The UK Chocolate Market Example For Free - Free Essay Example

Sample details Pages: 7 Words: 2100 Downloads: 8 Date added: 2017/06/26 Category Economics Essay Type Review Tags: Chocolate Essay Did you like this example? 1) It is said that life without chocolate is like a beach without water (Christou, 2009). The UK Chocolate market is the largest within the European Union (30 percent of the EU market) with British citizens consuming more chocolate than any other EU nation (Barnett, 2006). Within the UK adults are the primary consumers eating  £3.5 billion a year compared to children who consume  £390 million a year, with the over 55s the highest consumers of all adults (Scott-Thomas, 2009) Twenty-one per cent of the total chocolate and confectionery sold in Britain is consumed by people above the age of 55, who spend on average  £700 yearly (Datamonitor, 2005). Don’t waste time! Our writers will create an original "The UK Chocolate Market Example For Free" essay for you Create order Within the UK the main manufacturers are as follows: Chocolate manufacturers by sales and share (Mintel, 2009) 2009 2007 2005 % change  £m %  £m %  £m % 2005-07 1 Cadbury Trebor Basset 1189 35.3 1101 34.9 1146 34 3.8 2 Masterfoods (Mars) 1010 30 953 30.2 914 27 10.5 3 NestlÃÆ' © 494 14.7 470 14.9 672 20 -26.6 4 Ferrero 134 4 126 4 118 4 13.2 5 Kraft Foods 61 1.8 63 2 141 4 -56.7 Own-label 217 6.5 189 6 124 4 75.3 Others 260 7.7 252 8 245 7 6.2 Total 3365 100 3154 100 3360 100 0.1 The current market can be broken down into the following segments: Boxed; chocolate assortment composing of a selection of high-added-value individual units (Booth, 1990) Countlines; chocolate-covered bars with an individual centre which can be eaten with one hand, so called named because these items are sold by number rather than weight. Moulded Bars ; regular bars of chocolate with or without inclusions i.e. nuts or filled centres i.e. soft caramels Seasonal Chocolate : chocolate confectionary produced for Easter through eggs and Christmas in gift boxes and miniatures Straightlines ; small items which are identical and eaten as casual snacks on the move i.e. Cadburys chocolate buttons Other Chocolate Confectionary/ Assortments; other The below table suggests that the most revenue generating segment using recent data is countlines @ 2244.44 à ¢Ã¢â‚¬Å¡Ã‚ ¬millions. UK Chocolate Market Value (Euro m), 2004- 2008 Segment 2004 2005 2006 2007 2008 Boxed 1332.6 1350.2 1367.6 1385 1400 Countlines 2152.3 2176.4 2200.6 2224.6 2244.4 Moulded Bars 982.3 996.3 1010.3 1024.2 1036.3 Other Choc Confectionary 18.1 18.1 18 17.9 17.7 Seasonal chocolate 885.2 899.5 913.8 928.1 940.8 Straightlines 732.9 743 753.1 763.4 772.1 Total 6103.4 6183.5 6263.4 6343.2 6411.3 (Source: Business Insights; Chocolate Confectionery Industry Insights, 2008) Additionally within these segments the following brands are present: Chocolate confectionery brands by sales and share (Mintel, 2009) 2009 2007 2005 % change  £m %  £m %  £m % 2005-07 Cadbury Dairy Milk 345 10.3 318 10.1 275 8.2 25.4 Galaxy 146 4.3 138 4.4 129 3.8 13.3 Mars 99 2.9 97 3.1 104 3.1 -4.7 Kit Kat 80 2.4 70 2.2 83 2.5 -3.3 Flake 77 2.3 70 2.2 49 1.5 57.2 Aero 67 2 64 2 56 1.7 18.4 Snickers 52 1.6 51 1.6 57 1.7 -8.1 Milky Bar 52 1.6 50 1.6 60 1.8 -13.2 Others 2040 60.6 1921 61.1 2222 66.1 -8.2 Own-label 224 6.7 193 6.1 162 4.8 38.2 Total 3365 100 3154 100 3360 100 0.1 Market Trends: Seasonality: The chocolate industry is highly seasonal where peak seasons of Easter and Christmas observe a sharp increase in sales. Therefore if externalities affect these periods it can be assumed that performance will be severely curtailed. The recent recession over the Christmas period impaired consumer spending therefore to mitigate the loss of sales it is essential to maximise them over the Easter period 2010. Failure of new products Numerous new product launches have failed over the past few years where many companies have adapted the strategy of re-launching old favourites to leverage on their brand equity and consumer recognition. Barriers to Entry The chocolate industry is synonymous with a number of large firms (Mars, Nestle and Cadbury) dominating the market, enjoying a well established history and therefore high brand loyalty. Consequently barriers to entry are high for existing incumbents and new entrants. Increasing Cost of Raw Products As cost of raw products rise such as cocoa, chocolate manufacturers are shifting their attention away from marketing strategies and instead focusing on the input processes of chocolate making as opposed to the output. Potential Partnerships Given a saturated market and a continuous increase of raw material prices, to remain competitive and keep costs down, creation of partnerships are potential business propositions for manufacturers. Growth of luxury segment of market Luxury dark chocolate brands have entered the market in (Booth, 2000) due to the advocates of healthy eating and the anti-oxidant benefits of dark chocolate. Targeting the grey pound with a larger disposable income the luxury segment is increasing in market share presently. 