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Background
Litehouse, which was one of three major players nationally in the refrigerated
salad dressing marketplace, had been selling its dressings in glass jars. These
glass jars were an important component on how consumers perceive about the
Litehouse brand. Switching to plastic jars would save Litehouse $1.5 million/year
and allow it to narrow the price advantage opened up by adversaries. Doug
Hawkins Jr., the firms Senior Business Development Manager must now develop a
recommendation to the companys executive committee regarding the switch from
glass to plastic packaging based on the analysis on the impact on operations,
sales, supply chain and the consumer perception about the brand. Complicating
this choice were the environmental consequences of a switch from glass to plastic,
both real and perceived, as well as how this change would impact the recent
growth strategy of the firm.
Refrigerated Salad Dressing Market Scenario
In 2011, retail salad dressing was a $3billion market with a household penetration
of 95% and a growth rate of 3%. The market was further divided into shelf stable
and refrigerated salad dressing segment with 85% and 15% market share
respectively. Litehouse was ranked #3 and had 21% market share in the US, while
in Canada it was ranked #2. Company positioned itself as a premium brand, which
uses no preservatives, that is healthy and tasty.
Issues Faced
The recent aggressive effort to grow and expand its market had caused a cash
crunch in the firm which lead to decline in their short-term profitability. Two of
Litehouse Foods competitors had switched to plastic packaging which had helped
them realize a price advantage of $0.60. Litehouse was priced at $3.99 i.e., $0.60
or 15% higher than the competitors and as a result Litehouse witnessed some
customers defect. These factors forced the Litehouse team to make a quick
decision on whether to switch to plastic.
Impact on Supply Chain: Litehouse had positioned as a high quality, all natural
ingredients dressing. Over the years, the cost of these ingredients increased
coupled with fuel costs, as a result Litehouse was forced to increase the retail price
twice in the last year, while their competitor increased only once. Internal
estimates suggest that Litehouse could also save $1.5million/yr by switching from
13oz. glass to 12oz. plastic jar. $1million savings is due to the reduction in size of
the jar and $0.5million is savings from transportation cost due to the reduced
weight of plastic compared to glass.
Impact on Operations: The switch impacts the production process by increasing
the capital investment of equipment.
The three main investments are a
descrambler to handle the value sized plastic container, two induction sealing
system to apply the inner foil seal, additional shelving in the warehouse is needed
so that the full vertical space can be utilized (this is because the plastic jars are
less strong and hence can only be stacked upto 3 layers as opposed to 6 layers in
case of glass jars). However, the advantage of the switch on operations are use
of descrambler to load plastic jars increases the speed of the process and as a
result reduces cycle time, breakage during the process reduces as a result the risk
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