Sugar Sweets, Inc. (SSI), Retail Interest. The research summarized in Table 2 il

ID: 2567183 • Letter: S

Question

Sugar Sweets, Inc. (SSI),

Retail Interest. The research summarized in Table 2 illustrates important

considerations for retail sales. Fifteen types of retail stores were targeted for

participation, and 30 product lines were considered for distribution. Estimates

concerning expected retail participation and sales were a crit ical part of business

viability. To start, SSI estimated it could contact only 20 percent of all target

retailers. The remaining retaile rs would be approached after a 1-year test period

if the alternative distribution program was successful.

Two types of display units were designed as well as two reorder packages.

An initial order would include two boxes shrink-wrapped together. One box

would hold the product and the other would hold the display unit. Table 3

provides display and product package characteristics. Reorder packs would

contain the same product weight and units as shown for the initial order.

TABLE 1 Alternative Distribution Concept

What is it?

• A unique new concept for distributing and selling SSI snack foods through new retail outlets to

broaden market coverage.

How does it work?

• Display units of popular snack foods are provided to retail outlets for direct

purchase by consumers.

• Fast-selling items are easily restocked by telephone order with an 800 number and

rapid small package delivery service.

What are the special features?

• Minimal effort is required on the retailers’ part since the popularity of well-known SSI brands makes

selling easy.

• Freshness is guaranteed by direct shipment from SSI’s warehouses through rapid delivery service.

• Incremental money is made by selling high profit “impulse” snack foods to customers at no risk

since SSI will remove slow-moving products at no cost to the retail outlet.

TABLE 2

TABLE 2 Retail Characteristics

Total Number

Sales Regions of Target Retailers

Eastern 320,000

Midwestern 290,000

Western 210,000

Percent of retailers for initial contact: 20%.

Projected retailers who will participate after initial contact: 30%.

Retailers who will continue after 6-month trial period: 55%.

Expected average retail sales transactions: $1.40 per customer purchase.

Expected average unit sale: 1.12 units per customer purchase.

Expected average customer traffic/retail store: 100/day.

Expected average number of customers who will purchase product: 10%.

TABLE 3 Initial Display and Product Package Characteristics

Large Small

Weight 25 lbs. 14 lbs.

Cubic Feet 2.75 2.00

Product Included 24 lbs. 12 lbs.

Cost of Display Unit $35 $18

Units of Product 180 92

Production Costs $190 $98

1. Determine the total number of retailers in the program initially as well as after the trial period. PLEASE PROVIDE WORK

2. Determine what the average retailer will sell on a daily basis as well as annually. Provide sales in terms of unit and dollar amounts. (Assume 260 business days per year, with 5 business days each week.) PLEASE PROVIDE WORK

3. Translate the annual sales for an average retailer into the number of large packs that retailers will order per year. Repeat for the small pack order. (Round if necessary.) Include the initial order in the calculation. PLEASE PROVIDE WORK

Explanation / Answer

1. Determination of Total No. of Retailers at Both – Pre-Trial and Post-Trial Period

Required Data for Calculation has been provided in Table 2:

Total No. of Retailers = Retailers in Eastern Region + Retailers in Midwestern Region + Retailers in Western Region

or Total Retailers = 320,000 + 290,000 + 210,000 = 820,000 retailers.

Presented Details provide that 20% of total retailers were contacted, and out of those 20% retailers 30% of such retailers followed in trial-period. Accordingly,

No. of Retailers Participating During Pre-Trial Period = (820,000*20%*30%) = 49,200 retailers

Also, it has been given that the number of retailers expected to continue after participating in pre-trial period has been projected at 55%. So,

No. of Retailers Continuing After Post-Trial Period = (49,200*55%) = 27,060 retailers

2. Calculation of Sales in Unit and Dollar Terms on Daily and Annual Basis

Again, the requisite data has been presented in Table 2:

It is expected that on a daily average 100 customers will visit a retail store, and out of these 100 customers, 10 customers (100*10%) will actually purchase the product. Also, each such purchase transaction will have an average of 1.12 units, costing $1.40 per purchase.

Consequently,

Unit Sales

$ Amount

Daily Sales

11.2 Units

(10 Customers * 1.12 Units Daily)

$14

(10 Customers * $1.40 Per Purchase)

Annual Sales

2912 Units

(10 Customers * 1.12 Units Daily * 260 Business Days)

$3640

(10 Customers * $1.40 Per Purchase * 260 Business Days)

3. Calculation of Annual Sales into Number of Packs

To solve the problem, details have been encapsulated in Table 3:

A Large Pack contains 180 units, while a Small Pack holds 92 units.

Given the Annual Demand of 2912 units, Required Number of Packets can be Calculated as below:

For Large Pack = 2912 Units/ 180 Units per Large Pack = 16.1778 Packs = 16 Packs

For Small Pack = 2912 Units/ 92 Units per Small Pack = 31.6521 Packs = 32 Packs