A Proposal for a New Packaging Method for Alara Agri

After the successful introduction of grab packs of fresh cherries in the United Kingdom, Kerim Taner, CEO of cherry producer Alara Agri, recognized how both his company and the retailers it supplies could benefit from the increased margins made possible by this new packaging over the previous bulk sales.

With retailers in Germany and Belgium, Alara Agri's second and third largest export markets, skeptical that this packaging would be accepted by their clientele despite having been presented with financial evidence of the packaging's success elsewhere, Taner's first priority is to get grab packs of cherries into retailers in Germany and Belgium. Once the new grab packs are offered in these countries, retailers will see first-hand their customers embracing the new packaging and experience the benefit of higher margins (see Exhibit 2), leading to the eventual full adoption of grab packs by German and Belgian retailers.

Option 1 (Force Their Hand): Alara Agri enjoys higher margins on cherry grab packs than bulk cherries and has begun adapting its production facilities to support increasing volumes of grab pack production. The company can streamline its production by eliminating retail bulk cherries as a product and offering only grab packs to its retail clients. Taking away bulk cherries as an option may be the quickest way to get grab packs into stores in Germany and Belgium, however it could agitate retailers and lead them to switch to competing bulk cherry providers.

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Option 2 (Test the Waters): The company can also introduce grab packs in German and Belgian retailers on a one- to two-month trial basis alongside their bulk cherries. To encourage retailer cooperation, Alara Agri can provide a revenue guarantee to retailers up to the amount of sales from the same period in the previous year (less a margin to account for the year-over-year decline in Germany's cherry consumption, per Exhibit 3). This option allows for a direct comparison of consumer preferences for bulk and grab packs and exposes retailers to little risk.

Option 3 (Power of Price): Alara Agri can encourage German and Belgian stores to try selling grab packs by offering them at a significant discount in comparison to bulk cherries for a limited time. This gives the retailers the most flexibility in when, where, and at what rate to introduce grab packs. There is risk that retailers will lose enthusiasm in the grab packs after the incentives conclude in which case the promotion would be all for naught.

I recommend that Alara Agri pursue Option 2 and introduce grab packs alongside their current bulk product in German and Belgian retailers on a trial basis. This option is superior to Option 1 as it does not involve forceful tactics that could deteriorate client relationships or drive retailers to the competition. Option 2 is also more appropriate than Option 3 since a revenue guarantee will be cheaper than a price discount (or perhaps entirely free), provided Alara Agri's expectations for consumer interest in the grab packs are accurate and in line with the popularity they experienced in the United Kingdom.

So as to make the best impression on retailers in terms of demand for the grab packs, the trial should be conducted during the high demand and lower cost summer season (Exhibit 1). Following a successful trial in which retailers are convinced of consumer demand for grab packs, Alara Agri can continue to transition to 100% grab pack production in stages.

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