Leadership Styles

Pasta Perfect

Pasta Perfect is in its fourth year of business and has not reached the point of profitability. There is a total of 14 retail stores operating in St. Louis, Missouri and Chicago, Illinois. Pasta Perfect specialized in fresh pasta and sauces along with other non-food products such utensils and Italian cookbooks.

Tom Walker, originally founder, is very frustrated due to the companyЎ¦s poor performance and the possibility that the almost 7,000 shareholders were at risk of losing their entire investment in Pasta Perfect. The boards of directors are now in a position where they have to find another strategy to bring the company out of this dilemma.

Issues

„П Targeted upscale customers who wanted a convenient meal that could quickly purchase and prepare at home

„П Pasta Perfect stores were designed with two-income families in mind, where time savings and quality were more important than price in home-food purchasing decisions

„П The first store opened in 1984 and by 1988 there were 14 stores

„П Original plans were to lease space as small as 400-500 square feet, some stores were over 2000 square feet

„П Other non-food products such as Italian cookbooks were sold in the stores

„П In 1995 Pasta Perfect raised $1.5 million in an initial public offerings. In April 1988, another $800,000 was raised in a second public offering in which all shareholders were offered Ў§rightsЎЁ to purchase additional shares. This offering was made possibly by the relatively strong sales of the new Chicago stores, compared to the St. Louis stores, in spite of the fact that the company had yet to turn the corner toward profitability.

„П Employee incentive offered not necessary since there was not an issue with or due to the employees

„П Even though more efficient procedures were put in place and advertising campaigns were done by testing some catering and radio advertising, sales margin remained inadequate to be able to sustain the company

„П By October 1988, Pasta PerfectЎ¦s cash reserves stood at $450,000 and the company was losing $45,000 per month in cash, or $540,000 per year

„П Chicago store sales are much better than sales in St. Louis, but he rent, payroll and supervision costs eats up al the extra revenue

„П Cost a lot of money to be a publicly held company

„П The possibility of opening additional stores in Chicago since the St; Louis economy had soured last year

„П Many shopping centers in metro St. Louis, including some where Pasta Perfect stores were located, were losing tenants, unemployment was rising and other economic indicators pointed to a prolonged slump in the area

„П All of the St. Louis stores but one was losing money

„П Chicago stores as a group were nor profitable either

„П Decision to switch from a specialty store retailing strategy to one of selling pasta and sauces in supermarkets

„П Tom skills and past experience were in retailing

„П He and the management team knew little about selling to the supermarket retailers

„П Due to the perishability of fresh pasta, the only realistic way to gain meaning full sales volumes in supermarkets was to invest in the new gas-flushed packaging technology, which Contadina employed.

„П This new equipment cost at least $250,000 and would necessitate leasing a manufacturing building, since the current commissary was not large enough to accommodate a new production line

„П No one in Pasta Perfect knew anything about this technology

„П The company lacked food manufacturing expertise

„П Most supermarket chains required substantial promotional allowances, including slotting fees and introductory deals in order to place new products on their shelves

„П If the company decided to close some