Balance Sheet and Private Label

3271 words 14 pages
4021
REV: MARCH 1, 2010

ERIK STAFFORD
JOEL L. HEILPRIN
JEFFREY DEVOLDER

Hansson Private Label, Inc.:
Evaluating an Investment in Expansion
Introduction
On a frigid Sunday night in late February 2008, Tucker Hansson pored over a proposal developed by his firm’s manufacturing team. It called for investing $50 million to expand production capacity at
Hansson Private Label (Hansson or HPL). For Hansson, a private company, this would be a significant investment. The company had not initiated a project of that magnitude for more than a decade, and the expansion wasn’t without significant risk. It would be likely to double HPL’s debt and to greatly increase customer concentration. This was a critical juncture for the firm Tucker
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U.S. sales of these products totaled $21.6 billion in 2007. The market was stable, and unit volumes had increased less than 1% in each of the past four years. The dollar sales growth of the category was driven by price increases, which were also modest, averaging 1.7% annually during the past four years. The category featured numerous national names with considerable brand loyalty.
Branded offerings ranged from high-end products such as Oral-B in the oral hygiene category to lower-end names such as Suave in hair care. Private label penetration, measured as a percentage of subsegment dollar sales, ranged from 3% in hair care to 20% in hand sanitizers. (Exhibits 2 and 3 present data about private label sales and market share.)
Consumers purchased personal care products mainly through retailers in five primary categories: mass merchants (e.g., Wal-Mart), club stores (e.g., Costco), supermarkets (e.g., Kroger), drug stores
(e.g., CVS), and dollar stores (e.g., Dollar General). As a result of significant consolidation and growth in retail chains over the past 15 years, manufacturers of consumer products depended heavily on a relatively small number of retailers that had a large national presence. To survive in the personal care category, manufacturers had to persuade large chains to carry their products, provide adequate and highly visible shelf space, and cooperate with product promotions. Many consumer-goods

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