DIETERS DELECTABLES Ltd.

For many years, Mr. Dieter Bachembesser served as pastry chef at several of Torontos

finest hotels, earning a reputation as one of the most knowledgeable people in the field of

fine baking. In 1993, he used this knowledge to start Dieters Delicacies, a small firm that

that sold fine baked goods to several of the areas finest caterers. These products were

made according to Dieters own specifications by Brownes Bakery, a reputable producer

of baked goods. While Dieters Delicacies was only a small part-time venture, it was

financially successful, and Dieters reputation spread.

In 1999, Dieter decided to quit working for hotels and to start his own business, Dieters

Delectables Ltd., with himself as president and general manager. This new company

operated in a similar manner to Dieters Delicacies, in that it did not produce goods, but

rather operated in the distribution and wholesale business. Dieters purchased its entire

product line from Brownes Bakery, with whom Dieter had established a very

satisfactory working relationship, and distributed and resold these to a variety of retail

outlets under the companys own private label brand of Dieters Delicacies.

In its first year of operation, Dieters Delectables sales were $150,000. As its reputation

for quality and customer service spread, sales grew rapidly, in large part due to Dieters

knowledge and his personal selling efforts, as well as effective merchandising techniques.

In 2002, some larger grocery chain stores began to merchandise Dieters products under

their own private labels, boosting sales further. By 2005, sales had reached $1,500,000

and the company employed 9 customer service representatives. By 2005, Dieters

purchases from Brownes Bakery had grown to the point that they represented 20% of

Brownes total production for the year.

In the spring of 2006, Dieter Bachembesser presented an aggressive proposal for a joint

venture to Mr. Elmer Smith, president and major shareholder of Brownes Bakery. The

keystone of this proposal was the 5-year marketing plan shown below.

SALES PROJECTIONS, 2005-2010

(Millions of Dollars)

The sales figures in the above graph assumed a significant and steady increase in Dieters

market share, from 6.1% of the total market in 2005 to 10.1% in 2010, as shown below:

DIETERS PROJECTED MARKET SHARE

2005-2010

(% of total market)

Dieters plan envisioned a dramatic increase in his companys sales since its founding in

1999, as the following graph shows:

ACTUAL SALES, 1999-2005

and

PLANNED SALES, 2006-2010

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Dieters sales plans were based on an aggressive expansion plan that included:

expansion into new geographical areas

the addition of new outlets, including major supermarkets

introduction of new product lines, especially certain German recipes that had been

favourites of Dieters customers when he was the most famous pastry chef in Toronto

improvement in product quality

improved service to customers/retailers

stronger merchandising and promotional activities

Dieter proposed that Brownes Bakery accommodate Dieters plans by:

1.

expanding its manufacturing facilities and

2.

transforming some of its existing operations in order to produce new product lines

that Dieters would be introducing over the next 2-3 years.

While Mr. Smith was impressed by Dieters plans, he was fundamentally a cautious

businessman.

Smith listened to Dieters presentation, then made the calculations shown

in the following table. They show that if:

1.

the total market were to grow as Dieter had forecasted, and

2.

Brownes traditional retailers continued to obtain the 25% share of that market that

they had held for many years, and

3.

Dieters market share and sales increased as he had forecasted,

a)

Brownes would have to expand its plant capacity by over 35% by 2010, or

b)

reduce shipments to its traditional retailers, and that in either case,

c)

nearly 30% of Brownes output would be sold to one buyerDieters.

Total

Dieters

Brownes Sales

Market Market Share

Brownes Sales

to Dieter as a %

Year

($million)

(%)

To Dieter

To Others

Total

of Brownes Sales

2005 $24.5

6.1%

$1.5

$6.1

$7.6

20%

2006

25.4

7.3

1.9

6.3

8.2

23

2007

26.5

7.8

2.1

6.6

8.7

24

2008

27.4

8.7

2.4

6.9

9.3

26

2009

28.5

9.4

2.7

7.2

9.9

27

2010

29.6

10.1

3.0

7.5

10.5

29

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Smith was reluctant to make dramatic changes such as those proposed by Dieter. He said:

For over 35 years, Brownes has grown with our established retailers and the

market. Our policy has been to expand gradually, and to finance expansion

projects internally, through the reinvestment of profits. By doing this, we have

built a solid, reputable firm while avoiding long-term debt. As a result, Brownes

is unwilling to risk a costly, debt-financed expansion on the basis of marketing

plans that may or may not be realistic. For us, the risk of overexpansion and

damage to our relationships with our long-standing retailers is too great.

Dieter emphasized that he was confident that his sales objectives could be met, and

praised Brownes as the only established producer in the area that had the combination of

reputation and capacity to work with Dieter to fulfil his plans. Therefore, in Dieters

view, Brownes must agree to expand its manufacturing operations very soon. He

acknowledged that it would be three years before the expanded plant would be operating

at capacity; however, he believed that by doing the entire expansion in one phase, the

costs would be reduced by about 25%. However, Smith was adamant. Dieter reminded

Smith that due to its rapid growth in the recent past, Dieters now accounted for over

20% of all of Brownes sales, and told Smith that if Brownes would not agree to his

proposal, he was considering building his own plant and that Brownes would lose all

those sales.

Dieter estimated that it would cost $1.8 million to build a plant large enough to produce

the volume of product called for by his sales forecast. While he knew he could not use its

full capacity until 2009 at the earliest, he wanted to build the complete facility all at once,

as he estimated this could save as much as 25% on the final cost. He approached local

business people and financial institutions to raise financing for his planned plant, but was

unsuccessful. The business people were not willing to put forth as much equity financing

as he had counted on, and without enough equity, the financial institutions were

unwilling to make the loans that the project required.

However, Dieter was able to find financing in another community within the market area

that he planned to serve. There, after ten local business persons and other investors

indicated their willingness to provide the necessary equity financing for the plant, a bank

was prepared to provide mortgage funds and to finance Dieters working capital through

a line of credit. Because of financing limitations, the plant was approximately three-

quarters of the size that Dieter had originally planned.

Now, Dieter must make the most important decision of his business career: should he

build his own plant, or continue buying his products from Brownes Ltd

What is swot analysis and their alternatives with their pros and cons?

The main problem in this case is the dilemma that Dieter is facing. He has to choose between two options either he can take the decision to build his own plant or he can take the decision to continue buying his products from Browne's Ltd. The problem is a significant one given the size of investment that the new plant will require. Investing in new plant will have its own set of financial limitations as the cost is quite high at $1.8 million. Thus the decision has to be taken carefully after analyzing the pros and cons of each option. The objectives are to expand sales, increase profits and reach out to new markets in future. The plan is to expand into new geographical areas and add additional number of outlets. This strategic plan will also be supported by introduction of new product lines. Thus the main objectives are to increase sales, profitability and market share in future