2. The highly competitive UK chocolate confectionary market has suffered a hit during the 2008/9 recession where volume sales have decreased by 2.6 percent (Nielsen, 2009) throughout all leading brands. However thi s fall in sales contradicts the trend which has emerged throughout the recession of an observed increase in comfort eating such as chocolate within the affordable segment of the market. Currently the chocolate industry is saturated with increasing pressure from unfavourable economic conditions squeezing profit margins and manufacturers consequently looking for new growth areas. Segmentation targeting and positioning Segment of Chocolate Industry à ¢Ã¢â€š ¬Ã¢â‚¬Å"Countlines Analysis of the industry suggests that the most revenue generating segment belongs to the countlines segment at 2244.44 à ¢Ã¢â‚¬Å¡Ã‚ ¬ million yearly, making this a potential area for diversification for JFL. Consumption of these modern snacks such as Snickers represent a growing sector of the confectionary market as they subscribe well into on-the-go lifestyles which compliment modern society. Easily fitted into handbags, suit pockets and sportswear countlines are convenient snacks in a variety of choices which make them ideal for busy people everywhere. As per the above table and market research competitors brands within this segment are: Mars 49 g @ 40p Twix 58 g @ 45p Mars Snickers 58 g @ 45p Cadbury Dairy Milk 49 g @ 58p Green and Blacks Organic 50g @  £1.25 Positioning à ¢Ã¢â€š ¬Ã¢â‚¬Å" Pocket Money Segment to luxurious treats There is a decline in the pocket money segment of the confectionery market due to increasing health concerns over childrens increasing sugar intake. Market research evidences that its the 11-14 year old segment of children who spend the most on weekly pocket money with expenditures of  £10 à ¢Ã¢â€š ¬Ã¢â‚¬Å" 15 (Youth TGI, 2009). Linking this to the entry strategy for JFL within the chocolate industry and the consumers propensity towards familiar brands and pricing structures; it is recommended that entry into the countlines segment should be positioned within the pocket- money segment. This should be at th e lower end for tweens and the higher end for the over 55s. Another suggestion is that JFL partner with another manufacturer such as Nestle to leverage on brand credibility and reduce start-up costs into the market, especially with increasing raw material prices. The risk of cannibalisation will be mitigated due to product launch into different segments. Consumer Segmentation à ¢Ã¢â€š ¬Ã¢â‚¬Å" Over 55s Given that the over 55s are the biggest consumers of chocolate with a larger disposable income it is recommended therefore that JFL position themselves at the premium end of the pocket money countlines segment. Building on the notion that the health food chocolate market is growing due to its anti-oxidant benefits it is recommended that JFL target the grey pound with a product which offers health benefits (increased anti- oxidants, reduced saturated fats) which is perceived to be of superior quality. Consumer Segmentation Tweens 11-14 Building upon the increasing d isposable income of this segment and the reputable brand image that JFL has built within sugar confectionary it is recommended that JFL target this segment for entry into the market. Offering a product which is half the size of an average chocolate bar: at 25g within the countlines segment this will enable JFL to remain competitive on cost whilst leveraging the Nestle brand. 3. Product description; Over 55s An average sized premium chocolate bar (50g) specifically formulated to contain increased levels of anti-oxidant properties in the form of flavonoids, found in cocoa processed with minimal extraction and reduced milk content. Lines can be either solid chocolate classified as premium milk with added cocoa or individual centres of nut or coconut covered with premium milk with added cocoa. Tweens 11-14 à ¢Ã¢â€š ¬Ã¢â‚¬Å" A mini-bar of 25g formulated with milk chocolate where lines can be either solid milk chocolate or individual centres of toffee, caramel and nuts. Brand image; Over 55s à ¢Ã¢â€š ¬Ã¢â‚¬Å" The branding of premium healthy chocolate to this segment should demonstrate one which will communicate the health benefits of eating chocolate rich in anti-oxidants. The differentiating factor with this brand is the fact that it is milk