Blue Ribbon Case Study

Case study Bleu riBBon CHoColates: How Can small Businesses aDaPt to a CHanGinG environment? Dawn r.

Deeter-schmelz, rosemary P. ramsey, and Jule B. Gassenheimer Bleu Ribbon Chocolates is a small regional manufacturer of high-quality chocolate that sells its products via trade accounts, corporate-owned stores, and online/mail. Historically, the company has not engaged in strategic planning, as demand was greater than manufacturing capabilities. The trend toward healthier foods and the poor economy, however, has hurt sales. The owners must determine their new strategic direction.

Should they change the product line, in-source manufacturing, reduce the number of companyowned stores, increase sales to retail outlets, lay off workers, or hope the health craze ends soon and the economy turns around? Bleu Ribbon Chocolates, a small manufacturer well-known in the Midwest for producing and retailing high-quality chocolates, was at a crossroads. Historically, Bleu Ribbon Chocolates has not engaged in strategic planning. Management saw no need; everything had been going fine. In the past, demand always had been greater than what the company could produce, and geographic expansion was ot a goal. Unfortunately, by 2010, the external environment had changed significantly, and the current owners of Bleu Ribbon Chocolates found they needed to determine a new strategic direction. Today, more consumers prefer healthy food products.

In fact, organic products comprise 8 percent of the confectionary market (Vreeland 2009). The U. S. economy had stalled. With demand for Bleu Ribbon Chocolates trending down, the company must react appropriately.

Key members of the company have reviewed several possible alternatives. Should the product line be changed? Should the company in-source manufacturing for ther producers?

Should Bleu Ribbon Chocolates reduce the Dawn r. Deeter-schmelz (Ph. D. , University of South Florida), John J. Vanier Distinguished Chair in Relational Selling and Marketing, Kansas State University, Manhattan, KS, ddeeter@kstate.

edu. rosemary P. ramsey (Ph. D. , University of Cincinnati), Professor of Marketing, Raj Soin College of Business, Wright State University, Dayton, OH, rosemary. ramsey@wright.

edu. Jule B. Gassenheimer (Ph. D. , University of Alabama), Professor of Marketing, Crummer School of Business, Rollins College, Winter Park, FL, jgassenheimer@rollins. edu.

umber of company-owned stores and/or increase sales to retail outlets? Should workers be laid off, or should management reduce worker hours? Or should the company do nothing, in the hope that the health craze ends soon and the economy turns around?

Appropriate answers must be found if Bleu Ribbon Chocolates is to continue its long history of success. History of Bleu riBBon CHoColates As a young woman, Mrs. Bleu developed a passion for making candy. It all began in her home economics class while she was in high school. This passion continued into adulthood, when Mrs. Bleu began making chocolates for her riends and family in the 1930s.

The quality and taste were so fantastic that her fans recommended she start selling the chocolate candies. The rest, as they say, is history. Mrs. Bleu began making chocolates and selling them from her home. Positive word of mouth spread, which led to consistent sales to department stores and other businesses. As demand grew, Mrs.

Bleu could no longer make the candies in her kitchen. Eventually, she purchased a larger facility to use for manufacturing and retail sales. Growth occurred slowly, but through perseverance and passion, Bleu Ribbon Chocolates became a local landmark.

This case was written solely for the purposes of classroom discussion and not to illustrate effective or ineffective marketing decision making. Although based on real events, the company name and certain operating data are disguised. Marketing Education Review, vol.

21, no. 2 (summer 2011), pp. 177–182. © 2011 Society for Marketing Advances. All rights reserved. ISSN 1052-8008 / 2011 $9.

50 + 0. 00. DOI 10. 2753/MER1052-8008210207 178 Marketing Education Review Although the business was growing, Mrs. Bleu stayed focused on the quality of the product.

The key to quality, in her mind, was the ingredients.

