Annandale

This is the case study: After several years of extremely profitable activity, decisions are needed on the future direction of Annandale Water Ltd. The company is located at Annandale, just north of Carlisle, inside the Scottish borders, where it has its own springs from which it takes its name and product. Its main product is exclusive, highly branded bottled water, Annandale Natural Mineral Water, which it bottles and sells in distinctive green bottles (still), and distinctive royal blue bottles (sparkling). It is sold as a luxury and exclusive item to the following main markets: – the weddings industry at Gretna, which is only six miles away, and which forms 40% of turnover; – two exclusive City of London catering companies, which use Annandale for their very top clients; this forms 25% of turnover; – direct sales from the bottling plant at Annandale, which accounts for 10% of turnover; – Harrods and Fortnum and Mason in London, which take the rest between them (25% of turnover) However, while turnover has risen at an average ten per cent per annum for the past five years, profit margins have sharply and suddenly declined. Last year, on a turnover of £30 million, profits were down to £700,000; the previous year, on turnover of £28.2 million, profits were exactly £2 million. This year is expected to be awful: the coronavirus crisis has led to a 90% drop in sales to the weddings industry, and the London catering companies have placed no orders since the lockdown in March 2020. The company employs eighty staff – 40 on bottling, packaging, quality assurance and the visitor centre; 25 on sales and client and customer liaison and support; and fifteen on transport. The company has a fleet of 10 x 40-ton articulated trucks; 15 smaller delivery vans, and 17 cars for speedy and responsive deliveries (see above). There is a board of six directors and a chief executive, and an administration and finance staff of five. All of the staff are based in Annandale. The company has recently called in consultants to study the problem. The consultants conducted a SWOT analysis, and their findings were as follows: • Strengths: Exclusive image, distinctive appearance, good reputation, reliable service, strong local market • Weaknesses: Transport costs to other markets, vagaries of the motorway network, problems with the railways, unpredictability of the passing trade • Opportunities: further promotions in Scottish markets, further inroads into other perceived exclusive outlets • Threats: Declining profit margins, clearly indicated increased distribution costs, competition from other bottlers, increased quality available at supermarkets, the coronavirus crisis In addition to this, one member of the team of consultants suggested going into supermarket supply as a way of extending the product reach. This suggestion was rejected out of hand by the board of directors because they did not want to destroy their exclusive image. However, this did at least lead to further considerations of what other lines the company could go into. Some of the suggestions that they came up with were: – diversification into the supply of other luxury goods, including shortbreads, cheeses, hams, and branded Scottish clothing – starting local home delivery services in the immediate area around Annandale and the Scottish borders – extending the bottled water range, to include a selection of ‘hints of’ products (ie: bottled water that has a ‘hint of’ orange, lemon, grapefruit, etc) – developing relations with tour operators to try and establish a more secure turnover base from visitors to the company – cutting costs through reducing the transport fleet and frequency of deliveries to London. At present the company makes three deliveries per week to London, and also operates a policy of ‘instant response’ to special requests from Harrods, Fortnum and Mason, and the catering companies. The company directors discuss these and other ideas at some length, without coming to any conclusions. They turn to you for advice. And these are the questions to answer and the marking guideline. 

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