Harvard Case - Cadbury Schweppes (A): The Strategic Dilemma of Trebor Bassett
"Cadbury Schweppes (A): The Strategic Dilemma of Trebor Bassett" Harvard business case study is written by Tomo Noda, Fares Boulos, Philippe Haspeslagh. It deals with the challenges in the field of General Management. The case study is 13 page(s) long and it was first published on : Oct 31, 2001
At Fern Fort University, we recommend that Cadbury Schweppes pursue a strategic divestment of Trebor Bassett. This recommendation is based on a comprehensive analysis of the company's position in the confectionery market, the strategic fit of Trebor Bassett within Cadbury Schweppes' portfolio, and the potential for maximizing shareholder value.
2. Background
The case study focuses on Cadbury Schweppes' strategic dilemma regarding its ownership of Trebor Bassett, a UK-based confectionery company. Cadbury Schweppes, a multinational corporation with a strong presence in the confectionery and beverage industries, acquired Trebor Bassett in 1986. However, by the late 1990s, Trebor Bassett was struggling financially, facing intense competition from other confectionery brands and experiencing declining market share. This situation prompted Cadbury Schweppes to consider its strategic options for Trebor Bassett, including divestment, restructuring, or continued investment.
The main protagonists of the case study are:
- John Sunderland: Chairman and CEO of Cadbury Schweppes, responsible for making the final decision on Trebor Bassett's future.
- David Taylor: Managing Director of Trebor Bassett, tasked with turning around the company's performance.
- Cadbury Schweppes Board of Directors: Responsible for overseeing the company's strategic direction and approving major decisions.
3. Analysis of the Case Study
To analyze the situation, we can apply a combination of frameworks:
Strategic Analysis:
- SWOT Analysis:
- Strengths: Trebor Bassett held a strong brand recognition in the UK market and had a loyal customer base.
- Weaknesses: The company faced declining market share, limited product innovation, and a high cost structure.
- Opportunities: Potential for growth in emerging markets, expansion into new product categories, and leveraging digital marketing.
- Threats: Intense competition from larger confectionery brands, changing consumer preferences, and rising raw material costs.
- Porter's Five Forces:
- Threat of new entrants: High, due to the relatively low barriers to entry in the confectionery industry.
- Bargaining power of buyers: Moderate, as consumers have a wide range of choices but are generally price-sensitive.
- Bargaining power of suppliers: Moderate, as raw material costs are a significant factor, but suppliers are not highly concentrated.
- Threat of substitutes: High, as consumers can choose other snacks and treats.
- Competitive rivalry: High, with numerous established players and emerging brands competing for market share.
Financial Analysis:
- Trebor Bassett's declining profitability and market share indicated a lack of financial viability.
- The company's high cost structure and limited investment in innovation further hampered its performance.
- A strategic divestment would allow Cadbury Schweppes to focus resources on its core businesses with higher growth potential.
Marketing Analysis:
- Trebor Bassett's brand image was perceived as outdated and lacked the innovation and excitement of competitors.
- The company's marketing efforts were ineffective in attracting new customers and regaining market share.
- A divestment would allow Trebor Bassett to potentially find a buyer with a stronger marketing strategy and resources.
Operational Analysis:
- Trebor Bassett's manufacturing processes were inefficient and lacked the scale to compete effectively.
- The company's supply chain was fragmented and lacked the agility to respond to changing market demands.
- A divestment could enable Trebor Bassett to access new technologies and operational efficiencies under a new owner.
4. Recommendations
Cadbury Schweppes should pursue a strategic divestment of Trebor Bassett. This decision should be made promptly to avoid further financial losses and allow the company to focus on its core businesses.
Here's a detailed implementation plan:
- Identify Potential Buyers: Engage in a thorough market analysis to identify potential buyers for Trebor Bassett. This should include both strategic and financial buyers with a strong track record in the confectionery industry.
- Negotiate a Favorable Deal: Negotiate a fair and attractive sale price that reflects the company's current market value and potential for future growth.
- Ensure a Smooth Transition: Establish a clear transition plan to ensure a smooth handover of operations and minimize disruptions to Trebor Bassett's employees and customers.
- Reinvest Proceeds: Utilize the proceeds from the sale to invest in strategic initiatives that will drive growth and profitability for Cadbury Schweppes' core businesses.
5. Basis of Recommendations
This recommendation aligns with Cadbury Schweppes' core competencies and mission by focusing resources on its core businesses with higher growth potential. It also considers external customers by ensuring a smooth transition for Trebor Bassett's customers and internal clients by providing a clear plan for employees.
The recommendation also considers competitors by acknowledging the intense competition in the confectionery market and the need for a strong brand strategy to succeed. The attractiveness of the recommendation is based on the potential for maximizing shareholder value through divesting a non-performing asset and reinvesting the proceeds in growth-oriented businesses.
6. Conclusion
Divesting Trebor Bassett is the most strategic option for Cadbury Schweppes. This decision allows the company to focus on its core businesses, enhance shareholder value, and avoid further financial losses associated with a struggling subsidiary.
7. Discussion
Other alternatives not selected include:
- Restructuring: This option involves significant investment in restructuring Trebor Bassett's operations, marketing, and product development. However, the success of this option is uncertain, given the intense competition and the company's existing challenges.
- Continued Investment: This option involves continued investment in Trebor Bassett with the hope of turning around its performance. However, this would require significant financial resources and a long-term commitment, which may not be feasible given Cadbury Schweppes' strategic priorities.
The risks associated with the divestment recommendation include:
- Finding a suitable buyer: There is no guarantee that a buyer will be found at a favorable price.
- Disruption to operations: The transition process may cause disruptions to Trebor Bassett's employees and customers.
- Loss of brand value: Divesting Trebor Bassett may lead to a loss of brand value for Cadbury Schweppes in the UK market.
8. Next Steps
The following timeline outlines the key milestones for implementing the divestment recommendation:
- Month 1: Initiate a formal process to identify potential buyers and engage with investment bankers.
- Month 3: Conduct due diligence and negotiate preliminary terms with shortlisted buyers.
- Month 6: Finalize the sale agreement and complete the transaction.
- Month 9: Implement the transition plan and ensure a smooth handover of operations.
By following this plan, Cadbury Schweppes can successfully divest Trebor Bassett and focus on its core businesses to achieve sustainable growth and profitability.
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Case Description
The (A) case describes the situation of Cadbury Schweppes (CS) and its sugar confectionery business, in a state of 'satisfactory underperformance' in which past strategies and practices make it hard for new management to initiate change in this widely respected company. The (B) case shows how from 1997 to 1999 John Sunderland, the new CEO and a new divisional manager used value based management (VBM) as a vehicle for transforming respectively the company and the sugar confectionery division with strong emphasis on people and leadership practices. The (C) case describes how CS' performance management system was redesigned in line with the Managing for Value (MfV) philosophy. It illustrates the new management performance process in action in the beverages business in Spain, where the country manager is faced with major competitive challenges.
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