A Couple of Squares Marketing Case Study

Definition of Success:

IN ORDER TO SUCCEED IN ATTAINING

$162,000 IN PROFIT IN 2013 AND SELL THE COMPANY IN 10 YEARS, A COUPLE OF SQUARES  MUST ADDRESS THE FOLLOWING:

In order to succeed in meeting their long term goal of $10m by 2022 to be able to sell the business, A Couple of Square must address the following: In order to succeed in meeting their long term goal of growing the company by 10 million dollars by 2022, the company must address the following.

In order to succeed in achieving continued growth to be able to sell the business in 10 years, A Couple of Squares must address the following:

Critical Issues:

How to develop the right pricing strategy so that cash-flow and profits sustain growth.

How to reduce operating costs so that the firm’s margins increase.

How to grow the company to be able to pay off the investor so that the founders retain control.

Analysis:

Currently, A Couple of Squares operates in an industry with low bargaining power for buyers (exhibit 5). The 5% & 10% margins A Couple of Squares takes from its retail customers is far out of proportion with the 100% margins the retailers take from the end consumer. A Couple of Square’s main competitor charges much more money for the same (perhaps inferior) product, suggesting that they are not competing on price (Exhibit 6). At the same time, A Couple of Squares has an immediate need to generate extra revenue and profits in order to address its debts, and poise it for future growth.

Exhibit 8 shows that A Couple of Square’s operations has very high overhead (22%) as well as a high percentage of total labour expenses (43%) compared to its overall costs. Up to this point A Couple of Squares has insisted on doing everything by hand, which has resulted in a large amount of labour hours. The cost of manufacturing for A Couple of Squares (69% of sales) is not in line with the standards (40.9% of sales) of the snack food industry. Based on the goals and expectations A Couple of Squares has set for themselves over the next five years, this cost structure will not allow them to attain their goals. Exhibit 9 shows the pro-forma income statement, which shows that 69% of their sales goes back to paying for labour and variable costs, thus diminishing their potential margins. The profits A Couple of Squares expect to generate with this cost structure will not enable them to grow at their desired rate because the amount they are able to reinvest in the company will not be sufficient. .

(http://www.ic.gc.ca/cis-sic/cis-sic.nsf/IDE/cis-sic31191bece.html)

The market for hand iced cookies appears to be limited in its potential for growth. This, coupled with the fact that hand iced cookies are much more costly in terms of labour, means that the introduction of gourmet cookies are necessary to drive growth and retain a more acceptable margin. Currently A Couple of Squares retains 39.1% per dollar spent on COGS (See exhibit 8). By focusing on low cost products such as the gourmet cookies they will be able to reduce their labour costs by 23% (exhibit 8) by avoiding the decorative costs associated with the hand iced cookies which will allow them to retain more per dollar spent on COGS. Presently, Erb and Bradshaw own 40% of the business thus limiting their control of the company (see exhibit 3).