Essay About Private-Label Growth Hpl’S Development And Personal Care Products

Hansson Plan
Bambie LeeFIN 6996: Sec: 001Corporate Financial Strategies   Hansson Private LabelBackgroundHansson Private Label started in 1992.Purchase their first set of manufacturing assets from Simon Health & Beauty ProductsHasson was a serial entrepreneur for 9 yearsBought HPL for $42 million ($25 million equity & $17 million debt) – largest single investmentHansson believed the purchased was significantly less than the replacement costs for assetsHPL was confidently label as a private-label growth HPL’s development and successMain FocusManufacturing efficiencyExpensing management Providing the best customer serviceTurning HPL into a successful companyBeing able to secured major national and regional retailers as customersConservative expansion of Hasson Private LabelOpening new facility if capacity utilization is >60% All current operations is >90% capacity HPL’s Business Operations & PerformanceManufacturer many personal care products under the brand label of HPL’s retail For example, soap, shampoo, mouthwash, shaving cream, sun screen and etc.Generated about $681 million (revenue) in 200728% of total wholesale sales of $2.4 billion Situation$170 million investment proposal Land acquisition ($16 million)Plant construction ($56 million)Manufacturing equipment ($52 million)Packaging equipment ($24 million)Working capital for yr 1 ($22 million)Customer will only commit to a 3-yr contractHansson go/no-go commitment within 30 daysDilemmaDetermine return on the investment to justify effort and riskRisk future opportunities from rapid growth and significant value creation by locking in strong relationship with huge, powerful retailerMaintain debt at modest level to contain risk of financial distress in the event the company loses a big customerIndustry Trends: (Personal Care Product Market)Personal care market Hand & body care, personal hygiene, oral hygiene, and skin care productsUS sales ~ $21.6 billion in 2007Volumes increased (<1%) in each of past 4 yearsDollar sales growth (driven by price increases) averaged growth of 1.7% annually the past 4 yearsFeatured numerous national names (high-end to low-end) with considerable brand loyaltyIndustry Trends: (Private Label Industry)Private label brandsRetailers manufacturers controlled production, packaging and production of goodsQuality improvements in private label goods led to increased acceptance by customersPrivate label sales exceeded $70 billion in 2007Benefits of Private Label:Increase profits by capturing a greater share of value chainManufacturer profits per unit could double those of retailer (esp. if brand was famous)Retailers’ cost of goods was 50% lower than branded goods -> can double profit-per-unit sold despite lower selling pricesOpportunity for growth (sales of private label goods <5% in many product categories)