Taming the Dragonswith a Song

The day after the show, Peter Jones used his contactsto introduce Levi and his product to buyers at Sainsbury’s. The result? Reggae Reggae Sauce hasturned into one of the fastest selling sauces in the UK.

What is the reason behind this success? The productrecipe? The cash from the investment by the Dragons?Or perhaps that Jones and Farleigh instantly recognised a great, marketable brand in Levi, hissong and his sauce. You could argue that it was aneasy investment to make.

Whilst Jones and Farleigh might have great ambitionsfor their investment, Levi seems less focused ongrowth. In an interview after the programme, he reflected on the experience and his aims for ReggaeReggae Sauce.

On appearing in the Den, Levi explained:“They looked at me like I was a madman. I don'tthink anyone has sung reggae music to thembefore. I thought they were going to get up andstart dancing."“I'm not in this to be the next Heinz ketchup. I justwant to bring the sweet, sweet flavour of reggaemusic to the world" he said.

Meet Levi Roots, the singer turned entrepreneur who slayed theBBC2’s Dragons in their den with a reggae tune that promotedhis business idea. Levi strolled into the Den with his guitar andstarted to sing about Reggae Reggae Sauce, a product ideabased on his grandmother's secret barbecue sauce.

Levi and his family have been selling Jerk Chickenand ribs using the recipe for several years at NottingHill Carnival. But they only started to sell the sauceitself at the 2006 event. They sold more than 4,000bottles, which inspired Levi to take seek investmentfrom the TV experts.

Levi entered the Den initially willing to give up only20 per cent of his business. Not all the Dragons wereimpressed. Duncan Bannatyne thought it wouldn'tmake much money, Deborah Meaden said it wouldmake just enough profit to provide a lifestyle business, and Theo Paphitis said that the ordersLevi already had meant that he didn't need the investment at all. So they all declared themselves out.

However, telecoms entrepreneur Peter Jones andAustralian private investor Richard Farleigh agreed to pay £25,000 each for a 20 per cent share. Thismeant that Levi had sold 40% of his business for

£50,000, valuing the whole business at£125,000. Since the programme,

Jones and Farleigh have both gotinvolved in helping Levi producehis business plan, and to findindustrial kitchens to enablehigher volume production ofthe sauce.

List three distribution channels that Levi could use to help growsales of Reggae Reggae Sauce.

Examine two alternative sources of finance that Levi could haveused to expand his business.

Discuss the main factors that will influence the long-term successof Levi’s company, Roots Reggae Reggae Ltd.

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Butlins Diversifies into Dance

“A week’s holiday for a week's wage” was the sloganthat first tempted millions of working class familiesto Butlins seaside holiday camps. The first resort inSkegness offered full board and free entertainmentfrom £85 in today's money. Two years later legislationgave every worker a right to a week's paid annual leave, and demand soared.

Today a week's wage goes much further. By the

1980s many low-income families could afford

overseas package holidays, and in the UK Butlins

faced competition from other holiday park operators

such as Haven and Center Parcs. By the end of the

1990s four Butlins resorts had shut and two more had

been taken over by a rival. The Butlins brand was tired.

In response, Butlins has diversified into new market

segments. In May 2007, Butlins in Minehead,

Somerset hosted 6,000 affluent twenty-somethings

enjoying the chalets, dodgems and crazy golf. Butlins

had entered the music-festival business by hosting

“All Tomorrow's Parties” (ATP), a regular event which

attracts obscure bands and famous fans. The

programme was similar to those at other festivals,

but the venue was unusual.

In October 2007, Bognor Regis will enjoy the beats

of the Balearics when the local Butlins hosts an Ibiza

reunion, giving clubbers the chance to relive the

excitement and experiences of the summer. Butlins

now holds about 50 adults-only weekends per year

across its three resorts, making up some 35% of its

turnover.

“We realised that, when the kids are not on

school holidays, we have all these magnificent

facilities just sitting there, doing nothing,” said

Richard Bates, the operations director of Butlins.

“Maybe a few years back, there would have been

Using the Butlins website (www.butlinsonline.co.uk), describe themain customer segments the company is targeting with its existingproduct range.

Examine one advantage and one disadvantage for Butlins fromattempting to diversify into new market segments.

