If the management of the company goes ahead with this deal then the profitability of the company would be increased significantly because the costs for the private label goods are 50% lower as compared to the costs of the branded products despite the fact that the selling prices are lower.
Hansson Private Label Case Solution.zip
Hansson private limited Inc. deals in the private label sector, offering the personal care products, like shampoo, cream, bathing soaps, shaving creams and gel, Sunscreens and mouthwash. Over the period of time, the company has improved its position in the personal care market by selling through different channels. In the recent years, by analyzing the financial statement, it is examined that the position of the company in personal care market is well managed and highly performing.
When students have the English-language PDF of this Brief Case in a coursepack, they will also have the option to purchase an audio version.
A manufacturer of private-label personal care products must decide whether to fund an unprecedented expansion of manufacturing capacity. The decision prompts fundamental financial analysis of the potential project, including development of cash flow projections and net present value calculations. Students will be required to compute net operating profit after tax, cash investment in working capital, and ongoing capital expenditures for a proposed investment, and to discount values to the present. The case also facilitates a systematic consideration of the company's capital planning process.
Strategically, this project is not as high risk as Hansson currently believes. The firm need not be dependent on a single customer because it is experiencing strong demand and has been able to build its business rapidly even in a mature market. Hansson will likely need this capacity in the coming years anyway. In addition, the increased leverage does not take Hansson into a dangerous position. It leaves the company with more debt than it has ever had, but not a historically high LTD/Equity ratio, as this was higher in 2003. There is little reason to believe that the company is increasing its liquidity risk to a point that would even result in an increase in the cost of debt, so Hansson need not worry much about leverage.
Thus, the question becomes one of capturing a market opportunity and where this fits into overall corporate strategy. If Hansson is to continue to grow, it will need to ride the growth of its major retail partners. The drug stores, retailers and clubs are the strongest source of growth within the industry and for Hansson. The company is growing along with the growth of these customers, and these customers have big ambitions. Hansson needs to take a long-term view of its relationship with these major customers -- it has the opportunity to lay the foundations of that relationship and send a signal to all major private label retailers that Hansson is the company to deal with for personal care products, that it is ready to grow with them to a position of market dominance. Strategically and financially, this investment is a great fit and it is therefore recommended that Hansson sign the contract and make the investment.
Hansson can finance this deal entirely with debt from its bank. It is important that Hansson does not focus strictly on the one customer, but works to fill capacity sooner rather than later by courting other major customers, using this deal as an example of its future outlook as a partner to major retailers. Hansson is not projecting at any point more than 85% utilization of the new facility, which indicates that if the company can bring its capacity utilization up with new contracts from other retailers as well, the net present value of this project can be improved further. All indications are that this opportunity is greater than what is included in Gates' calculations, and that Hansson needs to use this investment as a springboard for another round of growth, not just an one-off investment.
Hansson Private Label (HPL) is a manufacturer of personal care products. The company was purchased by Mr. Hanson in 1992. The investment represented a significant risk for Hanson because a significant portion of his wealth was tied up is a single investment. Over the past sixteen years, Hanson has grown the company at a conservative but persistent fashion. He is now faced with an investment opportunity that promises swift growth but also accompanies a significant amount of risk. The sales of private labels are dependent on a few larger customers, and customer retention is very important to a company like HPL. Recently, HPL's largest customer has approached the company for a large order. The company will need to invest in expanding its facilities in order to meet the order requirements. This is an excellent opportunity for HPL, but the downside is that the customer would only commit to a three-year contract and the company can bear significant losses if the customer refuses to buy the product after the contract expires. Therefore, Hansson needs to accurately calculate the cash flows related to the investment and account for the risk inherent in the investment before he can make a decision on the expansion project.
HPL is better off within the private label industry. Hansson had estimated that HPL had more than a 28% share of $2.4billion in wholesale sales from the manufacturers. That is HPL own a significant part of this market.
