Prince Edward Island Preserves Case

Case
Prince Edward Island Preserve Co.

9A91G005
In August 1991, Bruce MacNaughton, president of Prince total sales in the coming year expected to exceed $1 million
Edward Island Preserve Co. Ltd. (P.E.I. Preserves), was con- for the first time, MacNaughton had made good on the op-
templating future expansion. Two cities were of particular portunity he had perceived years earlier. It had not been
interest: Toronto and Tokyo. At issue was whether con- easy, however.
sumers in either or both markets should be pursued, and if
MacNaughton arrived in P.E.I. from Moncton, New
so, how. The choices available for achieving further growth
Brunswick in 1978.Without a job, he slept on the beach for
included mail order, distributors, and company controlled
much of that first summer. Over the next few years he
stores.
worked in commission sales, waited tables in restaurants,
and then moved to Toronto. There he studied to become a
chef at George Brown Community College. After working
Background in the restaurant trade for several years, he found a job with
Prince Edward Island Preserve Co. was a manufacturing “Preserves by Amelia” in Toronto. After six months, he re-
company located in New Glasgow, P.E.I. which produced turned to P.E.I. where he opened a restaurant. The restau-
and marketed specialty food products. The company rant was not successful and MacNaughton lost the $25,000
founder and majority shareholder, Bruce MacNaughton, stake he had accumulated.With nothing left but 100 kilo-
had realized that an opportunity existed to present P.E.I. grams of strawberries, Bruce decided to make these into
strawberries as a world-class food product and to introduce preserves in order to have gifts for Christmas 1984. Early
the finished product to an “up-scale” specialty market. With the following year, P.E.I. Preserves was founded.
The products produced by the company were priced and
Professor Paul W. Beamish prepared this case solely to provide packaged for the gift/gourmet and specialty food markets.
material for class discussion. The author does not intend to The primary purchasers of these products were conscious
illustrate either effective or ineffective handling of a managerial of quality and were seeking a product which they consid-
situation. The author may have disguised certain names and ered tasteful and natural. P.E.I. Preserves felt their product
other identifying information to protect confidentiality. met this standard of quality at a price that made it attractive
to all segments of the marketplace.
Ivey Management Services prohibits any form of reproduction,
storage or transmittal without its written permission. This Over the next few years as the business grew, improvements
Copyright © 2013. Pearson Education UK. All rights reserved.
material is not covered under authorization from CanCopy or were made to the building in New Glasgow. The sense of
any reproduction rights organization. To order copies or request style which was characteristic of the company was evident
permission to reproduce materials, contact Ivey Publishing, Ivey from the beginning in its attractive layout and design.
Management Services, c/o Richard Ivey School of Business, The In 1989 the company diversified and opened “The Perfect
University of Western Ontario, London, Ontario, Canada, N6A Cup,” a small restaurant in P.E.I.’s capital city of Charlotte-
3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail town. This restaurant continued the theme of quality, spe-
cases@ivey.uwo.ca. cializing in wholesome, home-made food featuring the
Copyright © 1991, Ivey Management Services Version: (A) 2003-05-26 products manufactured by the company. The success of this
From Case 5 of Strategic Management: A Dynamic Perspective, Concepts and Cases, Second Edition. Mason A. Carpenter, William Gerard
Sanders. Copyright © 2009 by Pearson Education, Inc. All rights reserved.
500
Sanders, Gerry. Strategic Management: Pearson New International Edition : Concepts and Cases, Pearson Education UK, 2013. ProQuest Ebook Central,
http://ebookcentral.proquest.com/lib/durham/detail.action?docID=5137490.
Created from durham on 2021-10-05 11:48:12.
Case: Prince Edward Island Preserve Co.
Table 1
Operation Year Opened
1985 1989 1990 1991 Projected 1992
New Glasgow—Manufacturing and Retail X X X X X
Charlottetown—Restaurant (Perfect Cup) X X X X
New Glasgow—Restaurant (Tea Room) X X X
Charlottetown—Retail (CP Hotel) X X
Toronto or Tokyo? X
operation led to the opening in 1990 of a small tea room at Charlottetown and P.E.I.’s best-known North Shore beaches.
the New Glasgow location. Both of these locations show- In their mailings they planned to continue to promote
cased the products manufactured by the P.E.I. Preserve Co. Prince Edward Island as“Canada’s Garden Province”and the
“little jewel it was in everyone’s heart!” They had benefitted,
In August 1991, the company opened a small (22 square
and would continue to benefit, from that image.
metre) retail branch in the CP Prince Edward Hotel. Mac-
Naughton hoped this locale would expand visibility in the
local and national marketplace, and serve as an off-season
sales office. P.E.I. Preserves had been given very favourable Marketing
lease arrangements (well below the normal $275 per month PRODUCTS The company had developed numerous
