OCR F292 Hoiles Crisps Notes

Holies Crisps is a Private Limited Company and so has limited liability and is not on the stock market. It also has greater sources of finance, including the private sales of shares.

HCL has a growing reputation which means it is gaining market share in an existing market. The company is 5 years old. HCL produces a range of ‘top-quality hand-fried’ products. The business supplies over 6000 independent retailers such as high class stores, farm shops, health food shops, delicatessens and ‘gastro pubs’. HCL products are sold in top-end retailers so this helps to support and develop brand image because retailers will add their own mark-ups to cover their own costs and make profit. Loyal customers of these retailers will become loyal customers of HCL through association and familiarity should they shop elsewhere. The products go direct from HCL to retailers to customers; this is quite a short distribution channel and so not only gives HCL more control, but reduces costs of transportation and large support departments and relation with intermediaries. Richard owns 80% of the business, the rest is owned by a private equity firm. Richard used venture capital to start. Richard borrowed money from the bank to start and experienced a 70% revenue growth in the second year.

Richard carried out market research before he started which means HCL is a market-orientated business. He could have used sales data for this. HCL’s competitive advantage is that it can offer things different from its competitors, and its USP is that its crisps are hand made and unique.  HCL can perform market research through its sales data.

HCL’s Corporate Goals are:

1. Growth (Increase capacity [new factory])

HCL’s Marketing Objectives are:

1. Develop new products.

The farm had been a major potato grower for supermarkets but as Richard is now using the potatoes to produce crisps, he will not be supplying as much, if any at all. Richard has past experience with supermarkets and they nearly finished him as a potato farmer and may eb another reason he doesn’t want to trade with them. HCL transports goods or pays for them to be transported to retailers (“It supplies” line 3).

HCL produces 10 different flavours of potato crisps. HCL operates in the ‘better for you’ niche and has 10% of this growing niche. HCL has a 0.5% market share with 9 billion of crisps packets sold annually in the UK.

HCL farms 900 acres but h grows 250 acres of quality potatoes but with low yields and so still has to buy raw materials in. The raw materials will be everything except potatoes because Richard is a potato farmer. HCL might consider growing reduced quality potatoes with greater yields. The potatoes grow on the farm next to the factory meaning delivery is immediate and HCL operates a JIT system because of the proximity of the farm.

HCL has small production runs of 60kg adding value by batch production.

Production Process

When frying the crisps, they are stirred once with hand held paddles; this can be eliminated to speed up the production, reduce human labour costs and free hands for other jobs. Burnt or clumped crisps are removed by hand (could be set up as a new differentiated product or sold at discount prices; could also be crushed for powdered crisps -> innovation->lean production). HCL operates a 9 Stage production process.

HCL has no clear pricing policy and this may add to the uniqueness and appeal of the products because there is no fixed pattern to pricing that can be identified.

De-layer by moving Martin into the executive committee will not only reduce the lines of communication, it will motivate Martin and it means that Martin will be better placed to make decisions because he is more in touch with HCL because of his wide span of control and knows better than anyone else how the business operates. Doing this however, would be contradictory to Richard’s leadership style because Martin would not have to report to him as much and Richard will have less to do with those in Martin’s chain of command. Martin can indirectly make decisions because he reports directly to Richard, he can run suggestions by him, which he may not be able to do if there was someone between Martin and Richard. This is a functional/hierarchical structure. Richard doesn’t feel that the structure needs to be changed as he thinks it will only be required if HCL’s current growth continues for 5 more years. HCL is a centralised organisation because all decisions are made by the executive committee (line 79). Richard wants to keep “in closer touch with the market” as he is very autocratic, he will be helping Sam for the foreseeable future and he is responsible for 29 out of 34 people.

Independent retailer would have left. Most likely because the independent retailer wouldn’t then have a unique product and could not compete with supermarkets. If their retailers had left HCL, this may have resulted in HCL not being able to charge premium prices because supermarkets would want to sell the products much cheaper than independent retailer might. Richard stopped supermarkets selling his products because he wanted to retain the feel of a family business and he could not do so if his products were on mass production for supermarkets.

The supermarkets issue was widely reported giving HCL free promotion. This news however may not please people who want to be able to buy HCL’s products from the supermarkets.

There are 35 people in HCL altogether which classifies HCL as a small business according to the Department of Trade and Industry because they have fewer than 100 employees.

Richard expects the non-potato crisp market to grow rapidly and this may be as a result to bad press (line 44-45).

HCL can in response to bad press increase non-potato ranges.

Things that HCL pays for are:

1. Harvesting
2. Materials

Second Production Line

1. Reduced land to grow potatoes on, because he wants to build it on the farm.
2. He wants to build it because of a recent growth in sales and this may not last.
3. Increase capacity.

Existing Factory (New system?)

1. Opportunity costs are: Can’t get more quality control staff, number of new products that can be launched.
2. Loyal employees will feel Job Insecurity with new system, if their job is safe or if it will affect their rate of earnings.
3. Downtime while new system is installed
4. With the high levels of debt this will bring, payback is not encouraging.

* Price paid by retailer per box.