j

Case study 13.3 Eli's Cheesecake Company (This case study was written by Mitsuko Duerr and Edwin Duer, both of San Francisco State University-) In mid-2004 the president of Eli's Cheesecake Company, Mr Marc Schulman, was reviewing the policies that had guided the international expansion of the firm. In the 1990s the company had recognized the potential for increasing in- ternational sales provided by the Internet and the improvements in logistics. The company had moved quickly to exploit that potential. Eli's opened its first website in 1995. This helped support the company's policy, 'follow your customer," by making it easier to continually provide up- to-date information to existing and potential customers, and to facilitate ordering and service processes. It resulted in accelerated growth, both domestically and internationally, and Eli's now exports its products to over 20 countries. In 2003 the state of Illinois gave Eli's its 'Exporter of the Year Award.' In 2004, annual sales passed US$35 million. In addition to its primary business of selling 50,000 cheesecakes per day in over 100 flavors and sizes, the company also offers tie-in products such as sweatshirts that help to spread the company name. Mr Schulman was now planning to expand into additional overseas mar- kets. This raised questions about selecting the countries into which to ex- pand, possible changes in customer selection procedures, and the possibility of using additional marketing channels or entry modes. Whatever he did, he wanted to be sure that it would be consistent with the original vision for the company and the policies that had resulted in their success to date. In order to assist in the effort, Mr Schulman had asked their former US Sales Manager, Walter Babian, to come back from retirement to be Senior Vice- President of International Sales. Mr Babian was living in Arizona and contin- ues to reside there, an option made feasible by the Internet and fax. While he spends a substantial amount of time traveling overseas to develop and main- tain relationships, and some time at the Chicago headquarters, his home can be anywhere. Company background Marc Schulman had founded Eli's Cheesecake Company on 4 July 1980, in part to fulfill a dream of his father, Eli Schulman. The senior Schulman was a 45-year veteran of the restaurant business, who had eventually opened a fine restaurant in Chicago, 'Eli's the Place for Steak.' In addition to operating the restaurant, Eli Schulman took a great interest in civic affairs. He participated in and sponsored civic events, provided appropriate (and legal) gifts to organizations and dignitaries, and was host to and photographed with a wide range of important individuals including presidents of the United States. Hisactivities and personality resulted in widespread recognition of, and a great deal of favorable publicity for, his restaurant. At the restaurant, Eli developed an exceptionally rich and creamy cheesecake that customers began referring to as 'Chicago's Finest.' He had a vision of selling something outside of his restaurant that would carry his name, and his signature cheesecake seemed to be the appropriate product. Eli's vision became a reality when his son, Marc, founded Eli's Cheesecake Company. The new venture grew steadily through the 1980s following four princi- ples: Always provide high-quality food. Always give great service. Always maintain good relationships with customers and employees. Develop new products, varieties, flavors, and sizes to meet expressed and possible changes in consumer tastes. The company uses all natural products and is able to avoid the use of preservatives because it can ship by refrigerated containers. As fast and reli- able cargo service has become available to more places, Ell's potential market has grown. They now ship primarily by United Airlines cargo, and also enjoy other relationships with the carrier as noted below. As a small company with 220 employees, Marc Schulman believes that family-owned Eli's Cheesecake Company is big enough to have the resources to do things, and small enough to be nimble. At a speech at Crain's Small Business Forum in 2000 he indicated that a small business must have focus and passion. The owners are on the hook financially and personally and have a commitment to making it work with a longer-term perspective. Marketing and sales organization The company has three people in the marketing department, including the senior vice-president, Mr Babian, plus seven in sales. The senior vice- president spends all of his time on international accounts, reflecting Mr Schulman's objective of increasing sales in overseas markets. Mr Babian is assisted by a representative in England. Domestic sales presently account for 85% and international sales account for 15% of total sales. International sales, however, are growing at approxi- mately twice the rate of domestic sales. Domestically, 60% of sales are for foodservice operations and 40% are for eventual sale at retail. Within the United States, the company uses 50 brokers as well as selling directly to some very large customers and selling directly to the public. Inter- nationally, 70% of sales are for foodservice operations and only 30% for even- tual sale at retail. Sales through retail outlets in some countries abroad have been limited because of costs and problems in meeting multiple labeling requirements for the relatively small markets. In each of the European coun- tries, they need to have different packaging for their products that will be sold through retail outlets. Internationally, brokers are used in some areas but not in other areas, depending upon conditions and the market structure. Ell's