Nestle Refrigerated Food: Contadina Pasta and Pizza

Akriti Agrawal Apoorv Soni Abhishek Shukla Varsha Rajamani Anjana Carri Hemant Bhojwani Ishan Gera

Presented By:

Contents: An Overview
Nestle Refrigerated Foods: History Nestle: Product Line Nestle Refrigerated Food Corporation : Timeline Case overview and Background of Refrigerated Food Entering the Market Various Strategic Analysis Tools Case Questions Recommendations

Nestle Refrigerated Foods: History

Founded in 1866 by Henri Nestle Located in Glendale, California Originally dealt with milk and infant formula products for children Over time, they added numerous food products including chocolate, instant coffee, culinary, refrigerated and frozen products, ice cream and pet foods. Vision: To ensure its position as one of the worlds premier food companies. Major player in the US in specialized markets such as confectionary, coffee, and frozen foods.

Nestle Product Lines

BEVERAGES: Soluble coffee, mineral waters, fruit juices and fruit drinks, tea-and coffee-based ready-to-drink beverages MILK PRODUCTS AND DIETITICS: Milks, soy milk, coffee creamer, breakfast cereals, ice cream PREPARED DISHES AND COOKING AID: Culinary products (soups, sauces), pasta, frozen foods, cold meat products CHOCOLATE AND CONFECTIONARY: Chocolate, biscuits and pastry PHARMACEUTICALS: Ophthalmic products and infant cosmetic products

Timeline of Nestle
1866: Founded by Henri Nestle

1985: Nestle became major food force with its $3 billion purchase of Carnation company 1987: Nestle decided to enter refrigerated food category. Purchased small New York based pasta company Lamberts Pasta and Cheese 1988 Contadina fresh pasta and sauces were rolled out nationally in second half of 1988 and successfully recording over $ 100m sales by 1990. 1993 Nestle S.A. was worlds largest food company with sales over $37 billion.

Case Overview
The case is based upon the various studies and market researches which have been conducted for the introduction of refrigerated pizza in the U.S. markets by NRFC(Nestle Refrigerated Food Company in 1990. The company had already established itself in the refrigerated market by the introduction of Contadina pasta and sauce in the late 1980s . Nestle Refrigerated Foods Corporation (NRFC) must determine whether or not to introduce a refrigerated Pizza Kit product.

Nestle should bring the Pizza Kit concept to market and position it as a high quality, reasonably priced alternative to both the takeout/delivered and frozen pizza segments.

Refrigerated Foods: Background

Either fresh or processed Kept cool but not frozen to allow rapid cooking or reheating by the consumer Shorter shelf lives of 12 90 days compared to frozen foods (several months) Convenience and perceived quality attract consumers

Require little planning and preparation to consume

High quality manufacturing is required to ensure a safe product Contributed for approximately 7% of Nestles global sales but undeveloped

category in US in 1987
Successful in UK General Foods and Krafts tried to replicate the same in US market but were unsuccessful due to distribution limitation.

Refrigerated Foods-Background Contd

Nestle initially considered entering the refrigerated food category with a pudding dessert product Pre-empted by Jell-O Believed in the viability of the refrigerated food category and due to strong growth in the Italian food segment, Nestle decided to launch refrigerated pasta and sauces

Entering the Market

Buying Lamberts Pasta and Cheese Branding

Market Potential

Positioning Manufacturing , Distribution and Sales

Buying Lambert Pasta and Cheese

Established in early 1980s by real estate developer.

Gourmet stores in New-York city selling freshly made pasta and imported cheese.
Developed a process which extended shelf life from usual 2-3 days to 40 days by a series of technical innovation. 38 day extension allowed for creation of feasible distribution system.

Extension was accomplished without impairing product quality.

