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Using the data in Extract D, evaluate the two takeovers and recommend which one is most likely to have affected the profits of Ferrero International - Edexcel - A-Level Business - Question 1 - 2018 - Paper 3
Question 1
Using the data in Extract D, evaluate the two takeovers and recommend which one is most likely to have affected the profits of Ferrero International. In 2014, Ferre... show full transcript
Worked Solution & Example Answer:Using the data in Extract D, evaluate the two takeovers and recommend which one is most likely to have affected the profits of Ferrero International - Edexcel - A-Level Business - Question 1 - 2018 - Paper 3
Step 1
Evaluate the takeovers of Oltan Group and Thorntons
Answer
The acquisition of Thorntons was intended to enhance Ferrero International's market presence in the UK. However, while it could potentially increase sales, its influence on the overall profits may be modest considering Thorntons's lower performance in the chocolate market. In contrast, purchasing the Oltan Group strengthened Ferrero's supply chain by securing a crucial raw material: hazelnuts, which are essential for their flagship products like Nutella and Ferrero Rocher.
By owning the Oltan Group, Ferrero potentially reduces manufacturing costs through backward vertical integration. This could lead to improved profit margins as it eliminates intermediary markups related to hazelnut procurement. Moreover, the Oltan Group's established markets in Europe and beyond could be leveraged for more extensive distribution of Ferrero’s products, thereby increasing profitability.
Ultimately, while both takeovers could affect profitability, the acquisition of the Oltan Group is more likely to deliver substantial positive impacts on Ferrero's profits due to decreased costs and enhanced supply reliability.
Step 2
Recommendation on the most impactful takeover
Answer
Based on the evaluation, the takeover of the Oltan Group is recommended as the one most likely to have a significant impact on the profits of Ferrero International. Securing the hazelnut supply chain directly relates to their core products, thus increasing production efficiency and potentially elevating profit margins. Additionally, the strategic advantages of securing access to emerging markets further enhance the rationale for this recommendation.