E-Business

MSc in International Business University of Ulster London Campus

A Report on Chocolate Products

Critically analysis of supply chain Management of chocolate products and how Resource Based View can added value on chocolate product and implications of online price comparison sites.

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Executive Summary

Boy or girl, kid or adult almost everyone likes chocolate. In this report found origin of chocolate or cocoa growing countries and how they grow cocoa. Report also shows that how these cocoa beans become chocolate and effective supply chain management systems of chocolate. Report says that all the big companies like Mars, Nestle and Cadbury earning huge revenues by selling chocolate but on other hand cocoa growers having very low payment. This report brings the dark side of chocolate and positive side as well. In this report secondary data has been used to find out supply chain management and how companies share information in between. This report shows how cooperatives and fair trade foundation playing role to improve farmers life style and helping them to get fair pay. Report find outs how companies can reduce their cost and provide better service to the customers e.g. Australian chocolate maker Roben Menz going to introduce chocolate recycle machine which will save thousands of pounds every year. Report shows how Resource Based View (RBV) added competitive advantage on chocolate product. Last part of the report shows how price comparison sites affect on chocolate products and who the major comparison sites are. It also shows how these comparison sites become a threat for other companies or for the consumers.

TABLE OF CONTENT
Page Introduction 1. Supply chain management and information share 01 01

1.1 Raw material providers to Suppliers

1.2 Manufacturers and processors 1.3 Distributors and retailers 1.4 Cooperatives and Fair trade 1.5 Research and development 1.6 Market Information system 1.7 Impact on cost and service

01 02 02 03 03 03 04 04 04

2. Resource Based View

2.1 VRIN Characteristics

3. Implications of online price comparison sites 3.1 Threat posed by comparison sites 3.2 Benefits and shortcomings of the sites 3.3 Best Comparison Sites 3.4 Role of eBay search engine and other intermediaries

06 06 06 07 07

Conclusion References Bibliography Appendix- A Appendix- B

08 09 13 14 16

Introduction
This section will provide clear knowledge about supply chain management systems of chocolate and cocoa product. This report will give better understanding about traditional and online based supply chain management systems. This report will also provide how companies can exchange information and share the views of supply chain of chocolate to improve its quality and reduce the cost. The origin of chocolate comes from the ancient Mayan and Aztec civilisations in Central America. 'Theobroma cacao', meaning 'food of the gods', was prized for centuries by the Central American Mayan Indians, who first enjoyed a much-prized spicy drink called 'chocolatl', made from roasted cocoa beans (Cadbury, 2013). Montezuma (then tlatoani of Tenochtitlan) brings the chocolate in Europe first and introduced by Spanish conquistador Hernn Corts, toxocolatl in the 16th century (Burleigh, 2002). West Africa is the highest cocoa producing region of the world and they produce about two third of cooca, and Ivory Cost produce 43% of entire world cocoa (Ariyoshi, 2007).

1. Supply Chain Management and Information Share

To achieve a sustainable competitive advantage and maximise customer value there have to have an active management of supply. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible (Handfield, 2011).

1.1 Raw Material Providers to Suppliers

At the age of 4 or 5 first fruit come in cocoa tree its called pods. From pink and white flower only small portion become a pod and takes five months and in whole year only 450gms chocolate produce from each tree. It takes the whole year's crop from one tree to make 450gms of Chocolate. Small farmers grows about worlds 85% of cocoa and about 2500,000 small farmers are working to produce cocoa (Thomas, 2011:12). It is true that these small farmers live their life of cocoa bins. But they do not received

proper payment for their labour or their cocoa. More than 100,000 people signed and make a petition against one of the largest chocolate manufacturer

Mondelz International and its competitors to tackle unequal pay for the women farmers as well as to protect these farmers from poverty and hunger (The tide, 2013). ADM is one of the biggest suppliers of cocoa beans. They make them available all over the world through e-business. For loading and discharging a new handling technology and innovative quality control procedures has implemented that leading to a highly efficient bulk transportation system (ADM, 2013).