Purchased at $56 million by Nestle later named, "Contadina Fresh

Branding
Developing National Pasta Product Line An acceptable brand name for all regions in US Contadina : Ideal Candidate due to the Italian cooking image Research Commissioned to develop ideal product name Mall intercept of 200 Potential Purchasers 70% respondents voting for Contadina Fresh Classics Finally after the final outcome was reached , product range was branded Contadina Fresh

Market Potential
NRFC Objectives: 1. Assessing current level of awareness 2. Understanding customer perception 3. Understanding Positioning statement ,w.r.t , Competitive Brands 4. Estimating total Year 1 Sales volume 5. Understanding likely effects of alternative positioning on sales Thus , BASES 1 study was conducted, wherein market forecasting methodology was utilized. Marketing plan components , viz. , media selection, consumer and trade promotion and distribution It was found out that 75 % of the 301 people surveyed , were likely to purchase the product

PASS (Positioning analysis and Segmentation Survey) technique used 27 customer preference attributes statements were found

Factor Analysis conducted , to get insights on how customers differentiate products.

Five major criteria of customers macro view of Pasta Products
Eventually, Main meal, Quality and light meal/side dish were chosen the top 3 attributes Positioning of high quality as a light meal/ side dish would best capture both light/heavy Pasta consumers

Manufacturing, Distribution and Sales

One manufacturing location but considerable efficiency Factory built at Danville, Virginia with production capacity 60million units at $8/unit 10 days delivery time : An effective distribution System Service line orders forwarded to single factory location 3 days order filling followed by placement on freight trucks Sales force of 700 persons Sales brokers were utilized acting as agents getting a commission 12 sales managers , moderating broker network of 50 brokers and 1200 salespersons

Counter-Attack by Nestle to Kraft Foods

NRFC was very much concerned about Krafts Di Giornio entry into the refrigerated pasta and sauce market in 1989. Kraft developed a product with a 90 day shelf life to fit the pasta product To win a competitive battle against Kraft, Contadina sets a goal of maintaining a 2:1 share ratio nationally Di Giornio coupon values ranged from $0.50 to $1.80 whereas Contadina responded with $0.20 to $0.90 Rather than threating Contadina, the Di Giornio entry resulted in considerable growth in the refrigerated pasta category

Marketing Mix-Pasta
PASTA VARIETIES (PRODUCT)
Strand pasta(linguine, angels hair) fettucine, and

PRICE ($)
$1.99
$2.99

Filled Pastas (ravioli, tortellini, totelloni, agnolotti)

SAUCE VARIETIES (PRODUCT)

Plum Tomato Bolognese Alfredo White Clam Pesto

PRICE($)
$1.99 $2.49 $2.49 $2.79 $2.79

Marketing Mix-Pasta Contd

Promotion

$7 million advertising campaign (85% television and 15% in print media) $5 million for consumer promotion $4 million for trade promotions

Place

United States (Launch targeted 77.4m households, representing 89% of US households

NESTLE SWOT ANALYSIS

Strength Weakness Opportunities Threat

1) Good Quality 2) Large Variety 3) First Mover Brand Pasta Launch

1) Fierce Global Competition with Kraft, Unilever etc 2) Poor Quality of Pre-Assembled

1) Brand Awareness 1) Uncertainty of 2) Creating Launchpad of Pizza with toppings 3) Become Kraft Food launching Pizza in market 2) Difficult to anticipate the

4) Established
Brand

Pizza

aggressive marketer reaction of

for Pasta Penetration consumers 3) Risk of Heavy Investment going wasted

CONSUMER BUYING BEHAVIOUR MODEL

HIGH INVOLVEMENT SIGNIFICANT DIFFERENCES BETWEEN BRANDS LOW INVOLVEMENT

COMPLEX BUYING BEHAVIOUR

VARIETY-SEEKING BUYING BEHAVIOUR

FEW DIFFERENCES BETWEEN BRANDS

DISSONANCE REDUCING BUYING BEHAVIOUR

HABITUAL BUYING BEHAVIOUR

NESTLE vs. KRAFT

BCG MATRIX

ANSOFF PRODUCT MATRIX (Pasta)

Marketing Mix-Pizza
PIZZA (PRODUCT)
CRUST, TOMATO SAUCE & CHEESE CRUST, PESTO SAUCE & CHEESE

PRICE ($)
$6.39 $6.39

PIZZA TOPPINGS (PRODUCT)

