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,4, CHAPTER VI. UOHPORA'I'I: LchL DIHATEGY .3. Creative Food Technologies Corporation (CFTC) is the brainchild of Alex, a BS Food 1:22:32? graduate and MBA degree holder who has substantial experience working in research and product development. In 2007, Alex quit his job and founded CFTC. He then launChEd Wake Up! Extreme, a line of hard candy marketed as "the rst energy candy I\" the Philippines." This would be the start of what could only be described as an entrepreneurial streak. In 2008, Alex also established a waterrelling business, PureDrops, which catered to households. In 2009, Alex took over the management of their family business of reconditioning and trading secondhand offset printing equipment. In the same year, he alsoestabllshed Offset Offsite, an offset printing business that provided allaround printing servaces. He then set up a graphic design service that primarily served to complement his offset printing business. Having embarked on different businesses in the span of only a few years, Alex faced several problems: non-remittance of revenues, nonpayment of consigned products, and pllferage. Another major issue was that although Wake Up! Extreme was different from other candies as it was probably the only energy candy available, consumers could not differentiate it from other candies and already had a set price in mind.Thus, they could easily switch to other brands when the price of the energy candy was increased. This perception became a constraint on the margins of the product line. Demand for the energy candy has yet to pick up as it was still virtually unknown to their target market. Candy Industry in the Philippines _ _ I The candy industry in the Philippines was characterized by heavy competition both from established and new brands. This was due to the diverse array of product categories in the candy business, some of which were hard candies, chewable candles, and gummy orjelly candies (the table below outlines the major players in the candy and confectionery industry and their respective products). Although the competition in the candy industry was erce, market growth was generally increasing, which provided a steady prot for manufacturers. This was further evidenced by a net importation of hard candies from the years 2000 to 2005. Revenues of Major Players (In Million Pesos) m Columbia International Food Products, Inc. Wrigley Philippines. Inc. Perfetti Van Melle Phils., Inc. The Candy Maker, Inc. 199.7 226.9 Gandour Phils., Inc. 190.9 226.3 Candyman Inc. 104.8 108.2 Markenburg Intl. Foods Corp. 41.9 56.8 Sucere Foods Corp. 24.5 33.5 Source: Securities and Exchange Commission Philippine Trade of Hard Candies (Volume in Tons and Value in Thousand US$) Exports Imports Year Volume Value Volume Value 2000 198 544 4,862 7,475 2001 321 851 8,995 11,162 2002 352 951 9,954 12,519 2003 501 1,190 12,715 14,269 2004 745 1,640 17,121 18,320 2005 636 1,463 10,534 11,308 Source: National Statistics Office As with other businesses that involved manufacturing, the barriers to entry into the candy industry were quite high since a significant amount of capital was needed to procure machineries and equipment to process raw materials into candies. To work around this problem, several manufacturers had hired subcontractors to manufacture their candies. Another barrier to entry was the access to distribution networks. Major channels of distribution for candies were supermarkets and groceries. Other significant channels were sari-sari stores and food stalls along roads. The challenge for new entrants then was to capture these channels to push their products to consumers. Creative Food Technologies Corporation (CFTC) Alex was a former researcher who made a name for himself in the industry for his ability to create popular flavors of commercial beverages in his former company. While working at his former office, he had been closely watching trends in the food and beverage market. Seeing the growing trends, he felt that it was finally time for him to strike out on his own.STRATEGY 153 Energy drinks were a trend in 2007. During this time, brands like Red Bull and Bacchus had been enjoying increasing sales. Alex took note of this trend and wondered if he could apply it to candies. Thus, the idea for an energy candy was born. Alex thought that candies were easier to carry and consume since energy drinks were either packaged in small bottles or in powder form that required dilution with water. Alex knew that he could effectively formulate candies with caffeine to become alternatives to the increasingly popular energy drinks. With his degree in food technology and his experience in formulating new snacks and beverages, Alex's competency lay in new product development and quality assurance. However, he had limited knowledge with regard to the manufacture of candies. Luckily, he had a friend who was in the business and gladly helped him. Since Alex was just starting up at the time and has a limited budget mainly from his savings, he outsourced the manufacture of candies to a toll manufacturer while his company handled formulation, quality assurance, labeling, packaging, sales, and delivery. Wake Up! Extreme: Philippines' First Energy Candy Wake Up! Extreme was dubbed as "the Philippines' first energy candy." It was different from other hard candies because it contained caffeine equivalent to half a cup of coffee per piece. Unlike popular candy brands Kopiko and X.O. which were only coffee-flavored and did not contain the same amount of caffeine, Wake Up! Extreme was mint-flavored. At retail, the candy was priced at P2.00 each, the same price as the majority of hard candies in the market. Wake Up! Extreme was sold in individual pillow packs. Initially, the candies were packaged in sachets that contained five pieces of candy. However, this did not suit buyers who preferred candies in individual pillow packs. Thus, CFTC resorted to the conventional pillow packaging. CFTC marketed Wake Up! Extreme in colleges and universities and presented it as an alternative to caffeinated energy drinks, such as Red Bull, Lipovitan, and