She strongly believed that the use of all-natural chocolate, cream, and butter made the difference in her chocolates, so only the finest ingredients were used. Preservatives were not added to the candies, thereby enhancing the high-quality taste. To control the quality, candies were made at the single manufacturing location. Candies were made by hand, the old-fashioned way, and packaged in a distinctive silver box with a blue ribbon in a bow.

The silver box with a blue-ribbon bow became a well-recognized symbol of Bleu Ribbon Chocolates and the quality candies they produced; indeed, the box became ynonymous with the brand.

Mrs. Bleu ran her business until the 1970s, when she decided to move to Florida with her ailing husband. She sold the business to a group of local businessmen. The new owners were committed to retaining the quality and brand reputation that Mrs. Bleu had established throughout her long career.

As revenue fluctuated over the past several years, gross profits consistently declined while costs increased. Revenue and profit had remained relatively stable, although in 2010 (see Table 1), costs increased, revenue fell somewhat, and gross profit decreased. Through this turbulent time, Bleu

Ribbon has vowed not to increase its prices to customers. Bleu Ribbon has always been perceived as quality product at a reasonable price. tHe Culture of tHe orGanization Mrs.

Bleu’s passion for quality drove the culture of the organization. In the early days, new employees worked directly for Mrs. Bleu and developed a keen understanding of her desire for quality. Moreover, these employees felt like they were a part of Mrs. Bleu’s family. Employees with a sick child, for example, were told to take care of family first; the company would be there when things were okay at home.

This family-friendly atmosphere, combined ith high standards, led employees to take great pride in working for Mrs. Bleu and in producing and distributing high-quality, great-tasting chocolates. Even today, the legend of Mrs. Bleu plays a key role in the company. Current employees understand what Mrs. Bleu stood for and how her standards have continued to drive the company.

As noted by one employee, “Mrs. Bleu was a very hard worker. She had very high standards and expectations from her workers. If the candy wasn’t good, if it wasn’t made perfect and she didn’t like it, it didn’t go into the box. ” Another employee mentioned “Mrs.

Bleu’s rules”; in other words, Mrs.

Bleu’s standards are followed at all times. For example, Mrs. Bleu liked candy boxes to be full. Many of the employees who had worked for Mrs. Bleu for years continued under the new owners; in fact, some of the employees working in the kitchen today used to work with Mrs.

Bleu, having been with the firm for 30 years or more. These long-term employees try to teach “Mrs. Bleu’s rules” to the new employees. This continuity of the workforce has helped to maintain the Bleu Ribbon family culture; employees care deeply for one another and for the quality product they produced. unninG tHe orGanization By 2010, the business had grown from its original manufacturing facility and single retail store to six corporateowned stores in a metropolitan area. One of the original businessmen who purchased the company from Mrs.

Bleu remains the owner of Bleu Ribbon Chocolates. An assistant to the owner handles secretarial duties and invoice entry. An office manager handles marketing activities, including handling new wholesale accounts and the Web site, as well as all accounting duties. The head of the mailroom handles all incoming phone calls and assists with setting prices for products.

Finally, a manager of wholesale operations oversees production and distribution to retail stores (including non-company-owned retailers).

Because the firm is small, overlapping of duties seems to occur, with employees stepping up whenever needed. The overall structure of the company is shown in Figure 1. In addition to the aforementioned employees, a relatively small sales force is in place. Three of the salespeople are route drivers who deliver the chocolates candies to over 100 grocery trade accounts. In addition to delivering the chocolates and setting up in-store displays at over 100 rocery trade accounts, these route drivers try to identify new opportunities for account expansion, as time permits.

The route drivers report directly to the manager of wholesale operations. Currently, Bleu Ribbon products can be purchased at major grocery stores such as Kroger and Meijer, smaller local grocery stores, gift shops, drugstores, and various other small retail establishments, in addition to their own stores. Another salesperson is responsible for corporate sales. Her responsibilities include attempting to secure larger orders from corporations, as well as bringing in new accounts.