To what extent do you agree that price is the most importantpart of the marketing mix for Butlins?Q

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a reluctance to get involved with new music for

fear it would deter from the traditional image

of family holidays. But now we’re really excited

about opportunities with other festivals.”

Barry Hogan, the founder of ATP, said that other

organisers could well follow his example.

“It’s snobbery to look down on Butlins. You can

share a chalet with your partner, rather than

50,000 people you don’t know in a field.”

Modern festival-goers are becoming more affluent

and less tolerant of medieval conditions. They don’t

like using a filthy Portaloo or watching their tent

washed away in a gale. Already, upgrading festival

accommodation is a booming business. Across 30

festivals in 2007 (including Glastonbury), revellers

can choose from a variety of accommodation,

including beach huts, brightly coloured plastic

“podpads”, and “bohemian bivouacs”.

Most Butlins features go down well with a newer

generation: beds, showers and flushing loos are all

luxuries on the festival circuit, and no other gig

boasts a tropical swimming pool. And at £120 it still

manages to undercut most other festivals where

ticket prices are often significantly higher.

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Pressure Groups Keep Mars Bars Veggie-Friendly

Masterfoods has been forced to abandon plans touse animal products in its chocolate bars after a shortbut effective campaign from vegetarians against themove.

The company had announced its decision to replacethe whey used in the manufacture of products suchas Mars, Twix, Snickers and Maltesers, with the enzymerennet, a cheaper substitute made from calves’ stomachs. At the time spokesman Paul Goalby said,“If a customer is a strict vegetarian, then we aresorry the products are no longer suitable, but aless strict vegetarian should enjoy our chocolate.”The company claimed that the decision had beentaken in order to broaden its supply base and ensure availability.

However, Masterfoods underestimated the responsefrom the move amongst the UK’s three million vegetarians. Within a week, Masterfoods had received over 6,000 letters of protest from angrychocoholics and a petition from 40 MPs, following a campaign by pressure group, the Vegetarian Society. Masterfoods responded by apologising tocustomers, admitting it had become “very clear, veryquickly” that it had made a mistake. According toFiona Dawson, managing director of Mars UK, thecompany had listened to customers and decided to reverse the decision.

“The consumer is our boss and we had lots offeedback from consumers who were unhappyabout the change,” she said.Dr Annette Pinner, chief executive of The VegetarianSociety, said that she was pleased that Masterfoodshad been “honest enough” to admit to its mistake.According to her, ”we are very pleased that theynow recognise the importance of integrity to alltheir customers, especially vegetarians.” However,Dr Pinner insisted that the Vegetarian Society would

Define what is meant by the term “pressure group”.

Analyse two alternative responses that Masterfoods could havemade to pressure from the Vegetarian Society.

Evaluate the importance of customer feedback to a businesslike Masterfoods.

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not endorse the decision to back down on thechanges until it had received “detailed assurances”about the ingredients and production processesthat the company would be using in future. Accordingto Masterfoods, it would change the recipe immediately for its four most popular bars and applythe reversal to the Minstrel brand at a later date.

A succession of animal-related food scares hasmade even non-vegetarian consumers increasinglysensitive about the source of the food they eat. InApril 2007, a set of guidelines for vegetarian andvegan products was released by the Food StandardsAgency, produced in collaboration with the VegetarianSociety. The guidelines are not legally enforceable,but are aimed at helping manufacturers to improveinformation provided on labelling. They are also designed to assist enforcement agencies identifyany misleading claims about products that contravenes relevant legislation.

© Copyright 2007 Tutor2u Limited

Is Innocent’s Halo Slipping?

Smoothie brand-leader Innocent Drinks has upset some of its loyal customers by signing a controversial deal to supply McDonald’s. In a six-month product trialfrom May 2007, Innocent will supply cartons of its children’s strawberry, raspberryand blackberry smoothies as a drinks option for McDonald’s Happy Meals, for anadditional mark-up of 20p per meal. A nationwide launch is expected if the response is favourable.

At first glance, the deal with McDonald’s does not

sit well with Innocent’s promotion of ethical issuesand focus on healthy lifestyles. Despite introducing

‘healthier’ choices such as carrot sticks and fresh

fruit bags, McDonald’s has struggled to shed its

unhealthy, ‘super size me’ image. Innocent, on the

other hand, has a carefully cultivated and cleverly

marketed ethical brand image, differentiating it

from competitors. It claims to provide a natural and

healthy product, donates 10 percent of its profits

to charity every year and is on target to use wholly

recycled bottles by June 2007.

