Hansson Private Label Harvard Case Solution & Analysis

Hansson Private Label Case Solution

Introduction

Hansson Private Label is a corporation that manufactures personal care products like soap, shampoo, and mouthwash;it sells them under the brand label. The firm sales have grown rapidly over the period of time. The retail customers want to increase Hansson Private Label’s share of the private label manufacturing. One fifth of all personal care products purchased are Private Label brands. Moreover, Hansson holds 28% of private label portion of personal care industry. Hansson was an entrepreneur who spent nine years buying manufacturing businesses, he tried many ways in order to increase the efficiency and production of the company. Whenever production efficiency increases, the customers become attracted andit increased the sales of the company. The next step for Hansson is to sell the manufacturing business at a high price and earn the profit, after improving its efficiency through increasing sales.

He bought HPL for 42 million;while buying Hansson Private Label, he spent 25 million through equity funding and 17 million through debt. Since debt ratio is lower than equity ratio,this means that company is not risky and it has no financial risk. Hansson’s assessment of private label was achieving its growth because he was focusing on manufacturing efficiency, expense management, and customer service. When the sales of the company grew, he decided to expand the business. He had four plants and all these plants are operating more than 90% of their capacity. He was worried about the risk, as he wanted to expand the business because of rapid growth and significant value creation. He also had the risk of strong relationship with a big retailer. Previously, retailers carried the sales of private labels at a cheaper rate than national branded products.  Currently, the company is continuously improving and customers are attracted to the product. Moreover,sale of the company is also increasing. The result of improvement in the private label will attract more customers. The company increased its profit by capturing a greater share of the value chain. As the retailers reduced their cost and charged higher price on the product, there was no change in the acceptance of private label goods. The price was a huge opportunity for retailers to earn more profits.

 Business opportunity

Hansson Private Label has been low growth rates and violent competition in the market for four years,the company has the opportunity to expand its production and increase its profit by signing a three year contract with its biggest client in the personal care products line. However, this opportunity has some risks. The initial investment is $45 million, which will be used for facility expansion, manicuring equipment, and packaging equipment. The working capital will not be apart of the initial investment, the reason for this is that increase in working capital is not expected to occur at the time of the initial investment. This initial investment should be necessary for expansion. This initial investment would double the debt of HPL and significantly increase the financial leverage of the company, but this financial risk also provides tax saving benefit to the company. If the economic conditions change, then it will affect the business financials.Along with this, client financial distress will be very riskier for Hansson Private Label and it will not be able to maintain financial stability.

Cost Components:Amount
Facility Expansion$10,000
Manufacturing Equipment20,000
Packaging Equipment15,000
Total Investment45,000

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