1. HPL Position in Industry
Hansson Private Label (HPL) is a manufacturer of private label personal care product. In the recent years, the company has been facing a great amount of competition in the private label industry. In conjunction with competition, the industry has been experiencing slow growth, with unit volume sales increasing less that 1% over the past four years. Even with those factors, the company has a solid foothold in the market; according to its financial statements, HPL is estimated to have a 28% share out of its industry with revenues in 2007 reaching $681 million.
The competition the private label manufacturers face is from brand name manufacturers, but the private label industry is offering better prices and quality, which is more appealing to consumers.
Expansion would be beneficial for HPL; the company’s current four plants are at 90% capacity so expanding will be required in the future regardless. Even though HPL has a share of 28% in the industry, it is not the leader but establishing a contract with a strong retailer could help bolster the company’s position. But a contract of this magnitude would expose HPL to any financial stress the contractor could potentially face. If for any reason the contractor defaults, it would greatly impact HPL as well since a large portion of their income will depend on the contract. HPL also needs to prepare for what will happen at the end of the three years when the contract is finished. The expanded facilities still need to be utilized or they will become a burden for the firm in the long run. Opportunity cost plays a key role in the decision to expand, HPL needs to consider what other investment opportunities will become unavailable if the company commits $50 million to expansion of