Sharon’s Super Lunches (SSL)

Sharon’s Super Lunches (SSL) is a cooperative that provides healthy school lunches. The lunches are delivered daily to students, who order them online. SSL aims for a minimum order size of 50 lunches to deliver to a school.

Table 2: Sales and other financial information for SSL for one week

$$\begin{array}{|l|r|} \hline \text { Forecasted sales of lunches } & 3200 \\ \hline \text { Maximum sales of lunches } & 4000 \\ \hline \text { Price of lunches } & \$ 10.20 \\ \hline \text { Variable costs per lunch } & \$ 6.40 \\ \hline \text { Fixed costs for SSL } & \$ 7980 \\ \hline \end{array}$$

SSL is considering a new promotional strategy for healthy school lunches: they will donate a free school lunch to a student in a lower-income area for each lunch purchased in a higher-income area.

Cool Meals (CM)

Cool Meals (CM) produces frozen organic ready-made meals that are sold to food retailers throughout the country.

CM buys large quantities of organic ingredients from local farmers for its just-in-case (JIC) stock control management. It uses a cost-plus (mark-up) pricing strategy.

CM is known for its:

• good-quality organic frozen meals, which are perceived as good value for money
• flexibility with retailers in terms of quantity of meals supplied, credit given and efficient delivery at pre-arranged dates
• corporate social responsibility (CSR) based on a long-term commitment made to farmers to purchase large quantities of organic ingredients every four months and pay a fair price promptly
• CM has an excellent working relationship with farmers, who always prioritize CM’s requests in terms of quantity and delivery.

Recently, an economic downturn and increased competition, especially from non-organic frozen meal suppliers, has decreased demand for frozen organic meals.

The finance manager of CM, Kayleigh, provided the following financial information.

Table 1: Selected financial information for CM

	$\mathbf{2 0 1 7}$	$\mathbf{2 0 1 8}$
Total revenue	$6000000	$3500000
Gross profit margin	$16 \%$	$14 \%$
Net profit margin	$6 \%$	$3 \%$
Creditor days	10	5
Debtor days	50	70
Stock turnover days	20	40
Current ratio	2.1	2.4
Acid test (quick) ratio	0.8	0.6

Kayleigh is worried about the cash flow of CM and suggested the company changes the stock control method from just-in-case (JIC) to just-in-time (JIT). She is also looking at other strategies to improve CM’s financial position.

Smith’s Foods Ltd (SF)

Charles Smith and seven friends started a private limited company, Smith’s Foods Ltd (SF), to produce ready-made healthy meals for people with diabetes*. Using a cost-plus (mark‑up) pricing strategy, SF’s mission is to make inexpensive, widely available meals that help diabetics manage their carbohydrate intake accurately.

Despite reliance on inexpensive social media marketing, SF grew rapidly. Due to this rapid growth, however, the quality of its products deteriorated, and a number of its meals were found to contain different quantities of carbohydrate than those stated on the packaging. Negative comments appeared on SF’s Instagram page. Charles responded quickly to reassure customers and offered refunds. SF’s response led to the company receiving an industry award for ethical behaviour.

Charles introduced flow production to reduce the cost of SF’s meals, which changed SF’s scale of operations and increased its gearing ratio. However, Charles had little business experience of using flow production and problems emerged.

External stakeholders began to look into SF’s operations. One supermarket chain, Good Foods (GF), contacted Charles and offered to take over SF, keeping Charles on the board of directors. This takeover would allow SF’s meals to be produced at a lower cost and reach a wider target market. GF would also finance research and development into new meals with more carefully controlled carbohydrate levels.

However, SF would close. Negative publicity would be considerable. The remaining shareholders have threatened to launch a new business, creating their own brand of meals for people with diabetes in direct competition with GF.

---

* diabetes: a medical condition that causes a person’s blood sugar level to become too high. People with diabetes need to be mindful of the amount of carbohydrates (which includes sugar) they include in their diet.