Case Pan Europ

UVA-F-1028

PAN-EUROPA FOODS S.A. In early January 1993, the senior management committee of Pan-Europa Foods was to meet to draw up the firm’s capital budget for the new year. Up for consideration were 11 major projects that totaled over (European Currency Unit) ECU208 million. Unfortunately, the board of directors had imposed a spending limit of only ECU80 million; even so, investment at that rate would represent a major increase in the firm’s asset base of ECU656 million. Thus, the challenge for the senior managers of Pan-Europa was to allocate funds among a range of compelling projects: new product introduction, acquisition, market expansion, efficiency improvements, preventative maintenance, safety, and pollution control.

The Company Pan-Europa Foods, headquartered in Brussels, Belgium, was a multinational producer of high-quality ice cream, yogurt, bottled water, and fruit juices. Its products were sold throughout Scandinavia, Britain, Belgium, the Netherlands, Luxembourg, western Germany, and northern France. (See Exhibit 1 for a map of the company’s marketing region.) The company was founded in 1924 by Theo Verdin, a Belgian farmer, as an offshoot of his dairy business. Through keen attention to product development, and shrewd marketing, the business grew steadily over the years. The company went public in 1979 and by 1993 was listed for trading on the London, Frankfurt, and Brussels exchanges. In 1992, Pan-Europa had sales of almost ECU1.1 billion. Ice cream accounted for 60% of the company’s revenues; yogurt, which was introduced in 1982, contributed about 20%. The remaining 20% of sales was divided equally between bottled water and fruit juices. Pan-Europa’s flagship brand name was Rolly, which was represented by a fat dancing bear in farmer’s clothing. Ice cream, the company’s leading product, had a loyal base of customers who sought out its high butterfat content, large chunks of chocolate, fruit, nuts, and its wide range of original flavors....