1.2 Manufacturers and Processors

It is extremely rare that chocolate companies buy cocoa directly from the farmers (Responsible cocoa, 2013). Cocoa processors buy cocoa from intermediaries or sub-suppliers and then they started to fermentation. Fermentation takes up to seven days and after fermentation beans must be dried as soon as possible to prevent mold growth and give very rich chocolate flavour (Schwan & Wheals, 2004). When cocoa has dry enough it directly goes to the manufacturer. Manufacturers are giving the chocolate in different shape and flavour. Mars, Nestle, Ferrero, Cadbury and The Hershey are world largest chocolate manufacturer of the world. Only Mars and Nestle jointly has $17,679.6of revenue (O'Coughlin, 2009).

1.3 Distributors and Retailers

The Lindt & Sprngli Group one of the leading chocolate manufacturer in the world. They implement e-business in 2001 and the turnover CHF 1680.5 million in 2002. Customer can place order by online or over phone and they delivery to the desire address of customer (Experience online, 2011). Hotel Chocolat is one of the rare chocolate manufacturers and retailer who grows cocoa. Hotel Chocolat is act as a supplier, manufacturer and retailer and they have online and physical shops in UK and outside of UK as well (Hotel chocolat, 2013). In UK every super market and corner shops sell chocolate to its end customer.

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In this section will discuss how companies can reduce their cost and provide better quality of service for their customers by sharing information with each others.

1.4 Cooperatives and Fair Trade

Fair-trade label has been creating in 1980 in Netherland and their aim is protect the farmers and ensure that farmers get right pay for their product. They also focus on sustainable development and create opportunities for producers (fair trade foundation, 2011). According to Global Exchange, more than 800,000 farmers and cooperatives unions in 48 countries around the world has benefited by fair trade certification. However, due to low demand of fair trade products farmers are not able to sell their entire product at fair trade price. (Global exchange, 2011).

1.5 Research and Development

South Australian based chocolate maker Roben Menz will introduce chocolate recycling boiler and chocolate refiner and this project expected to reduce carbon emission by 49% and it will save $ 185,000 of energy cost (Clean energy, 2012). Cocoa produces half ton in a hectare of land and it stay same forever while other agricultural products have improved its productivity by 5 to 10 percents in last 50 years. Mondelz will invest $400 million to help raise yields and improve incomes in next decade (Almeida & Monnier, 2013).

1.6 Market Information System

In most of the cocoa firms there is no internet access therefore farmers cannot get the latest information about cocoa market (FAO, 2004). On other hand companies has very strong market information systems and storage system. Big companies can help to improve market information systems for the farmers; they can keep contact with the buyers and get the latest information about the market or price of cocoa.

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1.7 Impact on Cost and Service

In Africa farmers earned only 50 a year by growing cocoa (BBC, 2013). Nestle has plan to improve the life style of cocoa farmers and they said 1 million higher -yielding trees provided to cocoa farmers in 2013. 40 schools in Cote dIvoire over 20122016. 60,000 tons of cocoa will be sourced through the Nestl Cocoa Plan in 2013 (Hoffman, 2013).

2. Role of Resource Based View (RBV)

In this section will briefly discuss Resource Based View (RBV) and find out how value is created on chocolate products. In below will discuss on Mars Inc. as a firm and find out how resourced based view has implement. Resource based view focus on a firms capacity to innovate. RBV identify why firms are different than others and how firms achieve sustain competitive advantage by implement their resources. Wernerfelt (1984) suggested that evaluating firms in terms of their resources could lead to insights that differ from traditional perspectives.

2.1 VRIN Characteristics

Every organisation should have four attributes to provide the potential for competitive advantages. There are known as VRIN characteristics.

Valuable:
By adding value to the company resources become way of competitive advantage. Quality is the best value for the Mars. About the quality Mars Inc. Says The consumer is our boss, quality is our work and value for money is our goal (Mars, 2012). Mars Inc. has worlds one of the 15 best brands chocolate including Snickers, M&Ms, Celebration and MilkyWay. M&Ms has sales of $637.2 million and achieved number 1 selling chocolate in USA (Arndt, 2013). Human resource and efficiency are other factors which can added value to Mars Inc. Mars has 65,000 employees and
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$30 billion of revenue and become 3rd largest Americans private company (Murphy&DeCarlo, 2011).

