Case Questions:

What issues does Bob Holland face as he takes over as CEO of Ben and Jerrys?

What changes are occurring in the ice cream market that may be causing problems for Ben and Jerrys?

What internal issues are impeding Ben and Jerrys performance?

What strategies should Ben and Jerrys pursue going forward, in terms of HR policies, manufacturing, distribution, branding and advertising, product range, etc.?

Please make at least 2 pages

Ben \& Jerry's Homemade Ice Cream Inc.: A Period of Transition In February 1995, Bob Holland was named CEO of Ben \& Jerry's and took over day-to-day leadership of the company from founder Ben Cohen. Ben \& Jerry's had grown during the 1980s from an unconventional ice cream shop in a converted gas station into a formidable medium-sized company with annual sales of roughly $150 million. However, competition in the industry was beginning to rise, just as growth in the "superpremiun" segment of the ice cream marketBen \& Jerry's mainstay was beginning to slow down. In fact, Ben \& Jerry's had just reported the first quarterly loss in its history. Holland was a new breed of manager for this iconoclastic company, which had become famous for its commitment to social causes and "collective management." Armed with an MBA, a background in consulting for McKinsey and Company, and with recent experience in running a plastic injection-molding company, Holland was not a typical Ben \& Jerry's employee. lompany History In 1963, Ben Cohen and Jerry Greenfield became friends at their Long Island, New York, high school. Fourteen years later, dissatisfied with their respective careers, they decided to start a food company together. They first moved to Vermont, resolving to live in a rural area more consistent with the "counterculture" values they had shared since the 1960s. After an initial attempt at starting a bagel delivery service, they enrolled in a $5 correspondence course on ice cream making from Penn State University. They incorporated their company on December 16,1977. Four months later, the first Ben \& Jerry's homemade ice cream shop opened for business in an old gas station in Burlington, Vermont, with an investment of $12,000. The shop was an immediate success. By 1980, low wintertime demand at the shop led Ben and Jerry to package their ice cream pint containers, which they sold through small retail outlets in the area. In 1981, sales had risen enough to require expansion of manufacturing into a second building. During the 1980s, the company was able to sell as much ice cream as it could make. As a maker of superpremiun ice cream, Ben \& Jerry's gained a reputation for the unconventional "mix-in" flavors, such as Cherry Garcia and Chunky Monkey. The company's growth consistently averaged over 60% annually and came mainly from entering new geographic markets with pint-sized containers. By 1990, the company was selling its products in all major markets in the United States, and was present in most of the supermarket chains and "mom and pop" stores, which accounted for the majority of ice cream sold in this country. However, in the 1990s, a trend toward healthier eating was beginning to hurt the ice cream market in general and the superpremium segment in particular. As Ben \& Jerry's growth slowed, its stock price suffered. (See Exhibit 1.) In June 1994, Ben Cohen announced his resignation as CEO: Because we are no longer an upstart, we suffer from not having a CEO who has been where we need to go. We have never had an experienced CEO, and we have reached a point in our life where we need one. This is a great opportunity for someone who cares about people, has the skills and vision to see around the corners of our future business development, and always wanted to wear jeans to work. Jerry Greenfield, then vice chairman of the board, said in an interview with the New York Times: We are not giving up the baby, but this is necessary. We have 600 employees. We manufacture ice cream on two shifts and three different sites, and the level of complexity is such that it requires organizational, operational, and management expertise that goes beyond what Ben and I can offer. In terms of creating an evolving vision for the company, instilling values, pushing the boundaries of what our company can do, Ben and I have an incredible amount to offer. In terms of day-to-day management, we are lost. To find Ben's replacement, the company announced that it was holding a contest entitled, "Yo, I'm your CEO," in which it called for people to write to the company and state in 100 words or less why they should be chosen as the next CEO. The company received 