Calambra Olive Oil (a)

Abstract

Frank Lockfeld, president and founder of Calambra Olive Oil, must decide how many gallons of oil to buy for the 1994 vintage year even though the first-year marketing experiment for his fledgling business has barely begun. This case describes the history of the company and the current situation, including Lockfeld's assessments of landing Neiman Marcus and Williams-Sonoma catalog sales, of 1993 retail sales through specialty shops, and of 1994 retail sales, which are tied to the 1993 outcome. See also the B (UVA-QA-0442) and C (UVA-QA-0551) cases.

Excerpt

UVA-QA-0440

CALAMBRA OLIVE OIL (A)

Frank Lockfeld pushed his chair back from the table and surveyed the remains of the meal he had spent the afternoon preparing. After an appetizer of roasted peppers with caramelized garlic accompanied by a crisp 1982 Roederer champagne, he and his guests sat down to a main course of his own devising, designed to take advantage of the light, yet intense, flavor of Calambra olive oil. In the chicken breasts Calambra, he used fresh lemons, thyme, garlic, shallots, cherry tomatoes, and parsley (all from his garden), 16 green and 16 black olives, and five tablespoons of Calambra olive oil. (A collection of Lockfeld's Calambra recipes is presented in Exhibit 1.) With the chicken, Lockfeld served fresh zucchini (also from his garden) and a shitake mushroom risotto, complemented by a superb 1986 Chalone Chardonnay Reserve. This course was followed by an endive salad with his own special vinaigrette—balsamic vinegar, fresh lime juice (from the tree in his garden), freshly ground pepper, and the 1993 vintage Calambra olive oil. Lockfeld took another sip of the Chalone and gazed into its rich amber depths, while strains of Mozart's Piano Concerto no. 20 in D Minor played in the background. Turning to his wife, B. J., and friends Marv and Linda White, he said:

How am I supposed to decide how many gallons of olive oil to order for next year? It's only the beginning of August, and we've just begun the first selling season. It was only three months ago, late last April, that we bottled the first crop of Calambra olive oil. This was supposed to be our test year. That's why we bought only 800 gallons of the 1993 vintage oil; if we can't sell that much, we probably don't have a business. Now it seems we have to make the decision about the 1994 crop before we have any real idea about how this experiment is going to turn out.

What's more—sales so far have been disappointing. But, it's been only three months. We're hoping for a big jump in sales when the retail shops stock up in anticipation of holiday buying. Also, there's the possibility that we'll sign contracts with Neiman Marcus and Williams-Sonoma for inclusion in their holiday catalogs. Inclusion in either would provide a real boost to sales. But the fact remains: so far, we've shipped only 24 cases.

Sometimes, I'm very optimistic and tempted to order 3,000 gallons, as originally planned for year two. This is, after all, the best-tasting olive oil on the market. But at other times, I'm concerned that sales may never materialize. I have visions of standing in front of the warehouse filled to the brim with leftover cases of 1993 bottles just as a big truck pulls up with this huge 1994 shipment.

. . .

Keywords: decision theory, simulation, spreadsheet