Please assist me with analyzing Kudler Fine Foods.
Question 1: What issue is facing Kudler Fine Foods, what suggestions might you offer as they work to resolve the issue?
Question 2: How Kudler Fine Foods evaluate their options?
Question 3: What might Kudler Fine Foods do from a management standpoint to address the issue and reach resolution?
Case Scenario:
Kudler Fine Foods is a local upscale specialty food store located in the San Diego metropolitan area. The company has three locations (La Jolla, Del Mar and Encinitas). Each store has approximately 16,000 s.f. of retail space located in a fashionable shopping center. The stores are stocked with the very best domestic and imported foodstuffs and divided into the following departments:
• Fresh Bakery and Pastries
• Fresh Produce
• Fresh Meat & Seafood
• Condiments and Packaged Foods
• Cheese's and Specialty Dairy Products
History:
Our founder, Kathy Kudler, was the Vice-President of Marketing for a large defense contractor. Weary of the constant travel and the pressures of corporate life, Kathy was looking for other opportunities. As it happened, Kathy relieved her stress through gourmet cooking and on a shopping trip for ingredients for a gourmet repast, she suddenly realized that there was an opportunity for an upscale epicurean food shop in La Jolla.
Kathy developed a business plan, obtained financing and six months later, on June 18, 1998, the first Kudler Fine Foods opened. Within nine months the store was at break-even and was profitable for the year.
In 2000, a second store was opened in Del Mar and in 2003 our third shop opened in Encinitas.
Purchasing:
There is no purchasing department in any of the stores although standard purchasing procedures are in place. Each of the three department managers in each store determines requirements for the items their department sells and places purchase orders directly with suppliers using a purchase order form that is standard between the three stores. It is the responsibility of the Department Managers to obtain the best price, quality, and delivery possible. They also receive and verify all orders in terms of whether they received the correct items and quantities and in undamaged conditions. Received items are documented on an Order Received form and sent to Accounting so that invoices for the items can be paid.
The three department managers are encouraged to check with their counterparts at the other stores on the pricing, quality, and delivery of the merchandise they order. They are also encouraged to combine orders between their stores if they feel there would be a cost savings resulting from ordering a larger quantity of a particular item or multiple items.
Kathy also places purchase orders. Kathy’s purchases relate mostly to unique, capital, or repair items that might be required by an individual store or for items used by all three stores, such as bulk Purchase Orders or Receiving forms.
Prepared purchase order forms are either mailed, handed to supplier salesmen, faxed to suppliers, or sent by E-mail if acceptable to suppliers. Whatever the method used, a purchase order form is always filled out initially and becomes the key tracking and financial document for an order.
Advertising:
Advertisements are prepared for local newspapers by Kathy. Advertised specials are offered at all three stores simultaneously. Kathy coordinates the items on sale with the store managers from each store during her weekly operations review meetings to make sure adequate supplies of merchandise will be on hand. Merchandise can be shifted between stores should one store have a higher demand of an item than another store, time permitting.
Accounting:
Accounting data is collected by the point-of-sale terminals (cash registers) that are used in each store at check-out to record all items, quantities, prices, taxes and totals for all daily sales transactions.
Inventory Management:
Excess inventory is always a concern since it represents company monies being tied up in merchandise that is not moving or generating further income. Excesses can also lead to write-downs of the merchandise.
The department managers are responsible for maintaining high customer service levels for the items they sell, which means carrying higher levels of inventory, but not excessive service levels. Kathy’s policy is that adequate levels of inventory should be maintained to assure that stock-outs do not occur more than 2-3 times a year. This customer service level is discussed during Kathy’s monthly operations review meeting and adjustments to merchandise stocking levels made if warranted. A customer service level of 95% has been a general goal for a number of items carried. 95% means that 95% of the time a customer will find merchandise available in a store. 5% of the time there will be no merchandise due to a previous stock-out. The store decides on an item-by-item basis whether a rain check will be offered customers if an item is out of stock.
Forecasting:
Forecasting which items to carry and how much to carry in the future has always been a challenge. Kathy and her department managers utilize historical data on which items and what quantities were sold in the last 2-3 years, especially on holidays. This provides an indication of which items and what quantities to carry in the future. Forecasts are basically an extrapolation of past history to the future. In an increasing sales market, the trend extrapolating forecast works fairly well. The difficulty has always been in determining the forecast’s turning points, from increasing sales to decreasing for example, since significant errors can occur at these points. This is a reoccurring topic in monthly operations review meetings in which monthly sales are reviewed for the last year and monthly forecasts prepared for the next three months, a quarterly forecast for the quarter after that, and for six months for the next six-month period after that. The accuracy of this forecasting method has not been as good as desired and has resulted in the obsoleting of some merchandise and in offering others at drastic discounts.
Historical Sales Data and Financials:
Historically, Kudler Fine Foods has tracked information such as dollar value and profit margin per transaction, dollar sales and profit levels by day, and dollar sales and profit margins by item. However, in an effort to leverage the information to create a more intimate relationship with their customers, the firm is integrating a system to track customer purchase behavior over time. The firm is in the process of developing this system now.
Marketing Budget:
The marketing budget is primarily comprised of new initiatives, marketing communications, and marketing research.
New Initiatives
• Research, development, and rollout of new programs
• Cooking Classes
• Frequent buyer points program
• Supplier relations program
Merchandise Selection and Pricing
The Kudler stores are no different from any other store in that business success is geared to being able to provide total customer satisfaction. One way to satisfy customers is to offer a changing selection of gourmet foods as they become available since customers always appear to be demanding something new. Kathy considers one of her key responsibilities to be that of identification of new gourmet items that can be offered in her stores. To keep up with what’s available, Kathy monitors what other gourmet foods stores are offering, what’s being advertised in gourmet magazines, what is being shown at gourmet conventions, and what shows up on gourmet Web sites.
After finding some new and interesting items, Kathy usually obtains a small amount of each item and introduces them at one of her operations review meetings. The managers attending the meeting get to sample the items and to offer their comments, suggestions and recommendations on whether to offer the items or not.
In checking on all the new items, especially on what competitors are offering, Kathy is also in a position to determine what current selling prices for the items are. With this information, Kathy and her staff then discuss if and when merchandise prices should be changed and by how much.