Advanced Search

A look at a key feature of Kettleby Foods' business

Kettleby Foods produce their products and sell them to a retailer. The vast majority of its business is with the supermarket Tesco. The success of the business therefore lies in part with the ability of the staff to manage the relationship with its large partner.

Tesco is such a large concern that it can have a considerable degree of power over Kettleby Foods - in some respects, if Tesco say 'jump' Kettleby Foods have to jump! Kettleby Foods face a 'monopsony' situation - a single buyer.

Tesco demand very high standards and Kettleby Foods, therefore, have to manage the production process to ensure that those standards are maintained and in many cases exceeded. Mistakes can be very costly for the business.

If, for example, a product was found to have some fault - maybe the ingredients used were out of date or some foreign body was suspected of being in the product, Kettleby Foods would have to 'pull back' the product from Tesco. If that happened, then Tesco will obviously have disappointed customers as well as the cost of removing products from the supply chain. If a pull back happened, therefore, Kettleby Foods would face a 'fine' of a five figure sum from Tesco. A second offence could lead to serious trouble with the possibility that Tesco could even withdraw some of their product lines and transfer them to one of Kettleby Foods' competitors.

Image: Shoppers in a busy Tesco supermarket - as ready meals fly off the shelves, Kettleby Foods have to meet strict deadlines to ensure the products are at the distribution centres in the right quantities at the right time. Copyright: Peter Zelei, stock.xchng.

The market that the business operates in is fast moving food products. The time between orders being received from Tesco and the products having to be distributed to Tesco's distribution centres is very short. Planning of the process and the resources needed, therefore, is essential.

Kettleby Foods has to focus a great deal on its gross profit margin (Gross Profit / Turnover x 100). This is because a high proportion of its total costs are in the form of variable costs. The overheads (fixed costs) by comparison are relatively low. Variable costs come in the form of the packaging materials (trays, boxes for transport, cling film for covers), labour costs and raw materials (potatoes, meat, vegetables, spices, herbs, etc.) and represent 60-70% of the firm's total costs. The fixed costs (overheads) are primarily in the form of the building - depreciation on machinery, power, heating, lighting, rates, insurance, administration and so on.

Some of the business operation is automated but some of the tasks could not be done in this way and so there is a relatively labour intensive production process.

Kettleby Foods has its own chefs who work on developing new products and recipes. They are an important part of the product development process. Tesco are constantly looking to develop their dominance of the retail supermarket industry and high quality products that meet the needs of consumers and which can be produced efficiently and to exacting standards are essential. The chefs, therefore, have to be aware of the changing market in food and be able to respond to that changing market.

All employees are invited to taste panels to check the quality of the meals. A small group of people are trained to be expert tasters to check the consistency, texture, flavour and look of the food being produced by the business.

For the staff, maintaining high quality is important because it affects them directly. The company have a profit sharing scheme and the 'weekly brief' newsletter also gives every worker details about what their current share is. Of the net profit, a fixed percentage goes into a pot, which is shared amongst all the workers in relation to the level of their earnings.

This is an important part of the motivation strategy for the business; staff get to see regularly where the problems might lie in the business and what the impact is on their share of the profit. For many staff, their share of the profit may well go some way towards paying for their family holiday or buying presents at Christmas. It is a powerful motivational tool, therefore. However, it can have some disadvantages as well. One of the key benefits of the scheme is that staff are encouraged to reduce waste as much as possible. This can backfire if staff are tempted to use substandard ingredients or pick up spilt items from the floor! The management of the staff, therefore, in ensuring that the correct balance is maintained is vitally important.

| Index | Previous Question | Next Question |