Holly Farm

Case Study: Holly Farm

1. Introduction

Holly Farm was opened up to the public in 1993. It welcomes visitors as well as produces ice cream. This paper is based on the Holly Farm case and will first examine the issues faced by Gillian. Then, Gillian’s proposal to increase the number of visitors will be evaluated. Last but not least, factors that Gillian should consider when deciding to increase the flavours of the ice cream will be discussed.

2. Issues faced by Gillian

The core issues Gillian faces include how to maximize the profitability of the farm and how to improve their business in the future. To enhance profitability, Gillian has to take several issues into consideration.

In terms of marketing and promotion, Gillian has to decide whether to promote sales to coach firms, to intensify local advertising to attract more families in cars or to tie up with schools. On average, 2 out of 1 coach riders or family car riders would buy 1 liter of ice cream, making it similar to promote to either group. Tying up with school will be favorable because school can be a relatively stable source of revenue despite of seasons.

When it comes to capacity, both Gillian and Fred are reluctant to invest money in capital expenditure because of high borrowing rate. To improve its capacity, the farm should hire more labor so that it can serve more visitors and produce more ice cream. One thing to note is that the ice cream freezer holds a maximum of 10000 litres of ice cream while it currently holds at a level of 7000. Taking into account the potential growth of demand for ice cream in the future, Gillian may also need to consider increasing the current finished goods inventory level.

3. Evaluation of Gillian’s proposal

According to Appendix 24.1, the forecast sales of farm shop in 1999 will increase by 48% while the sales of retail shops will decline by 13%. This lead to a total increase of only 3% in total sales, and the figure is substantially small compared with the increase rates in previous years.

As the variable cost of producing a litre of ice cream is £1, the profit margin of one litre of ice cream sold through farm shops is £1 (2-1). Holly Farm gives its retailers a 25% discount so the sale price is £1.5 per litre and the corresponding profit margin is £0.5 (1.5-1). The table below is based on the figures mentioned above, and it shows the total profit margin (£000) from 1994 to 1999 (predicted). The profit will increase 12% in 1999, slightly less than that of 1998 (15%).

1994 1995 1996 1997 1998 1999

Retail shops 2 6.5 9.75 15.5 18.75 16.25

Total farm shop 5 8 10 12.5 13.5 20

Total 7 14.5 19.75 28 32.25 36.25

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