Introduction
This case primarily talks about the microwave industry and its growth in France. The microwave market is global and three important regions of Japan, Europe and USA are served by the major companies such as Mitsubishi, LG, and Samsung. These companies are now entering the Europe by using their global distribution network.
The European market is fragmented due to the different cooking habits and food preference that enable the companies like Le Petit Chef to offer the different value propositions.
Though Le petit chef has the diversified product line yet microwave ovens accounts for 85% of the total revenues of the company.
The company targets the high-end market of this industry by focusing on high quality, innovation and product features.
Over the past few years, thecompany has been facing decline in its profits. Its net margin ratio is decreasing and company’s CFO has estimated that company is going to face the loss in the fourth quarter of the fiscal year 1999.
Le Petit Chef Harvard Case Solution & Analysis
Principle reason for the current situation of the company
• Competitive pressure
Competitive pressure in one of the primary reasons for the current situation of Le petit chef as Le petit chef is famous for its innovation and performance features. It targets the high-end market of themicrowave in the France.Over the past years, company has been facing competitive pressure, however because of easy entry in this market, new companies are coming in the cooking appliances market and that results in large companies, such as Siemens and Electrolux are now targeting the upper-end market of microwave and that’s why the margins of Le petit chef are in declining phase.
• High expense in advertising and promotion
High competition in the market compels the company to spend more money on advertising and promotion. Increased expense in the advertising and promotion results in decrement in the profits and it would decrease the net margin of the company, this is the reason why Chief financial officer Nadeau has estimated first-everquarterly loss in the fourth quarter of the fiscal year 1999.
• 10% declining in the prices from 1996 to 2000
Intense competition in the market resulted in declining the prices by 10% annually from 1996 to 2000. Declining in the prices would decrease the revenues of the company and finally, it would decrease the net margin of the company. This is the reason why company’s net margin has been decreasing since 1996.
Above table shows the negative trend of net margin since 1996. In the fiscal year 1995, the net margin accounts to 14% and in 1996 it has decreased to 12%, in 1997 it further decreases to 8%, in 1998 it was reported at 5% and in 1999 it was estimated that company will face loss in the fourth quarter of 1999.
• Introduction of new products
The company has very limited R&D resources but despitethat,it has increased their product line from 7 products in 1995 to 30 different products in 1999.They spend double the industry average on the research and development department. Engineers in the R&D department reported that they were overworked, and also one of top microwave designers had taken amedical leave of absence due to the burnout...............
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