To: Dr.

Frank Sterrett
From: James Stolberg
03/4/2009
Re: A-1 Lanes

A-1 Lanes is a Texas based manufacturer and international supplier of wood

and synthetic bowling lanes. The company and its president Rick Baker are

concerned that A-1 lanes could be adversely affected by the recent revelation that a

possible economic crisis is on the horizon for countries in and around the Asian

Pacific Rim in which 80% of A-1’s sales are derived.

Analysis: A-1 Lanes has experienced incredible growth in just over 10 years

from its humble origins in a barn in Texas. The company had sales of $12.4 million

in 1996, which was a 33% increase from the previous year. Only 20% of sales were

domestic in 1996 however A-1 Lanes has become a major international player in the

international bowling industry with over 30 bowling capital equipment distributors

using A-1 as a source for lanes. 50% of sales are channeled through A-1 Lanes

relationship with Dacos, an established distributor of bowling equipment

internationally. A-1 Lanes hit an all time high for net profit in 1995 and despite

higher sales in 1996, net profit fell more that 50%. This was a result of A-1’s

response to dramatic price drops from competition leading to much smaller margins

as well as a large increase in interest expense from a recently acquired loan.

A-1 competes successfully with the largest firms as well as maintains an

advantage over smaller competitors because of strong distribution channels and

presence in Asia. A-1 also has an advantage over much of the competition in that its

manufacturing facility in Texas provides an ideal location for low cost of receiving

the required local lumber and close proximity to the mills. The Synthetic lanes called
UltraLane provide an advantage over similar products in that it provides the best

approach surface and can also be used for resurfacing. The company has 3

executives that do all selling and maintain relationships with customers as well as

distributors. This has benefited A-1 greatly as these executives are consistently well

received in Asia with their top-notch experience and knowledge. A downfall of A-1

is its exposure to international exchange rate fluctuation, which proves to be the

greatest hazard to the future and growth of A-1 Lanes. Much upside in bowling still

exists in Singapore and Malaysia as increasing interest couples with an ever-

growing ideal demographic.

A-1 Lanes successfully competes on a differentiation strategy that

incorporates cost leadership without actively having the lowest price yet still

maintaining comparable prices as lowest priced competitor. The company strives to

provide competitively priced, premium-quality products. In this industry in which

A-1 competes there are several factors crucial to success. These include but are not

limited to cost effective manufacturing power and distribution channels as well as

access to industry standard materials. Buyers of such products have limited choices

when selecting capital equipment. Buyers also must use either industry standard

wood or a industry standard synthetic therefore no other option exists for building

lanes. Suppliers have a lot of leverage in negotiation as the required type of wood

only exists in limited geographic areas. A-1 Lanes’ rapid growth into the industry is

proof that new competitors could emerge with out much obstruction. There is great

competition between the limited number of suppliers for bowling equipment and

the competition has gained intensity of late with competitor AMF recently slashing
prices. Despite a peak in the bowling industry domestically in the late 1960’s,

international growth of the sport has only just begun and the emergence of long

lasting synthetics is a relatively new development.

In doing 80% of sales in Asia, A-1 Lanes had maximum exposure to potential

risks with the Eastern Asian Economy. When the Government of Thailand devalued

its currency in 1996, A-1 was and could continue to be adversely affected. This

current Asian economic crisis affects A-1 in three ways. First, the possibility exists

for Asian firms to not be able to pay off obligations due to differences in currency

valuation. Secondly is the possibility for less demand for US exports in Asia due to

rise in prices. Finally, the possibility exists for Asian Governments to raise interest

rates in an attempt at currency stabilization, which could adversely affect new

construction in the bowling industry.

Options: Rick Baker can only foresee 3 possible solutions for A-1 Lanes’

response to the economic crisis in eastern Asia. He lists those as liquidation, selling

and finally weathering out the impending economic storm. However, despite the

thoughts of the president and founder, other options due exist. Alternate options

could be to move forward into new markets like Singapore and Malaysia or to move

into a pure differentiation strategy by restoring prices to what they where in 1995

while striving to become the highest quality lane supplier in bowling. Other options

could be paying off long-term debt as soon as possible to eliminate the extremely

high interest expense.

Recommendation: I would recommend first and foremost restoring prices

to what they where in 1995 and offsetting this change by ensuring that the products
created where of the highest quality and customer satisfaction. This would be a

departure from the previous blended strategy of differentiation and cost leadership.

Moving into a pure differentiation strategy by bringing prices back to the level that

they were in 1995 would restore profit margin and bring net income back in line

with the increased sales that 1996 provided. The increase in profit margin from this

move will offset any possible loss in demand from the increased prices. For this

strategy to work, A-1 Lanes will have to insure that they are producing the finest

lanes available made specifically from the finest lumber available. The current

outstanding relationship with the mill will help facilitate this process as mill

employees are already trained in locating wood in line with industry standards and

could easily transition into screening for only better than industry standard quality

lumber. The new top shelf product line can be marketed as the industry leader in

quality and customer satisfaction thru existing marketing mediums like the trade

shows that A-1 currently participates in. The current presence in the Asian market

along with strategies to be included in the future of this budding market can

continue on as is with this revised strategy as proper profit margins will reflect in

better net income. The synthetic UltraLane product is already and industry leader in

quality and customer satisfaction and should be priced accordingly as it is used for

new durable lanes as well as resurfacing the ever-growing number of lanes needing

updated surfaces. The Ultralane product is unique in that it is the only product of its

kind that is affective for the run up portion of the lane and should be priced and

marketed accordingly. This new differentiation strategy will improve margins

enough to ensure maximum profitability and enable A-1 Lanes to survive the lack of

growth that is a possible result of this upcoming economic crisis in eastern Asia.