Rip van Wafels - Final PDF

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Rip van Wafels - Final...

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Hannah Kim November 22, 2015 ENGN 9 – Morgan, Sydney & Jack Rip van Wafels Rip Pruisken founded Rip van Wafels during the first semester of his junior year at Brown University. Rip van Wafels manufactures and sells Rip’s favorite morning snack from Amsterdam, wafels, which he ate daily with his morning coffee. He instilled his firm with Dutch image and sensibilities. Currently, wafels are popular in San Francisco, and Rip is looking to expand “one region at a time.” The company has been presented with two opportunities for expansion: 1) to export wafels to wholesale distributors in Australia, Japan, and Korea, and 2) to sell wafels in Costco in the Los Angeles region. Rip must make the decision whether to proceed with either, both, or neither of these opportunities. Thus, it is essential to assess the advantages and disadvantages of each of his options. Firstly, Costco presents itself as a promising place to sell wafels given the composition of its customer base and the retailer’s success in the San Francisco market. If the wafels were to be well received in the Los Angeles market, Costco could expand sales of the product into new markets throughout California and ultimately throughout the United States. Consequently, a solid relationship with Costco in Los Angeles would offer the chance of huge growth for the firm. Costco is the third largest retailer in the United States, and its Los Angeles stores are very successful. By tapping into Costco’s business model, “low price at a high volume,” Rip van Wafels could increase its quantity of units sold while decreasing certain operating expenses such as sales and marketing. Nevertheless, approaching a business partnership with Costco incurs great costs: primarily profit-margin compression. Costco will likely demand a “low” price that

would slash the company’s profit margins even with a significant increase in sales. For the firm to rapidly expand through Costco would increase the company’s risk profile due to its dependence on the retailer. Moreover, its lower profit margins would reduce the margin for safety and risk diversification. However, the increased profits, albeit at a lower margin, will, to some extent, offset these risks. Furthermore, Rip must determine whether to give Costco exclusivity in the Los Angeles market, regarding the fact that he wishes to sell wafels in other Los Angeles retailers. With this in mind, Rip wishes to preserve yet maximize the firm’s flexibility and growth alternatives. Moreover, recent manufacturing bottlenecks in Canada has meant that greater demand from Costco could possibly incur challenges. The Costco relationship would also rebut Rip’s vision for Rip Van Wafels. Rip works to sell a lifestyle, as opposed to simply a product. Costco sells bulk-packaged products to institutional and corporate buyers in order to achieve profit maximization. By contrast, Rip targets the individual consumer by selling his wafels at coffee shops, bike stores, and small boutique businesses. By entering a business relationship with Costco, Rip, as a small business operator, will inevitably sacrifice some control regarding the direction of his business. This could lead to a power struggle with Costco over different matters including manufacturing, pricing, marketing, and growth. On the international front, Rip has received a proposal from the Korean distributor to cover the costs tied to advertising and promotion. Although this may appear advantageous for Rip van Wafels, this arrangement poses significant risks to the company’s brand. Relinquishing control of the firm’s marketing could dilute, or even negate, the brand’s strong ties with Rip’s native Amsterdam. As its image represents a great part of the firm’s appeal, preserving the brand

is critical to future success. The short-term advantages linked with the Korean operation will be completely negated if it results in long-term damage to the company’s brand. In conclusion, Rip and his team should seek controlled expansion. This means that the firm should not continue with the Korean distribution deal at present. Considering the size of the company, exporting to Asia would be an extremely risky move. In conjunction with concerns regarding control over advertisement and marketing, there is no guarantee that the wafels would succeed in the Asian market. However, the Costco partnership in Los Angeles presents itself as worthwhile. Los Angeles is geographically close and culturally similar to San Francisco, and therefore the expansion would be easier to navigate. The company should also proceed with its expansion into the Pacific Northwest while pursuing the relationship with Costco in Los Angeles. Seattle and Portland markets also offer geographical proximity as well as cultural similarities to San Francisco and would be worth considering in the future. Seattle is the home of Starbucks coffee, and the city has numerous coffee outlets, technology companies (like Microsoft), and specialty grocery stores. Overall, Rip should focus on sales and marketing within the United States before pursuing international expansion....