for space this size) and the location would require minimal products since its inception. These included many original
financial investment. As Table 1 suggests, the company had varieties of preserves as well as honey, vinegar, mustard, and
experienced steady growth in its scope of operations. tea (repackaged). (Exhibit 1 contains a 1990 price list, order-
ing instructions, and a product picture used for mail order
purposes.) The company had also added to the appeal of
Marketplace these products by offering gift packs composed of different
Prince Edward Island was Canada’s smallest province, both products and packaging. With over 80 items, it felt that it had
in size and population. Located in the Gulf of St. Lawrence, achieved a diverse product line and efforts in developing
it was separated from Nova Scotia and New Brunswick by new product lines were expected to decrease in the future.
the Northumberland Strait. The major employer in P.E.I. Approximately three-quarters of total retail sales (including
was the various levels of government. Many people in P.E.I. wholesale and mail order) came from the products the com-
worked seasonally, in either farming (especially potato), pany made itself. Of these, three quarters were jam preserves.
fishing, or tourism. During the peak tourist months of July
With the success of P.E.I. Preserves, imitation was in-
and August, the island population would swell dramati-
evitable. In recent years, several other small firms in P.E.I.
cally from its base of 125,000. P.E.I.’s half million annual
had begun to retail specialty preserves. Another company
visitors came “home” to enjoy the long sandy beaches, pic-
which produced preserves in Ontario emphasized the
turesque scenery, lobster dinners, arguably the best tasting
Green Gables tie-in on its labels.
strawberries in the world, and slower pace of life. P.E.I. was
best known in Canada and elsewhere for the books, movies PRICE P.E.I. Preserves were not competing with “low-
and (current) television series about Lucy Maud Mont- end” products, and felt their price reinforced their cus-
gomery’s turn-of-the-century literary creation, Anne of tomers’ perception of quality. The 11 types of jam preserves
Green Gables. retailed for $5.89 for a 250-millilitre jar, significantly more
than any grocery store product.However, grocery stores did
P.E.I. Preserves felt they were competing in a worldwide mar-
not offer jam products made with such a high fruit content
ket. Their visitors were from all over the world and in 1991
and with champagne, liqueur or whisky.
they expected the numbers to exceed 100,000 in the New
Glasgow location alone. New Glasgow (population 200) was In mid-1991, the company introduced a 10 per cent increase
located in a rural setting equidistant (15 kilometres) from in price (to $5.89) and, to date, had not received any negative
501
Exhibit 1 P.E.I. Preserves Mail Order Catalogue
reaction from customers. The food products were not sub- cialty retailers provided a coupon for a free cup of coffee or
ject to the seven per cent National Goods and Services Tax or tea at P.E.I. Preserves. In 1991, roughly 2,000 of these
P.E.I.’s 10 per cent Provincial Sales Tax, an advantage over coupons were redeemed.
other gift products which the company would be stressing.
Approximately 5,000 people received their mail order cata-
PROMOTION Product promotion had been focused in logue annually. They had experienced an order rate of
two areas—personal contact with the consumer and cata- 7.5 per cent with the average order being $66. They hoped
logue distribution.Visitors to the New Glasgow location to devote more time and effort to their mail order business
(approximately 80,000 in 1990) were enthusiastic upon in an effort to extend their marketing and production
meeting Bruce, “resplendent in the family kilt,” reciting his- period. For 1991 to 1992, the order rate was expected to in-
tory and generally providing live entertainment. Bruce and crease by as much as 15 per cent because the catalogue was
the other staff members realized the value of this “Island to be mailed two weeks earlier than in the previous year.
Touch” and strove to ensure that all visitors to New Glasgow The catalogues cost $1 each to print and mail.
left with both a positive feeling and purchased products.
In addition to mail order, the company operated with an ad
Visitors were also encouraged to visit the New Glasgow lo- hoc group of wholesale distributors. These wholesalers
cation through a cooperative scheme whereby other spe- were divided between Nova Scotia, Ontario, and other loca-
502
Exhibit 1 P.E.I. Preserves Mail Order Catalogue—Continued
tions. For orders as small as $150, buyers could purchase Over the past few years, the company had received numer-
from the wholesalers’ price list. Wholesale prices were on ous enquiries for quotations on large-scale shipments. Mit-
average 60 per cent of the retail/mail order price. Total subishi had asked for a price on a container load of
wholesale trade for the coming year was projected at preserves. Airlines and hotels were interested in obtaining
$150,000, but had been higher in the past. preserves in 28 or 30 gram single-service bottles. One hotel
chain, for example, had expressed interest in purchasing

