The case shows the introduction of an entrepreneurship venture in the specialty food industry. The new venture hatched by Laura Ryan was to set up a venture to sell fry bread powder in a sack. She sold the age old recipe to the locally and then to the supermarkets to expand. Her venture started with a handmade sack to colorful poly-packs with recipe and history of the product along with instructions to use. The Lakota Hill fry breads were selling well and had their price and product advantages. But still it was facing problems while plans of expansion were being put into place.
Lakota Hill fell in the category of a specialty food retail industry. The market for such products was good as the demand rose. The customer feedback showed that they loved the product. It was easy to make and was easily available. The food business never fell out of demand, as there was always need for a specialty item in the palate. Further being a specialty food, products usually have less competition. This provides an advantage as the products enjoy a near monopoly. But the disadvantages are even more severe. The food market was fast moving and there was always a new variant that was in demand. Then there was the problem of distribution and finding new channels. As the case demonstrates, Laura mentions that at one point the channels loved the product when they tasted them in the trade fairs but soon forgot once they were back to their daily work. So many a cases they had to face disappointment in making new channels. Even after Laura managed to gain accounts of a supermarket, they had to force sell their product which required to directly go to the store and educate all sales people who had to demonstrate the product. This task was problem some as manpower was a problem for Laura. Then was the problem of making a contact. As the retail industry was ever changing, it was very difficult to keep track of person one was speaking. As is mentioned in the case, Laura points out the problem of the vertical and lateral transfers in the retail industry which meant they had to educate and reeducate managers to sell their product. Another problem that Laura realized that arose with specialty food, as fry bread was that they were not staples and did not require the customer purchase in bulks. It often happened that a user bought a product and made it may be once a month. It was not like pasta or bread which was required every day. This reduced the SKU sell of the specialty food product. Moreover, there was reluctance among retailers to provide shelf space to new brands as they were not fast moving and increased their inventory cost. This led to Lakota Hill to face some problems in the specialty food retail industry.
As Lakota Hills aimed for high volume sales, the best option for it to peruse was retailing their product in the grocery sector. This would increase visibility of the product to the customers, as grocery is an everyday purchase product. Further being a specialty product constricted their area only to limited purchase, but grocery is required every day. But specialty stores provided high margins, while wholesale, which had highest returns, had very low margins. Even grocery stores which required less packaging cost, had to be sold at prices less than that in a speciality food category. This reduced their profit margins. But given the set-up in which Lakota Hills operated, it was not possible for them to make sell their products in supermarkets and to retailers directly rather than setting up their own private retail stores. This way the product could be sold in large quantities to the big retailers gaining larger exposure and market coverage, while an exclusive retail store will increase their establishment charges.
In retrospect the strategy that was followed by Lakota Hill was to target whole sale selling to retailers to sell fry breads. This was the easiest possible way to gain mass customers. But the problem of this strategy was the education of the buyers and the end users. For instance, the first chain that sold fry breads were just put on shelf with no demonstration. The problem of direct selling to more than 200 retail stores at once was difficult. So another strategy that may be adopted is to sell the product whole sale to fast food chains and to the restaurants. But whole selling to the retailers was not an option as the retail appeal of Lakota Hills was in its history and leadership. As entrepreneurial leadership involved in creating the culture and his or her beliefs in the management team is essential to create a bottom line to expand (Timmons & Spinelli, 2004).
Lakota may approach other means of selling their product like retailers and supermarkets, food chains and restaurateurs, online selling, or selling through direct marketing. But another option which will help in expanding the brand in a bigger way is through selling their product through Lakota Hill specialty restaurants. They can even venture further to make their own retail stores and increasing their product lines. Further, they need to employ more representatives to manage their regional areas where demonstration is required.
Locating venture capitals for funding was easy for Lakota but for all new ventures to succeed they have gain an increase in sales of 40 to 50 percent annually (Drucker, 1985). Lakota Hill’s the projected sales growth (see table 1) for 2008 was 261 percent but then from the third year the growth rate started to wane. This showed that the venture had to look for different avenues to increase its sales.
Table 1: lakota’s projected sales growth
For this purpose, it can be suggested that mass wholesale channeling of the product would help the product more. This was so because even though it gave lesser margins, it ensured higher volume sales and decreased costs of packaging and retail distribution. Further Lakota Hill needs to concentrate on increasing their online sale to gain greater direct selling opportunity.
As a venture capitalist, I will be willing to put my money in this venture. The few reasons that would support my decisions are:
First, specialty food market in the US is a $1 trillion and comprises of 10 percent of GDP (Wikipedia, 2009). So there is a growth of supermarkets and retailers in the US who have expanded widely, even internationally. So tapping the right channel will provide higher degree of sales as well as profit.
Second, the sale of fry bread has been increasing since it was introduced in the 1990s. Laura had helped the venture grow from a local, small, establishment to a big organization. So investing in it will be investing in a committed entrepreneur who has the potential to expand through her leadership and managerial style.
Third, the product will be a greater success if operating cost could be reduced and employing more agents to visit retail stores instead of personal visits. So if this problem could be solved, it would become easier to increase sales as well as profit of the organization.
Drucker, P. F. (1985). Innovation and Entrepreneurship. Oxford, UK: Butterworth-Heinemann.
Timmons, J. A., & Spinelli, S. (2004). New Venture Creation. New York: McGraw Hill Professional.
Wikipedia. (2009). Food industry. Web.