Cannon is seeking external support in developing a plan to achieve his objectives. In the introductory conversation he mentioned cost reduction, improving sales effectiveness, and increasing market share as key objectives. Cannon shared his thoughts and some (condential) internal data during the meeting. I am condent that you can build an excellent plan for CANNON and deliver superior client value. I want you to create a Letter of Proposal (LOP) for WW AidI lead the pitch meeting with Mr. win win this business. The summary below andI data (separate attachment) provide you the key trends and information you will have available in creating the LOP. Carefully read (and re-read) this W come to class with your point of view on a consulting engagement proposal. Your team will collectively create an LOP - including Objectives, Hypotheses, and Proposed Approach $1: the client during the team problem solving sessions. Background Since its founding almost 100 years ago, CANNON has been true to the philosophy that "only the highest quality is enough". As the traditional leader in the German preserved baked goods market, CANOLI enjoys a tremendous reputation with consumers. This year, CANNON planned 7.5 million investment in social media, TV, radio, and newspaperlmagazine advertising will help ensure the company remains top of mind. In addition, 2019's 50 million investment in new equipment will ensure CANNOLI continues to sell top-quality products. Despite its rich heritage and ongoing investments, CANNONs performance has been declining since 2015. The company's dramatic decline in market share (from 25 percent in 2015 to 21.2 percent today) has driven down sales revenues by 23 percent and reduced CANNON's after-tax prot to a mere 'I million. CANOLI's current 1.8 percent return on equity (down from a high of 31.7 percent in 2015) is unacceptable to shareholders, and they have requested an action plan to immediately improve performance. Exhibits 1 highlight the changes that have occurred over the past 5 years. This decline in CANNON's performance is due in large partto signicant changes in the German sweet bakery products market. Stagnating market demand. The German sweet bakery products market is nearly saturated. Exhibit 2 clearly shows the combined market share of the three key competitors shrank by 13 percent from 2015 to 2019, while the overall market declined 1.7 percent per annum. Average prices remain at 2015 levels and given the average annual ination growth rate of 2.5 percent over the past 5 the current price levels represent a real price decrease. Several of the eight segments in this market show stagnating or decreasing sales (Exhibit 3). Sales of mlanges of wafers and biscuits, for example, decreased by 16 percent from 2016 to 2019. Butter cookie sales, however, grew 7 to 8 percent annually and chocolate wafer sales grew 20 percent over the past 3 years. Changing consumer preferences. To compete against smaller competitors, CANNON is considering developing new products that require special technical know-how and manufacturing equipment. Industry experience over the past few years, however, suggests that as many as 97 percent of all new sweet bakery products have failed. This high failure rate may be driven by changes in consumer preferences (Exhibit 4). Since 2015, for example, the less expensive products have doubled their share, gaining some volume from the medium-priced group and signicantly reducing the top end of the market by a huge 18 percentage points. Consumer analysis indicates that 17 percent of those aged 14 and over (9.69 million out of 57 million) are sweet bakery product consumers, with a slightly greater number of women than men. Those aged 14 to 30 consume the mossteet bakery products. Blue-collar workers, civil servants, and trained workers with middle incomes are either average or intensive consumers who buy at least once a week. Growing importance of non-traditionai channels. The less expensive distributors cash & carries and discount stores (in particular Aldo) have increasingly gained signicance over traditional food stores. More than two-thirds of all sweet bakery products are now distributed through these channels (Exhibit 5). CANNOLI currently m 8 percent of Aldo's sweet bakery product sales, and the volume continues to grow. Sales are also increasing at