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Ceres Gardening Company Case Study Essay

1. How has the company grown? What is its basic strategy + how has it evolved? What have been the key factors in the company’s growth?

The growth of the company has been fueled by the market demand growth in organic products. Ceres increased their revenues by over 75% in just five years, while growing profits by over 25% (based on Exhibits 2, 3 & 4).

Ceres’s basic strategy started with its founder, Jonathan Wydown, to promote sustainable organic gardens and landscapes to environmentally conscious consumers. Mr. Wydown has been a proponent of soil preservation, biodiversity, and natural fertilizers and pest control. Mr. Wydown was confident that the same principles behind organic farming would eventually apply to home gardens and lawns. Mr. Wydown’ s vision evolved into the creation and development of a market niche of selected certified organic seeds and seedlings for vegetables, culinary herbs, and flowers – bringing the farm to the home per se. This market niche and products became the company’s differentiator and competitive edge. The key factors that drove the company’s growth are:

* Market demand and segmentation – Ceres developed a market niche for organic-conscious consumers who are concerned about the environment. Although products are priced at a higher premium, the value from the company’s environmentally conscious go-to-market strategy and segmentation allowed Ceres to develop a loyal consumer community.

* Product Offerings – Ceres expanded its products offerings to include open-pollinated, organically grown, and heirloom varieties of seeds and seedlings for vegetables, culinary herbs, and flowers. The company also added live plants, such as one-year-old trees.

* Production Strategy – Ceres’ principal farm was located in central California. As the demand for Ceres’ products increased, Ceres’s production capability was challenged. To keep up with the increased demand, Ceres developed a network of small, independent organic farms, offering them a commitment to purchase goods in exchange for an exclusive supplier relationship. These further strengthened Ceres’ production capability.

* Distribution Channel – In the early years, Ceres operated primarily as a mail-order catalog company. This was their main distribution channel. The operation was ran well and valued for its quality, reliability, and hands-on customer service. Moreover, Ceres provided a free bimonthly company newsletter, which included gardening tips, introduced new products, and created a sense of community among the expanding customer base. This alternative marketing expanded Ceres’ channel from one time purchase to future incremental (post-sale) revenues. Eventually, Ceres expanded its channels to include retail channels, and direct sale through a sales force model.

* GetCeres™ Program – enabled the average nursery or garden center to stock a sufficient inventory of Ceres’ products to meet the seasonal demands of the customer. If a retailer ran out of seasonal products, the customer would probably not return later, thus a potential loss of sale. Essentially the program meets the challenge of having the plenty of stock of the right product in the store at the right time based on consumer attitudes, behaviors, and preferences. The program also provided incentives to retail storeowners by offering deep discounts to carry inventory and extended payment plans.

2. Questions

3.1. How is Ceres’ financial health? Which specific items in the supplemental financial statements + which ratios might you calculate/research to help you assess its financial health?

The financial health of Ceres is excellent and continues to show a positive trend from 2002 to 2006. (Please refer to Table 1)

* Current Ratio shows Ceres’ ability to pay short-term obligations. The current ratio indicates that the company would be able to cover its liabilities in 2002 2 times over.

* Quick Ratio measures Ceres’ ability to meet its short-term obligations with assets excluding inventory. The quick ratio indicates that Ceres would be able to cover liabilities 1.6 times over.

* Debt Equity shows Ceres’ financial leverage and its aggressive posture in financing its growth with debt. The company could potentially generate more earnings than it would have without this outside financing. This indicates that even with Ceres’ expansion of distribution channels, extension of payment terms, and the creation of a direct sales force, Ceres was able to manage to stay below 1 with a mean average of .74.

* Inventory Turnover shows an efficient turnover of inventory. Ceres does not hold inventory for long periods of time, which can incur additional costs by having assets sit without revenue generation. It shows Ceres’ ability to manage inventory in a seasonal cycle and further indicates their ability to forecast demands on product movement.

