Clearfield Cheese Company Case: A Sequel
Background
The Clearfield Cheese Company was established by two brothers, Terry and Ted Edwards, in 1931, in Clearfield, Pennsylvania. This section of Central Pennsylvania’s economy was based largely upon coal and agriculture at this point in time. The U.S. economy was in the throes of what is usually referred to as the Great Depression, and coal production and agriculture were both experiencing the effects of the slumping economy. The farms in the area were mostly small- to medium-size dairy operations. The farmers were under financial duress because they could not sell their milk in the local area for a price to cover their cost of production. There were better market opportunities in Pittsburgh and Harrisburg, Pennsylvania, but their transportation costs put their “landed cost” at a disadvantage with dairy farmers in Erie, Pennsylvania, and Eastern Ohio. The Edwards brothers were not farmers but rather entrepreneurs and owned several tanker trucks, which could be used for hauling milk. They decided that instead of using their equipment to haul milk to potential markets for very meager profits they would start a cheese processing operation in Clearfield. They had some savings and were able to borrow money from The First National Bank of Clearfield, which was still solvent. Their grandfather who had emigrated from Switzerland was knowledgeable about cheese production and processing and helped them get started. They purchased milk from local farmers with lenient payment terms and started a successful venture. World War II presented some challenges in terms of labor supply and fuel rationing, but they survived and prospered by hiring more women and utilizing more rail service.
The next major hurdle was the government-subsidized cheese producers in Canada selling into the Pennsylvania market in the 1980s. Tom Powers, CEO of the Clearfield Cheese Company, with the assistance of two of his key executives, Andy Reisinger (CIO) and Sandy Knight (CSCO), developed a plan, which included improving their supply chain operation efficiency by lowering inventory levels with better forecasting and procurement practices. They expanded their product offerings by adding cottage cheese, sour cream, and yogurt. They also purchased a Canadian company in 1995 because their Canadian sales were growing. This lowered their costs to serve the growing Canadian market and made them much more competitive in Canada. This was an important step to make them a global company.
Current Situation
Their board of directors in 2017 was delighted with their cash flow and profits. However, they were concerned about future growth because of changing diets of many consumers who had become more concerned about consuming milk-based products. The company had already added low-fat versions of the major products, but the board members were concerned that this would not be sufficient to sustain their growth and profits. Some possibilities that were suggested for consideration included (1) setting up a new company to produce non dairy-based products such as almond milk and other alternatives to cow milk. All the new products would have a healthy “spin” such as the White Wave company; (2) market expansion of their existing product lines into Mexico and Central America; (3) expanding their current product offerings by adding ice cream, high-end cheeses made from goat and sheep milk, and high-end milk-based candy; and (4) a combination of one or more of these alternatives.
1. Evaluate all three alternatives offering pros and cons of each.
2. What would you recommend? Why?