discounters Plus and Lidl, which have been selling CANNOLI's products since January 2019. CANNOLI's share at Penny (another discounter), however, is decreasing as it is at the large cash & carry chains like Wand Massa. Losses in market share and sales can be seen in almost all product segments. CANNON continues to concentrate primarily on retail grocery stores, which it supplies directly, and does not supply the kiosk, canteen, or gas station markets. increasing competition. CAN NON's position is further complicated by the fact that preserved sweet baked goods are now standard products, and it is increasingly difcult to distinguish oneself from the competition. Moreover, there have been signicant shifts in the competitive landscape. Chocolate continues to dominate the 31 billion German sweet bakery products market, with a 41 percent market share. In the preserved sweet bakery segment, CANNON remains the largest by far (in sales} of the 683 players. lts 320 million in annual sales is more than double that of its closest competitor, aiskuit, and almost ve times that of third-placed Waite). Given the saturated nature of the preserved sweet bakery products market, however, the bigger players have, in fact, been major losers (Exhibit 2). CANNOLI has lost 4 percent of its market share since 2015, and MS percent. In sharp contrast, the overall market share of the smaller players has grown by over 9 percent since 2015. In addition to losing to smaller players, the classical producers like CANNOLI, W and Metalso lost volume and share to substitutes (snacks, salt cookies, bars, etc.), less expensive products, and private labels. As part of your efforts to improve CANNON sales and nancial performance, Mr. W recently recruited Mr. Ohm to restructure CANNON marketing and sales function (Exhibit 6). The leadership team believes that this streamlined organization will address the declining productivity the company has experienced over the past few years. Mr. Ohm believes the 133-member sales team should be able to exceed the 234,000 visits to 50,000 stores that it completed last year. While you have begun to address CANNON recent poor performance, much more remains to be done to return the company to the protable position it has traditionally enjoyed. New team structure Marketing and sales Manager Marketing team Advertising team Sales team 8 product managers (1 per 1 advertising manager 7 sales directors segment 3 marketing assistant 2 media experts 20 sales managers 4 secretaries 1 art director 113 reps 2 graphics designers 20 sales promoters 2 researches 20 support (office) staff 2 secretaries A B E G 2017 2018 2019 1452.5 1506.2 1513.4 Total Sales Top quality 30.0% 30.0% 12.0% Standard quality 45.0% 28.0% 38.0% Cheap quality 25.0% 42.0% 50.0% A B 2019 Cash & carries 28.0% Aldo (discounter) 26.0% Independed grocery stores (supermarket 17.0% Other discounters 11.0% Gas stations & kiosks 6.0% Other channels 5.0% Department stores 4.0% C&C 2.0% Coop 1.0% 100% 1592MA B E G H CANNOLI Income Statement Financial Ratios Balance Sheet P&L 2015 2016 2017 2018 2019 Sales 415 386 338 331 320 Costs 362 345 300 297 295 Depreciation 15 12 10 12 12 Interest 11 10 10 10 11 PBT 27 19 18 12 Taxes 14 10 7 6 1 PAT 13 9 11 6 Ratios ROA 8.2% 5.7% 6.1% 3.5% 0.5% ROE 31.7% 20.9% 22.4% 12.5% 1.8% Return on sale 3.1% 2.3% 3.3% 1.8% 0.3% Balance sheet Current asses 83 82 90 83 80 Fixed assests 76 75 90 87 117 Total 159 157 180 170 197 Liabilities 118 114 131 122 142 Equity 41 43 49 48 55 Total 159 157 180 170 197 A B G Sales by key competitors 2015 2016 2017 2018 2019 Total (Millions) 1622.5 1622.5 1452.5 1506.2 1513.4 Other competitors 56.2% 58.1% 60.4% 64.1% 64.7% Wafell 4.8% 5.1% 4.8% 4.7% 4.8% Biskuit 13.4% 13.0% 11.6% 9.2% 9.4% Cannoli 25.6% 23.8% 23.3% 22.0% 21.2%1622.5 1452.5 1506.2 1513.4 Biscuits 7.2% 7.1% 5.8% 5.8% Sandwiches 10.7% 9.7% 9.6% 9.5% Cookies without chocolate 11.8% 11.1% 11.0% 11.0% Cookies with chocolate 11.0% 9.8% 10.4% 11.1% Wafers with chocolate 9.4% 9.2% 10.1% 11.3% Melanges of wafers and biscuits 16.5% 16.2% 15.6% 13.8% Wafers without chocolate 15.6% 17.4% 15.8% 15.0% Butter cookies 17.8% 19.6% 21.3% 22.3% A B G H Domestic Volume and Average Sales Price (1000 tons) 2013 2014 2015 2016 2017 2018 2019 Volume (1000 tons) 251 256 263 252 271 270 277 Price Euros/1000 ton 5.7 5.8 6 5.6 5.6 5.6 5.8