This includes corporations purchasing candy for Summer 2011 179 Table 1 Profit Statement for Industry—Similar Size Companies 2009 Bleu Ribbon Total revenue Gross profit Selling, general, and administrative expenses Company 2 (Different Area of the United States) Total revenue Gross profit Selling, general, and administrative expenses Company 3 (Different Area of the United States) Total revenue Gross profit Selling, general, and administrative expenses 2008 2007 2006 2005 1,972,568 324,673 280,798 2,206,342 331,899 278,480 1,202,593 372,803 315,130 1,165,943 408,079 320,097 ,214,689 425,116 330,571 998,668 359,664 207,521 992,043 323,567 190,505 995,442 336,546 195,642 1,002,280 377,120 202,064 982,162 381,460 195,223 1,551,553 388,743 264,912 1,412,163 306,339 255,486 1,408,891 307,242 294,514 1,927,351 386,214 301,978 1,358,897 304,873 306,084 figure 1 Bleu ribbon

Chocolates organizational Chart gift-giving purposes. She also sells custom-made products to area organizations, such as logo-embossed chocolate bars to local schools.

The corporate salesperson reports directly to the office manager. Sales personnel have their own accounts and territories; ll sales are noncontractual. Repeat business is based on the quality of product, service, and a trusting relationship. A handshake has been all that was ever needed to seal the deal. Although previously Bleu Ribbon has not engaged in any social network marketing, a Web site was established along with catalogs for the convenience of both corporate and mail-order customers.

Calls for mail orders, the cata- logs, Internet orders, and other general questions come through the mailroom. These calls might include problems experienced on the Internet site as well as requests for order tracking.

The mailroom also handles sales to smaller retailers who do not qualify for a wholesale account, such as smaller flower shops and pharmacies. Promotional activities tend to be seasonal in nature. Radio and cable television commercials have been utilized during the holidays; usually, ads run two weeks before Christmas and Easter, seven to ten days before Valentine’s Day, and one week before Sweetest Day.

A trade journal ad and billboards also have been used occasionally. Cable television has also been used because rates are lower than in other media. 180 Marketing Education Review

Table 2 New Product Launches in the United States 2005 Chocolate confectionary Major subcategories Individually wrapped Mixed assortment Seasonal chocolate Toffees, caramels, and nougat 2006 2007 2008 2009 1,325 1,221 1,481 1,516 1,576 260 12 302 52 212 19 234 108 225 60 398 98 212 25 580 66 208 18 472 102 Source: “Recession Slows Down Product Launches,” Candy Industry, October, p. 10; available at www. candyindustry.

com. Although Bleu Ribbon had been convinced to establish a Web presence for the convenience of their customers, management still chose to monitor the production and nventory process using a paper tracking system. There seemed to be no need for anything else in that projections and planning were like second nature.

The manager of wholesale operations, who has been with the firm for many years, knows from experience whether inventory was low on a certain product or how to react if something changed. And if something did not seem right, he researched the issue in the pencil-and-paper archives.

makinG a Quality ProDuCt During a typical day, over two tons of pure chocolate are used to make candy. The process begins by melting the chocolate and pumping it into stainless steel vats. The hocolate is kept at a steady temperature, in a process known as tempering. This process affects the look and longevity of the chocolate. Then, the chocolate is pumped into a piece of equipment that applies it to candy centers.

These candy centers are based on a secret family recipe developed by Mrs. Bleu.

When she first started the company, candy centers were cut by hand and placed on a conveyor belt, a process that was very time consuming and labor intensive. The new owners purchased extruding equipment that eliminated the need for hand-cutting the centers. Candy centers are coated with chocolate on a refrigerated onveyor belt, with different pieces of equipment covering the bottom, top, and sides of the candy with chocolate.

Completely coated candies then move to a cooling area; in this area, the temperature of the chocolate candies is lowered, a necessary step for storage. After the candy centers are coated with chocolate, they undergo a process called “stringing,” or putting a distinctive design on top of the chocolate candies. In Mrs. Bleu’s day, stringing was completed by hand. Today, however, much of the stringing is done by machine, although some Bleu Ribbon candies still undergo a hand-stringing process.

