Euroland Foods Case Study

UVA-F-1356

Version 1.1

EUROLAND FOODS S.A. In early January 2001, the senior management committee of Euroland 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 more than EUR316 million. Unfortunately, the board of directors had imposed a spending limit on capital projects of only EUR120 million. Even so, investment at that rate would represent a major increase in the firm’s current asset base of EUR965 million. Thus, the challenge for the senior managers of Euroland Foods was to allocate funds among a range of compelling projects: new product introduction, acquisition, market expansion, efficiency improvements, preventive maintenance, safety, and pollution control.

The Company Headquartered in Brussels, Belgium, Euroland Foods 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 his 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 2000, Euroland Foods had sales of almost EUR1.6 billion. Ice cream accounted for 60% of the company’s revenue; yogurt, which was introduced in 1982, contributed about 20%. The remaining 20% of sales was divided equally between bottled water and fruit juices. Euroland Foods’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 wide...