Danamar Imports was a Toronto-based specialty food store
three million bottles if the cost could be kept under $0.40
supplier which had previously provided P.E.I. Preserves to
per unit. (Bruce had not proceeded due to the need to pur-
hundreds of specialty food stores in Ontario. Danamar had
chase $65,000 worth of bottling equipment, and uncer-
annually ordered $80,000 worth of P.E.I. Preserves at 30 per
tainty about his production costs.) This same hotel chain
cent below the wholesale price. This arrangement was ami-
had more recently been assessing the ecological implica-
cably discontinued in 1990 by MacNaughton due to uncer-
tions of the packaging waste which would be created with
tainty about whether he was profiting from this contract.
the use of so many small bottles. They were now weighing
P.E.I. Preserves had a list of the specialty stores which Dana-
the hygiene implications of serving jam out of multi-
mar had previously supplied, and was planning to contact
customer use larger containers in their restaurants. They
them directly in late 1991.
503
Exhibit 1 P.E.I. Preserves Mail Order Catalogue—Continued
had asked MacNaughton to quote on $300,000 worth of This growth, although indicative of the success of the
jam in two-litre bottles. product, has also created its share of problems. Typical of
many small businesses which experience such rapid
growth, the company had not secured financing suitable
Financial to its needs. This, coupled with the seasonal nature of the
The company had enjoyed a remarkable rate of growth since manufacturing operation, had caused numerous periods
its inception. Sales volumes had increased in each of the six of severe cash shortages. From Bruce’s perspective, the
years of operations, from an initial level of $30,000 to 1990’s company’s banker (Bank of Nova Scotia) had not been as
total of $785,000. These sales were made up of $478,000 supportive as it might have been. (The bank manager in
from retail sales (including mail order) of what they manu- Charlottetown had last visited the facility three years
factured and/or distributed, and $307,000 from the restau- ago.) Bruce felt the solution to the problem of cash short-
rants (the Tea Room in New Glasgow, and Perfect Cup ages was the issuance of preferred shares. “An infusion of
Restaurant in Charlottetown). Exhibits 2 and 3 provide In- ‘long term’ working capital, at a relatively low rate of in-
come Statements from these operations, while Exhibit 4 terest, will provide a stable financial base for the future,”
contains a consolidated balance sheet. he said.
504
Exhibit 2 P.E.I. Preserve Co. Ltd. Exhibit 3 P.E.I. Preserve Co. Ltd.
(Manufacturing and Retail) Schedule of Restaurant
Statement of Earnings and Operations (Charlottetown
Retained Earnings Year and New Glasgow) Year
Ended January 31, 1991 Ended January 31, 1991
(Unaudited) (Unaudited)
1991 1990 SCHEDULE 2
1991
Sales $478,406 $425,588
Cost of sales 217,550 186,890 Sales $306,427
Gross margin 260,856 238,698 Cost of Sales
Expenses Purchases and freight 122,719
Advertising and promotional items 20,632 6,324 Inventory, end of year 11,864
Automobile 7,832 3,540 110,855
Doubtful accounts 1,261 — Salaries and wages for food preparation 42,883
Depreciation and amortization 11,589 12,818 153,738
Dues and fees 1,246 2,025 Gross Margin 152,689
Electricity 7,937 4,951 Expenses
Heat 4,096 4,433 Advertising 2,927
Insurance 2,426 1,780 Depreciation 6,219
Interest and bank charges 5,667 17,482 Electricity 4,897
Interest on long-term debt 23,562 9,219 Equipment lease 857
Management salary 29,515 32,600 Insurance 389
Office and supplies 12,176 10,412 Interest and bank charges 1,584
Professional fees 19,672 10,816 Interest on long-term debt 2,190
Property tax 879 621 Office and supplies 2,864
Rent — 975 Propane 2,717
Repairs and maintenance 6,876 9,168 Rent 22,431
Salaries and wages 70,132 96,386 Repairs and maintenance 3,930
Telephone and facsimile 5,284 5,549 Salaries and wages for service 90,590
Trade shows 18,588 12,946 Supplies 12,765
249,370 242,045 Telephone 1,697
Earnings (loss) from manufacturing 156,057
operation 11,486 (3,347) Loss from Restaurant Operations $ 3,368
Management fees — 7,250
Loss from restaurant operations—
Schedule 2 3,368 —
Earnings before income taxes 8,118 3,903
Income taxes 181 1,273
Net earnings 7,937 2,630 these shares would be complete by December 31, 1991. In
Retained earnings, beginning of year 9,290 6,660 the interim he required a line of credit in the amount of
Retained earnings, end of year $ 17,227 $ 9,290 $100,000 which he requested to be guaranteed by the Prince
Edward Island Development Agency.
Projected Sales for the Year Ended January 31, 1992 were:
New Glasgow Restaurant $ 110,000
At this time, MacNaughton was attempting to provide a Charlottetown Restaurant 265,000
sound financial base for the continued operation of the Retail (New Glasgow) 360,000
company. He had decided to offer a preferred share issue in Wholesale (New Glasgow) 150,000
the amount of $100,000. These shares would bear interest at Mail Order (New Glasgow) 50,000
the rate of eight per cent cumulative and would be non- Retail (Charlottetown) 75,000
voting, non-participating. He anticipated that the sale of Total $1,010,000
505
Only top quality fruit was purchased. As much as possible,