Likewise, some candies are still rolled by hand, as the current owner feels the taste is compromised when those particular candy centers are mixed by machine. Once the chocolate candies are complete, they move to packaging, to be packed in the distinctive silver box with hand-tied blue-ribbon bow. Each box of candy is packed by hand, as individual candies vary in size. Bleu Ribbon Chocolates uses this process as a final quality check. The yearly life cycle of the chocolate candies is seasonal, with peak production beginning in September and slowing after Mother’s Day.

In fact, the majority of boxed candy sales are between September to mid-October, and then Christmas.

Loyal employees are provided with the opportunity to work overtime; this eliminates the need to hire part-timers with little or no candy-making experience. The same employees are maintained at the manufacturing facility, with full-time and seasonal employees working at the other five corporate stores. Most employees have the summer off with a guaranteed job again in the fall. In the past, the company has engaged in “in-sourcing,” that is, manufacturing candies for other firms.

These insourced products are packaged under the private labels of those firms.

At times, this business had been quite lucrative. At present, however, only a few accounts remain in this private-label business, primarily because no one was assigned this responsibility for those accounts. Although Bleu Ribbon’s stores sell the entire line of 200 products, including packages for holiday such as Christmas, Easter, and Valentine, only a limited line of products are available in the major grocery stores and independently run retail stores. Bleu Ribbon chose not to introduce new roducts into the marketplace, in spite of the fact that many large manufacturers were doing so (see Table 2). Bleu Ribbon also has thousands of individual buyers who have access to the entire product line through cata-

Summer 2011 181 Table 3 Prices for Online Products Company Bleu Ribbon Perugina Ghirardelli Godiva Item Price 18 oz.

Light & Dark Assorted Chocolates (20 pieces) 18 oz. Light & Dark Cherries 32 oz. Light Assorted Chocolates (40 pieces) 32 oz. Dark Assorted Chocolates 14. 1 oz.

Assorted (28 pieces) 10. 5 oz. Assorted (21 pieces) Masterpiece Collection (16 pieces) Dark Chocolate Collection (16 pieces) 2 piece Light Chocolate Assortment 8 piece Assorted Chocolates 19 piece Assorted with Gold Ribbon $12. 30 $13. 40 $22.

65 $22. 65 $14. 99 $11. 49 $15. 00 $16.

00 $32. 00 $14. 00 $25. 00 Source: Pricing information obtained from company Web sites (www. peruginachocolate.

com, www. ghirardelli. com, and www. godiva. com) and through personal phone calls. logs and the Web site.

In fact, some customers who have moved away from the area frequently purchased chocolates through these nonstore channels. Shipping, however, can be a problem in warmer weather due to possible melting of the product.

If Bleu Ribbon cannot assure the quality of its products, it prefers to decline the sale. This assurance of quality has paid off. Many corporate buyers purchase 32-ounce boxes of Bleu Ribbon Chocolates as gifts to employees and clients, and often become satisfied repeat customers. Buying, giving, and consuming Bleu Ribbon Chocolates has become a tradition, and special occasions become fond memories.

One employee indicated receiving phone calls from customers who would say, “We’ve had Bleu Ribbon Chocolates since I was a little kid. . . . We had this at Christmastime, and we need it for our Christmas now! These customers were willing to pay the expensive next-day air shipping rate just to have Bleu Ribbon Chocolates on the table for the holiday season.

For many consumers, Bleu Ribbon Chocolates had become a family tradition passed on from one generation to the next. Others were just discovering Bleu Ribbon Chocolates.

As one customer wrote: “I was introduced to your chocolates about a year ago after receiving a box as a Mother’s Day gift from my daughter-in-law. I have always bought the best chocolates . . .

usually Godiva’s, etc. I also have a friend who is from Belgium and brings me chocolates . . . ut, I must say .

