For the purpose of this case study assignment we will consider the commercial and legal position of Choc Deluxe, a fictitious company, in its role as a small scale specialist chocolate company where ‘quality’ and the inclusion of only organic products is its unique selling proposition (USP).
The company’s products have brand loyalty (the propensity to repurchase a brand) from its customers who are willing to pay the ‘premium’ price that are attached to each of the chocolate products, and business looks good. Choc Deluxe is a player in a global industry worth $80bn a year and rising “because of emerging markets like India and China, combined with anticipated economic recovery in the rich North (Europe after the Financial Recession of 2008), have led to industry forecasts of a 30% growth in demand to more than 4.5 million tonnes by 2020” (Goodyear, 2013). That sounds like good news. There is a problem however with regard to availability of cocoa, the main ingredient to making chocolate. There is not enough cocoa being grown to meet increasing demand. Additional new plantings are going to take 5 years until they are ready for harvest, so until then, as supply decreases and demand goes up so does the price of the product. This is OK if chocolate is regarded as a basic necessity and thus people are prepared to pay for it, but chocolate is not such a product. There is only so much that a price can be increased, even to a loyal customer base for the special Criollo bean based products before sales decline. To customers who are not so much concerned with price this would normally be good news for the company but Choc Deluxe can’t source enough of the Criollo cocoa beans anyway, which presents a problem.
Choc Deluxe has a large order already in place to supply a top end department store with luxury chocolate products for Christmas, but there are not enough Criollo beans available to meet the order. Choc Deluxe executive management therefore decide to use the more common Forastero bean for 20% of this particular product range. The 80% Criollo/20% Forastero combination had already been tested by the Marketing Department with focus groups, and no change to the usual taste had been noticed.
Discussions were also held with the high value department store buyer about the ‘small’ substitute, and as long as the taste hadn’t been affected and the product packaging description (in very small letters) amended to show the 20% Forastero bean addition then the order was to continue.
Soon after Christmas, customer complaints about the ‘horrible taste’ of the chocolate flooded into Choc Deluxe’s customer services department. In addition, a few Negligence Lawsuits had been filed as people claimed that they had suffered anaphylactic shock after eating the chocolate product. The store buyer was furious and was threatening Choc Deluxe with all kinds of legal action and negative publicity because she claimed the product received was not the original product that had been originally contracted for.
Average sales of the products at the department store had fallen by 30% within a month of product launch as news of the “horrible tasting chocolate at rip off prices” spread quickly through the media. Sales of other products were also negatively impacted. The hypothesis here is that the partial replacement of the Corillo cocoa by Forastero cocoa had negatively impacted on taste and thus resulted in poor sales. It is likely therefore that there is a correlation between the inclusion of the Forastero bean and lost sales.
The production and quality departments of Choc Deluxe carried out tests on the chocolate products and found that that 80% of the ‘chocolate’ bar was Forastero and only 20% Corillo. There were also traces of nuts found in the product, which were not intended to be there.
The chocolate wrapper had listed the main ingredient as 80% Corillo, which is to be expected from such a premium brand, along with a statement saying 20% Forastero. To add to this mistake the wrapper did not specify, as it was legally required to do so, the possibility of any nut products in the list of ingredients.
Learning outcomes assessed:
1. Understand the organisational context – commercial, voluntary, public sectors and interdependencies between them.
2. Identify the basic principles of business including the way in which businesses operate and the factors that influence the process of making managerial decisions.
3. Demonstrate an understanding of the core concepts in each of the business functional areas and their integration within the broader organisational context.
4. Identify some recent trends and issues relevant to business organisations
1.1 Questions to be answered in an individual report of up to 2,000 words with regard to the case study:
1. Present an overview of what is happening with the cocoa market and how this is likely to affect the production of chocolate products by established companies.
2. Create an internal process map for the production of the chocolate bars starting with the receipt of a sales order to Choc Deluxe’s accounts department and finishing with the loading of the finished bars onto delivery trucks to retail customers.
a. Identification of the stage at which the ‘problem’ occurred and what should have been done to avoid it.
3. Present a case of how the operations function and the customers’ view of quality might differ in respect of the chocolate bars.
a. What other departments are involved in these perceptions and controls, and why.