Rare:
Resources have to be unique compare to the competitors and this uniqueness provides competitive advantages to the company. Unique product range makes Mars Inc. different from others. From chocolate bars to ice cream or chocolate drinks all are different and rare in Mars. Mars Inc. become one of the best hundreds (100) companies to work for even ahead of McDonalds and Starbucks (Kaplan, 2013).

Inimitable
Some resources cannot add value to the company if competitors obtain those. Resources might be copied by someone and these resources cannot be source of competitive advantage. Digital technology has made the world smaller and anyone can copy from others. Mars Inc. follow the copy right law and recently they sent a letter to Lorraine Watson owner of Stonehaven fish and chip shop in Scotland that deep frying Mars bar is not authorised by Mars Inc and it goes against companys marketing promotion is healthy active lifestyle (Urquhart, 2012). It proved that Mars Inc. is very much concern about their products. Mars faced criticism and its consumers became disappointed due to Mars started to use animal product on their famous products in 2007, their products are no more suitable for vegetarians (BBC news, 2007).

Non-substitutable
Resources must not be able to replace by some other product or service. If more than one resource can be used to implement same strategy then two resources will be equivalent. These resources are substitutable and these cannot add competitive advantage (Management study, 2013). Snicker bar gives same taste as it was 77 years ago. Mars do not want to add cheaper substitute ingredients on their product (Hirsch, 2007).
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3. Implications of Online Price Comparison Sites

In this section readers will better knowledge about implications of online price comparison sites for consumers on chocolate product. This section will also provide benefits and shortcoming of comparison sites. Price comparison sites are source of different companies products, provide listing of product by category or by price and allow customers to write reviews about the product. It has been estimated that price comparison website is worth more than 1billion a year (David, 2008).

3.1 Threat Posed by Comparison Sites

In UK every year about 10 million people use comparison sites. It has great benefits but these sites are costing about 650 million for commission for privilege (Wall, 2012). Comparison sites claimed that they provide the best deals and product category to the customers but the truth is these sites are working for some companies in return on commission and these sites push people toward to buy product from those companies and consumer can lose out by 100. Energy saving companies pay 50 to comparison sites for gain a householder. (Poulter, 2013).

3.2 Benefits and Shortcomings of the Sites

Price comparison sites provide all promotions, discounts or any special offers and consumers no need to run from here and there. Consumers can.

Mysupermarket.com allows its customers to buy any chocolate product from five major retailers of UK e.g. Tesco, Sainsburys etc (Mysupermarket, 2013). These sites are working as a price comparison site engine and Google shopping probably largest comparison site in the world and they list their product on Google search as well (Hayes, 2012). Two major benefits of comparison sites are:

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 Product variety: Every price comparison sites has huge range of product. They have daily useable product to houses or insurances. Microsoft partner ciao.com is the most popular comparison site and they have more than 2600 retailers ( Kavanagh, 2009). Ease of use: Price comparison sites are more easy to use than direct companies sites. Price comparison sites provide quick search and advanced search options. Consumer can filter their product by product group, price (low to high or high to low), best deals or promotions.

3.3 Best Comparison Sites

Like other product Nextag is one of the best comparison sites for chocolate lovers. It has been named one of the 50 best website by time magazine and it has offices in USA, UK, and Japan and in India. It operates its website from major countries of the world and it just not sell only brand product it also included eBay and Amazon on its product listing (Nextag, 2013). eBay based comparison site Shopping.com is another good site for chocolate and their mission statement is is to help consumers anywhere use the power of information to find, compare and buy anything! and they have worlds largest product catalogue (shopping.com, 2013).

3.4 Role of eBay Search Engine and other Intermediaries

eBay opened window for the small companies to enter into market. Visitor can visit and by any product from anywhere by using eBay. eBay has very strong reputation about its secure payment by using PayPal but seller deliver the product direct to the customer. Amazon has almost same search engine like eBay. Where anyone can sell or buy product and Amazon charged small fees for product listing and selling (Optillion, 2013).