does not generally need to modify their ingredients or recipe by country sincethey already offer a wide variety of cheesecakes. They have had testing done in France for GMO-free certification (product free from genetically modified ingredients). Sales in Asia are growing rapidly with the increasing demand for premium American products. Europe is a large overseas market for Eli's Cheesecake. The company is working on a major project with a Japanese company. In spite of conflicts in the Middle East, sales in some areas are continuing. A market has been developed in Iceland. Overall sales are affected, to some degree, by the level of tourism, and the destruction of the twin towers in New York in 2001 decreased both interna- tional and domestic travel. Total attendance at food product and service trade shows has decreased, but the increasing globalization of business has re- sulted in attendance at most major shows by representatives from companies in many countries. The continuing consolidation of food companies is also providing additional marketing opportunities for medium sized producers such as Eli's. Mr Schulman sees expansion of international sales as requiring a serious commitment of time and effort. Without such a commitment there is a ten- dency to fail to respond to the inquiries from abroad because they entail addi- tional attention and effort beyond that involved with domestic orders. This also means that a company must be careful in its international expansion. Because there are so many things going on at the same time, including dealing with many new regulations, developing new packaging for each market that requires it, and possibly developing new channels for sales and shipping. there is a high cost in time, effort, and managerial attention. In efforts to expand overseas the company must not only find customers who want their product, but must communicate effectively and get the product there when promised and in perfect condition. While Eli's takes great pride in the quality of its products and in its service, it has found that overseas customers - partic- ularly in Japan, Hong Kong, and other Asian countries - are very demanding in all respects. The Eli brand name, and what it has come to represent, is what gives the company the advantage over others. Personal relationships are of particular importance in international deal- ings. Eli's objective is to meet with each major customer four times per year, visiting each of them twice and having them visit Eli's twice. Both interna- tionally and domestically, Mr Schulman feels that it is essential never to lose the focus on the customer, and face-to-face meetings cannot be replaced by telecommunications alone. Location in Chicago is an advantage for the com- pany since many trade shows are held there. Most major food product dis- tributors and food service companies send representatives to attend shows in Chicago at least once per year. Product promotion While Marc Schulman credits the Internet and improved logistics for his com- pany's rapid growth since 1995, it is apparent that the company's policies andhis skills in promotion were what made it possible for the company to take advantage of these advances. Mr Schulman has commented that traditionally bakers are not very marketing oriented, but that he comes from a foodservice background where marketing is extremely important. A major method by which Eli's attracts customers is through participation in trade shows. In addition to participating in US trade shows, Eli's fre- quently has exhibits at both candy and food product expositions in Europe. They also attend some trade shows in Asia. The US government, and some state governments, have effective programs to assist small and medium-size companies to export. As a part of these programs, companies can obtain places in the US pavilions at many international trade shows. Eli's has had such places at a number of shows, and has found this very useful. Retailers and food service companies that visit their exhibits contact their importers or make direct inquiries to Eli's. The company does not pay for advertising, except for printing brochures and mini-catalogs, and using its web page. However, it has been extremely effective in gaining recognition through its promotional activities as well as through the quality of its cheesecakes. Major promotional activities include producing special cakes for special events and for celebrities. It provided Eli's cheesecake at the 1985 Superbowl. In 1987, it provided a 1000-pound cheesecake for Chicago's 150th birthday celebrations, and subsequently provided big cakes for Crain's 20th, the Chicago Tribune's 15th, Chicago's 153rd, Steppenwolf's birthday, DePaul University's 150th anniversary, and many others. In March 1992, then Governor Clinton and Hillary Clinton visited in connection with a program to help associates earn General Education Diplomas. (People working at Eli's are referred to as 'associates' rather than employees.). Eli's provided Inaugural Birthday Cheesecakes in Washington in 1993 and 1997, in Chicago for Hillary's 50th birthday, and at the White House in 1999. A visit to the com- pany's bakery by President Clinton led to a cover story in the New York Times and an appearance on Face the Nation. The company produced an event for the Gore-Liberman campaign in 2000. Other Eli's Cheesecake fans noted in the company's website include Jay Leno, The Backstreet Boys, the Italian design team of Dolce and Gabbana, Donna Karan, and Bonnie Hunt. The company participates in various civic activities in Chicago, and provides the use of its parking lot for Chicago's Farmers' Market during the summers. It has partnerships