However, it now stands accused of having a ‘tainted

brand’ and of ‘selling out”. Perhaps inevitably,

comparisons have been made with Green & Black’s

sale to Cadbury and L’Oreal’s takeover of The Body

Shop, as well as McDonald’s stake in food chain, Pret

a Manger. In Marketing Week’s Best Brand Performers

Index of 2007, McDonald’s came last of nearly 700

brands in terms of the public’s perceptions of quality.

By contrast, Innocent came second.

Richard Reed, co-founder of Innocent, explained that

the McDonald’s deal was a

commercial decision and insisted

that the company was not about

to compromise its ethical stance,

claiming “our principles aren’t for sale, but our smoothies are.”According to Innocent 72% of

regular customers felt the move

would be a positive step.

Identify three advantages to Innocent of a successful deal tosupply smoothies to McDonalds.

Examine the main implications for McDonalds of failing to adopta healthier image.

Discuss which should come first for a business like InnocentDrinks: sales growth or business ethics?

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The deal is seen as a major coup for McDonald’s,opening up the opportunity to boost its credentialsas an organisation concerned with social responsibility and the health of its customers. McDonald’s confirmed that Innocent’s smoothieswere chosen following market research involving15 alternative products.

Innocent has to weigh up the possible rewards of increased sales against the risk of a damaged brandimage. The company has been quick to defend themove, claiming that it fits in with its brand strategyof making its products available wherever kids like to eat. According to Innocent’s website, “…if there’sone thing we like doing is getting more fruit intopeople, especially kids. But, depressingly, morethan 90 per cent of kids in the UK do not gettheir recommended daily intake of fruit.”

The expansion of the smoothies’ distribution intosupermarkets such as Tesco’s supports the suggestionthat Innocent doesn’t mind where the product is sold,as long as it reaches its target market.

Cobra Beer - Brewing up a Global

Brand

Launching a premium priced product into a fiercely competitive market, dominatedby established brands, during a recession may sound like a strategy doomed tofailure. But Karan Bilimoria did exactly that in 1990, and has created one of themost successful, fast-growth businesses in Britain.

Explain what is meant by a ‘global brand’.

Examine two reasons why Cobra may have chosen to target a particular segment of the beer drinking market.

Cobra has used both market development and product developmentstrategies – evaluate which strategy is most likely to secure further growth for the company.

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analyst John Brand (Datamonitor), “it was a nichethat none of the big brewers had thought of”.Within a year of Cobra’s launch, it was being sold inover 100 Indian restaurants, a figure which has risento nearly 6,000. Rapid sales growth required a muchwider distribution network and the beer is now soldin 6,000 pubs, clubs and bars nationwide, major supermarkets and off-licences.

In September 2006, Cobra launched a £10m nationalTV advertising campaign in the UK, targeting ‘discerning 25 - 34 year old lager drinkers’ with thestrap-line, ‘Unusual Thing, Excellence’.

Much of Cobra’s success has been inspired by theBilimoria’s business philosophy. He successfullyovercame the initial problem of the beer being soldin larger than usual bottles by highlighting their authenticity and the benefits of sharing. In 1999,Cobra responded to the potential threat of an increasing number of wine drinkers in Indian restaurants (estimated at 35%) by creating its ownwine range.

According to Bilimoria; “throughout the journey ofbuilding a business, you are constantly convertingthreats into opportunities. You set yourself amission to capitalise on every opportunity.”

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Aged 27 and burdened with £20,000 of studentloans, Bilimoria launched Cobra beer in the UK (themost competitive beer market in the world) with noprior knowledge of the industry. However, fierce determination and a passionate belief in his productpaid off. Cobra beer now exports to 50 countries,with turnover of £96m in 2006. The award-winningbusiness has grown at a compound annual growthrate of 42% over the last decade.

Cobra was originally brewed in India, but productionwas switched to the UK in 1997 in order to resolvequality problems and reduce the amount of management time spent on organisation and administration. More recently, brewing of the beer hasbegun in Poland to supply demand in Europe. Cobrais now also being brewed under licence in India,where sales are growing strongly.