chocolate with added cocoa, for a premium creamy milk chocolaty taste with all the anti-oxidants of dark chocolate. The reason for this is the baby boomer generation (over 55s) has been evidenced as possessing an extremely sweet tooth, which create preferences towards sweeter milk chocolate rather than bitter dark chocolate. Therefore a bar which can be sold as milk with added benefits of dark will appeal to the psychology of this segment. Tweens 11-14 à ¢Ã¢â€š ¬Ã¢â‚¬Å" The branding of the mini-bars, it is recommended will leverage Nestles brand and associated products such as breakfast cereal (Shredded Wheat, Cheerios, Golden Nuggets, Clusters) beverages (coffee, hot chocolate and Ne squik) and ice-cream. These are items which this segment of the market consume regularly, even on a daily basis, therefore creating this relationship between the new product of mini-bar and household names will re-enforce brand identity. Pricing objectives strategy; Over 55s à ¢Ã¢â€š ¬Ã¢â‚¬Å" The price of this product should reflect its position within the higher end of the pocket money segment of countlines. The average weekly expenditure on chocolate confectionary for the grey pound is  £13.50 per week ( £700 per person annually) with buying behaviour of chocolate in the luxury end of the market a few times a week i.e. Green and Blacks Organic 50g @  £1.25. It is recommended that the price per bar of this product (50g) should be positioned just below the premium price but substantially above the lowest price of counterline competitors bars at 40p. Therefore the price for this product should be pitched at 80p per 50g bar. Tweens 11-14 à ¢Ã¢â€š ¬Ã¢â‚¬Å" The average weekly expenditure within the pocket money segment is at the lowest range  £10 min  £15 maximum ( £520 à ¢Ã¢â€š ¬Ã¢â‚¬Å" 780 per person annually) with buying behaviour at the lowest end of the market with daily purchases of chocolate. It is recommended that the price per mini- bar of this product (50g) should be positioned just below the lowest price of counterline competitors bars at 40p. Therefore the price for this product should be pitched at 30p per 25g bar. Retailing and distribution objectives and strategies; Over 55s à ¢Ã¢â€š ¬Ã¢â‚¬Å" Distribution channels for chocolate are wide, with chocolate availability the highest it have ever been, from small retailers to mass-market outlets. To maximise product launch it is recommended leveraging on current trends such as increasing internet usage to distribute the product. The advantages of this distribution channel are that it is cost effective, can penetrate a wide market qu ickly and once set-up is easy to maintain. For this segment who are becoming more technology savvy and have availability to the net this distribution channel will be successful. Tweens 11-14 à ¢Ã¢â€š ¬Ã¢â‚¬Å" Distribution for this segment follows the above, and builds on existing channels of all sizes of retailers to mass-market outlets. Given the proposed partnership with Nestle and their grocery products such as breakfast cereal and beverages, it is recommended that using coffee shops, supermarkets and ice-cream outlets will increase sales of the mini-bar. Additionally the internet for this segment is a must given the trend towards online purchases. Integrated marketing communications objectives strategies; Over 55s For this segment the IMC strategy will encompass promotional strategies which will use venues such as golf clubs, day centres, community leisure centres, gymnasiums and supermarkets to launch the product. The promotional aspect should encompass EMarke ting linked to offers, which when advertised at the above mentioned outlets customers will receive a specified discount if they print out a voucher online which is redeemable. Tweens 11-14- It is recommended using an IMC strategy which can be integrated into Nestles existing marketing plan so as to 1) drive down promotional costs 2) leverage existing expertise within Nestle and 3) build on existing marketing strategies. Extra consideration will be taken to ensure that cannibalisation does not occur through alignment of segmentation against current Nestle chocolate. EMarketing will be used as above for promotion using the same redeemable voucher offer. Evaluation and control; To see whether your product launch has been successful it is recommended that JFL implement a metric which enables accurate measurement of sales within both lines. As the predominant form of distribution and promotion is online, converted sales can be measured through CTR (click through rates). Ad ditionally measurement can be through response rates and online users to the JFL website. For control it is recommended allocating one employee per line who has expertise within EMarketing. Bibliography