22,000 entries, not to mention a good deal of free publicity. However, sales growth continued to slow and, in December 1994, the company announced its first quarterly loss. (See Exhibit 2.) In February 1995, after being recruited by an executive search firm, Holland assumed the position of CEO. (See Exhibit 3.) he Ice Cream Industry The total retail value of ice cream and all related products sold in the United States was roughly $10.5 billion in 1994.3 Of the 1.5 billion gallons of frozen desserts produced in the United States in 1994, 25% was sold in bulk servings at retail shops, 25% was in the form of novelty items (frozen desserts on sticks, etc.), and the remaining 50% was packaged for home consumption. 4 Although the mix of products had changed significantly over time, per capita consumption of ice cream and related products in 1994 reached an all-time high of 24.1 quarts. (See Exhibits 4 and 5) Ninety-eight percent of all households ate ice cream, and consumption was highest among families with young children and persons over 45 years old. Research showed that adults considered ice cream a treat or indulgence for themselves, while they served it as a reward to children. Nor was ice cream a strictly seasonal product, as the summer months accounted for only about 30% of annual consumption. Supermarket ice cream inventories turned 35 times per year, and the product generated five times more profit-per-square-foot than the average for all supermarket goods. The ice cream market was segmented into categories according to butterfat content, which ranged from as high as 17% for some superpremium brands, to less than 5% for frozen yogurt. The superpremiun segment accounted for 13\% of the total market in 1994. (See Exhibit 6.) Virtually all superpremium ice cream was sold by the pint, in round containers. Other categories were typically sold in half-gallon boxes. The ice cream industry was fragmented into a host of local and regional companies, alongside a growing number of large multinationals. The production process required almost six hours from start to finish. It involved pasteurizing (heating), homogenizing (pressurizing), freezing, aerating, mixing, filling, and finally, hardening. Of course, the highest quality products cost the most to produce.5 (See Exhibit 7.) Ben \& Jerry's mix-in flavors were especially costly and difficult to produce given their numerous and large chunks of added ingredients. he Superpremium Ice Cream Market Superpremium, ice cream was distinguished from other ice creams both by its higher fat content and by its lower level of "overrun"-the amount of air contained in the ice cream. As a result, syperpremiups tasted much richer and creamier than traditional ice creams. Thus, competition in the superpremium segment focused on product quality, flavor differentiation, and marketing, rather than price. In the 1980s, a number of companies began to capitalize on market research which indicated that ice cream consumers valued quality over price. Once a consumer had decided to "invest" in a superpremiun ice cream - at twice the price-per-ounce of "premium" ice creams and three or four times the price of regular ice creams - a five or ten cent-per-pint differential was not much a factor in the choice of which superpremiun brand to buy. Based on this information, major packaged food companies such as Kraft (Eussen Gladje), and Pillsbury (Hagen-Dazs) flooded th market with superpremium products. At the same time, several small companies briefly flourished and then stumbled (Steve's Homemade Ice Cream) or perished altogether (Sbamitoff Foods Product prices and quality trended upward as consumers came to view ice cream as an affordable luxury good. This attitude allowed premium and superpremium ice cream volumes to grow a a 14% annual rate during the 1980 s, about seven times as fast as the average consumer product. The superpremium ice cream market was separated into two relatively distinct sub-segments: traditional "smooth" flavors such as vanilla, chocolate, coffee, and chocolate chip; and "mix-in" flavors which consisted of a base ice cream of vanilla or chocolate to which large chunks of candy bars, cookies, nuts, fruit, etc. were added. (See Exhibit 8.) The cost of mix-in flavors could be as much as one-third more than smooth flavors, and yet the selling prices were the same for all flavors. During the 1980s and 1990s, Hagen-Dazs,dominated the smooth sub-segment, whi Ben \& Jerry's was all- but synonymous with mix-ins. Ice cream consumers tended to be loyal to particular flavors as well as brands. They typically arrived at the store with a favorite flavor