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Conclusion
Supply chain of chocolate products is not simple as other crops. Farmers working hard and producing cocoa and they are getting paid very low. Children have been forced to work to produce cocoa and women are not enjoying equal pay and facilities like men. When these cocoas become chocolate after certain stages it becomes so expensive. Chocolates are known as black gold into the market. It is true that these cocoas are playing very important role. Thousands of families are depends their life on cocoas and these cocoas are helping many countries to build their economy stronger.

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References

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(2013). Cocoa

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http://www.adm.com/en-

US/products/Cocoa/cocoa_advantage_university/Pages/cocoa_today.aspx. Last accessed 10th July 2013. Almeida, I & Monnier, o. (2013). Higher Chocolate Prices May Follow Africa's Cocoa Shortfall. Available: http://www.businessweek.com/articles/2013-02Last accessed

07/higher-chocolate-prices-may-follow-africas-cocoa-shortfall. 11th July 2013.

Ariyoshi, R. (2007). The Rarest Chocolate in the World Surprise: Its made in Hawaii. Available: http://web.archive.org/web/20071018033010/http://www.spiritofaloha.com/feature s/0907/rarest.html. Last accessed 1st July 2013. Arndt, M. (2013). America's 25 Favorite Candies. Available:

http://images.businessweek.com/ss/09/10/1021_americas_25_top_selling_candi es/26.htm. Last accessed 16th July 2013. BBC News. (2007). Mars starts using animal products. Available:

http://news.bbc.co.uk/1/hi/business/6653175.stm. Last accessed 17th July 2013. BBC. (2013). Fair trade chocolate. Available:

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http://www.fairtrade.org.uk/what_is_fairtrade/fairtrade_certification_and_the_fairtr ade_mark/the_fairtrade_mark.aspx. Last accessed 11th July 2013. FAO. (2004). FAO Corporate Document Repository. Strengthening farmagribusiness linkages in Africa. 6, pp9-44 Global Exchange. (2011). Fair Trade. Available:

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http://scm.ncsu.edu/scm-articles/article/what-is-supply-chain-management. accessed 08th July 2013.

Hayes, M. (2012). 10 Best Comparison Shopping Engines to Increase Ecommerce Sales Read more: http://www.shopify.com/blog/7068398-10-bestcomparison-shopping-engines-to-increase-ecommercesales#ixzz2YmhEs4vM. Available: http://www.shopify.co.uk/blog/7068398-10-

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Hoffman, B. (2013). Love Chocolate? 4 Reasons Why Nestl's Cocoa Plan Is Not Enough. Available: http://www.forbes.com/sites/bethhoffman/2013/05/22/4-

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http://www.hotelchocolat.com/uk/about. Last accessed 14th July, 2013. Kaplan, D. (2013). 100 Best Companies to Work For. Available: Last

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Murphy, A & DeCarlo, S. (2011). Americas Largest Private Companies.Available: http://www.forbes.com/lists/2011/21/private-companies-11_land.html. accessed 16th July 2013. Mysupermarket. (2013). About Us. Available: Last

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Optillion. (2013). Price Comparison Services. Improve Your Sales Performance . Available: http://www.optillion.co.uk/search-engine-marketing/price-comparison/. Last accessed 13th July 2013. Poulter, S. (2013). Comparison websites accused of letting families down because they 'direct users to firms which pay them a fee' Available: http://www.dailymail.co.uk/news/article-2319828/Comparison-websites-accusedletting-families-direct-users-firms-pay-fee.html. Last accessed 12th July 2013. Responsible cocoa. (2013). FAQ. Available: http://responsiblecocoa.com/faq/. Last accessed 03rd July 2013. Schwan, R.; Wheals, A. (2004). "The Microbiology of Cocoa Fermentation and its Role in Chocolate Quality". Critical Reviews in Food Science and Nutrition 44 (4): p205221. Shopping.com. (2013). About Shopping.com. Available:

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firms-to-empower-female-cocoa-farmers/. Last accessed 08th July 2013. Thomas, O (2011). Sustainable Supply Chain Management in the Chocolate Industry. Norderstedt: Druck and Bindung. p11-59. Urquhart, F. (2012). Deep-fried Mars bar creators hit with letter from chocolate bars lawyers. Available: http://www.scotsman.com/news/odd/deep-fried-marsLast

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Bibliography
Barney, J and Clark, D (2007). Resource-Based Theory: Creating and Sustaining Competitive Advantage. New York: Oxford University Press Inc.. pp110-208. Bozarth, C and Handfield, R (2013). Introduction to Operations and Supply Chain Management. 3rd ed. Kendallville: Pearson Education Limited. pp6-91. Cadbury, au. (2013). Harvesting and Processing Cocoa Beans 'Theobroma Cacao' The Cocoa Tree. Available: http://www.cadbury.com.au/About-

Chocolate/Harvesting-and-Processing-Cocoa-Beans.aspx. Last accessed 30Th June, 2013. Fair Labor Association. (2011). Sustainable Management of Nestls Cocoa Supply Chain in the Ivory CoastFocus on Labor Standards.Improving Workers Lives Worldwide. 1 (1), p21-28. Hines, T. 2004. Supply chain strategies: Customer driven and customer focused . Oxford: Elsevier.pp76 Santopietro, J. (2008). When Chocolate Is a Way of Life. Available:

http://www.nytimes.com/2008/11/05/dining/05choc.html?pagewanted=all&_r=0. Last accessed 3rd July 2013. The story of chocolate. (2013). Cultural Importance. Available:

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APPENDIX: A

Pods

Cocoa pod is six to ten inch in length and two to four inches in diameter. A cocoa pod usually weight 200gm to 1KG. It is cylindrical shape with ten furrows. Cocoa seeds are covered by mucilaginous pulp in pod. Every pod contains 30 to 50 large soft seeds which are in white or lavender colour. To get one pound of cocoa it requires 10 to 13 cocoa pods. Cocoa Beans

Cocoa beans are usually 2cm long and covered by white sweet pulp. Cocoa beans are not only using for making chocolate or cookies it contains good amount of vitamins and minerals. It has potassium and cupper which support cardiovascular health. Cocoa beans also known as Cacao beans. It grows mainly in Africa, Asia, Central and South America.
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Fair Trade foundation Fair trade foundation has established in 1992 by many NGOs and charity organizations. Vision of fair trade is justice and sustainable development. FAIRTRADE mark ensures that farmers or growers received fair price for their product. Producers are represented on board of directors of Fairtrade Labelling Organisations International (FLO) to ensure that fair trade is working for growers. Aim of fair trade is reduce poverty and development. In 750 towns of 15 countries are known as fair-trade town and 91% of the customers from these towns trust on fair trade label. Cocoa Fermentation: After removing beans from the pod farmers cover the beans by banana leaves for around two to seven days. During this time beans got chocolate flavour. Then beans laid under the sun for dry. When fermentation process has done then beans send to the factory for further process.

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APPENDIX: B

World largest chocolate manufacturers: In below will show that worlds top 10 chocolate manufacturers and their net sales

Company

Country

Net Sale ($million)

Mondelz International + Cadbury Schweppes PLC

USA / UK

19,965

Mars

USA

16,200

Nestl SA

Switzerland

12,808

Ferrero SpA

Italy

9,612

Hershey Foods Corp.

USA

6,112

Lindt & Sprngli AG

Switzerland

2,796

August Storck

Germany

2,205

Yildiz

Turkey

2,095

Meiji Seika Kaisha Ltd.

Japan

1,791

Arcor

Argentina

1,716

(Yahoo finance, 2013)

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Cocoa Producing countries: Top 8 cocoa producing countries of the world in 2010. In below chart shows that contribution of worlds cocoa production in percentage.

Production, 2010
Papua New Guinea Equador Brazil Cameroon Nigeria Indonesia Ghana Ivory Coast 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00%

Source: ICCO

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