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Case Write-up Sunshine Foods Problem Sunshine Foods biggest problem is their declining profits. They also have had minimal growth and have high overhead costs, which are a large part of their declining profits. Causes Sunshine Foods has three major areas that need to be address in order to increase their profits. First, their motto: “As long as new products look like they will increase the company’s sales volume, they are introduced. ” This is causing the company to take on too many products that don’t increase their revenues. It spreads them to thin and makes them too generic.
Second, adding more products to use the unused areas of production. They need to do a cost analysis to see if using that unused production time has any cost/revenue benefit. Just because it is unused doesn’t mean that it will generate more money if it is used. Third, their contract states a grocer needs to carry at least 65 Sunshine Food items. This forces only large grocers to carry their items, which limits their market area. By limiting their market area to only large grocers they are unable to have price control and they are always competing against all of the other brands that the store carries.
Sunshine’s lack of growth is primarily caused by their lack of specialization. If they can and freeze everything and anything then a consumer doesn’t see them as being “the best” in any product. Their lack of expansion into smaller stores is also holding back their growth. High overhead costs are created by Sunshine’s need to use every second of factory time. This is causing them to spend too much to create a product that returns very little. If their factories have that much unused time they should just close a few factories and focus on what is really important.
Recommendations I would recommend that they first do a cost analysis on the products that they are producing. This will allow them to see which products sell the most and create the highest return. Once they know this information they need to produce more of those items and stop producing the items that aren’t helping their bottom line. Along with this, they will be able to identify which factories are the most efficient at producing those items. They can then close the slower factories and use the money to make the remaining factories more efficient.
I would then have them change their contract to a much smaller number of items for stores to carry. If they lower their number to 25 items then they could sell items in more boutique shops that will have lower competition and higher prices. To really increase their profits they should pick a few “specialty” items and market themselves as having the best in those items. This will help them create more of a brand name, especially if they sell those items in the boutique shops.