with Wright College, Chicago High School for Agricul- tural Sciences, Norman Bridge School, New Horizon's Center, and the Chicago Public Library. Eli's has expanded its partnership with Wright College, one of the com- munity colleges of Chicago, to provide training opportunities for its people. Classes include sales training, database management, regulatory and cost- ing issues and communications through a new City of Chicago Program called TIF Works that funds training through a portion of the real estate taxes paid.United Airlines (Eli's primary carrier, as mentioned above) has featured Eli's cheesecakes on many of its flights, and an article about the company ap- peared in the United Airlines publication, Hemispheres, in September 2000. In the year 2000 alone, additional articles about Eli's appeared in eCommerce Business, Modern Baking, Bon Appetit, Chicago Tribune, and eCFO. Excellent reviews have appeared in Parade, The New York Times, Chicago Sun-Times, News City, and Cooks Magazine. Eli's also provides a tour of its bakery in Chicago, including a slice of cheesecake, for $3 per person (price in 2001), and will provide luncheons for groups. It has tie-ins with the restaurant, Eli's the Place for Steak, and there is even an Eli's Cheesecake Fan Club that people may join. All of these promo- tional activities have provided a foundation for exploiting the Internet and modern information technology. Using the Internet and the World Wide Web Since Eli's Cheesecake established their first web page in 1995 they have fre- quently updated it to make it more "user friendly' and effective as a marketing tool. As of 2004, the web page is in its fifth generation, and is still In English only in the US. Distributors in the United Kingdom and Germany have large web page set-ups devoted to them, with the latter in the German language. The company's web page, http://www.elicheesecake.com, provides three basic services: information about the product, answers to questions most frequently asked by customers and potential customers, the story of Eli Schulman (in keeping with one of the original purposes of forming the company), the company's history, company activities in the greater community, and reviews and comments about the company and its products; a way for retail customers to order online and telephone numbers for cus- tomers who prefer to call; a way for existing Foodservice Partners to access the company's communi- cations network regarding new products, merchandising, recipes, and pro- motions; a way for potential Foodservice Partners to obtain a username and password to the network. The material is colorful and attractive, complete without being wordy, and easy to navigate. The Direct Hit Search Engine, which analyzes the sites that millions of Internet searchers have visited, gives the Eli website the highest of its five ratings for relevance and satisfying searchers' requests. The use of the Internet and commercial software for information and plan- ning purposes has also improved Eli's Cheesecake's efficiency and effective- ness. In 1998, there had been only one Eli employee who knew how to work with their Microsoft Access database, and he had been overwhelmed with re- quests for reports. Then the company went to an Online Analytical Processing (OLAP) system that lets businesspeople query databases without knowing much about their underlying architecture. This allowed Mr Schulman andseveral other key users to obtain information and spot trends more easily (Liebs, 2000). This was a step forward in improving the flow of information, reducing the need to make multiple entries, and tying the ordering. produc- ing, warehousing shipping, and billing functions together. These advances facilitated the accommodation of additional international and domestic customers and sales information and processing. It still did not do the whole job and it was seen that additional steps would be needed. Now the company uses Cognos, a multidimensional data warehouse system for keeping track of sales and sales opportunities that provide a basis for future planning. All of their efforts are aimed at developing and maintaining ever closer contacts and relationships with customers and potential customers. In the overall strategy of increasing international sales, Mr Schulman will be looking at criteria for selecting additional markets, customers, and distri- bution channels. References Interviews in 2000 and 2004 with Mr Marc Schulman, President, Eli's Cheesecake. http://www.elicheesecake.com Liebs, S. (2000): 'Store and deliver," eCFO, October. Questions 1. What factors/ actions/ characteristics of Eli's have made its web initiative so effective? 2. Evaluate the company's use of promotion vs traditional advertising in light of the type of business it is in. Would another mix of promotion and advertising more efficiently or effectively meet its objectives? 3. Are the apparent objectives of Eli's Cheesecake the same as those you would expect to find in a large conglomerate? 4. What appears to be the emphasis on short-term versus long-term objectives? 5. What channels should Eli's consider in its international expansion? 6. How should Eli's go about identifying potential new markets? 7. How should Eli's go about finding potential new distributors or large customers? 8. Should Eli's consider other methods of market entry such as joint ven- tures or establishing production facilities abroad? 9. Will the present web page be adequate for the next several years? Why or why not? 10. Should Eli's consider expanding its product line? If so, what additional products might it consider? What would be the advantages and disad- vantages of its doing so