6.15. Case study.

Background

Valentino chocolates are made in Turin, Italy. They are recognised as luxury products with a delicious and unique taste. Some of Valentino’s finest chocolates are handmade and have won many international awards.

Expansion

The company started by selling raw chocolate to other chocolate manufacturers. These manufacturers then used it to make their own products. Later, Valentino began selling packaged chocolates directly to the public and created the Valentino brand.

The company expanded fast. It now has almost 300 employees, 75 company–owned shops, and a turnover of ₤90 million. However, in the last two years, sales growth has slowed down and costs have risen.

Reasons for falling profits

• Prices

There is widespread price cutting in the industry.

• Production

Factory machines break down.

• Demand

Demand for its Classic Bar is falling. Valentio’s new products, biscuits and cakes, are not selling well.

• Staff morale

Sales staff are becoming demotivated.

The future

The company’s owners want Valentino to become an international business. They believe it makes the finest chocolates in the world. This year they have set aside ₤1.5 million to invest in their company. Their problem is to decide how to spend the money so that the company will continue to expand. Recently, a well-known business journal did a profile of company. It ended as follows: Valentino can continue to grow, but only if it develops new products and finds new markets.

The ways in which Valentino could invest the ₤1.5 million are listed in the Chart.

Chart: Investment options

Option	Cost	Benefit
1 Extend the factory	500,000	Increase the factory’s capacity by 30%
2 Buy new machinery	200,000	End the delays by the old machines breaking down
3 Invest in research and development	200,000	Develop new products such as a low-fat chocolate drink, new biscuits/cakes
4 Buy out a local competitor	1.5 million	Reduce local competition
5 Establish a factory in the US	1.3 million	Manufacture chocolates in a major new market
6 Launch a marketing campaign	500,000	Increase sales of all products
7 Finance a market survey and research trips to the US	100,000	Assess the market potential for Valentino products. Contact agents
8 Invest in an existing group of cafes	500,000	Become a partner in cafes which sell and promote Valentino chocolates
9 Set up online sales	150,000	Increases sales and profits
10 Buy a new fleet of cars	500,000	Increases motivation of the sales staff

Task

You are a director of Valentino. Meet to discuss your investment plan.

1. Work in pairs. Decide how to spend the ₤1.5 million. Prepare a presentation of your investment plan with reasons for your choices.

2. Meet one group and present your ideas.

3. As one group, agree on a final investment plan.