. . I believe your chocolates are the best I have ever eaten. ” Even though Bleu Ribbon has loyal customers, it has never completed any marketing research to identify these consumers. It had nothing but a “guestimation” as to the profile of its consumers. While research about the chocolate industry suggested that the typical purchaser of chocolates is female, with the exception of Valentine’s Day and Sweetest Day (Baker 2009), Bleu Ribbon is not convinced that this is true about its customers.

Loyal customers consider Bleu Ribbon a premium chocolate, and the quality is part of the brand.

Bleu Ribbon tries to keep prices constant, even though its costs have continued to rise. Its prices are lower than those of its main competitors, such as Godiva and Ghirardelli (see Table 3). a Dilemma for Bleu riBBon CHoColates Although Bleu Ribbon had chosen not to focus on revenue growth or geographical expansion, it did not expect to encounter unforeseen problems, especially from the external environment. Bleu Ribbon candy has always been made with the finest natural ingredients (butter, chocolate, sugars, nuts, etc.

), with no preservatives or additives. However, the cost of ingredients continues to rise.

The cost of cocoa, sugar, and nuts has recently increased by more than 10 percent (“Hershey Plans a Steep Increase in Prices” 2008). The well-recognized silver box and blue ribbon conveyed quality. In 2010, however, consumers were beginning to reduce their consumption of candy in exchange for healthier products. In addition, the economy went into a steep recession, so both individuals and corporations were reducing their spending and purchasing fewer and smaller boxes.

The company had already cut back on its manufacturing hours during normal times from 40 hours to 32 hours, and overtime had also declined during peak periods.

It seemed like only yesterday that Bleu Ribbon was producing 10,000 pounds 182 Marketing Education Review of chocolates every day, and even that amount could not satisfy demand. Now demand required it to produce only 8,000 pounds a day, and employees were working reduced shifts in order to avoid layoffs. Competitive pressures were also increasing. Large manufacturers such as Hershey’s and Nestle had been acquiring smaller companies.

Moreover, the large manufacturers had been accused by their major retailers of conspiring to fix prices. The environment was changing quickly. The owners were faced with a serious ilemma. How could they keep the business operating profitably at capacity with the significant reduction in demand while still keeping their full staff employed?

Questions for DisCussion 1. Should Bleu Ribbon go about changing the corporate culture from one of informal processes to a focus on strategic planning? Would this cultural change destroy the company’s soul? 2.

Should Bleu Ribbon consider (1) expanding its product line to include other types of confections, (2) expanding their territory, or (3) introducing complementary products? 3. Should the product line for wholesale accounts be xpanded beyond the 15 to 20 products now carried? Bleu Ribbon stores carry all 200+ products, including seasonal products. Would it be to Bleu Ribbon’s advantage to expand the line to wholesale accounts (other retailers), or would that cannibalize its own sales? 4. Should the current owners of Bleu Ribbon ensure that they are keeping up with the trends in the marketplace (e. g. , psychosocial, political, environmental)? When the economy recovers, will the firm be back to “normal” so that changes are not really warranted? 5.

There is little to no effort to gain new retailers, and only one person calling on corporate accounts.

Should Bleu Ribbon increase the number of business-to-business customers? If so, what strategy would you recommend? Should it engage in additional marketing activities to increase the number of end users? 6. Currently Bleu Ribbon is operating its manufacturing facilities 32 hours a week. The rest of the time the equipment sits idle. How could this “idle” time be reduced? Would you recommend that it expand its “in-source” manufacturing from other companies? 7. The quality of the product is well established, and the brand equity is very high.

Even the silver-embossed foil packaging is well recognized as Bleu Ribbon.

Should Bleu Ribbon decrease costs (probably by cutting quality), or can it increase prices? Currently, the prices are below those of other premium chocolate producers (e. g. , Godiva, Ghirardelli, Perugina). Instructors may obtain the “Teaching Notes” for this case by contacting the Editor or Case Editors of Marketing Education Review.