PEPPERONI ITALIAN SAUSAGE EXTRA CHEESE VEGETABLE (MUSHROOMS & BELL PEPPER)

PRICE($)
$1.29 $1.29 $1.29 $1.29

Marketing Mix-Pizza Contd

Promotion
Approximately $18M
$9 million in advertisement $5 million in consumer promotion $4 million for trade promotions

Place
United States 95.5M target households

 NRFC decided to extend its product line into refrigerated pizza segment In 1988, NRFC develop two new pizza concept
PIZZA KIT Crust packed together with separate packets of cheese and sauces. Size 12 Price $6.40 Additional topping $1.30 PRE-ASSEMBLED Available in 4 varieties Size 12 Price $7.60

R&D found that the flavours of the sauces and toppings migrated into one another resulting in a poor quality product. Hence, refrigerated pre-assembled concept was infeasible from a production stand point. Moreover, the kit product was consistent with NRFC component approach. Hence it was feasible to launch pizza kit.

Q2:
How can one learn from exhibit 13 , 14 and 15?

Takeout Pizza Heavy Users Evaluation of Takeout Pizza (n=128) 8.7

Kit Favorable Frozen Pizza Users Users Evaluation of Evaluation of Contadina Kit Frozen Pizza (n=115) (n=129) 8.2 5.8

Takeout Pizza Heavy Users Evaluation of Takeout Pizza (n=135)

8.8

Assembled Favorable Users Evaluation of Assembled Pizza (n=102)

8.2

Frozen Pizza Users Evaluation of Frozen Pizza (n=144)

6.1

 Contadina Pizza offering, Pizza Kit & Assembled Pizza, are both favored considerably more than the current frozen pizza in the market Both the concepts, Pizza Kit & Assembled Pizza measured slightly behind the Takeout Pizza

For future purchase of Contadina Pizza, the largest segments of customers will come from Takeout Pizza (58%) followed by Frozen Pizza from supermarket (9%) and Fresh Pizza from supermarket (1%).

Question 3

How does the Pizza concept test dats(exhibits 19,20 and 21) compare to the Pasta concept test data?

Comparing Concept Test Data: Pizza and Pasta

Pasta Concept Pizza Concept

Using BASES I approach Assessing Current Awareness Level Understanding Customer Perception w.r.t , competitive brands 300 women surveyed, 75 % showed intent to buy Natural flavor, quick cooking : Preferred attributes

Using Bases II approach Assessing market interest in Brand Nestle Pizza Infeasibility of preassembled concept leading to another market research Purchase intent: * Pizza only: 58% * Pizza and Toppings: 76% Added toppings, better taste::Preferred attributes

Question 4

What is your reading of Exhibit 23 and 24

 In general , how would you compare the Pizza opportunity with Pasta opportunity? What are the similarities and differences

Question 5

Comparing Opportunities: Pasta and Pizza

Similarities Rapid growth in ethnic food categories The top Italian food were pizza and pasta Same food category Carried on the same extension Contadina First movers in the market No competitors existing No change in market target Differences Market Potential Varies Refrigerated products has competition like Dry Pasta (90%) whereas for Pizza Fresh Pizza (88%) Improving the existing product of LPC in case of Pasta whereas complete inhouse development for Pizza.
Pasta First Mover Advantage whereas Pizza critical to launch as Krafts had already tested its Pizza product

Why was the Pasta product so successful?

Question : 6

Success of Contadina Pasta

Acquisition of Lamberts Pasta & Cheese: Extension of product shelf life leading to creation of feasible distribution system Contadina Fresh as a brand name: A strong image of authentic Italian cooking Thorough Market Research and Analysis: BASES study, purchase frequency forecast Utilization of Brokers for distribution of Products: greater numbers of people on the street monitoring the product. First Mover advantage

 Q7.

How do you like Nestl's New Product Development process for Pasta and Pizza?