Booth, R (1990) Snack food- An AVI book; Springer Britons are Europes biggest chocolate-lovers; Louise Barnett à ¢Ã¢â€š ¬Ã¢â‚¬Å" 13/04/2006: available at https://www.independent.co.uk/news/uk/this-britain/britons-are-europes-biggest-chocolatelovers-473928.html Brits love of chocolate feeds sales growth; Caroline Scott Thomas à ¢Ã¢â€š ¬Ã¢â‚¬Å" 09/10/2009: available at www.confectionarynews.com Business Insights; Chocolate Confectionery Industry Insights (2008): available at https://www.globalbusinessinsights.com/report.asp?id=rbcg0125 Chocolate Candy Sales Start to Melt; Nielsen- 30/01/09: available at https://blog.nielsen.com/nielsenwire/consumer/chocolate-candy-sales-start-to-melt/ Datamonitor à ¢Ã¢â€š ¬Ã¢â‚¬Å" The home of business information (accessed 04/03/10) à ¢Ã¢â€š ¬Ã¢â‚¬Å" available at https://www.datamonitor.com/ Mintel Reports à ¢Ã¢â€š ¬Ã¢â‚¬Å" Insight, Analysis and Business Intelligence Reports (accessed 04/03/10) available at https://rep orts.mintel.com/ The Grocer The Top Products 2009: Confectionary (chocolate) Peter Christou: available at https://www.thegrocer.co.uk/articles.aspx?page=articlesID=206242 Youth TGI (Target Group Index) (accessed 04/03/10) à ¢Ã¢â€š ¬Ã¢â‚¬Å" available at https://kantarmedia-tgigb.com

My Life With A Family - 869 Words

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The Role Of Accounting In The Collapse Of Game Group Free Essays

string(108) " are important in determining how the market will value the price of the equity of a firm \(Penman, 2007\)\." Introduction The Game Group plc is a UK based Investment Company. It is specialised in the retail of video games and personal computers through retail outlets and eCommerce sites (Google Finance, 2013). On the 21st of March 2012, the company officially filed for administration as it became evident that it could no longer continue as a going concern (Robinson, 2012; BBC, 2012). We will write a custom essay sample on The Role Of Accounting In The Collapse Of Game Group or any similar topic only for you Order Now Past experience suggests that accounting has contributed to many cases of corporate failure. This was the case with the failures of Enron, WorldCom and many other companies. The objective of this paper is to discuss how accounting contributed to the failure of The Game Group plc. The paper begins by presenting theoretical and empirical evidence on how accounting can contribute to corporate collapse in section 2; section 3 discusses how accounting contributed to the collapse of the Game Group by making reference to the evidence presented in section 2; section 4 provides a summary and conclusion of the paper. Accounting and Corporate Collapse Creative accounting has been cited as one of the principal causes of corporate collapse. Companies like Enron, WorldCom and Tyco International filed for Bankruptcy under Chapter 7 as a result of poor accounting. The managers of these companies were involved in lies, deceit, cover-up and above all shoddy accounting, which could not be sustained for long. As a result, the share prices of the companies were bound to fall and thus the companies themselves were bound to file for bankruptcy under chapter 7 of the US Bankruptcy Code. Creative accounting involves the use of accounting techniques that may or may not be in compliance with generally accepted accounting principles (GAAPs) but that certainly deviate significantly ethical standards (Ghosh, 2010). When involved in creative accounting, managers often make use of novel approaches to reporting income so as to influence the outcome of contractual agreements that are determined by financial reports (Ghosh, 2010). Creative accounting involves systematically misrepresenting the true earnings and asset values of companies. Creative accounting has been responsible for a number of high profile cases of corporate failures such as Enron, WorldCom, Adelphia and Tyco International. One of the most commonly used forms of creative accounting is earnings management. Earnings management occurs when management employ judgment in financial reporting and transaction structuring with the intent of altering financial information either to influence the outcome of contractual agreements that depend on financial reports or to mislead interested parties about the performance, changes in financial position and financial position of the company (Healy and Wahlen, 1999). Earnings management represents â€Å"a purposeful intervention in the external financial reporting process, with the intent of obtaining some private gain† (Schipper, 1989). Most of the figures in the balance sheet and income statement are based on accrual accounting which arises because not all transactions are settled in cash at the time