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Case Analysis- Litehouse Foods: The Glass Dilemma

Background
Litehouse, which was one of three major players nationally in the refrigerated
salad dressing marketplace, had been selling its dressings in glass jars. These
glass jars were an important component on how consumers perceive about the
Litehouse brand. Switching to plastic jars would save Litehouse $1.5 million/year
and allow it to narrow the price advantage opened up by adversaries. Doug
Hawkins Jr., the firms Senior Business Development Manager must now develop a
recommendation to the companys executive committee regarding the switch from
glass to plastic packaging based on the analysis on the impact on operations,
sales, supply chain and the consumer perception about the brand. Complicating
this choice were the environmental consequences of a switch from glass to plastic,
both real and perceived, as well as how this change would impact the recent
growth strategy of the firm.
Refrigerated Salad Dressing Market Scenario
In 2011, retail salad dressing was a $3billion market with a household penetration
of 95% and a growth rate of 3%. The market was further divided into shelf stable
and refrigerated salad dressing segment with 85% and 15% market share
respectively. Litehouse was ranked #3 and had 21% market share in the US, while
in Canada it was ranked #2. Company positioned itself as a premium brand, which
uses no preservatives, that is healthy and tasty.
Issues Faced
The recent aggressive effort to grow and expand its market had caused a cash
crunch in the firm which lead to decline in their short-term profitability. Two of
Litehouse Foods competitors had switched to plastic packaging which had helped
them realize a price advantage of $0.60. Litehouse was priced at $3.99 i.e., $0.60
or 15% higher than the competitors and as a result Litehouse witnessed some
customers defect. These factors forced the Litehouse team to make a quick
decision on whether to switch to plastic.
Impact on Supply Chain: Litehouse had positioned as a high quality, all natural
ingredients dressing. Over the years, the cost of these ingredients increased
coupled with fuel costs, as a result Litehouse was forced to increase the retail price
twice in the last year, while their competitor increased only once. Internal
estimates suggest that Litehouse could also save $1.5million/yr by switching from
13oz. glass to 12oz. plastic jar. $1million savings is due to the reduction in size of
the jar and $0.5million is savings from transportation cost due to the reduced
weight of plastic compared to glass.
Impact on Operations: The switch impacts the production process by increasing
the capital investment of equipment.
The three main investments are a
descrambler to handle the value sized plastic container, two induction sealing
system to apply the inner foil seal, additional shelving in the warehouse is needed
so that the full vertical space can be utilized (this is because the plastic jars are
less strong and hence can only be stacked upto 3 layers as opposed to 6 layers in
case of glass jars). However, the advantage of the switch on operations are use
of descrambler to load plastic jars increases the speed of the process and as a
result reduces cycle time, breakage during the process reduces as a result the risk
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Case Analysis- Litehouse Foods: The Glass Dilemma


of loss of jar inventory also reduces. Moreover, the process applying foil seal to
plastic was more robust than in case of glass and hence further increases the
process efficiency.
Impact on Retail: Retailers preferred plastic over glass due to reduced risk of
breakage in store. However, retails wanted Litehouse to support the transition by
building up their inventory sufficiently before the transition and also requested for
adequate marketing so that customers are not confused or turned off. This would
cost Litehouse an additional $250,000.
Impact on Consumer Perception of Litehouse Brand: Consumers had always
connected Litehouse with Glass bottle packaging and hence, the company needs
to take sufficient care while planning to switch to plastic jars. From the analysis of
the blogosphere, Mr. Doug found out that majority of the blogs had low opinion on
plastic as compared to glass. Also, he was able to draw a correlation between the
age and the perception of inferiority of plastic over glass, and came to a
conclusion that older age consumers preferred glass jars while younger consumers
were indifferent to both. Also, from the industry point of view, the salad dressing
industry was shifting to plastic packaging and saw minima backlash on part of
consumers.
Although, Litehouse had faced mixed opinion the last they shifted to plastic
squeeze jars, there was no clarity on whether they were due to switch to plastic or
due to the implementation. Overall, as the industry is moving towards plastic
packaging, the impact will be minimal. However, the transition to plastic should be
gradual so that the consumers do not get confused.
Transition Plan while Switching to 12oz. Plastic Jars
Produce adequate glass bottle dressing to stock at retailer end, so that they are
not impacted
In short-term, use the existing operational capabilities to start producing plastic
bottles
Invest in marketing the new plastic bottle version of the dressing by Spreading
awareness through posters and campaigns
Highlight on Same taste new packaging so as to emphasize the fact that
only the packaging was changed. Also, highlight the added benefits of safety
and convenience in the form of lighter weight, unbreakable bottle that will help
carrying the salad dressing around kitchen easier
In Long-term, invest in the additional process equipment to completely
transition to plastic bottles from glass bottles
Provide retailers the stocking fee, so that they are motivated to stock and
promote the product
Emphasize on the standards followed in testing and safety factor while using
the plastic bottles
Educate the consumers on environmental benefits so that they come out of
their false perception of plastic is harmful to environment
Strategy to Handle Current Situation without Switching to Plastic jars
Reduce the bottle size to industry standard size of 12oz. this will help Litehouse
reduce ingredient cost to some extent
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Case Analysis- Litehouse Foods: The Glass Dilemma


Further, Litehouse should focus on either retaining the product line and
expanding its market or expanding its product line within their existing
markets. This will help them reduce the investments. Otherwise, the cost will
increase by two-folds, because both these strategies needs utmost attention
from the company otherwise which they might fail. Hence it is suggested to
focus only on one at a time.
Company should currently focus on improving its balance sheet and financial
health by reducing the cost of production by optimizing the capacity utilization
Employ workforce on shifts to ensure better capacity utilization and to reduce
the production cost
As the salad dressing is a low-involvement product for most of the consumers,
company can use hedonism to market the product efficiently

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