Honeycomb Products Limited

Citation

Knox, S. (2003), "Honeycomb Products Limited", British Food Journal, Vol. 105 No. 1/2. https://doi.org/10.1108/bfj.2003.070105aab.001

Honeycomb Products Limited

Situation summary

Honeycomb Products Limited produces and distributes crumpets solely in the Christchurch region. The company has been relatively stagnant for a long time, but in 2001 it noticed the market beginning to contract. Honeycomb realises that something needs to change, as otherwise it will continue on this decline. It has been suggested that production in the "traditional" way, by hand, is causing major cost implications. Alternative solutions have been investigated with the most feasible being the purchase of an automated crumpet-making machine. This is easier said than done though, as Honeycomb has no financial resources available and no current marketing strategy in place.

Historical background

The buildingHoneycomb has been making crumpets in Christchurch for the last 20 years, and has leased the same inner city unit for the last ten years. Although the premises are adequate for current production, if changes are going to take place relocation or vast improvements are imperative (so long as the lease is guaranteed for a suitable term). The current building needs enhanced ventilation to mitigate condensation, which is currently causing a build-up of mould, requiring constant cleaning. There are also drainage and electrical problems. A building designed around the crumpet-making machine is vital, as is a separate air-conditioned room where the crumpets can cool down before packing.

The ownersHoneycomb is a small, private, and extremely personalised enterprise. Greg and Andrew, the current owners, have been in partnership for the last three and a half years and have extensive knowledge of both the crumpet business and the distribution channels used. They are extremely dedicated and hardworking as Honeycomb requires a backbreaking seven-day-a-week workload for ten months of the year. Previously, Honeycomb tried its hand at producing pikelets. This venture did not last, as the work was hard, the costs high, and the rewards little.

Honeycomb

Crumpets hail from the UK. They are small yeast-raised breads of similar size to English muffins. Honeycomb uses the "traditional" recipe that consists of fresh ingredients, giving the crumpets a short-shelf life of around two days. As crumpets complement a cooler climate, demand tapers off over the summer months to the point that they close their doors for two months. Therefore, demand is very seasonal and follows a normal bell shaped distribution, with the winter months being the peak. On average, Honeycomb produces 1,200 packets a day, which equates to 15 bakes and about three-and-a-half hours of baking time. At present, half of the day is used to bake, pack and clean, and the other half spent delivering to 28 supermarkets in the Christchurch region. Four months ago, Honeycomb increased its price by 10 cents for the first time ever. Now, the unit cost ranges from $1.16 to $1.33, depending on the size of the market and it costs Honeycomb around 70 cents per unit to produce.

Baking the traditional way

This is a slow, monotonous and somewhat scientific process. The recipe is never the same and involves constant adjustments based on numerous factors, including the air and water temperature. Once the right measure of ingredients is mixed and water added, the bin is left aside for 50 minutes for the yeast to kick in. The mix is then transferred to a hopper and poured into rings which have been individually laid on a long hot plate. These are cooked for ten minutes on one side, before being turned and cooked for five minutes on the other side. The crumpets are then shuffled off onto a conveyer belt, de-ringed, packed (six per packet) and stored to be cooled down, before being wrapped and delivered. Four mixes are utilised simultaneously, and there is no chance for a break until all the mixes are off the hot plate.

The automated crumpet-making machine

To be fully set up and functional, Honeycomb believes that they will need to invest $140,000. This machine is then able to produce 2,000 packets per hour and has the added advantage of being able to produce pikelets. Currently, there are no machines of this sort within New Zealand. If the machine is purchased, staff can then be reduced, there will be more time for deliveries, and the cost per unit will decrease. There may be some teething problems within the first few weeks but once remedied, the crumpets should be exactly the same premium product that they are today.

Competitive environment

There is only one direct competitor in the crumpet market, that being North's Bakery. Honeycomb believes that it has 10 percent of the market share, with North's having the other 90 percent. The reason why it cannot compete is ultimately the cost implications. In some supermarkets it is possible to purchase two packets of North's crumpets for the same price as one packet from Honeycomb. North's ability to sell its crumpets at considerably lower prices is due to numerous factors. First, it uses a different recipe consisting of lower grade ingredients. North's also owns a crumpet-making machine that can produce thousands of crumpets every hour. Third, North's is a large bakery producing bread, which is distributed through the same channels as crumpets; hence, the transportation costs are considerably less. Finally, the merchandisers have a certain quota that they have to sell. It is then possible for them to sell the crumpets at low to zero profit margins to increase the volume of sales and reach their specified quota.

Other potential competitors are waffles, pikelets, muffins, and gourmet bread loaves. These alternatives are comparably priced in Table I.