in mind, so producers had a strong incentive to keep as many of their flavors on the shelves as possible. They could also reduce the risk of losing customers by continually introducing new flavors. Due to the importance of product quality, flavor selection, and shelf space in gaining share of the superpremium ice cream market, product distribution became a major focus for participants in this market. The preferred method of distribution was "direct store delivery," whereby ice cream was delivered to stores and actually placed on the shelf by a distributor representative. The use of direc store delivery meant that distribution costs were an important competitive factor in the ice cream industry, particularly in the lower-priced segments. By the early 1990s, lower-fat desserts became increasingly popular among American consumers, due at least in part to the country's aging population. The U.S. Food and Drug Administration reinforced this trend in 1994 by mandating a new food labeling standard. Manufacturers were now required to clearly list ingredients and nutritional information on all goods packaging, including fat content. As manufacturers rushed to meet the new demand for low fat, "reduced guilt" products, the ice cream market quickly fragmented into hundreds of flavors and a half-dozen gradations of fat, from superpremiun to fat-free frozen desserts with no sugar. Output in 1995 continued to reflect a rapidly expanding market for reduced-fat frozen dessert products, including new lines of sorbets and sherbets, for example. From 1993 to 1994 , water ices and sherbet growth rates increased to 9.9% and 7.8% respectively. Particularly dramatic was the demand for frozen yogurt, which by 1993 had captured 17% of the superpremium frozen dessert market, up 21% from the pervinus year. By the mid-1990s, competition in the ice cream industry had become extremely intense and difficult. Market penetration by leading brands had been achieved in all significant markets across the United States. Shelf space was tight, as retailers struggled to make room for the increasingly popular frozen yogurts, ice milks, and nonfat ice creams. Also, with consumers more value conscious than in the 1980s, purchases began to shift from the sunerpremiun to the less expensive premium segment. Growth of the superpremium segment had slowed dramatically by 1994 to a rate of around 4%, while the premium segment was up to 11% annual growth. Until this time, the ice cream industry as a whole had traditionally spent little on advertising. In 1993 , for example, the ice cream industry spent just $25 million.6 The industry spent over $32 million by 1994, a 31\% increase in advertising expenditures. (See Exhibit 9.) Established in New Jersey in 1970, Hagen-Dazs, was the oldest and largest brand in the superpremiun,ice cream segment, with a market share just below 50%. Known for its elegantly designed pint containers and fine ingredients, Hagen-Dazs, was owned by the U.S. food company Pillsbury Inc., which was a subsidiary of the international conglomerate Grand Metropolitan PLC. (See Exhibit 10.) Unlike its competitors which tended to use outside distributors, Hagen-Dazs,distributed roughly 50% of its product directly. In 1992 , with its market leadership threatened, Hagen-Dazs, began aggressively attacking Ben \& Jerry's in a fight for market share. The company began to use advertising and discounting to a much greater degree than it had in the past. It offered half-price sales in certain key markets in the summer of 1993. Hagen-Dazs, also developed new products, including its own version of mix-in ice cream named "Extraas." This project was only modestly successful, as it appeared that the "Extraas" flavors cannibalized Hagen-Dazs's existing line of smooth ice creams, while Ben \& Jerry's mix-ins had continued to flourish. By 1993, Hagen-Dazs's new frozen yogurt line did manage a 14% market share with sales of $26.5 million.7 It also introduced a popular new fat-free sorbet line. Hagen-Dazs's. most recent innovation was a new line of liqueur-flavored ice creams, launched in late 1994 in the United States and Europe. "Cordials" was the result of a joint venture with another Grand Metropolitan subsidiary, International Distiller and Vintners. Cordials featured unique flavors such as "Bailey's Original Irish Cream" and "Di SaronneAmaretto." The new line was predicted to be of great appeal to the characteristically indulgent superpremium ice cream consumer.8 Hagen-Dazs,also developed a formidable presence in the overseas markets. The company entered the United Kingdom in 1990 , capturing 32% of the 108 million