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Khang Huynh

ACCT 511
Dr. Vijay Karan
February 17th, 2015
Case 5-2 Colombo Soft-Serve Frozen Yogurt
Case Brief:
The competitive environment for Colombo changed drastically from the early 1980s
when the firm originally delivered their soft-serve frozen yogurt to independent yogurt shops, a
then major market share for Colombo. Unfortunately, Colombos share in the frozen yogurt was
heavily impacted in the early 1990s when franchise firms such as TCBY and Freshens started to
streamline the frozen yogurt business with the apparent advantages of uniformed brandings and
marketing efforts; subsequently, a large number of independent yogurt shops ceased to exist as
they could not compete with the efficiency of the yogurt franchisees. The market shifted again in
the late 1990s with the rise of the impulse segment of frozen yogurt as Foodservice operators
started to serve soft-serve yogurt as part of their operations, and ultimately became the dominant
customers for frozen yogurt at 75% market share.
In order to strive in the market dominated by franchise operations, the independent yogurt
shops in the late 90s followed the differentiation business strategy through diversifying their
product offerings with different items such as smoothies, boosters, and granitas. In contrast, softserve yogurt is only considered to be an add-on trade for Foodservice locations; thus, essentially
following a cost leadership strategy, these operators are not inclined to expand their business
with other products compared to the independent yogurt shops. Currently, the main focus of
General Malls Inc. after acquiring Colombo Frozen Yogurt is on the Impulse segment, evidently
displayed through the dedication of the salesforce time, free merchandising kits, and price
promotions. While the merchandising and pricing promotions are also applicable for the Shops,
who do indeed take advantage of them, the enthusiasm of salespeople for the Shop segment is
quite mixed, with a number of the salesforce avoid the shops completely.
Segment Profitability Analysis Statement:
Profit and Loss by Segment ABC

Category

Impulse Segment

Yogurt Shops

Total

Sales in cases

1,200,000

300,000

1,500,000

Sales Revenue

23,880,000.00 $

5,970,000.00 $ 29,850,000.00

Less: Price Promotions

(3,600,000.00) $

Net Sales

20,280,000.00 $

Less: COGS (Appendix A)

$ (11,400,000.00) $ (2,850,000.00) $ (14,250,000.00)

Less: Pick & Ship Expenses (Appendix B)

(2,625,000.00) $

Gross Margin

6,255,000.00 $

Less: Merchandising (Appendix C)

(1,680,000.00) $

(45,000.00) $ (1,725,000.00)

Less: SG&A (Appendix D)

(3,861,000.00) $

(39,000.00) $ (3,900,000.00)

Net Income

714,000.00 $

(900,000.00) $ (4,500,000.00)
5,070,000.00 $ 25,350,000.00

(375,000.00) $ (3,000,000.00)
1,845,000.00 $

1,761,000.00 $

8,100,000.00

2,475,000.00

Under Activity Based Costing method, the production costs remain the same for the two
segments. However, with ABC analysis, there are adjustments to be made for pick/pack and
shipping costs, merchandising costs, and also SG&A costs. Under ABC, the pick and ship
expenses costs are driven by the number of cases in full pallets and the number of individual
cases for the two segments. With the merchandising cost, there were 90 kits sent to Yogurt Shops
while the Impulse Segment received significantly more at 3,360 kits. Lastly, with the sales reps
time as the cost driver, the SG&A had a wide discrepancy between the two segments with only
1% of the salesforces time was allocated to the Yogurt Shops.
Recommendation:
Based on the analysis above, there are several cost factors that GMI-Colombo can
improve upon:

First, the pick and ship cost could be reduced for the Impulse Segment as that market
accounts for 80% of GMIs revenue yet the shipping cost for those Foodservice operators
represents 87.5% of the total shipping cost. Since the Impulse Segment prefer to order in
individual cases instead of full pallets, GMI could offer a package of 10 to 20 cases of frozen
yogurt with the possibility of minimal discount to this group of customers; this helps narrow

down the shipping costs for GMI while also incentivize the Impulse Segment to order in a

larger quantity without bulk and storage inconvenience of the full pallets.
Second, merchandising promotion is obviously a huge cost sink for GMI under ABC
analysis. The Impulse Segment accounts for 97.4% of GMIs merchandising, yet it was
identified that many of the Impulse locations had not at all utilized these displays. Inevitably,
GMI should only provide merchandising offerings to the Impulse locations that definitely use
those displays or on the condition that the Impulse locations order a specific number of

bundles to receive these displays.


Lastly, GMI must restructure their salesforce to be more efficient and not to neglect the
Yogurt Shops segment in order to lower the SG&A expenses. Evidently, while the Yogurt
Shops only accounts for 20% of the total revenue, this segment produces as much as 71.2%
of the total profit an absolute polarity compared to the Impulse locations. Markedly, the
salesforces tendency to avoid Yogurt Shops might have contributed to the lowered sales
despite the profitability of this segment. In addition, the salesforces time was not allocated
effectively at the Impulse locations as a majority of the salespeople only showed the impulse
customers how to use the machine. Thus, GMI should re-focus the salesforce efforts on
Yogurt Shops to boost sales through various incentives such as large order discounts and
promotional pricing for new yogurt flavors.

Under the hypothesis that GMI implements these recommendations, GMI can positively expect
the profit to almost triple in the short term just by lessening the marketing efforts on the Impulse
Segments (Appendix D). In the long run, as GMI gears their efforts toward building the
relationships with the Yogurt Shops, sales from this segment can be expected to increase but
General Mills must produce more unique flavors or innovative factors in order to compete with
the franchise operations.