Exhibit 4 P.E.I. Preserve Co. Ltd. P.E.I. raw materials were used. For a short period the fruit
Balance Sheet as at could be frozen until time for processing.
January 31, 1991 (Unaudited)
The production process was labour intensive. Bruce was con-
1991 1990
sidering the feasibility of moving to an incentive-based salary
Current Assets system to increase productivity and control costs. Because a
Cash $ 5,942 $ 592 decorative cloth fringe was tied over the lid of each bottle,
Accounts Receivable bottling could not be completely automated. A detailed pro-
Trade 12,573 6,511 duction cost analysis had recently been completed.While
Investment tax credit 1,645 2,856 there were some minor differences due to ingredients, the
Other 13,349 35,816 variable costs averaged $1.25 per 250-millilitre bottle. This
Inventory 96,062 85,974 was made up of ingredients ($0.56), labour ($0.28) and pack-
Prepaid expenses 2,664 6,990 aging ($0.20 per bottle, $0.11 per lid, $0.03 per label and
132,235 138,739 $0.07 per fabric and ribbon).
Grant Receivable 2,800 1,374
Restaurant operations were the source of many of Bruce’s
Property, Plant and Equipment 280,809 162,143
Recipes and Trade Name, at Cost 10,000 10,000
headaches. The New Glasgow Restaurant had evolved over
$425,844 $312,256 time from offering “dessert and coffee/tea” to its present sta-
tus where it was also open for meals all day.
Current Liabilities
Bank indebtedness $ 2,031 $ 9,483 MANAGEMENT During the peak summer period, P.E.I.
Operating and other loans 54,478 79,000 Preserves employed 45 people among the restaurants, man-
Accounts Payable and accrued liabilities 64,143 32,113 ufacturing area and retail locations. Of these, five were
Current portion of long-term debt 23,657 14,704 managerial positions (see Exhibit 5). The company was
144,309 135,300 considered a good place to work, with high morale and lim-
Long-term Debt 97,825 99,679 ited turnover. Nonetheless, most employees (including
Deferred Government Assistance 54,810 — some management) were with the company on a seasonal
Payable to Shareholder, non-interest basis. This was a concern to MacNaughton who felt that if
bearing, no set terms of repayment 43,373 49,687
he could provide year round employment, he would be able
340,317 284,666
to attract and keep the best quality staff.
Shareholders’ Equity
Share capital 55,000 5,000 Carol Rombough was an effective assistant general man-
Contributed surplus 13,300 13,300 ager and bookkeeper. Maureen Dickieson handled produc-
Retained earnings 17,227 9,290 tion with little input required from Bruce. Kathy
85,527 27,590 MacPherson was in the process of providing, for the first
$425,844 $312,256 time, accurate cost information. Natalie Leblanc was man-
aging the new retail outlet in Charlottetown, and assisting
on some of the more proactive marketing initiatives Bruce
was considering.
Bruce felt that the company had survived on the basis of
Operations word-of-mouth. Few follow-up calls on mail order had ever
Preserve production took place on site, in an area visible been done. Bruce did not enjoy participating in trade
through glass windows from the retail floor. Many visitors, shows—even though he received regular solicitations for
in fact, would videotape operations during their visit to the them from across North America. In 1992, he planned to
New Glasgow store, or would watch the process while tast- participate in four retail shows, all of them in or close to
ing the broad selection of sample products freely available. P.E.I. Bruce hoped to be able eventually to hire a sales/
marketing manager, but could not yet afford $30,000 for the
Production took place on a batch basis. Ample production
necessary salary.
capacity existed for the $30,000 main kettle used to cook the
preserves. Preserves were made five months a year, on a sin- The key manager continued to be MacNaughton. He de-
gle shift, five day per week basis. Even then, the main kettle scribed himself as “a fair person to deal with, but shrewd
was in use only 50 per cent of the time. when it comes to purchasing. However, I like to spend
506
Exhibit 5 Key Executives

