Physiology – Stuffem Knows Spuds!
Dewey Stuffem Knows Spuds!
Dewey Stuffem was founded in Canton, Ohio, USA in 1997. The company was founded on the simple idea that they would make the “best damn potato chip EVAR.” Using a proprietary “air frying process” requiring specially patented infra-red ovens , a highly secretive seven-spice blend, and hybrid potatoes (a rare combination of Yukon Gold and Russet potatoes) the company succeeded in its lofty mission. In 1998 they sold 10,000 units of chips. By 2004, that number had increased to 10,000,000. In 2006, in a freak accident the company discovered that their patented air frying process also made amazing French fries. They opened their first Dewey’s Fry Hut in Cleveland, Ohio in 2007 to much fanfare.
By 2010, Deweey Stuffem was a runaway success. There were 500 Dewey’s Fry Huts in malls across all 50 states. The success of Dewey’s Fry Hut spawned the creation of Dewey’s Sittin’ Spuds, a fast-casual restaurant with 200 locations across the Midwestern United States and Canada. And DS frozen fries and bagged potato chips were best sellers at Whole Foods and Publix stores nationwide. The company had come a long way from two employees and $30,000 in revenue in in 1998 to nearly 5000 employees and in $500M in revenue 2010.It is now 2018 and company management has several matters to which it needs to attend.
The first matter is regarding the company’s supply chain. There are only two farms worldwide that are capable of growing the special hybrid potatoes the company needs for its signature products: Draper Meadows and Plowed Earth. Draper Meadows is very poorly run, and nearly went bankrupt last year. Plowed Earth has indicated that it could easily expand it potato operations to provide all of the spuds Dewey Stuffem could ever need. However, the company is concerned about the potential impact on profitability by only working with Plowed Earth.
A second matter concerns segment revenue growth. Frozen fries and potato chip demand is brisk, and is growing 7% year over year especially as the company has introduced new flavors including roast beef and mustard, bacon chive, and green curry. Sales at the Fry Huts slowed in 2014 and have declined year over year every since as traffic in malls has slowed, but these locations all remain very profitable as technical improvements have allowed for trimming of staff at the mall locations. The newest segment, Sittin’ Spuds has been trending upwards, but they are quickly reaching a saturation point in the Midwest, and further expansion possibilities in the United States may be limited. (see below)
A third matter concerns the organization itself. With the various markets they are in growing at different rates, their current organizational structure does not allow them to be nimble enough to respond to the different trends in the different market segments they are facing. In addition to the problem lacking agility, another problem is that employees are saying that they don’t know what is happening in the company anymore. The accountants know the accountants and the marketers know the marketers, but people don’t seem to have much interaction across those roles. The Vice President of Marketing even went as far to say, “I feel like a potato in a silo!”
The CFO has recently said “Based on my forecasting, the North American market is forecast to experience slowed growth across all sectors for the next five years, with declining economic activity in the sixth year. Growth in other regions around the world are forecasted to be much higher. International expansion is possible. Latvia, Ukraine, Philippines and New Zealand are all experiencing double digit growth.” The VP of Marketing has said, “Those are all amazing markets but with a food product, we really need to know something about the on-the-ground local preferences in order to enter those markets successfully. And so we will have to think about what kind of expansion plan makes sense.” Using what you have learned in your strategic management class and the information provided in the case, please answer the next three questions. (The case text will be provided each time for reference.)
What is the most likely reason that Dewey Stuffem is concerned about profitability going down if it received all of its potatoes from Plowed Earth?
A.Increased Supplier Power – because there will only be one firm providing it’s main ingredient which may result in higher potato prices
B.Decreased Quality – with only one firm providing potatoes, the lack of competition between suppliers may decrease quality, which could negatively impact sales
C.Lower Barriers to entry – If others can buy the potatoes from Draper Meadows once Dewey Stuffem drops them, then it may be possible for new players to enter Dewey Stuffem’s markets
D.A and B
E.A and C
F.B and C