grocery ice cream market by 1993 . Growth in Britain was projected to continue at 19% per year. 9 In 1994 , the company also opened a plant in France to supply the European market. With 105 retail shops and a growing presence in Western Europe, Hagen-Dazs was also seeking new opportunities in the Mediterranean.10 Dreyer's Grand While it was not yet present in the superpremium segment, another key competitor in the market was Dreyer's Grand Ice Cream, a California-based company. Its entry in the premium segment, called Dreyer's in the western U.S. and Edy's in the east, had experienced impressive growth, thanks to the company's extensive distribution network. Also key to the success of Dreyer's Grand was its manufacturing of other firms' products, which helped to defray the fixed costs of its own products while providing as much as one-third of Dreyer's total revenues. By 1994 , it was a strong force in the market with an 11% share of the premium market,11 three factories, and sales of $564 million. 12 In late 1993 , Dreyer's launched an ambitious five-year strategic and marketing plan aimed at increasing its distribution capabilities and expanding into new markets. It had begun exporting to Asia as well as Panama-its first venture into South America. But the company's main concern was expanding its sales and distribution in the United States.13 As expected, Dreyer's marketing expenses rose substantially as the company worked to fulfill its growth plan. In 1994, Dreyer's posted net earnings of $1 million on sales of $564 million, compared with earnings of $17 million on sales of $470 million in 1993 . In June 1994 , Nestl, one of the two largest multinationals in the ice cream market worldwide, purchased 22\% of Dreyer's Grand. (See Exhibits 10 \& 11.) The company was now poised for still more growth, in spite of its recent losses. Dreyer's planned to increase the amount of spending on advertising and promotions from approximately $12 million in 1993 to $40 million- $50 million annually from 1994 through 1998.14 Breyer's Dreyer's main competitor in the premium segment was Breyer's, which was founded in 1866 in Philadelphia. Due to confusion between the names of Breyer's and Dreyer's, in 1978 Dreyer's agreed to use the Edy's brand name east of the Rocky Mountains. In 1993, Breyer's was purchased by Unilever PLC, a conglomerate based in the U.K. It was the major competitor of Nestl in the global ice cream market. (See Exhibit 10.) After the sale, Breyer's was merged with Unilever's Good Humor ice cream subsidiary. The Breyer's brands had approximately $500 million in sales and 12% of the premium market. It had recently become a direct threat to the syperpremiup segment as more consumers began "trading down" to less expensive products. At the same time, it was rumored that Unilever was seeking to acquire a brand in the supespremium segment, the only remaining portion of the industry in which it was not involved. There was much speculation that the company would make an offer to purchase Hagen-Dazs, in an effort to dominate the growing international market for sunersremiun ice cream. Ben \& Jerry's By 1995, Ben and Jerry's had established itself as the number two maker of sunerpremiva ice cream in the United States (behind Hagen-Dazs), with a market share of 43%, which was up from nearly 30% in 1990. The remaining sales of superpremium ice cream were divided among a number of small firms, including Columbo Gourmet and Elan. Ben \& Jerry's continued to develop unusual flavors. The "down-home Vermont" image of Ben \& Jerry's packaging and logo had also become a popular brand icon. In some of its internal policies, the company culture remained true to its iconoclastic and unconventional roots, while in other respects the firm had become more conventional as the business had matured. 6% market share in its first year (1994), but Hagen-Dazs,continued to dominate the "smooth" sub-segment. 16 number had the potential to grow even further as the company considered expanding into the growing markets of ice cream novelties and low- and nonfat ice cream alternatives. Manufacturing In 1994, Ben \& Jerry's produced 60% of its ice cream, while Dreyer's produced the rest (approximately 5 million gallons) at its plant in Indiana.20 Ben \& Jerry's management saw this arrangement as a stopgap, enabling the firm to enter new markets more quickly than it could add production capacity. To uphold Ben \& Jerry's made-in-Vermont trademark, dairy products were shipped from Vermont to Indiana for processing in the Dreyer's plant. Ben \& Jerry's reliance upon Dreyer's for production made it especially