Allstar Brands' Allround product is a 4-hour multi-symptom, over-the-counter, liquid medicine used to treat colds, coughs, and allergies. Allround is typically used at night because of the strength of the medication and because the alcohol and antihistamine helps consumers rest. When LSD&J took over as Brand Managers, our strategy was two-fold; grow the top and grow the bottom of the company. Our goal was to make the company strong and stable to ensure Allstar remains one of the top brands of medicine for years to come. Our strategy to grow the bottom was to focus on keeping our gross profit margin stable by minimizing operating cost, manufacturing cost and fixed cost. Our strategy to grow the top was to increase sales and net income.
Merchandisers maintain point-of-purchase displays and manage retail shelf space." (PharmaSim User's Guide, p 44) To support this strategy we increased the point-of-purchase spending from $1.4M to $4M and increased the co-op promotional allowance for mass merchandisers, convenience stores and wholesalers. By increasing merchandisers, our intentions were to improve our shelf space from the third best placement in the market and to provide special support to retailers for their in-store activities, such as shelf location, pricing and compliance with special promotions.
Period 1 Results of our decisions in the first year were in line with our objectives; to grow the top and grow the bottom of our company. Our fixed costs increased from $62.4M in period 0 to $63.5M in period 1, a rate of only 1.8%. Our gross margin increased from $172.3M to $214.8M (48.5% to 48.6%) and our net income rose from $67.2M to $100.3M. The Marketing Update report indicated prices increased an average of 3.5% and the inflation rate was 2.7%. Convenience stores showed the strongest growth. Allround remained as the market share leader in the cold medicine segment and Dryup's market share decreased. Our shelf space total increased from an average of 1.2 square feet in period 0 to an average of 1.5 square feet in period 1. The industry growth rate is close to five times higher in