations. Their ice cream is of great value to the firm, and the quality and taste of their product is what differentiation them from the rest of the industry. However, these creative flavors and high quality ingredients are something that is not costly to imitate. This is why their product differentiation is only a temporary competitive advantage.
Another resource for the firm is their in-house manufacturing process. By manufacturing their product in-house, they know exactly what and how their ice cream is being made and can have great control over their product. This also enables them to do a great job on quality assurance, and inspect the product to make sure that nothing but the best is being sold to the consumer. This resource is of high value to the firm, but is not rare in the industry and therefore is a competitive parity.
The diversified number of stores Ben and Jerry’s sell to is another important resource to the firm. Ben and Jerry’s network is mixed with a variety of buyers from nation wide retailers to local grocery stores. The diversification of sellers allows them to exploit their product across the country, and even the world which enables the final consumer easy access to their product. Easy access to their product is what helps them sell ice cream, and is what helps Ben and Jerry’s be one of the best selling super premium ice creams in the market. This resource is of important value, it is rare, and it is costly to imitate and therefore is a sustainable competitive advantage.
Another important resource is their Ben and Jerry’s Scoop Shops. This is of great value to the firm and it provides sufficient distribution, visibility and availability to the end consumer. There are not too many grocery stores or supermarkets that sell only one brand of ice cream and only a number of top competitors own or franchise scoop shop stores of their own product. A huge part of the buying demographic, ages 18-24, would prefer to buy ice cream at scoop shops, which contributes to huge percentage of sales for the entire ice cream industry. Their franchised scoop shops are very important to the firm, they are rare, and they are costly to imitate. Therefore the Ben and Jerry’s Scoop Shops are a sustained competitive advantage to the firm.
Although the ice cream and frozen dessert industry has become very competitive with regional store brands, local brands, and the big nation wide brands, I still believe that Ben and Jerry’s has a temporary competitive advantage. The company does a wonderful job in exploiting their resources and using their strengths to compete in this industry. They have done a great job in developing brand awareness and use their manufacturing as a resource to produce some of the best quality ice cream in the United States. Their franchised scoop shops combined with their diversified number of buyers has allowed them to reach every corner of the market and provide ample opportunity for the end consumer to purchase their ice cream.
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