Strategic management

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    Strategic management

     

    Case Study
    Sweet spreads manufacturer faces a sticky future
    Hartley’s needs to diversify the family’s 100-year-old jam firm to keep it competitive in a
    shrinking market but it is wary of predatory investors.
    The challenges facing Hartley’s:
    • To expand in a market that is shrinking.
    • To diversify into new markets.
    • To ensure that management is of top quality.
    Fred Hartley knows all about jam but if he makes a wrong move his company could end up in a
    pickle. The 41-year old is Managing Director of Hartley & Sons, Britain’s oldest family-owned
    jam maker.
    The trouble is that fewer people are buying jam and those that are, tend to go for supermarket
    brands. Now Hartley’s is trying to conserve its income by diversifying into sauces and even
    spring water. For that it needs money but the company is wary of attracting outside investors in
    case their involvement changes the culture of the 100 year-old firm. Fred Hartley’s great-grand
    father Albert founded Hartley’s in London in 1881. Fred joined straight from school and took
    over as Managing Director from his father Tony in 1994. Jam and marmalade still account for
    45% of its sales of £33m but the market has been in decline for 50 years. In 1950 there were
    about 40 big British manufacturers. Only three of these have survived and Hartley’s is the only
    one that remains independent. It employs 220 people at two sites in South London.
    “People don’t eat as much jam as they used to,” said Fred Hartley. “A typical English breakfast
    used to include toast and jam, while a jam sandwich was a staple snack. Now it is competing
    against cereal bars and crisps”. Changing dietary habits have also contributed to jam’s decline
    because people increasingly want low-sugar food.
    Hartley’s became a household name during the 1960s and 1970s, supplying most of the big
    supermarkets. But the rise of supermarkets also initiated the decline of the businesses’
    traditional branded business. The supermarkets’ fight for market share in staple products such
    as jam and their introduction of cheap own-label alternatives has gradually cut the profit
    margins on branded products.
    The company saw the change coming. Under Tony Hartley it changed the emphasis of its
    business from making jams under its own name to making own-label jam and other products
    for supermarkets. Now, about 60% of its business is supplying own-label products, mainly jam
    and condiments. Customers include Morrisons, Tesco and Sainsbury, which is its largest client,
    accounting for 20% of total sales. Although sales volumes are high, the profit margins are low
    and the market has little potential for growth, said Hartley. “The gross margin is down to
    between 10% and 15%. You can’t run a business with our overheads on margins like that
    forever.”
    While own-label jams pick up most of the business in the middle and lower sections of the
    market, the top end is still dominated by the branded jams. This area offers much higher
    margins, said Hartley but it is overcrowded. “Investment is required for new machinery as well
    as marketing,” he said. “French brands such as Bonne Maman created that market and have
    established strong positions”.
    BSc (Hons) in Business Administration Strategic Management
    Strategic Management March 2012 Format 1 © NCC Education Ltd 2012
    Instead, Hartley wants to focus on developing niche’ products under the company’s own name,
    such as luxury marmalades and a recently launched low-carbohydrate jam. He said these
    sectors were still brand-led and offer higher margins.
    Marmalade is more attractive because it is largely bought by more mature, wealthier
    consumers. Marmalade is also cheaper to produce but Hartley is conscious of the risk in
    dedicating resources to markets that are in overall decline or, at best, static.
    Hartley’s also sells jam in bulk. It supplies cake makers and produces 100m portion-packs for
    the NHS, schools and the prison service. Sales to the trade sector have grown substantially,
    rising from £750,000 in 1999 to £4.7m in 2004.
    Hartley’s has diversified into other markets. It began making peanut butter in the 1980s and
    now has 50% of the market, representing 20% of the firm’s sales. It has also diversified into
    condiments, producing own-label products such as apple, tartare and mint sauces. Recently, it
    became the sole British cranberry sauce supplier to ocean Spray, the world’s largest producer
    of cranberry products. The deal gave Hartley’s 90% of the British cranberry sauce market
    overnight and increased its overall sales by £3m.
    Hartley sees more potential to develop this side of the business but current sales are largely
    low-margin, own-label products. He would prefer to develop the higher margin branded
    condiments business but is unsure if the Hartley’s brand is appropriate. A second option, he
    said, would be to buy and develop an established brand.
    So far product diversification has enabled the company to survive although Hartley knows that
    diversification is not just a matter of business development but a question of survival. Despite
    new contracts and new products, profits have remained flat for the past three years at about
    £550,000. The business has to diversify just to stand still but inevitably this takes it further
    away from its core strengths. “It is the classic `busy fool’ situation – working harder and harder
    for the same or even less return,” he said.
    Last March, the company invested £100,000 in setting up Dragon Ice, a spring-water ice-cube
    company in South Wales. It is a joint venture with a Welsh spring water producer and
    Hartley’s owns 51% of the business.
    It already has small contracts with Sainsbury, Tesco and Asda to supply spring-water ice cubes
    but the aim is to introduce ice cubes – water packaged ready for consumers to freeze
    themselves at home. It is the first time the company has diversified into a product so radically
    different from its traditional market but Hartley believes the potential outweighs the risks.
    “We have invested £100,000 so far and it will need at least the same again to really get it
    moving. But given the growth of the whole mineral-water market, I see it as a huge
    opportunity,” he said.
    The company is still wholly family owned and self-financed. Hartley’s younger brother,
    Richard, is Sales and Marketing Director but he is the only other family member with any dayto-
    day involvement in the business. Both sit on the company’s main board of six, alongside
    their father Tony, who is Chairman and three non-family directors. There are no non-executive
    directors.
    Having a family-dominated senior management team means decisions can be taken quickly
    and the business can react swiftly to changes in the market. But the lack of external input is a
    BSc (Hons) in Business Administration Strategic Management
    Strategic Management March 2012 Format 1 © NCC Education Ltd 2012
    weakness as well as a strength. With no non-executive directors, Hartley admits that he relies
    on his father “to make the difficult decisions”.
    Being self-financed, the company has to rely on its overdraft and existing reserves to finance
    investments, which puts sizeable strategic investments out of its immediate reach. The
    company is approached regularly by potential investors. Hartley believes that bringing in
    external money would jeopardise the balance of the company and reduce the family’s control.
    “We can invest £3m to £4m without a problem. It just means that we can’t go out and spend
    £10m easily,” said Hartley. “People approach us all the time about investing but what they
    really want is to take u

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    s over. I can’t see anybody wanting to get involved other than to
    consolidate it into someone else’s business.”
    Source: Nigel Walton (2011)
    Questions:
    Task 1 – 50 Marks
    What are the key strategic issues (internal and external) impacting upon Hartley’s future
    growth?
    Task 2 – 50 Marks
    What recommendations would you make to Fred Hartley regarding future competitive and
    corporate strategies?
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