vulnerable to Dreyer's own plans for expansionBen\& Jerry's operated two production facilities itself, both located in Vermont. The Waterbury plant produced ice cream and frozen yogurt pints and had a capacity for up to 5 million gallons per year. The Springfield plant made ice cream novelties, as well as bulk ice cream and frozen yogurt. The facility produced approximately 1.2 million dozen novelties and 2.3 million gallons of bulk ice cream and frozen yogurt in 1994.The company also planned to open a third factory in St. Alban's, Vermont, in an effort to bring back in-house much of the volume currently produced by Dreyer's. Costing $40 million, the new plant would employ a state-of-the-art automated manufacturing system with a maximum capacity of 12 million gallons of packaged pints per year.23 Unfortunately, the St. Albans plant experienced significant delays due to problems with automated handling processes and refrigeration equipment.24 Following a report by an outside engineering firm with experience in the refrigerated food industry, the company chose to abandon a number of automated systems in favor of simpler, proven processes. This resulted in a $6.8 million write-down, which contributed to the company's fourth quarter loss in 1994.25 Ben \& Jerry's products came in a wide range of innovative flavors and were made with only Vermont dairy products. The above-market premium of a few cents a gallon paid for Vermont dairy products reduced margins but was thought to be outweighed by the image of quality and purity that the policy conveyed. Ben \& Jerry's ice cream contained no artificial ingredients or preservatives, although some of the candy and cookies used in various flavors did. The company claimed to add 1.5 to 2.5 times more flavorings to its products than any other competitor. This standard was rumored to have originated because Ben had a sinus problem and thus had difficulty tasting any flavor unless it was quite potent. These strict ingredient requirements, plus the difficulties involved in manufacturing ice cream with large chunks, posed a constant challenge to Ben \& Jerry's manufacturing operations. Throughout 1994, as the company struggled with the increasing complexity of the business, it had difficulty forecasting demand and maintaining production efficiencies. As a result it suffered from shortages of some flavors and overstock (which had to be thrown away) of other flavors. Distribution Ben \& Jerry's had two primary distributors, Dreyer's Grand Ice Cream, Inc. and Sut's Premium Ice Cream, as well as several other local distributors that serviced limited market areas. In 1994, sales through Dreyer's accounted for 52% of Ben \& Jerry's total sales. Dreyer's distributed Ben \& Jerry's in all of the company's markets except New England, Florida, and Texas. Sut's distributed Ben \& Jerry's in parts of New England. With this distribution arrangement, 50% of Ben \& Jerry's ice cream traveled less than 1,000 miles while 30\% traveled more than 3,000 miles. Using heavy-duty commercial carriers, the company delivered 2,337 truckloads of product over 3.5 million miles, approximately 26 pints per mile traveled.26 By 1994 , Ben \& Jerry's was available in most stores that carried superpremiun,ice cream. In keeping with the company's unconventional style, Ben \& Jerry's traditionally spent no money on advertising. Since the early days of the company, Ben Cohen and Jerry Greenfield had enjoyed great success in attracting unpaid media attention in their efforts to raise public awareness on a host of social issues. The company's annual meetings became highly publicized "events," with several days' worth of activities promoting causes such as world peace and environmental protection. The Ben \& Jerry's factory tour in its Waterbury plant became the most popular tourist attraction in Vermont. In 1994, the free publicity the firm received on television programs such as CNN's Moneyline. The Larry King Show, and NBC's The Today Show was estimated by Ben \& Jerry's to be worth $5.5 million. In that same year, print media features on Ben \& Jerry's reached an estimated 70 million people. 