Overview of the Industry

As a manufacture of private label personal care products, Hansson Private Label, Inc. has a considerable amount (28%) of market share in its specific industry. However, private labels as a whole constitute less than 19% in the entire personal care industry. Therefore, growth of HPL depends on the growth of the industry and more importantly the growth of private label component within the industry. In terms of the personal care industry, market growth will not improve significantly in the future. As proven in the past four years, unit volumes in the industry increases less than 1% in each year and the dollar sales growth was only driven by modest price increases. Therefore, the opportunity for private labels will come in the form of obtaining a bigger slice of the pie. In other words, private labels will need to take market shares away from the brand names by penetrating deeper into a slowly expanding market.
Brand name manufactures still control the majority of the personal care market. However, private labels have been gaining momentum in market shares as a result of greater consumer acceptance. The economic downturns have fostered a trend of thrifty spending among consumers. The private labels, with lower price and improving quality, offer an appealing alternative and substitute to the more costly brand names. Therefore, despite the whole personal care market size being quite fixed, the private labels have the prospect of growing within the market.

Review of Historical Financial Data

HPL’s historical financial performance has been steadily increasing for the past five years. As displayed in exhibit 1, revenue has increased from $503.4 in 2003 to $680.7 in 2007. However, in spite of the yearly increasing revenue, due to an unusually high cost of goods sold in 2005, the net income decreased this year. This has occurred