President and General Manager—Bruce MacNaughton, Age 35
Experience: Seventeen years of “front line” involvement with the public in various capacities;
Seven years of managing and promoting Prince Edward Island Preserve Co. Ltd;
Past director of the Canadian Specialty Food Association.
Responsibilities: To develop and oversee the short-, mid-, and long-term goals of the company;
To develop and maintain quality products for the marketplace;
To oversee the management of personnel;
To develop and maintain customer relations at both the wholesale and retail level;
To develop and maintain harmonious relations with government and the banking community.
Assistant General Manager—Carol Rombough, Age 44
Experience: Twenty years as owner/operator of a manufacturing business;

Product marketing at both the wholesale and retail level;
Personnel management;
Bookkeeping in a manufacturing environment;
Three years with the Prince Edward Island Preserve Co. Ltd.
Responsibilities: All bookkeeping functions (i.e. Accounts Receivable, Accounts Payable, Payroll);
Staff management—scheduling and hiring;
Customer relations.
Production Manager—Maureen Dickieson, Age 29
Experience: Seven years of production experience in the dairy industry;

Three years with the Prince Edward Island Preserve Co. Ltd.
Responsibilities: Oversee and participate in all production;

Planning and scheduling production;
Requisition of supplies.
Consultant—Kathy MacPherson, Certified General Accountant, Age 37
Experience: Eight years as a small business owner/manager;

Eight years in financial planning and management.
Responsibilities: To implement an improved system of product costing;

To assist in the development of internal controls;
To compile monthly internal financial statements;
To provide assistance and/or advice as required by management.
Store Manager—Natalie Leblanc, Age 33

Experience: Fifteen years in retail.
Responsibilities: To manage the retail store in the CP Hotel;