When students have the English-language PDF of this Brief Case in a coursepack, they will also have the option to purchase an audio version.A manufacturer of private-label personal care products must decide whether to fund an unprecedented expansion of manufacturing capacity. The decision prompts fundamental financial analysis of the potential project, including development of cash flow projections and net present value calculations. Students will be required to compute net operating profit after tax, cash investment in working capital, and ongoing capital expenditures for a proposed investment, and to discount values to the present. The case also facilitates a systematic consideration of the company's capital planning process.if(typeof ez_ad_units != 'undefined')ez_ad_units.push([[300,250],'oakspringuniversity_com-medrectangle-4','ezslot_12',118,'0','0']);__ez_fad_position('div-gpt-ad-oakspringuniversity_com-medrectangle-4-0');
A private label, also called a private brand or private-label brand, is a brand owned by a company, offered by that company alongside and competing with brands from other businesses.[1][2] A private-label brand is almost always offered exclusively by the firm that owns it, although in rare instances the brand is licensed to another company.[3] The brand usually consists of products, but can also encompass services.
Private labels typically involve outsourcing, in which company A hires company B to provide them with a product or service, which is then offered under a brand name of company A. This is how the term private label is usually defined.[4][5][6][7] However, it is also possible that company A owns company B.[8] For example, in 2018, The Kroger Company had 60% of its private brands produced by third parties; the remaining 40% was manufactured internally by plants owned by Kroger.[9] Private-label producers are usually anonymous, sometimes by contract. In other cases, they are allowed to mention their role publicly.[10][11]
The term private label originated in retail,[12] but has since been used in other industries as well. Probably the best known private-label brands are store brands, which are managed by supermarket and grocery store chains. Examples are Simple Truth by Kroger and Great Value by Wal-Mart.[13] Store brands compete with national brands or name brands, like Coca-Cola or Lay's.[14][15][16]
The term private-label product overlaps with the term white-label product. They are sometimes used interchangeably, but they don't mean the same thing. A private-label product is created exclusively for a client, who sets specific demands on what the product or service must contain.[17] A white-label product is not created exclusively for one company, and although white-label manufacturers might offer customizations to their products, these are usually limited.[18] The specifications of a private-label product are set out by the client, whereas a white-label product is more generic and already designed.[19][20]
In the supermarket and grocery store industry, the term private label/brand is almost always used, even if the same product is sold non-exclusively to multiple retailers with different packaging (white label/brand).
A store brand, also called a house brand[21] or, in British English, an own brand,[22] is a private-label brand trademarked and managed by a retailer.[1] This brand is almost always offered exclusively at the chain store that owns it, although in rare instances the brand is licensed to another company.[23] Examples of store brands are Simple Truth by Kroger, Great Value by Wal-Mart, and Specially Selected by Aldi.[13][24] Store brands can also be eponymous, or named after the store, such as Joe's O's cereal by Trader Joe's.[25] Store brands compete with national brands, also called premium brands or name brands,[14][15][16] with its items sometimes being called brand-name products.[26] Examples are Coca-Cola, Lay's, and Kellogg's. The general appeal of store-brand products is that they are usually offered at a lower price than their name-brand counterparts.[1]
Most private-label store brand products are manufactured by third parties, but some are made by companies owned by the retailer.[8] For instance, a vice-president of The Kroger Company stated in 2018 that approximately 60% of their private-label products are outsourced. The remaining 40% is manufactured internally: in 2018, Kroger owned 38 plants, including 19 dairy farms, 10 bakeries, and 2 butcheries, strategically spread across the US.[9] Similarly, Safeway Inc. owned 32 plants as of 2012.[27] Most retailers prefer to keep the identity of their suppliers private, and accordingly have non-disclosure clauses in their contracts, making it difficult to determine the producer of a private-label product.[10][11] In a few cases though, the manufacturer is allowed to mention it publicly,[28] is revealed through a product recall, or in rare instances, is stated on the product itself. For example, the bags of Kirkland Signature coffee by Costco feature the text "Custom roasted by Starbucks".[29][30]
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