* Accounts Receivable shows Ceres’ effectiveness in extending credit as well as collecting debts. The extended payment terms appear to be working. The prompt collection of debts enables Ceres’ to use the monies to reinvest into the business.

3.2. What should Ceres’ strategic plan be, given the trends in the organic gardening market?

A move forward strategy is a renewed focus on market penetration and diversification of product portfolio. As the CMO, Annette O’Connell reported, “Growth in organic gardening products is strong, and the trends should support long term growth.”

Market Penetration – capitalize on the movement from wholesale organic farming to weekend home gardeners and food service industries. While Ceres can continue to cement their market share in organic farming, the weekend gardener and food industry market are prime market niches. To reach these markets, Ceres has to diversify its product portfolio.

Product Portfolio Diversification – Ceres’ has to consider diversifying its product portfolio from materials (i.e. seeds, samplings, 1-year-old fruit trees, etc.) to services and solutions to help organic farmers, food service industries, and weekend gardeners on the “how to’s” of organic gardening. You not only sell the seeds but also help the consumers manage the gardening process thus providing Ceres a “market differentiator” as a one-stop consumer experience.

3. How would you evaluate Ceres’ marketing efforts? Should the Ceres program be expanded? Why or why not?

The GetCeres™ Program is a sound marketing plan but can be fraught with challenges if not managed effectively. The main purpose of the program is to address inventory and “enable the average nursery or garden center to stock a sufficient inventory of Cere’s organic products” by having the right products in the stores at the right time. Bottom line – help Ceres increase sales by helping business partners manage their inventory. With that said, stores and business partners are not willing to carry inventories on their books if they are not able to churn it appropriately. To alleviate angst and potential cost exposure, Ceres extended their payment terms from 75 to 90 days to 120 days and a 15% discount the storeowner or business partner agrees to hold a minimum stock inventory. To help protect Ceres’ average gross margins, it successfully raised prices slightly on most of its products.

4. Questions

5.3. In your opinion, did Ceres hire the right CMO? What role did that play in its financial situation?

In our opinion, Ceres hired the right CMO. Through the CMO leadership, distribution channels were expanded from mail order catalog to an expanded network of storeowners and retail merchants. The CMO further increased their market reach by developing a direct sales force and the appropriately compensation plan. Inventory was managed efficiently through the introduction of the GetCeres™ Program. Overall, the company’s debt equity, inventory turnover, and accounts receivable ratios showed a positive trend and continue to forecast a better future.

5.4. Why is it important to ensure that you hire someone who is the “best fit” – for a position?

It is important to hire someone who is a best fit because of the notion of a “shared vision” and “common values.” A strategy remains to be a strategy without the proper tactical execution. Both Wydown and O’Connell agreed, “The best way for Ceres to build its competitive position would be to push even more aggressively” to increase profits and lower margins by expanding distribution channels and market footprint. O’Connell had a background in retail and consumer packaged goods. This was the “best fit” for Ceres’s CEO, Jonathan Wydown whose strategy for growth was to move from a mail order catalog model to building a retail presence. Wydown and O’Connell believed that Ceres’ reputation for quality and customer service would give the company an advantage over the competition.

5. If you were CEO Jonathan Wydown, what would you plan to say during your upcoming meeting with the bank – regarding Ceres’ growth prospects + cash flow projections for 2007 and the near future?

During the upcoming meeting with the bank, the focus should be given on the debt equity, inventory turnover, and accounts receivable ratios and how well the company has managed its operations over a sustained period (i.e. 2002 to 2006). From the Balance Sheet provided, it is evident that operational, financing, and investment cash flow is positive. The market-projected growth is 8% to 10% per year. Ceres has kept pace with the overall industry, but Ceres has to review its financing model to sustain their own growth in the market they chose to compete in order to continue having a competitive edge. As such, the bank discussion should center on the increase of revolving credit and capitalization of investments to continue to fund the retail distribution model.

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