AQA A2
Business Studies
BUSS3 - Strategies
for Success
Revision Workshop
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Moments Group was formed after the merger in 2010 of two large retailers – Occasions Cards plc
and Downtons plc. The share prices of these two had fallen sharply since 2008 and shareholders
were happy to accept a merger deal which was financed by a large US venture capital firm (Premier
Capital).
Moments Group is now a private limited company, with the majority of shares held by Premier Capital.
The remaining shares are held by the management team and by thousands of staff who have joined
an employee share ownership trust.
After the merger, Moments Group has two separate business divisions, with overall control
provided by a small central team:
Division
Business Activities
The largest mass-market retailer of greetings cards and related gift
products in the UK with over 600 stores in prime locations in high streets
and shopping centres.
The market leading specialist retailer of chocolates and related gift
products in the UK, operating from around 600 stores and concessions.
Downtons is also a major manufacturer of chocolate products with two
factories in Northampton and Cardiff.
Moments Group is chaired on a non-executive basis by Tony Delaney (72), the founder of Occasions
Cards - Premier Capital insisted on the recruitment of a new CEO. Max Webb was appointed Group
CEO in early 2011. Max was previously the Marketing Director of Premier Foods, a leading manufacturer
of well-loved branded grocery products including Hovis & Mr Kipling.
Strategic review and the Transformation Plan
For Premier Capital, their main objective is to achieve significant efficiency savings from the merger
as well as re-establish the group on a growth path after a period of stagnating sales and sharp falls in
profitability. They will seek to sell the business in 3-5 years’ time.
Following his appointment, Max has conducted an in-depth review of the strategic positions of the
two divisions, both of which have struggled in the face of sharp decline in UK consumer confidence
and intense competition.
A key challenge for Max is to identify strategies to improve the competitiveness of the two businesses
which have quite distinct cultures and business models.
2 AQA A2 BUSS3 Revision Workshop
Whilst both Occasions Cards and Downtons are market leaders, they have
suffered like other retailers from being “mass-market specialists”. Although
the two brands trade from locations covering almost all the UK, customers
have much greater choice these days. They can pick up birthday cards at
Tesco, buy gift chocolates from Sainsbury’s or order personalised gifts on
demand from many online providers such as Moonpig.
As one of the largest multi-site retailers in the UK with a combined portfolio of
over 1,200 outlets, the group needs effective workforce planning, particularly
since both businesses have high fixed costs (store rents and staff costs). The
economic downturn has hit many poorer-performing stores, taking the worst
below their breakeven point.
In the face of declining profit margins, Max sees the merger as an opportunity to
restructure the organisational structures of the group. He sees the model used
by Downtons as being the better approach.
Downtons has adopted a decentralised approach to retail management and almost
half their outlets are now run by franchisees. Downtons culture of treating shops as
profit centres, long-term investment in training and customer service is also something
that Max would like to replicate across the group.
Max believes that the best approach for the group is to focus on core activities which
allow shop staff to focus on engaging with customers. He has identified opportunities
to rationalise the manufacturing capacity of Downtons and also to outsource central
warehousing and distribution.
Max also believes that both brands need to be revitalised. His previous experience
at Hovis, where he masterminded the hugely successful £15m TV advertising
re-launch in 2008, is behind his proposal to invest in and reposition each brand
as a retailer of premium and innovative gift products. He proposes a significant
increase in the marketing budget together with greater investment in new
product development.
Max also wants to reposition the business as a major player by diversifying into
the online market for gifts. An internal project team has developed a plan for
the launch of Moments Direct – a new online portal for personalised gifts
which requires an investment of £10 million.
In his presentation to the Board and Premier Capital, Max has identified the
key elements of what he has described as a Transformation Plan which is
intended to provide a series of clear strategies for long-term success.
A summary of the plan is provided overleaf.
www.tutor2u.net 3
Overall aims for the business:
•
•
•
•
A diversified organisation with higher profit quality
Revitalised premium brands and product ranges with stronger growth potential
An empowered workforce that delivers outstanding customer service
A flexible and efficient operation
Key challenges facing the Group:
• Both brands operate in mature mass markets facing strong competition
• Retail stores are spread across many different types of location, ranging from mega malls
to factory outlets, cafes and high street stores
• Customer shopping behaviour has changed significantly in the last decade
• The major grocery supermarkets have grown their share significantly in both markets
• Online specialists have taken a large share of the gift personalisation market segment
• The business is too seasonal (Easter, Christmas, Mothers’ Day and Valentine’s Day)
• Rising input costs placing sustained pressure on profit margins
• High fixed costs from current organisational structure
• Staff morale in poor-performing stores is deteriorating as trading worsens
Proposed elements of the Transformation Plan:
Close 500 owned stores over the next 4 years &
replace with franchises
Reposition Occasions and Downtons brands with
major advertising campaign & investment in new
product development
Launch Moments Direct - online gift purchasing
and personalisation
Outsourcing warehousing and distribution
Consolidate factory production (Downtons) into
one location
Total
4 AQA A2 BUSS3 Revision Workshop
Estimated Cost
£m
Annual Benefit
£m
10
5
28
15
10
5
4
8
2
3
60
30
Statistical Appendices
Appendix A: Organisational Data
Tony Delaney
Chairman
Max Webb
CEO
Sonia Sinfield
Group Finance
Zoe JonesBishop
Group Marketing
Fiona Peacock
Brandon Burrow
Matt McGuire
Group HRM
Occasions Cards
MD
Downtons MD
Occasions Cards
Levels of hierarchy
6
Organisational structure
Centralised
Labour turnover
26%
Employees that belong to a trade union
5%
Average span of control
4
Temp staff as % of permanent
30%
Average store manager pay
£25,690
Downtons
3
Decentralised
9%
55%
8
16%
£30,145
Industry Avg
4
n/a
18%
13%
6
15%
£28,162
Appendix B: Marketing Data
UK market growth rate (retail) 2006-2010 p.a.
% of revenues from new products
Annual marketing budget
Market share (existing market)
Main competitors
Occasions Cards
-2%
4%
£2million
15%
Downtons
1%
11%
£5million
6%
Card Factory,
WH Smith, Tesco,
Sainsbury’s,
Moonpig.com
Cadbury, Hotel
Chocolat, Lindt,
Ferrero Rocher,
Green & Blacks
www.tutor2u.net 5
Appendix C: Financial Data
£millions
Occasions Cards
Revenue (Turnover)
Operating profit / loss
Number of stores - owned
Number of stores - franchisees
2007
426
25.4
700
0
Average performance 2006-2010
Return on capital employed
Acid test
Stock turnover
2010
400
-2.5
615
0
Downtons
2007
245
10.4
405
170
UK retail average Occasions Cards
26%
32%
0.8
0.4
25
16
2010
215
3.0
380
225
Downtons
24%
0.9
21
Appendix D: Investment Data for Transformation Plan
Data in £m
Year
1
2
3
4
Cash inflow
5.0
25.0
30.0
30.0
Cash outflow
50.00
10.00
10% discount
factors:
Year 1: 0.91
Year 2: 0.83
Year 3: 0.75
Occasions Cards
1%
560
10,300
0.5%
n/a
Downtons
4%
13
160
5.8%
78%
Appendix E: Operations Data
% of revenue spent on new product development
Number of suppliers
Number of product lines
Proportion of online sales
Factory capacity utilisation
6 AQA A2 BUSS3 Revision Workshop