Question

Please answer all questions, I am posting it second time. its case from new venture development

Theo Chocolate

Four years after moving from Boston to Seattle to join her ex‐husband in running an organic, Fair Trade chocolate factory, Debra Music felt both a sense of accomplishment and one of foreboding. Theo Chocolate began producing its first Fair Trade–certified, single‐origin and blended dark chocolate bars in March of 2006 and by the fall of 2009 had built a unique brand that was particularly strong in the Pacific Northwest region. Seattle, with its young, well‐educated, and socially conscious population, had proved to be a perfect base for a company rooted in socially responsible, sustainable business practices. The company had increased sales each year since its inception (see Exhibit 6.11), and in the wake of large customer orders that were coming in, production had been recently ramped up. As the Vice President of Sales and Marketing of Theo Chocolate, Debra had reason to be proud of what the company had achieved. Select Company Financials 2006–2009 Year 1 (July 06–June 07) Year 2 (July 07–June 08) Year 3 (July 08–June 09) Net Sales $ 1,125,808 $ 2,669,264 $ 3,096,194 Gross Margin   157,294   767,179   857,788  % of Net Sales    13.6%    28.7%    27.7% Sales & Marketing Expenses   504,634   940,693  1,097,359 General & Admin Expenses   749,619  1,018,024  1,079,063 Total Operating Expenses  1,254,253  1,958,717  2,176,422  Opex as % of Net Sales   111.4%    73.4%    70.3% Operating Income (Loss) (1,096,959) (1,191,358) (1,318,634) Net Income (Loss) (1,241,901) (1,368,125) (1,499,450) She also had reason to be concerned. Despite a unique value proposition, a skilled and fervent management team, growing brand strength, numerous awards, and an endorsement from a well‐known celebrity, Theo Chocolate had yet to turn a profit by the fall of 2009. Joe Whinney, Debra's ex‐husband and Theo's CEO, had strong feelings about how the chocolate industry operated. Theo was designed from the outset to completely change the way people thought of and purchased chocolate products; Joe's explicitly stated goal was to do for cacao (the fruit from which chocolate is made) and chocolate what Starbucks had done for coffee. He had built a company that implemented sustainable, Fair Trade practices at every stage of its value chain—a model totally unique in the highly competitive chocolate industry. In fact, Theo Chocolate's Web site boasted that it was “the only organic, Fair Trade, Bean‐to‐Bar chocolate factory in the United States.”2 Theo's entire marketing and branding strategy—indeed, its reason for existence—was based on these principles. With some indication that the company might soon turn the corner and get “in the black” for the first time in its existence, Debra was faced with a key decision: Should the company stay true to its socially responsible roots, or would it have to compromise some of its core principles to become and stay financially profitable? As the person Joe had entrusted with building the Theo brand, much of the responsibility of this decision had fallen to Debra. The decision would determine the strategic direction the company would take and, ultimately, how the company would market itself and its products. Perhaps most important, it would determine whether Joe and the rest of the management team could make a profit while maintaining their values. Identify the most important facts surrounding the case. Identify the key issue or issues. Specify alternative courses of action. Evaluate each course of action. Recommend the best course of action.

1. Identify the most important facts surrounding the case?
2. Identify the key issue or issues?
3. Specify alternative courses of action?
4. Evaluate each course of action?
5. Recommend the best course of action?

Answer 1

Most important facts:

1. The company has an excess expenditure on its Sales and Marketing.

2. The company's Total Operational expenses too high.

3. The company after three years, is yet to turn in a profit.

4. The margins are increasing steadily along with sales.

Key Issue:

The key issue here is the decision that Debra has to make as the VP of Sales and Marketing about carrying forward the strategy lined out by the CEO of Theo Chocolates. Her decision of sticking with the same strategy or not, will decide whether Theo Chocolates will turn profitable in this year or not.

All the courses of action:

1. Debra could decide to stay with the strategy that Joe, the CEO of Theo Chocolates, outlined regarding the company staying true to its socially responsible roots and Fair Trade practices at the price of profitability.

2. Debra could decide to compromise on some of the core beliefs of Theo Chocolates and cut down on Operational Expenditure, to increase the margins which in turn results in profitability of the company.

3. Stay on the path of following and respecting the core beliefs of the business while reducing the operational costs as much as possible.

Recommended course of action:

The third option of maintaining core beliefs of the business is the best option to go with, since that is the USP of the company's product and the reason for the demographic to pick Theo Chocolates over others. This being said, the rate at which the margins % of net sales is increasing and the rate at which Opex % is decreasing means over time the company will turn profitable over time at the current rate. It will also prove to be productive to decrease operational costs in marketing (since the sales is already organically sustainable), etc while maintaining and respecting the core beliefs of Fair Trade and brand value.