Assist with mail order business;
Marketing duties as assigned.
507
enough money to ensure that what we do—we do right.” Fi- with the recipient; however, one of the most common price
nancial and managerial constraints meant that Bruce felt points used by Japanese retailers for gift giving was offering
stretched (“I haven’t had a vacation in years”) and unable to choices for under ¥2,000.
pursue all of the ideas he had for developing the business.
THE JAPANESE JAM MARKET Japanese annual con-
sumption of jam was approximately 80,000 tons. Imports
made up six to nine per cent of consumption, with higher-
The Japanese Consumer grade products (¥470 or more per kilo wholesale CIF) mak-
ing up a third of this total. Several dozen firms imported jam,
MacNaughton’s interest in the possibility of reaching the
and utilized a mix of distribution channels (see Exhibit 6).
Tokyo consumer had been formed from two factors: the large
Prices varied, in part, according to the type of channel struc-
number of Japanese visitors to P.E.I. Preserves, and the fact
ture used. Exhibit 7 provides a common structure. Import
that the largest export shipment the company had ever made
duties for jams were high—averaging about 28 per cent.
had been to Japan. MacNaughton had never visited Japan, al-
Despite such a high tariff barrier, some firms had been suc-
though he had been encouraged by Canadian federal gov-
cessful in exporting to Japan. Excerpts from a report on how
ernment trade representatives to participate in food and gift
to access Japan’s jam market successfully are contained in
shows in Japan. He was debating whether he should visit
Exhibit 8.
Japan during the coming year. Most of the information he
had on Japan had been collected for him by a friend.
Japan was Canada’s second most important source of for- Canadian World
eign tourists. In 1990, there were 474,000 Japanese visitors
In spring 1990, P.E.I. Preserves received its biggest ever ex-
to Canada, a figure which was expected to rise to one mil-
port order; $50,000 worth of product was ordered (FOB
lion by 1995. Most Japanese visitors entered through the
New Glasgow) for ultimate shipment to Ashibetsu, on the
Vancouver or Toronto airports. Within Canada, the most
northern Japanese island of Hokkaido. These products were
popular destination was the Rocky Mountains (in Banff, Al-
to be offered for sale at Canadian World, a new theme park
berta numerous stores catered specifically to Japanese con-
scheduled to open in July 1990.
sumers). Nearly 15,000 Japanese visited P.E.I. each year.
Excluding airfare, these visitors to Canada spent an esti- In 1981, Japan’s first theme park was built outside Tokyo.
mated $314 million, the highest per-capita amount from Called Tokyo Disneyland, in 1989 it had an annual revenue
any country. of $815 million, 14.7 million visitors, and profits of
$119 million. Not surprisingly, this success has spawned a
The Japanese fascination with Prince Edward Island could
theme park industry in Japan. Over the past decade, 20 parks
be traced to the popularity of Anne of Green Gables. The
with wide-ranging themes have opened. Another 16 were
Japanese translation of this and other books in the same se-
expected to open in 1991–1992.
ries had been available for many years.However, the adop-
tion of the book as required reading in the Japanese school The idea to construct a theme park about Canada was con-
system since the 1950s had resulted in widespread aware- ceived by a Japanese advertising agency hired by the
ness and affection for “Anne with red hair” and P.E.I. Ashibetsu city council to stop the city’s declining economy.
The city’s population had decreased from 75,000 in 1958 to
The high level of spending by Japanese tourists was due to
26,000 in 1984 due principally to mine closures.
a multitude of factors: the amount of disposable income
available to them, one of the world’s highest per person With capital investment of ¥750 million, construction
duty-free allowances ([¥]200,000), and gift-giving tradi- started in mid 1989 on 48 of the 156 available hectares. The
tions in the country. Gift giving and entertainment ex- finished site included six restaurants, 18 souvenir stores,
penses at the corporate level are enormous in Japan. In 16 exhibit event halls, an outdoor stage with 12,000 seats,
1990, corporate entertainment expenses were almost and 20 hectares planted in herbs and lavender.
¥5 trillion, more than triple the U.S. level of ¥1.4 trillion.
The theme of Canadian World was less a mosaic of Canada
Corporate gift giving, while focused at both year end
than it was a park devoted to the world of Anne of Green
(seibo) and the summer (chugen), in fact, occurred
Gables. The entrance to the Canadian World was a replica
throughout the year.
of Kensingston Station in P.E.I. The north gateway was
Gift giving at the personal level was also widespread. The Brightriver Station, where Anne first met with Matthew.
amount spent would vary depending on one’s relationship There was a full-scale copy of the Green Gables house,
508
Exhibit 6 Jam Distribution Channel in Japan
Importer
Producer
Primary
wholesaler
Users of Jam as raw materials

