Ganong Bros. Limited Ganong Brothers

Ganong Bros. Limited Ganong Brothers Limited Case Study

After two consecutive years of financial losses, the board of directors for Ganong Brothers Limited (GBL) is getting impatient for a turn-around plan that will both restore the company to profitability by increasing company revenues by 50% in the coming year. The board had given David Ganong, president of GBL an even tougher challenge, and that was to obtain this growth through new businesses in new markets. Of all strategies for growth, entering new market with new products is by far the riskiest. David Ganong had several options to consider in an attempt to regain profitability including launching private label products, looking for joint venture partners to global growth and also cost reduction. As a small, privately held company in St. Stephen, New Brunswick, throughout the four generations of the company's existence, it has had an exemplary track record of corporate social responsibility (CSR) initiatives and programs, and had in once instance chosen the stability of their workforce over the potential for greater profits. Because of this and their aggressive stance on CSR-related activities, the company was seen as one of the best employers in the region for their willingness to protect local jobs and their loyalty to the community. As the industry however had become more consolidated, the commitment the company has to being a leader in CSR strategies in their communities is being tested. David Ganong will need to balance the legacy the company has in CSR-related activities in the community vs. The need to be more globally competitive.

SWOT Analysis

Strengths

GBL is privately held and therefore has more flexibility and freedom on seeking financing arrangements, without having to report activity to shareholders, and if the activity is significant enough, to regulatory agencies. Being private also saves the company significant costs of having to comply with the Sarbanes-Oxley Act of 2002 if the company chose to create larger operations in the U.S.

GBL has a legacy of excellent quality products, and from an analysis of the case, their ability to produce high quality confectionary and chocolate products on time to capitalize on seasonal promotions is inherent company strength. The underlying processes and planning for Valentine's Day for example appears to be part of the company's DNA.

The GBL Board of Directors provides exceptionally strong governance of the company and acts as a sounding board and review of financial and strategic direction.

Stability of its sales force with coverage across the regions Western Canada, Ontario, and Atlantic Provinces.

Weaknesses

GBL has been relatively slow to adopt a globalization strategy, partially for the sake of being more attuned and consistent with their CSR, and partially due to the quarterly results being profitable until up to a year ago.

GBL and Canadian plants overall were not as vertically integrated, did not have as advanced supply chains, and in general did not have the economies of scale that their larger multinational competitors did.

Intensive investment in a new plant was undertaken based on sales forecasts that included expansion into the U.S. When sales did not materialize as fast as was anticipated, the costs of the factory also forced the company into a loss position.

The company has 400 product lines in seven product categories, forcing a high level of supply chain costs and coordination of processes throughout the company. Clearly the support of 400 lines of product is not scalable and amendable to being streamlined for enhanced retailing or seasonal strategies. This many products is a detriment to supply chain, product forecasting and overall company cost containment and growth.

Opportunities

Despite a growing level of consolidation in the market among chocolate and confectionary vendors, the heterogeneity of demand across Canada is sustaining the large number of smaller enterprises in this industry. Approximately 70% of companies in this industry have 20 employees or less for an example. The market then is diverse enough to sustain the unique value of GBL; the question however is at what level of sales it can sustain itself in a slowly growing to declining market.

American companies with multinational experience are acquiring smaller, more niche-oriented vendors throughout Canada to both extend their globally-recognized brands and to also create a more stratified product strategy within Canada as well. The company has a 30% market share in Valentines' boxed chocolates for example.

Growth of specialty retail channels shows potential for higher margin, niche-oriented products for this emerging distribution channel.

Threats

Canada is the only nation that has four major multinational chocolate bar companies all equal in size, all competing in the same market.

Canadian demand domestically for confectionary products has been steadily decreasing due to the higher levels of health consciousness in the nation in addition to the lower proportion of the Canadian children as part of the total national population.

Multinationals looking to use merger & acquisition (M&a) activities in Canada to offset erosion of domestic market share in their headquartered nations. The use of Canadian M&a activity to counter-balance the loss of market share domestically has the potential to lead to price wars in Canada as well.

Now with tariffs gone, GBL and companies like them face price competition from multinational companies more than has been true in the past, further impacting profitability.

Alternatives

The company can seek alternative financing, however the case study hints that their credit lines may be exhausted, and banks are now looking for more ownership interest in the company in exchange for funding.