Bacchus. However, when his salesperson for school sales emigrated, this marketing tactic stopped. In its place, CFTC utilized inexpensive marketing channels, such as word-of-mouth and social networks, such as Facebook. The company has yet to tap other media, such as TV, radio, and newspapers, deeming these too expensive for their fledgling company. The distribution of Wake Up! Extreme was limited to sari-sari stores in Metro Manila. CFTC employed a team of salespersons that marketed the candy from one community store to the other. The strategy was to be able to sell Wake Up! Extreme just as the stores had sold most of their stocks of other candies. Salespersons have reported difficulty in convincing new stores to sell their candy since the brand was virtually unknown. CFTC also dealt with wholesalers to further its geographic reach and to sell it in more established stores, such as groceries and supermarkets. CFTC and Its Businesses The candy line was not the only product to which Alex and his staff devoted their time. Since 2007, CFTC had also ventured in consultancy projects, water-refilling, graphic design, offset printing, and trade of offset printing equipment.The setup of CFTC's products and services is illustrated in the chart below. It was composed of two main groups: the food group and the design and printing group. CFTC Design and Printing Food Group Group Equipment Candy Line Trading (Wake Up! Beverage Line Consultancy Graphic Offset Printing (Graphic (PureDrops) Group Design (Offset Offsite) Extreme) and Print (Bright Light) Solutions) CFTC and its Businesses Under the food group was the candy line, beverage line, and food and beverage consultancy service. The beverage line was basically CFTC's water-refilling business, PureDrops, from which it planned to expand and offer juice, tea, and other bottled drinks. PureDrops was currently one of CFTC's cash cows. The consultancy service did projects on an "as needed" basis. Services in this consulting arm included formulation, quality assurance, and labeling. The design and printing group was basically a spin-off of the operations of the candy and beverage line of CFTC. As Alex assumed management of his family's business of trading reconditioned secondhand equipment, he used the inventory of machines to print labels of the candy and beverage line. To recover the high operational costs of printing, earn revenue while the machines were recalibrated and reconditioned, and make use of idle machines waiting for buyers, he launched Offset Offsite which catered to the printing needs of several well-known establishments for products such as cartons for soaps and paper bags for clothes stores. Bright Light CFTC's graphic design service was launched to provide an add- on service to the offset printing business while ensuring full utilization of the company's full-time graphic designer. Challenges and Issues One of the major issues of Creative Food Technologies Corp. was the high-perceived price point of its products. Although Wake Up! Extreme was different, consumers had a set price in mind for candies and could easily switch to other brands when prices are increased. This perception thus provided a constraint on the margins of the candy line. The company had yet to observe a pickup in the sales of their energy candy. This lack of demand had prevented the company from earning enough money for increased marketing activities, such as promos and advertisements. A formal market study was yet to be conducted as well. Social media feedback had shown people trying out Wake Up: Extreme and commenting that they perceived no difference in efficacy. There was also the possibility of "taste fatigue," which was a known phenomenon in the confectionery business.CFTC had recently added a hint of lemon in their mint-flavored candies. Alex had yet to find out if this change in taste would be preferable for consumers. CFTC was also thinking of expanding to vitamin-enriched candy to differentiate it from other products in the market. But there was an issue as to whether consumers would prefer this type of candy over flavored vitamins already in drugstores. Besides, fortifying food products with nutrients and marketing these as such would require additional certifications and regulatory requirements from government agencies such as the BFAD. Another challenge was in its purified water product line. CFTC planned to use this business as a stepping-stone to a full-blown beverage line. But with water, a commoditized product, and with the increasingly competitive environment brought about by the arrival of too many players, CFTC would need to quickly decide as to whether they should already establish a beverage line or to continue the refilling business and the risk of decreased sales (or even losses) in the future. During its first few years of operation, CFTC also encountered problems with its workforce, specifically with its water-bottling and purifying business. One of the problems was control over the PureDrops staff; some of the delivery personnel would refill PureDrops containers with tap water and sell it to customers as purified water without the knowledge of management. CFTC also suffered losses amounting to P500,000.00 due to pilferage of water containers-the staff would steal containers from the store and sell them to junk shops. Another workforce-related issue of CFTC was the non-remittance of its sales force and the non-payment of sari-sari stores on consigned products. These issues have cost CFTC another P200,000.00 in losses. To avoid non-payment of consigned products, CFTC had to resort to a cash-on-delivery policy. Questions: 1. What are the strengths of CFTC? Identify these distinct strengths, if any. 2. How would you propose to solve the short-term problem involving the weak sales of Wake Up! Extreme candy? Utilize the identified strengths, if any, to craft a strategy to lead the brand toward profitability. 3. What kind of business is the CFTC group involved in? If you were to give it a core purpose, what would it be? 4. Craft a Big, Hairy, Audacious Goal (BHAG) for the entire firm. Then, explain how you plan to lead the firm toward this BHAG