they are entered into. Therefore, accrual accounting must be used to record assets and liabilities that arise as a result of the time difference between the inceptio n of the transaction and the time the transaction is settled. This has resulted in the use of discretionary accounting. Managers employ discretionary accrual accounting to satisfy their selfish desires (Heemskerk and Va der Tas, 2006). The use of discretionary accruals is considered earnings management when managers employ it to influence the share price of their company or to obtain some other benefit that is of a personal nature. Earnings management has been an important subject of debate in the accounting literature with most studies focusing on understanding the factors that motivate managements to manae earnings. A bonus-maximisation theory has thus been suggested which states that managers manager earnings to maximise bonuses. For example, evidence suggests discretionary accruals are employed by managers to maximise short-term bonuses (Healy, 1985). Similar evidence is suggested in Gaver et al. (1995) and Hotlthausen et al. (1995) who observe that managers make use of accrual accounting to reduce earnings when earnings are above their maximum bonus level. However, such accruals are not employed when the minimum bonus level has not been attained (Holthausen et al., 1995; Gaver et al. (1995). An income smoothing theory has also been suggested which argues that managers like to observe a smooth pattern in earnings. Consequently a number of accounting techniques are employed to ensure that earnings are smooth over time. Gaver et al. (1995) provide evidence that is consistent with the smoothing theory. In addition, Guidry et al. (1999) and Tao (2007) observe that earnings management is carried out because managers do not want significant differences to occur between actual and predicted earnings. It has also been argued that managers hate reporting a decline in earnings. Consequently, accounting techniques are employed to ensure that the change in earnings over time is positive. Burgstahler and Dichev (1997) provide evidence that is consistent with this incentive by observing that managers tend to emphasise an increase in earnings in the Annual Report Section titled: â€Å"Management Discussion†. In Tenneco’s 1994 Annual Report for example, the CEO Dana Mead stated as follows: â€Å"I must emphasise that all our strategic actions are guided and measured against this goal of delivering consistently high increases in earnings over the long term† (Burgstahler and Dichev, 1997: 99). In addition Eli Lilly laid so much emphasis which lasted for a period of 33 years before being broken. Some firms emphasise the importance of increasing earnings during press releases or the announcement of earnings. The CEO of Bank of America for example, Richard Rosenberg in 199 4 stressed the importance of increasing earnings in a press release by stating that â€Å"Increasing earnings per share was our most important objective for the year† (Burgstahler and Dichev, 1997: 100). The foregoing indicates that managers are more inclined to reporting an increase in earnings rather than a decrease. Barth et al. (1995) for example suggests that firms tend to maintain an upward trend in earnings so as to improve valuation ratios such as the price-to-earnings (P/E) ratio, the price-to-book (P/B) ratio, etc. P/E and P/B ratios are important in determining how the market will value the price of the equity of a firm (Penman, 2007). You read "The Role Of Accounting In The Collapse Of Game Group" in category "Essay examples" Therefore, managers will be motivated to maintain high P/E and P/B ratios through earnings management so as to benefit from a high market valuation of their firms’ equity. Similar evidence is provided in DeAngelo et al. (1996) who observe that a distortion in a firm’s upward trend in earnings results in significant declines in the stock price. Accounting and the Collapse of the Game Group Section 2 above focused on understanding how accounting can lead to corporate collapse. The evidence shows that managers tend to make use of creative accounting techniques which results in an inflation of earnings and thus the share price. Given that the share price does not reflect its intrinsic value, the long-run effect is a significant decline in the share price with the ultimate effect being the collapse of the company. This section is concerned with whether there was any use of creative accounting in the Game group which led to its collapse. So far, the evidence shows that accounting had nothing to do with the collapse of the group. Rather, the company’s collapse can be attributed to a variety of other factors including poor strategic planning, declining video game industry, and the cyclical nature of the video games industry . 