REPORT ONNESTLE REFRIGERATED FOODS:

CONTADINA PASTA & PIZZA

SUBMITTED BY:

RICHA MAHECHA (SMBA10105)MANISHA DAS (SMBA10099)PANKHURI PRADHAN (SMBA10098)

HISTORY

Nestle S.A is the largest food and nutrition company in the world. Founded and headquartered in Vevey, Switzerland, Nestle originated in 1905 merger of the Anglo-Swiss Milk Company, founded by Henry Nestle in 1866. In 1987 Nestle entered into refrigerated food market.NRFC, located in Glendale, California, was a wholly owned subsidiary of Nestle, S.A. In 1993, Nestle, S.A., was one of the world’s largest food companies with sales of over $37 billion. The original business was based on milk and infant formula products for children. Over time, numerous other food products were added including chocolate, instant coffee, culinary, refrigerated and frozen food products, ice cream, mineral water and pet foods.

TIME LINE

1866 – Founded by Henry 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 “Lambert’s Pasta and Cheese”

1988 – Contadina fresh pasta and sauces were rolled out nationally in second half of 1988.

1993 – Nestle S.A. was world’s largest food company with sales over $37 billion.

CASE FACTS

In 1987, Nestle entered U.S. market with Contadina Pasta and sauces. The product had been very successful, with sales with sales of $50 million in first year, growing to over $100 million in sales by 1990. Company plans its product line into pizzas. In 1990, the Nestle refrigerated food company contemplated the introduction of a refrigerated pizza product to the U.S market. Several market research studies and test have been conducted for the introduction of refrigerated pizza in U.S market. The company has to decide whether the introducing of refrigerated pizza into the market is feasible or not.

NEW PRODUCT DEVELOPMENT PROCESS

1. Idea Generation a. Secondary research and focus groupb. Refine the idea into preliminary concept

2. Concept screening / idea refinementa. MRD conducted a surveyb. Diagnostic information on product design, positioning and target market

section.3. Product Development

a. Prototype product were developedb. Product testing at a central location or in homes

4. Quantification of Volumea. Bases I

b. Bases IIc. Bases II line extension

5. Test Marketa. Recommended when little capital investment is requiredb. Perceived high risk in the product itself or its marketing

6. Commercial Evaluation a. Television advertising b. Creating brand awarenessc. Purchase interest

7. Introductory trackinga. Performance is tracked through awareness, attitude, usage studies and

household panel data.

REFRIGERATED FOOD: BACKGROUND

Refrigerated food are kept cool but not frozen, which allows rapid cooking or reheating by the consumer. Stored at temperature of 33 – 40 Fahrenheit degree, they have shorter shelf lives of 12 – 90 days. Convenience and perceived quality attract consumer to refrigerated food. Refrigerated foods require little planning and preparation. High quality manufacturing is required to ensure that the customer purchase a safe product. A relatively undeveloped category in the United States in 1987, non-commodity refrigerated foods were a fixture in European grocery stores. Refrigerated food product had been successful market in U.K. General food and Kraft tried to replicate the same in US market but was unsuccessful due to distribution limitation. Nestle entered the refrigerated food category with pudding desert product, but it was pre-empted by Jell-O. Due to strong growth in Italian food segment, Nestle decided to launch refrigerated pasta and sauces.

NESTLE BUYS LAMBERT’S PASTA & CHEESES

Lambert’s pasta & cheese had been established in the early 1980’s by a real estate developer. Gourmet stores in New York city selling freshly made and imported cheese. Developed 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 accompanied without impairing product quality. Purchased at $ 56 million by Nestle.

BRANDING

In 1987, pasta was available in two forms in the United States i.e fresh pasta and dry pasta. In developing a national pasta product line, NRFC needed to identify a brand name for its product that would be accepted in all regions of the United States. Carnation’s Contadina brand seemed an ideal as it had an image of authentic Italian cooking. Using mall intercepts of 200 potential purchasers in three geographically dispersed cities, Nestle refrigerated food found that Contadina fresh Classics was a strong candidate with 70% of respondents ranking it first or second among eight potential names. In the final outcome product range was branded “Contadina Fresh”.

MARKET POTENTIAL

NRFC wanted to estimate first year trial volume for pasta and sauces, simulate total year1 sales volume, and understand the likely sales effects of alternate positioning.

