A-level Business (7132) · Paper 3: Business 3

A family business

Orchard & Vine Ltd makes premium chutneys, relishes and sauces in a converted farm in Herefordshire. It was founded 30 years ago by Harriet Vine's parents and is still 100% owned by the Vine family. It employs 120 people and is the largest employer in its village. Harriet, the Managing Director, knows every employee by name. She makes the important decisions herself but always explains her reasons, and she pays above the local average, funds a staff bus and gives every employee a hamper at Christmas. Labour turnover is just 4%.

The kitchen

Every product is cooked in small batches in copper pans using recipes developed by the family, with fruit bought from local orchards wherever possible. The products have won 34 Great Taste awards. Cooking in small batches is slow and labour intensive, and unit costs are higher than those of large manufacturers who use continuous production lines. Harriet believes customers will always pay more for food that 'tastes like it was made at home'.

The market

UK sales of chutneys and pickles have grown slowly in recent years, while the hot sauce market has grown by around 18% a year, driven by younger shoppers and social media. Large food manufacturers dominate the mass market, and supermarket own-label products sell at about half the price of Orchard & Vine's.

Selling to supermarkets

Ten years ago Orchard & Vine sold mainly to delicatessens and farm shops. Today three large supermarkets account for most of its sales (Appendix A). Supermarket buyers are demanding: they ask for annual price cuts, charge fees for promotions and shelf space, and have recently extended their payment terms from 30 to 60 days. Losing one supermarket listing would be a serious blow, and Harriet knows that the supermarkets also sell their own-label chutneys.

A new product

Orchard & Vine's development kitchen has created 'Fire & Honey', a range of hot sauces aimed at younger customers. Hot sauces are one of the fastest-growing condiment markets. A new bottling line would be leased to make the range. Forecast data are shown in Appendix B.

Cash

Despite growing sales, Orchard & Vine's bank balance has fallen. The longer payment terms, higher ingredient prices and the need to build inventory before the Christmas season are all putting pressure on cash. The Finance Director has prepared the cash flow forecast in Appendix C and warned that the business may be overtrading. The bank has agreed an overdraft limit of £150 000.

Growth options

Harriet must choose between two growth opportunities (Appendix D). Option 1: Fresco, a large supermarket, has offered a three-year contract to make its own-label 'Finest' chutney range. Orchard & Vine would need to invest £600 000 in extra capacity. Option 2: Export Orchard & Vine's branded products to delicatessens and food halls in Germany and the Netherlands through a specialist food distributor, priced in euros. Harriet's father, who still sits on the board, says: 'Our competitive advantage is our recipes and our people. Whatever we do, we must not lose that.' One long-serving cook put it differently: 'Harriet looks after us, and we look after the food. But it's always her decision, and we only find out about big changes when they happen.'