Table I Retail prices at Fresh Choice Supermarket, in Christchurch, New Zealand

Consumers see crumpets as a breakfast product as well as a tasty snack alternative. This market is definitely growing as there are many new product developments, which are seen as more appealing than the typical toast or cereal breakfasts. With general economic stability, consumer spending is increasing, especially on food products. This economic condition adds to growth and opportunities. Technologically, Honeycomb is well behind its competitors, who all use machines to produce their goods. This has a direct effect on costs, as being a labour intensified operation; wages are the highest cost for Honeycomb. Legally and politically, Honeycomb has to be very careful. Being a food manufacturer there are many protocols and regulations it has to abide by. These cover all facets of operations, requiring continuous scrutiny. If these regulations are not followed, Honeycomb could find itself closed down, and facing large fines. Cultural elements include health issues. Crumpets are seen as rather fatty as they are made with sugar, salt, and milk powder and usually topped with butter and a spread, they are not on the shopping lists of many diet seekers. They are also perceived to be an old-fashioned breakfast alternative. These issues may need to be addressed.

Segmentation

Honeycomb has a very loyal customer base. Demographically, these are older people who appreciate a premium quality crumpet. This will also contribute to a flow-down effect, where their offspring, familiar with the product from childhood, will purchase these crumpets for their own family.

As there has been no previous marketing for Honeycomb, the first issue is to increase awareness of the product. Children enjoy crumpets, so families need to be a target, as do older people, who may be unaware of Honeycombs' existence.

Free tasting within supermarkets is an effective way to increase awareness and motivate a response at the same time.

Internal analysis

Honeycomb's competitive advantage is its superior taste. This is a result of using the "traditional" recipe, which yields a higher quality and tastier product. Honeycomb's unique square shape crumpet has also proven to be highly recognisable and is a strong selling point. In addition, the partners and the loyal clientele are indispensable in keeping the company in business.

However, whilst Honeycomb has numerous strengths, it is also riddled with weaknesses. The product itself has a short-shelf life of around two days, resulting in a proportion of goods heading straight for the rubbish. A small workforce consisting of two full-time staff and two part-time staff adds pressure and produces inflexibility to the production process. Baking requires all four staff and generally takes place between 9 a.m. and 1 p.m. Greg and Andrew do the deliveries. These are performed before and after baking and have to be made within given times, resulting in long hours and a constant struggle for time. The major hurdles for Honeycomb to overcome are; a lack of financial resources, no marketing strategy, a poorly maintained building, and a lack of product diversity.

External analysis

With a company that has stayed relatively the same for 20 years, it is possible to see many opportunities. Honeycomb only delivers in the Christchurch region; therefore, it is possible to expand into other areas, for example Canterbury and the rest of the South Island. Furthermore, as Honeycomb only offers its service to Supermarkets, it may be feasible to develop different markets within these geographical areas.

The short-shelf life of these crumpets has many implications on business. Old crumpets are dumped and a day-to-day replenishment of stock is necessary. It may be in the best interests of Honeycomb to develop a more robust product able to last longer on the shelves.

Another opportunity includes the purchase of a machine (as mentioned above) to produce more crumpets in a shorter period – allowing more time for deliveries and decreasing production costs.

Finally, product diversification. This could come in the form of developing different flavours of crumpets (i.e. blueberry crumpets and chocolate chip crumpets), or increasing its product range (i.e. producing pikelets again and/or waffles).

As with opportunities, come threats. This market may seem attractive to a number of people and anyone of them may establish a new venture. Greg and Andrew believe North's have tried just about everything to push them out of business, although not attacking them personally, and failed. If Honeycomb was to become a more competitive force within the market, they may instigate a personal attack by North's and may not be ready for the business repercussions.

Marketing mix

We have now analysed the product and its price, touched briefly on the distribution channels used and found out that Honeycomb has no promotional strategy in place. Additionally, packaging is a very important element of the marketing process as it is the means by which the product is recognised. Honeycombs' packaging is pretty basic and plain. It may be viable to investigate alternatives and reposition Honeycomb, communicating the new look in its marketing strategy.

Conclusion

There are many problems that Honeycomb is facing and many opportunities that need to be investigated. To be able to look clearly and positively into the future a decision needs to be made soon, but proper research needs to be done. Short-term and long-term objectives need to be stated clearly, and able to be used as benchmarks for monitoring the success of the chosen strategy.

Assignment

1. 1.

   Identify the opportunities available for Honeycomb.

2. 2.

   Develop contingency plans for:

   • •

     a new competitor entering the market;

   • •

     North's Bakery to discontinue producing crumpets.

3. 3.

   Should Greg and Andrew secure investment or a bank loan, and purchase the machine?

4. 4.

   What effect will changing the packaging have on Honeycombs' loyal customer base?

5. 5.

   Understanding that Honeycomb has not got a lot of money available for marketing, develop a realistic budget that would help to gain increased sales for Honeycomb.

Seamus Knox University of Canterbury, Christchurch, New Zealand