- PLEASE DO CALCULATIONS BASED ON THE TWO SUGGESTED OPTIONS GIVEN

- STATE WHICH OPTION IS THE BEST FOR AJ BASED ON THE CALCULATION

Asanka Jayakody (known to his friends and clients as AJ) has been a professional chef for over fifteen years. Currently, he has his own catering company, as well as doing personal chef work for a nice client list he has developed over the years. One of the favorite dishes in both his catering and personal chef work is his chicken curry. AJs family is originally from Sri Lanka and he has adapted and perfected his familys recipe for this signature dish.

AJ has always known he can only maintain the demanding hours of his profession for so long and has looked for a way to get out of the kitchen. For a year he worked on putting together a spice mix for his curry which would provide a great result for home cooks. The unique thing he has done is to create a spice mix used to marinate the meat separate from the spice mix used to create the sauce for the meat. AJ feels this is a distinguishing feature which provides great results for his curry. He also worked to alter the spice blends for three different types of meat (chicken, beef, and pork) and found a producer to mix the spices at a commercial scale and package it in a distinctive two bottle set which is held together by the label. AJ has named the mix Kandy Curry after one of the major cities in Sri Lanka. Each package of the mix will treat up to four pounds of meat. Seeking New Markets

AJ has opened a small store on Amazon.com to sell the curry mixes, as well as selling it in a few specialty food stores in the city where he lives. The sales to date have been a bit disappointing, especially on-line. Whenever AJ sets up a display at one of the specialty stores and has some of his curry for customers to sample, sales have a sharp peak, but after a week tend to settle back down, although each time at a slightly higher average units per week. Amazon has been consistent, but only a few dozen cases a week. He honestly is not even sure he wants to continue with those sales as it takes up so much time to box, label, and ship individual purchases.

In an effort to stimulate sales, AJ took a bold step and purchased booth space at a Fancy Food Show in San Francisco. He bought 40 pounds of chicken, made a bunch of curry, and started passing out samples. He was hoping to attract the attention of specialty food stores from across the country, but he also got the attention of two distributors who approached him about distributing his line of curry mixes. One of these distributors is Rhinelander Foods. This company works with large supermarket chains across the country (e.g., Kroger, Albertsons, Publix) and supplies them with a wide variety of products including spices, vinegars, oils, and various ethnic food products. The executive talking with AJ said he was confident he could get Kandy Curry into at least 500 stores across the country. But he did say there would be a slotting allowance1 of approximately $50 per facing2 of curry mixes. He said this price was so low because the product would not take up much space. He couldnt estimate sales, but

1 A slotting allowance is a one-time payment from the manufacturer of a product to the retailer to essentially buy shelf space for a product.

2 A facing is one product width on a shelf.

said he was confident each store would sell at least a case a month. In fact, he said if the store didnt sell that much, they would probably lose the facing to another product.

The second distributor was a smaller family-run firm out of Salt Lake City called Beehive Food Products. Bill, the family member of the firm at the show was looking for new products, told AJ he loved the curry and really wanted to distribute it as the company didnt currently have anything like it in its product line. Beehive did have a few products Albertsons purchased from them, but largely it worked with smaller specialty food stores. The firm had over 1,500 stores on its customer data base, and about one third of them were good customers in the sense of ordering something from Beehive at least once a month. Bill said that in addition to a paper catalog and an on-line catalog, the firm had three salespeople in different areas of the country whose sole job was to service the current customers and keep trying to find new customers for the firms products. When AJ asked Bill about the idea of slotting allowances, Bill told him this type of arrangement was only used by large supermarket chains and his firm refused to ever pay one. Will It Sell?

When AJ got home he filled the few orders he had gotten at the show and realized the profit from those sales barely covered the cost of the samples and his room. So he started getting serious about how he was going to expand his sales. AJ knew from his own efforts, and research he had read, that a large percentage of people who sample a product, especially a food product, end up buying the product. So he went back to Rhinelander and Beehive to ask about sampling programs.

Rhinelander said that it could arrange for it, but the cost would have to be paid for by AJ and it would be about $125 per store, per time. Beehive said that generally it could convince one of their customers to make and distribute samples if the company provided extra free merchandise. For Kandy Curry, it felt that a store would be willing to make and distribute samples if Kandy Curry provided a free case of mix, which is twelve packages. Will It Be Profitable?

No matter which distributor he went with, the suggested retail price per package would stay at $11.95, the same price as what he was currently selling it for on Amazon. The $11.95 price gave him a nice margin of 70% and customers paid shipping costs of $3.95 a package, or he shipped for free if the customer bought three. Rhinelander said its retailers would want a 35% margin on the retail price, and Rhinelander normally took a 20% margin of that wholesale price. Beehive said its retailers wanted a 40% margin, and that it also took a 20% margin to agree to wholesale the product. AJ felt he now had enough information and it was time to sit down and make a decision about how to proceed. The one thing both distributors had promised is that AJ was welcome to continue selling his product on Amazon and doing the self-distribution with his current set of specialty store customers.