The idea to develop Cobra came from Bilimoria’s dissatisfaction with the existing beers available onthe market. His challenge was to use product innovation to develop a unique selling point in themarket. Bilimoria became convinced of the need todevelop a “smoother” and “less gassy” product thatcould be consumed alongside an Indian meal, withoutleaving diners feeling bloated. According to him, “Innovations come when you believe that youcan not only do something well, but when you

believe that you can change something –that you can change the market

place forever”.

Targeting the rapidly expanding Indian restaurant market in theUK proved to be shrewd initialstrategy. According to industry

A Stronger PoundMakes Business

Tough for Exports

The reason was unexpectedly high inflation figureswhich suggested UK interest rates might have to risefurther. Soon after, the base rate rose from 5.25% to5.5% in May 2007. In addition, the US economy isslowing down and the Federal Bank is expected to reduce interest rates during 2007, increasing pressurefor sterling to appreciate further.

With sterling at a $2 high, airline Virgin Atlantic reported 15% higher passenger numbers to the USAas consumers took advantage of cheaper shoppingtrips. In addition, UK airlines will also benefit fromcheaper fuel as oil is traded in US dollars. However, it is not all good news for UK airlines since, comparedwith US competitors, their fares are now more expensive. The number of US tourists to the UK isexpected to fall as the UK becomes relatively costlyin dollar terms.

The biggest losers from a higher pound will be thoseUK companies with significant sales to the US. Almost 60% of the sales of publisher Reed Elsevierare earned in the US. Pharmaceutical giant AstraZeneca generates half of its turnover in America.Firms like these must now find ways of maintainingtheir competitive edge in the US market. The impacton sales of the increase in the dollar price will dependon their price elasticity of demand. Firms couldtherefore try to reduce prices by squeezing theirmargins or differentiate themselves by the use ofbranding.

Sterling’s strength spells yet more trouble for exporting manufacturers in the UK. In March 2007the ONS reported that the external trade deficithad widened again to £4.5 billion. The importance of manufacturing in the UK has fallen over the lastdecade. In 1997 when Labour entered government,

Briefly explain why recent increases in UK interest rates havecaused the value of the pound to appreciate.

To what extent are the recent increases in interest rates bad newsfor businesses selling to UK consumers?

Using internet research, identify a business (other than those mentioned above) that has a significant proportion of its sales to theUS. Consider what action the business could take in response tothe stronger pound.Q

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April 2007 saw the value of the pound sterling rise to its highest levelagainst the US dollar since 1981 and break through the $2.0 mark.

there were 1 million more manufacturing jobs andthe sector accounted for 20% of national income.Today it accounts for only 15% of the economy.

Many UK manufacturers are responding to thechanging environment by making their productportfolios more complex in order to reduce pricesensitivity. Others are turning themselves into servicesector companies providing technical support andconsultancy.

One example is Babcock International Group Plc.Babcock once made heating boilers. Now the missionstatement of the business is to “deliver high qualitysupport services solutions through applying specialistknowledge, expertise and original thinking to thechallenges of public and private sector customers”

Of course importers from the US are benefitingfrom the strong level of sterling against the dollar.“Importmyvehicle.com” is an internet based firmbased in Milton Keynes which imports high qualitycars such as Mustang’s from the United States - agood example of a firm which will be hoping that thepound stays strong.

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Merger Mania Sweeps the Globe

Worldwide merger mania is reaching new heights. In 2007, over £1,000bn has beenspent on acquisitions, well ahead of the previous record in 2006. Now everyone islooking for the deal that will signal the peak of the boom. What the markets fearmost would be a repeat of the doomed £91 billion AOL-Time Warner merger in 2000.

Microsoft and Yahoo! are thought to be making

merger moves, as are News International and Dow

Jones. There is a fierce battle for control of Dutch

bank ABN AMRO. Thomson has made a £8.8bn

offer for Reuters, a competitor in the global financial

information business. And Rio Tinto is bidding for

BHP Billiton, its larger competitor, to create the

world's biggest mining company.

The merger frenzy is partly driven by soaring stockmarkets. The US market has hit new highs and

China's markets have surged upwards. World

interest rates have also been relatively low, so it has

become easier for companies to finance acquisitions

with debt rather than raising new equity (i.e. selling

shares).