(bakeries & confectioners)
Secondary wholesaler
Local dealer
Food retailer
Hotel, restaurant,
Bakery
coffee shop,
Supermarket
school lunch supplier
Department Store
Source: “Access to Japan’s Import Market,” Tradescope, June 1989.
Orwell School where you could actually learn English like Wholesale price in P.E.I. $3.50
Anne did, and so forth. Canadian World employed 55 full- Freight ($4.20/kilo, P.E.I. to Hokkaido) 0.80
time and 330 part-time staff. This included a high school Duty (28% of wholesale price + freight) 1.20
girl from P.E.I. who played Anne—complete with (dyed) Landed cost in Japan 5.50
red hair—dressed in Victorian period costume. Importer’s Margin (15%) 0.83
Price to Primary Wholesaler 6.33
In late August 1991, Canadian World still had a lot of P.E.I.
Wholesaler Margin (10%) 0.63
Preserves’ products for sale. Lower than expected sales
Price to Retailer 6.96
could be traced to a variety of problems. First, overall at-
Canadian World mark up (30%) 2.09

tendance at Canadian World had been 205,000 in the first
Expected retail price $9.05
year, significantly lower than the expected 300,000. Second,
Exchange (Cdn$1.00 = 120 yen) ¥1,086
the product was priced higher than many competitive of-
ferings. For reasons unknown to Canadian World staff, the
product sold for 10 per cent more than expected (¥1,200
versus ¥1,086).
509
Exhibit 7 Example of Price Markups in Japan

Stage Retail price as 100%
45–50%
Importer
Markup
(10–15%)
Primary & Secondary wholesalers 55–60%
(10%)
Retailer 65–70%
(30–35%)
Consumer 100%
Source: “Access to Japan’s Import Market,” Tradescope, June 1989.
Third, the product mix chosen by the Japanese buyers ap-

peared to be inappropriate.While it was difficult to locate The Tokyo Market
any of the company’s remaining strawberry preserves in the With 10 million residents, Tokyo was the largest city in
various Canadian World outlets which carried it, other Japan and one of the most crowded cities anywhere. Thirty
products had not moved at all. Canadian World personnel million people lived within 50 kilometres of Tokyo’s Impe-
did not have a tracking system for product-by-product rial Palace. As the economic centre of the nation, Tokyo also
sales. Fourth, the company’s gift packs were not always ap- had the most expensive land in the world—US$150,000 per
propriately sized or priced. One suggestion had been to square metre in the city centre. Retail space in one of
package the preserves in cardboard gift boxes of three large Tokyo’s major shopping districts would cost $75 to $160 per
(250-millilitre) or five small (125-millilitre) bottles for square metre or $1,600 to $3,400 per month for a shop
eventual sale for under ¥2,000. equivalent in size to that in the CP Prince Edward Hotel.
An increasing portion of all of the gifts being sold at Cana- Prices in the Ginza were even higher. In addition to basic
dian World were, in fact, being made in Japan. Japanese rent, all locations required a deposit (guarantee money
sourcing was common due to the high Japanese duties on which would be repaid when the tenant gave up the lease)
imports, the transportation costs from Canada, and the un- of at least $25,000. Half of the locations available in a recent
familiarity of Canadian companies with Japanese consumer survey also charged administrative/maintenance fees (five
preferences. to 12 per cent of rent), while in about one-third of the
510
locations a “reward” (gift) was paid by tenants to the owner