27 However, as the market grew more competitive and Ben \& Jerry's sales growth began to slow down, the company was forced to spend money on advertising and in-store discounts. In 1994 , Ben \& Jerry's launched its first television advertising campaign for a new product line called "Smooth, No Chunks." The company's "official" reason for developing this line was that Ben Cohen got tired of chewing the big chunks in their mix-in ice cream. More practically, this new, higher margin product was developed to compete directly against Hagen-Dazs's traditional flavors. As a distinct change from what consumers expected of Ben \& Jerry's products, "Smooth, No Chunks" was thought to require significant media exposure to succeed. Costing \$6 million, the ads featured celebrities such as the anti-Vietnam activist Daniel Berrigan, the folk-singer Pete Seeger, and the filmmaker Spike Lee.28 In 1987, the company had granted an exclusive license to manufacture and sell their ice cream in Israel. Ben \& Jerry's entered the U.K. market in March 1994, selling to specialty stores and key retailers, with sales of $7 million.29 It also began a joint venture, Isexerks, to manufacture ice cream for the Russian market. In the black by 1994 , Ifeverks was given the go ahead to expand by 1995 . However, the lack of modern wholesale distribution systems in Russia remained an impediment to gaining greater market share.30 Ben \& Jerry's had also explored the possibility of entering additional overseas markets such as Europe and the Pacific Rim. (See Exhibit 12.) etail Stores Ben \& Jerry's franchised retail stores, known as "scoop shops," were an integral part of the company's growth during its early years. By 1994 , over 100 shops existed in the U.S., four in Canada, one in Israel, and a joint venture in Karelia, Vermont's sister state in the former Soviet Union.31 While the scoop shops were an excellent means for raising brand awareness and serving as a testing ground for new products and flavors, scoop shops accounted for only 3% of total company sales in 1994 , and during this year only 5 new scoop shops were opened.32 The shops had never exceeded 10% of total revenues in the history of the company In the early 1990s, Ben \& Jerry's suspended its franchising activities due to concern that rapid growth would result in a loss of control, especially over how the unique Ben \& Jerry's image was to be conveyed. However, in late 1994, with a number of new products in place, the company embarked on a new, more closely controlled franchise program. This time, franchising sites were "real-estate driven," emphasizing high profile sites with strong potential for ice cream retail traffic as the key. The renewed focus on scoop shops led to plans for 25 new shops in 1995.33 Two shops were to be opened at Atlanta's international airport prior to the 1996 Summer Olympics.34 The company projected its shops' sales volumes at twice the national average for franchising frozen dessert shops. New franchisees were required to be owner/operators and to show that they had a good understanding of "what Ben \& Jerry's [was] all about." The company established annual franchisee meetings and workshops, as well as a network of existing franchisees as a resource for newcomers. In addition to sale through franchised "scoop shops," food service outlets (restaurants, cafeterias, hospitals, etc.) accounted for net sales of 25 gallon bulk containers - approximately 7% of Ben \& Jerry's total sales. As 25% of all frozen desserts were sold via this channel, Ben \& Jerry's was exploring options to expand this area of the business. inance Ben \& Jerry's first went public in June 1984. Under company policy, all of the initial public shareholders were Vermont residents. The first issue of 73,500 shares was made available at a low enough minimum quantity that the equivalent of one in every hundred Vermont families held an initial interest, and institutional holdings remained low. In 1995, Ben Cohen and Jerry Greenfield held 15% and 3% of the company's equity, respectively. Because they held disproportionate fractions of the class B shares (with special voting privileges), Ben \& Jerry together controlled over 40% of the shareholders' voting rights. The company never issued dividends, preferring instead to reinvest its earnings for future growth. The company also tried to maintain a conservative debt-to-equity policy. (See Exhibit 2.) was participatory, and hierarchy was viewed with suspicion and distaste. No organization chart existed, although jobs and responsibilities were generally understood. was violated when Bob Holland assumed the position of CEO, at a salary of $250,000.37 The Social Mission into business It's really interesting what you can do with business when you don't care about making a lot of money. people's nut-shelling cooperative. the 1989 annual report: quality, and the social needs of our communities will lead to solid, stable growth of both our bottom lines. terminating its relationship with the New York bakery that had produced apple pies for the Apple Pie Frozen Yogurt flavor, when demand for the product fell