New Product Development

Idea Generation Concept Screening Product Development Quantification of Volume Test Market Commercial Evaluation Introductory Tracking

Contadina Pasta :New Product Development

Well defined and well thought out approach Ascertaining potential market size of new Pasta product Primary Research to assess concept appeal and product satisfaction BASES study chosen instead of Test Markets

Contadina Pizza : New Product Development

Two new concepts developed, Pizza Kit and Preassembled heat and eat pizza Customer research survey to deduce Pizza size Concept test to assess market interest Finding: Preassembled concept was considered infeasible , Pizza kit considered more viable

 Using BASES model described in exhibit 9, forecast the estimated demand(trial and repeat) for the two pizza options under consideration: Pizza and Toppings and Pizza only

Question 1:

Forecasting

Volume Estimate (Pizza Only)

CONCEPT PURCHASE INTENT Pizza Research Research: 15% will definitely buy 43% will probably buy

Volume Estimate (Pizza and Toppings)

CONCEPT PURCHASE INTENT

Pizza Research Research: 17% will definitely buy

59% will probably buy

Adjusted Trial Industry Rule of Thumb: 80% Definite Actually Buy 30% of Probables buy (80%) (15%) + (30%) (43%) = 24.9 %

Adjusted Trial Industry Rule of Thumb: 80% Definite Actually Buy 30% of Probables buy (80%) (17%) + (30%) (59%) = 31.3 %

Environment Adjustment Seasonality

Marketing Plan Adjustment 37% Awareness

Environment Adjustment Seasonality

Marketing Plan Adjustment 37% Awareness 58% ACV (31.3%) (37%) (58%) = 6.72 %

58% ACV
(24.9%) (37%) (58%) = 5.34 %

Forecasting

Repeat Purchase (Pizza Only)

Repeat Purchase (Pizza and Toppings)

Q8

Would you Launch the Pizza ?

To Launch or Not ?
Looking at the elaborative case study and exhibits, Nestle has started using technology to develop basic business requirements for pizza is $45 million (Factory Dollar Sales). With the Nestle investment estimated cost of $12 million, they are estimating market share of .3% of the retail pizza market. Should Nestle Launch the Pizza with or without Topping or should delay the launch

CURRENT MARKET DEMAND ESTIMATION

PIZZA ONLY Estimated Trial Volume=95.5 M (No of target customer)x 24.9% (trial rate)x 37% (awareness rate)x 58% (availability rate) x 1.1 (purchase unit per customer)= 5.6M Estimated Repeat Volume= 5.1M (No of trial customer) x 22% (repeat rate) x 2.0 (frequency) x 1.0 (purchase unit per customer) = 2.2M (unit). In Dollar Amount, (5.6M+2.2M) x $4.2=$32.8M. This is less than threshold of $45M. (factory dollar sales/unit = $6.4*66%=$4.2)

PIZZA & TOPPING PIZZA

Estimated Trial Volume=95.5 M (No of target customer)x 31.3% (trial rate)x 37% (awareness rate)x 58% (availability rate) x 1.2 (purchase unit per customer)= 7.7 M Estimated Repeat Volume= 6.4M (No of trial customer) x 22% (repeat rate) x 2.0 (frequency) x 1.0 (purchase unit per customer) = 2.8M (unit).

TOPPING
Estimated Trial Volume= 7.7M (estimated trial volume) x 76% (ratio of favourable) x (50% + 25% x 0.5) x 1.5 = 5.9M Estimated Repeat Volume= 2.8M (estimated repeat volume) x 69% (ratio of favourable) x (50% + 25% x 0.5) x 1.0 = 1.2M In Dollar Amount, (7.7M+2.8M) x $4.2 + (5.9M +1.2M) x $0.86 = $50.2M.

LAUNCH PIZZA & TOPPINGS

Exceeds basic business requirement of $45 M.

Bases II study indicates purchase intent is 76%.

Leverage exiting manufacturing technologies and

distribution capabilities to effectively get the product to

market. Market Leader of Refrigerated Pasta Product in U.S. No Major Player in Refrigerated Pizza Market so NRFC can enjoy the First Mover Advantage.

Recommendations
Lower the price (Exhibit 23) Awareness among for Contadina Non-Users

Consider volume projections sensitive to range between 5% - 25%.

Increase Brand Penetration

Launch the product in a specific area

Use of Brokers for distribution of Pizza & Toppings product.