Exhibit 8 The Japanese Jam Market at the time the contract was signed. For a small site it might
To expand sales of imported jam or to enter the Japanese amount to $10,000 to $15,000.
market for the first time, it is necessary to develop products
after precise study of the market’s needs. Importers who are
making efforts to tailor their products to the Japanese mar- The Toronto Market
ket have been successfully expanding their sales by 10 per
With three million people, Toronto was Canada’s largest
cent each year. Based on the analysis of successful cases of
imported jam, the following factors may be considered very
city and economic centre. It contained the country’s busiest
important. airport (15 million people used it each year) and was a pop-
ular destination for tourists. Each year, roughly 20 million
Diversification of consumer preferences: Strawberry jam people visited Toronto for business or vacation.
occupies about 50 per cent of the total demand for jam and
MacNaughton’s interest in Toronto was due to its size, the
its share is continuing to rise. Simultaneously, more and
local awareness of P.E.I., and the high perceived potential
more varieties of jam are being introduced.
volume of sales. The company did not have a sales agent in
Low sugar content: European exporters have successfully Toronto.
exported low sugar jam that meets the needs of the Japanese The Toronto market was well served by mass market and
market. Jam with a sugar content of less than 65 per cent specialty jam producers at all price points. Numerous do-
occupies a share of 65 to 70 per cent of the market on a vol-
mestic and imported products were available. Prices started
ume basis.
as low as $1.00 (or less) for a 250-millilitre bottle of high
Smaller containers: Foreign manufacturers who stick to sugar/low fruit product. Prices increased to $2.00 to $2.50
packaging products in large-sized containers (650 grams, for higher fruit, natural brands and increased again to $3.00
440 grams, 250 grams), even though their products are to $3.50 for many of the popular branded imports. The
designed for household use, have been failing to expand highest priced products, such as P.E.I. Preserves, were char-
their sales. On the other hand, foreign manufacturers who acterized by even higher fruit content, highest quality in-
have developed products in smaller containers (14 grams, gredients, and a broader selection of product offerings. The
30 grams, 42 grams) specifically for the Japanese market specialty domestic producers were from various provinces
have achieved successful results. and tended to have limited distribution areas.
Fashionable items: Contents and quantity are not the only The specialty imports were frequently from France or
important aspects of jam. The shape and material quality of England. The Canadian tariff on imports was 15 per cent
the containers and their caps, label design and product name for most countries. From the United States, it was 10.5 per
can also influence sales. It is also important that the label not cent and declining.
be damaged in any way. The cost of retail space in Toronto varied according to loca-
Development of gift items: Sets of various types of import- tion but was slightly lower than that in Tokyo. The cost of
ed jams are popular as gift items. For example, there are sets renting 22 square metres would be $100 per square metre
of 10 kinds of jam in 40-gram mini-jars (retail price ¥2,000) per month (plus common area charges and taxes of $15 per
sold as gift sets. square metre per month) in a major suburban shopping
mall, and somewhat higher in the downtown core. Retail
Selection of distribution channel: Since general trading com- staff salaries were similar in Toronto and Tokyo, both of
panies, specialty importers and jam manufacturers each have which were higher than those paid in P.E.I.
their own established distribution channels, the selection of

the most appropriate channel is of the utmost importance. FUTURE DIRECTIONS MacNaughton was the first to ac-
knowledge that, while the business had been “built on gut
Source: “Access to Japan’s Import Market,” Tradescope, June 1989. and emotion, rather than analysis,” this was insufficient for
the future.The challenge was to determine the direction and
timing of the desired change.
511

Prince Edward Island Preserves Case

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Prince Edward Island Preserves Case

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Case

Prince Edward Island Preserve Co.

Exhibit 1 P.E.I. Preserves Mail Order Catalogue

Exhibit 1 P.E.I. Preserves Mail Order Catalogue—Continued

chain, for example, had expressed interest in purchasing

Exhibit 1 P.E.I. Preserves Mail Order Catalogue—Continued

Only top quality fruit was purchased. As much as possible,

Exhibit 5 Key Executives

Assistant General Manager—Carol Rombough, Age 44

Experience: Twenty years as owner/operator of a manufacturing business;

Production Manager—Maureen Dickieson, Age 29

Experience: Seven years of production experience in the dairy industry;

Responsibilities: Oversee and participate in all production;

Consultant—Kathy MacPherson, Certified General Accountant, Age 37

Experience: Eight years as a small business owner/manager;

Responsibilities: To implement an improved system of product costing;

Store Manager—Natalie Leblanc, Age 33

Experience: Fifteen years in retail.

Responsibilities: To manage the retail store in the CP Hotel;

Exhibit 6 Jam Distribution Channel in Japan

Users of Jam as raw materials

Source: “Access to Japan’s Import Market,” Tradescope, June 1989.

Canadian World mark up (30%) 2.09

Exhibit 7 Example of Price Markups in Japan

Primary & Secondary wholesalers 55–60%

Source: “Access to Japan’s Import Market,” Tradescope, June 1989.

Third, the product mix chosen by the Japanese buyers ap-

locations a “reward” (gift) was paid by tenants to the owner

their own established distribution channels, the selection of

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