Hansson Private Label, Inc. (HPL)
1. Environment
Personal care market is the hand and body care, personal and oral hygiene also skin care products. In the USA the sales were $21.6 billion for 2007. Also the volumes increased for 1% in each of past 4 years. Price increase drive the dollar sales growth which averaged growth of 1.7% annually the past 4 years. Personal care products are sold mostly through supermarket, mass merchants, club stores, drug stores and dollar stores. Over past 15 years, manufactures depended on small number of retailers who had large national presence. Private label sales exceeded $70 billion in 2007. Private label products accounted for $4 billion of sales at retail (19% of $21.6 billion), translating to $2.4 billion in wholesale sales from manufacturers. Private label penetration range (3% in hair care to 20% in hand sanitizers). With private label brands, retailers rather than manufacturers controlled production, packaging and production of goods. Retailers carry private label goods to provide consumers with lower-priced alternatives to national branded goods. Quality improvements in private label goods led to increased acceptance by customers. With brand named products customer’s expectation grows and retailers increase that acceptance. The branded product could be twice priced with the retailer. Retailers double the price of the products and gain the profit. The private labels which has lower price and improving quality, offer an alternative to the more costly brand names. Even though the whole personal care market size is quite fixed, the private labels have the vision of growing in the market.
2. Business Model
Hansson Private Label is a corporation that manufactures a range of personal care products, including soap, shampoo under the brand label of its retail partners. Hansson started business in 1992. He purchased of manufacturing assets from Simon Health and Beauty Products for $42 million dollars which is $25 million dollars equity and $17 million dollars are debt its all Hansson’s largest single investment. Hansson believed he was paying significantly less than replacement costs for the assets. Hansson was confident that private label growth will continue in the future. Hansson’s focus on manufacturing efficiency, expense management and customer service turned HPL into a success. Also it secured most major national and regional retailers as customers. HPL had a conservative expansion in opening of any new facility only if its 60% capacity utilization.
Performance
HPL has a financial performance that has been progressively increasing for the past years. As showed in exhibit 4 revenue has increased from $505 in 2003 to $681 in 2007. Even though it had a yearly growing revenue, due to remarkably high cost of goods sold in 2005, the net income decreased this year regarding the exhibit 1. This has occurred because of an increase in inventory as well as an increase in current liabilities. HPL’s EBIDA Margin for 2007 is 10.8% and Net Income margin is 5.7%. And comparing to the comparison with the competitors HPL has strong financial performance. Comparing to the competitors HPL’s revenue growth rapidly from 2003 to 2007 as well as with the assumptions for the expansion. Regarding exhibit 6 the competitor’s revenue are: Cathleen Sinclair 1,346 mill, General Health and Beauty 446 mill, Women’s care 397 mill, Skin care 1,247 mill. And the HPL’s revenue from grow from 503 mill to 681 mill from 2003 to 2007 years. Comparatively speaking, HPL EBITDA ratio is stronger than industry competition, another indicator of strong earnings and management. The growth and margin is can happen at the same time. As well as COGS is remains constantly. In appendix 1, table #1 it’s a calculation of the enterprise value and debt leverage. Comparing to the HPL and competitors by the calculation we can say that Cathleen has most leveraged in the industry. The risk factor that