Black Fly Beverage Company Essay
Black Fly Beverage Company is a small beverage company based in London Ontario. The company has achieved recent success in the selling and promoting of their first alcoholic beverage, the cranberry/blueberry vodka cooler. The immediate success of this product presents two critical issues that the company must address. These critical issues are: •Black fly must expand its product mix in order to capture a larger market share in order to compete with larger established brands within the market place •Black Fly must also address capacity issues that will arise with an increase in demand or introduction of a new flavor Analysis.
Current Situation Black Fly’s cranberry-blueberry vodka cooler has been well received by consumers due to its natural tasting ingredients and no chemical sweeteners producing a premium product different than existing similar beverages. The company now must take this opportunity to give their consumers another product to further explore the brand. Attempting to penetrate deeper within their current product will not allow its customers to further explore their favorite brand of vodka cooler.
This will cause Black Fly to begin to lose their customers to other competing companies that offer multiple products and flavors (see exhibit 9). Black Fly also must also address the company’s capacity issues in order to allow them to meet the LCBO’s average order lead-time of seven days. At full capacity Black Fly is meeting the required lead time with minimal margin of error to account for delays, however, during the holiday season, which will occur as early as next month, the company will not be able to keep up with the increase in demand and will fail fulfill the LCBO’s order in time (see exhibit 7).
Options The first option available to Black Fly would be to expand its product mix with the addition of a new flavor to compliment their existing cooler. The company will be able to take advantage of economies of scale through the current production; therefore a minimal cost of $30,000 will only be needed to cover development and merchandising fees. To cover this initial cost Black Fly will have to sell an additional 127 cases a month to break even, an increase of 10. 58% (see exhibit 2).
It has been projected that adding another flavor to the product line could increase sales by 50 to 75 percent. This projected increase in sales would produce an annual expected ROI of 373% and 609% respectively (see exhibit 5). If however sales increased by only 10% due to the risk of cannibalization of their original recipe then the expected ROI would be -5% (see exhibit 5). This increase in sales however will put additional strain on the company’s current capacity (see exhibit 8). A second option to Black Fly would be the addition of a new specialty spirit-based product called “Spiked Ice”.
This packaged ready to freeze cooler would be a non-competing product to the already successful cranberry-blueberry vodka. An advantage to this product is that there is no other product similar to it out in the marketplace. The LCBO has also committed to sell 8,000 cases of the product over the four summer months, which would produce revenues of $277,200 (see exhibit 3). Over this four month period this option will produce an ROI of 15% (see exhibit 6). To produce “Spiked Ice” the company however will have to purchase expensive machinery costing $500,000 and spend an additional $40,000 on merchandising and product development.
To cover these costs Black Fly would have to sell an additional 7,585 cases of “Spiked Ice” (see exhibit 4). This may prove difficult as this new product is very seasonal producing higher sales in the summer months and potentially smaller sales in the fall and winter months, a time in which the LCBO has not committed to sell this product at this time. Another disadvantage to this option is the space that this new machinery would occupy in the already small warehouse.
Black Fly’s current facilities cannot produce “Spiked Ice” and the original vodka simultaneously which would result in Black Fly loosing monthly revenues of $23,641 (see exhibit 1). Recommendation It is apparent that Black Fly must attempt to offer a variety of products to enhance its product mix and to keep current customers from trying other flavors offered by other competitors. At this time the best way to proceed with this will be to launch a new flavored vodka to compliment the already successful cranberry-blueberry vodka.
The low initial costs and economies of scale gained through this option will allow Black Fly to introduce this new flavor quickly and efficiently to capitalize sales during the upcoming holiday season. To help address the concern of future capacity issues it would be recommended that Black Fly hire two more part-time workers and to run the production process seven days a week. This will be possible due to the expected high ROI associated with this option. This increase in production will allow the company to complete six full runs amounting to 3000 cases within the seven day lead time required by the LCBO ( see exhibit 10).
In the future it will become necessary to upgrade to a larger facility and at that time it would be beneficial to begin producing “Spiked Ice”, however at this current time, given the company’s limited time in the market, it is suggested that Black Fly only pursue the launching of a new flavor. After the company has received sales from the holiday season the company will then be able to better address the possibility of relocating to a new warehouse and address their plans for “Spiked Ice” for the upcoming summer months.
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