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Cool Moose Creamery Case Solution

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ADMN-3056: Economic and Management Decision Making

Cool Moose Creamery

Case Assignment #1

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February 11, 2018


  1. Overview

  • Organization: Cool Moose Creamery
  • Industry:        Ice Cream Industry
  • Issue:        1. Introduction of a new product

2. Single head vs. triple head soft serve ice cream machine

3. Career feasibility

  • Role:        Advisor – analyze if the benefits of adding soft-serve ice cream product will outweigh the investment, time and effort required to add the single or triple head machines.
  • Audience:        Greg Perantinos (Coole Moose Creamery Owner)
  1. Situational Analysis

  1. Mission

  • To help the community, make customers smile and inspire employees
  1. Vision

  • To continue grow the business and open a new store in Cookstown, ON
  1. Value Proposition

  • Lower price compared to Dairy Queen
  1. Goals/Targets

  • Short Term: Expanding the product line by adding a soft-serve ice cream product
  • Long Term: Continue to grow the business and open a new location to Cookstown, ON.
  1. Constraints

  • Required to meet current interest payments
  1. Key Stakeholders Preferences

  • Greg Perantinos (Cool Moose Creamery Owner)
  1. Key Success Factors (Industry)

  • Maintain cleanliness of the machine
  • Keep prices below competitors
  • Maintain exceptional customer service
  1. Key Risk Factors (Industry)

  • Health and sanitary concerns
  1. Current Financial Information

  • Sales growth if 233% over fiscal year in 2008
  • Current business is profitable; however, it is uncertain if it can provide a full-time income.
  • Bank is willing to extend Cool Moose a loan of up to $12,000 to purchase the desired machine at annual interest rate of 7%.
  1. SWOT Analysis

  1. Strengths (Internal)

  • Found the niche as the only scooped ice cream parlor in the area
  • Strategic locations - being in the heart of downtown
  • Values instilled into the employees and high level of customer service provided by the business has helped developed a customer base and established brand recognition.
  • Low level of competition
  • Seasonality aligning with school
  1. Weaknesses (Internal)

  • Relatively new company
  • Young and inexperienced owner
  • Limited capital
  1. Opportunities (External)

  • Adding soft serve to the product line
  • Expanding to new locations
  • Little direct competition in scooped ice cream
  • Low price point
  1. Threats (External)

  • Relatively low barriers to entry
  • Available financing for growth
  • Soft-serve ice cream competitor (Dairy Queen)
  • Favourable lease term
  1. Michael Porter’s Five Forces Model (Industry Analysis)

  1. Threat of New Entrant

  • Very low or non-existent - no foreseeable threat of new entrant
  1. Bargaining Powers of Suppliers

  • Very low or non-existent – multiple suppliers. Soft-served ice cream mix bag is estimated to be only $0.25 per serving which is very low, this can be an indication of a perfect competition (no monopoly or oligopoly).
  1. Bargaining Powers of Buyers

  • Medium to high – Dairy Queen and McDonalds are substitutes for sor-serve ice cream. Customers can easily go to those two locations.
  1. Threat of Substitutes

  • Store bought substitutes are much cheaper and high in availability.
  1. Rivalry of Existing Firms

  • Dairy Queen is a direct competitor. It is an established business with 5,900 restaurants in 22 different countries. It is also the only other ice cream parlor in Alliston and became the destination for little league teams celebrating a victory, business professionals taking their lunch break and families taking time out to enjoy fast food and a variety of soft-serve ice cream products.
  1. Issue

Effects of Adding a Soft-Serve Machine

Pros:

  • Increase market share
  • Increase in sales which can lead to higher gross margins and net income
  • Increase in variety of products (3 head increases flavour options)
  • Increased competitive advantage

Cons:

  • Cannibalize scooped ice cream sales
  • Investment cost
  • Direct competition with Dairy Queen
  • Health and safety concerns
  • Increased cost of operation (i.e. increased labour cost for cleaning etc.)
  1. Alternatives (Pros and Cons)

  1. Qualitative Analysis

Single Head Machine

Pros

Cons

  • Lower capital cost
  • Less financial risk if unsuccessful
  • Easier cleaning
  • Used
  • High potential repair cost
  • 3-year useful life

Triple Head Machine

Pros

Cons

  • Multiple flavours (vanilla and chocolate)
  • Warranty
  • Long useful life (7 years)
  • Large capital cost
  • Investment risk
  • Maintenance (cleaning)

Status Quo (Do Nothing)

Pros

Cons

  • Least risky
  • Limit ability to expand
  • Reflects missed opportunity
  • Could be left behind by the competition
  • Low competitive advantage

  1. Quantitative Analysis

  1. Cash Flow Analysis

        [pic 1]

  1. Investment Cost Analysis

[pic 2]

  1. Analysis Summary

[pic 3]

  1. Recommendation

Recommend the purchase of single-head machine because of the following:

  • ROI is 96%
  • Short payback period
  • Short-term investment
  • Test market for soft serve
  • Low initial investment
  1. Implementation

  1. Purchase 1 head used soft serve machine
  2. Have delivered and train staff
  3. Introduce product with start of season
  4. At year end, measure projected sale vs actual sales
  • If projected sales meet or exceed expectation, add it on the other location (Tottnham, ON)
  • If projected sale of having soft serve in all location is less than what is expected for full time income, sell the business.

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