Photo AI
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: Thorntons
Answer
The acquisition of Thorntons allows Ferrero International to expand its chocolate manufacturing and leverage the existing retail channels. Thorntons, with global revenues over £8bn in 2015, poses potential for significant sales increase. Furthermore, by enhancing expertise, assets, and resources, Ferrero International can drive production efficiency without incurring heavy capital expenditure on new plants or staff training. However, since Thorntons’ profitability is reliant on high street sales, the increasing trend towards online shopping might pose risks.
Step 2
Evaluate the takeovers: Oltan Group
Answer
Purchasing the Oltan Group is strategic for Ferrero International as it secures a consistent supply of hazelnuts, a crucial ingredient for its flagship products like Nutella and Ferrero Rocher. This backward vertical integration helps control costs and decreases reliance on fluctuating market prices for hazelnuts. The Oltan Group’s established production facilities enhance operational efficiencies, potentially reducing costs in the long run. Additionally, entering the Turkish market opens opportunities for growth and sales in a region rich in hazelnuts.
Step 3
Recommendation
Answer
While both acquisitions have merits, the takeover of the Oltan Group is likely to have a more profound effect on Ferrero International's profits. Securing a vital ingredient allows for better control over production costs and stability in the supply chain. This is crucial given the highly competitive nature of the chocolate market. In contrast, the potential risks from high street dependence in Thorntons diminish its positive impact. Therefore, prioritizing the Oltan Group acquisition aligns better with Ferrero's long-term strategic objectives.