3.1 Poor Strategic Planning It was rather, poor strategic planning on the part of the company that resulted in its collapse. The company failed to anticipate and plan for changes in its external environment. The company continued using strategies that were no longer relevant in the context of its external environment. In addition, the Game group had a poor pricing strategy. Prices of Game Group’s games were too high compared to prices of competitors such as Amazon and Play. Many customers are migrating from store shopping to online shopping. According to Administrators at Price Water House Coopers, Game Group’s collapse can be attributed to its ambitious overseas expansion and the closure of proximity stores. Game Group’s strategy was characterised by two fundamental problems. Firstly, the company expanded massively into different countries (Yin-Poole, 2012). This means that the company had significantly high levels of fixed costs which could not be sustained. When fixed costs are significa ntly high, the business risk of the firm increases significantly. Secondly, Game and Gamestation stores were in close proximity. This resulted in the cannibalisation of sales of one store by other stores (Yin-Poole, 2012). Therefore, many stores were simply incurring fixed costs which could not be covered by sales revenue. 3.2 Declining Video Games Industry The company suffered significantly because of poor developments in its external environment. Wallop (2012) observes comments by the CEO of the company Mr Shepherd who claims that in 2012, the size of the video game market had declined by 40% from its 2012 figure. This contributed negatively to the performance of the company. The company’s share fell by 2.44 to 4.31p and resulting in a decline to less than ?15million. Customers made significant changes in their consumption of video games. Most customers were interested in buying only new releases such as Fifa 2012 and Modern Warfare. Lesser known titles could not perform well because of declining demand Wallop (2012). The Game Group could not survive because it had a lot of games in stock that did not meet the current tastes and preferences of consumers of video games. 3.2 Cyclical nature of the Video Games Industry Despite making a profit of ?90million in 2009, the Game Group recorded a loss of ?15million in 2011 (Wallop, 2011). The main reason for this loss was the intense cyclical nature of the video games industry (Wallop, 2011). The market lacks exciting new hardware. In addition, the industry has been suffering from piracy. Lack of new hardware and an increase piracy has resulted in declining demands which has eroded industry profits. As a result the Game Group could no longer survive in the industry. The Game Group was also affected by the introduction of digital games, which can be regarded as a perfect substitute for video games. For example, in 2010, sales of digital games totalled ?411m representing an increase by 23 percent from the 2009 figure. On the contrary, the video game industry witnessed a decline in sales by 17 percent to ?1.53billion between 2009 and 2010 (Wallop, 2011). In addition, the development of smart phones and the IPAD has affected the video games industry. These devices come with free digital games. This resulted in the decline in video games sales and thus contributed to the collapse of the Game Group (Wallop, 2011). Summary and Conclusions The objective of this paper was to analyse the impact of accounting on the failure of Game Group. The above analyses show that Game Group’s collapse was in no way related to accounting failure. There was no evidence to suggest that managers at Game Group were involved in creative accounting. Unlike the case of Enron, and other major corporate failures, the Game Group had no special purpose entities which enabled it to high liabilities off the books. Game group’s failure can be attributed to poor strategic planning rather than to accounting failure. Based on the analysis, there is no evidence suggesting that Game Group was involved in inappropriate accounting. Rather, the evidence shows that Game Group simply did not plan properly. Game Group did not put in place strategies that would enable it respond adequately to changes in its external environment. The company failed to analyse the threat of substitute products, new entrants, bargaining power of suppliers and customers as well as industry rivalry. References Healy, P.M., Wahlen, J.M., 1999. A review of the earnings management literature and its implications for standard setters. Accounting Horizons, 13, pp. 365-383. Hayn, C., 1995. 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