Venture capitalists are heavily involved too, leading

a fifth of all takeovers. These firms mainly work by

borrowing money and snapping up other companies.

Their targets should meet just two criteria: they have

to be able to generate enough cash to pay the intereston the debt used buy them; and they have to cost

less than the total value of their assets. Closures of

head offices and mass redundancies often follow.

But research shows that most acquisitions fail to

bring the expected benefits. A worrying example is

the break-up of DaimlerChrysler. In 1998, Daimler

paid £18 billion for Chrysler. Now they have struck

a deal that has effectively paid Cerberus Capital

Management £335 million to take it off their hands.

Current merger mania is not quite like in the dotcomyears of the late nineties. No single industry is far

ahead of the rest, as telecoms and the internet were

Explain what is meant by the term ‘acquisition’.

Examine two reasons why a business might choose to grow externally rather than internally.

Acquisitions are often justified to investors based on the savingsthat can be made by combining two businesses. Consider whythese benefits may not occur in reality.

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back then. Excitement surrounds financial services,

metals and mining, power generation, property and

consumer goods. And whereas the deals in the

1990s were concentrated in America, this time they

are more evenly spread. In April 2007, twice as much

was spent in Europe as in the United States.

All this should worry shareholders. The biggest

concern is what might bring the party to an abrupt

end. A sharp economic slowdown in America? The

collapse of a giant buy-out? A sudden market panic?

A looming threat could be the collapse of a multi-

billion dollar deal. Such a failure might be a sign that

investors are nervous about lending money to finance

more debt-driven takeovers. And interest rates are

staring to rise.

But it hasn’t happened yet. The record amounts of

money raised by private-equity groups mean that

competition for bid targets is still pushing up prices.

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Having your cake and eating it?

The business world is abuzz with merger and acquisition (M&A) activity. All sectors of the marketare affected, from banks, retailers and even stockmarkets themselves.

This form of inorganic business growth can lead to significant benefits for a business but there arealso plenty of risks involved. Take, for example, oneof the bigger recent acquisitions – the £1.2 billion acquisition by Premier Foods of RHM. Although youmay not have heard of either company, each has aportfolio of well known products and brands. Premier Foods own Ambrosia, Branston, Quorn andOXO, whereas RHM are the company behind Hovis, Sharwoods and Mr Kipling.

So what inspired Premier Foods to part with such a large amount of cash? Horizontal integration hasa number of advantages;

1 Removing a competitor from the market - thishas obvious benefits in terms of market power,particularly in the face of growing purchasing power further down the supply chain in the form of the supermarkets.

2 Benefiting from various economies of scalewhich will enable the firm to reduce the averagecost of production.

3 By rationalising and removing duplicationof roles from the two firms, further cost savingscan be achieved – Premier Foods management aim for cost savings of around £85m per year.

4 Increased revenue resulting from the sale ofnewly acquired brands.

These factors combined should help to make PremierFoods more profitable. But will the returns be enoughto justify the investment made?

Integrating two firms is seldom straightforward. In thecase of Premier Foods, there was concern that Bistoand OXO would be owned by the same company,which might breach competition law. After reviewing

Explain the difference between horizontal and vertical integration.

Analyse the main benefits for Premier Foods from its takeover of RHM.

Evaluate the extent to which the main stakeholder groups arelikely to benefit from Premier Foods’ takeover of RHM.

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the case, the Office of Fair Trading concluded that,with the power of supermarket own brands and potential entrants to the market, this would not bethe case and did not refer the takeover to the Competition Commission.

There are also potential concerns from a public relations perspective. Some £10m of the £85m costsavings are expected to be achieved by closing theRHM head office, with a further £50m from savingsin manufacturing costs. The rationalisation of production capacity is likely to mean substantial redundancies and may create some negative publicityfor the firm.

In addition to these public relations concerns, seniormanagement at Premier Foods will need to deal with several internal problems such as confused communication channels, demotivation of staffand clashes of the business cultures which are allcommon side effects of takeovers.

By undertaking this form of integration, a business is attempting to benefit from synergies by creating a firm which is more successful than the combinedefforts of the two firms which created it. It remains to be seen whether Premier Foods will achieve this,but at least they’ll have a lot of cake to help themalong the way!

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