NRFC wanted to estimate 1st year Trial volume for pasta and sauces Simulate total year 1 sales volume Understand the sales effects of alternate positioning

Bases I study was conducted To assess the current level of awareness To determine the usage of fresh pasta and fresh pasta sauces To understand customer perception of three possible Contadina positioning

statement

POSITIONING STATEMENTS

1. Homemade : “ A complete line of fresh pastas and sauces with the taste and quality of authentic homemade recipes”

2. Pasta Dinner : “Fresh pasta dinner so good they will make a meat and potatoes man smile”

3. Superior : “A complete line of fresh pastas and sauces that are superior to any pasta or sauces you have tried before”

300 concept test were conducted on the basis of ‘key concept measures’ ‘demographic population’ and ‘key likes, dislikes & uniqueness’

Superior was the favoured alternative

EXHIBIT 4

MEASURE CONTADINA (N=301)

INDUSTRY MEDIAN

DEFINITELY WOULD BUY

24% 20%

PROBABLY WOULD BUY

51% 41%

TOP TWO BOX 75% 61%

EXHIBIT 8

PURCHASE INTENT

HOMEMADE (N=97)

PASTA DINNER (N=102)

SUPERIOR (N=102)

INDUSTRY MEDIAN

DEFINITELY WOULD BUY

27% 19% 24% 20%

PROBABLY WOULD BUY

43% 56% 54% 41%

TOP TWO BOX 70% 75% 78% 61%

VOLUME ESTMATE OF PASTA

REPEAT PURCHASE

CONCEPT PURCHASE INTENTPasta Research Results: 24% Definitely will buy

51% Probably will buyADJUSTED TRIALIndustry Rule of Thumb: 80% “Definite” actually buy

30% of “Probables” buyTherefore, Adjust Trial:(80%)(24%) + (30%)(51%) = 34.5%

ENVIRONMENT ADJUSTMENT

SeasonalityMARKETING PLAN ADJUSTMENT

$13 MM Advertising = 2330 GRPs = 48% awareness

70% ACV(34.5%)(48%)(70%) = 11.6%

POSITIONING

To understand Brand positioning issues, BASES utilized a technique called PASS (Positioning Analysis and Segmentation Summary)

NRFC supplied BASES with 27 attribute statements which were drawn from qualitative research.

Later a multivariate research technique called FACTOR ANALYSIS was used to reduce the 27 attributes to 3 major criteria.(Refer exhibit 10)

1. Ordinary main meal (41%)2. Quality (39%)3. Light meal/ slight dish (20%)

MANUFACTURING AND DISTRIBUTION

Existing facilities were not top class so a considerable change was required. Stephen Cunliffe decided to build a single factory in Danville, Virginia. Moreover, to roll out perishable product nationally from a single location requires a

highly efficient distribution system. Product shelf life was 40 days The customer and retailer demand delivery of the product with 30 days of remaining shelf

life Goal was to produce ship and deliver product throughout the U.S within 10 days.

TRIAL HOUSEHOL

DS(77.4MM)(11.6%)= 9MM

REPEAT RATEMediocre Product

– 27%Average Product –

39%Excellent Product

– 44%

REPEAT PURCHA

SE OCCASIO

NS2.5

AVG. REPEAT

TRANSACTION

AMOUNT1.4 units

x

x

x8.5 MM

units12.3 MM

units13.9 MM

units

=TOTAL ESTIMATED VOLUME

Mediocre Product : 9 M + 8.5 M = 17.5 M unitsAverage Product : 9 M + 12.3 M = 21.3 M unitsExcellent Product : 9 M + 13.9 M = 22.9 M unitsMinimum Business Requirements : 20 M units

Recommended to Launch High Quality Product

SALES

Traditionally, sales by Carnation were handled by 700 person direct sales force. Cunliffe was concerned with “share of voice” that Contadina would receive from sales

forces as they had limited experience in new refrigerated category. Other option was to utilize outside brokers who had significant experience in perishable/

refrigerated foods. Brokers’ organization was developed to gain a larger “share of sales time” because dollar

values were high on the Contadina’s products. 12 Contadina sales managers managed 50 brokers who had 1200 sales people calling on

food retailers.

CONTADINA LAUNCH

NRFC’s main strategy was to capitalize on Lambert’s major assets (high quality product recipes and packing technology) and distribute the first nationally branded refrigerated pasta and sauces products.

It would be stocked in grocery store and each product is tagged with an expiry date. NRFC supported its launch with

$7 million advertising campaign (85% television advertising &15% print media) $5 million consumer promotion $4 million trade promotions.

NRFC decided to sell its products using a “Component” approach with pasta and sauces packaged separately and sold.

Became market leader, with $75 million in retail sales in 1988 and $150 million by 1990. The pasta line accounted for nearly 80% of the sales volume.

DI GIORNO

Kraft’s Di Giorno pasta and sauces entered the market in 1989 They had developed a product with 90 day shelf life To win a competitive battle against Kraft, Contadina sets a goal of maintaining a 2:1

share ratio nationally

Reduction of distribution cost from $0.65/case to $0.38/case

Optimization of weight and volume carrying capacity of the trucks

Truck were unloaded and crossed docked with other Nestle products

Distributed through trucks to 6 pooling locations.

Requires 3 days to complete the consignment

Di Giorno entered the market with high value coupons ranging from $0.50 to $1.80 Contadina responded with low value coupons ranging from $0.20 to $0.90 Di Giorno entry resulted in considerable growth in pasta category Both the companies sales volume increased simultaneously The first mover advantage in the new product helped NRFC to sustain the threat

MARKETING MIX

Pasta Varieties.. 1. Strand pasta(linguine, fettucine, and angel’s hair) $1.992. Filled Pastas (ravioli, tortellini, totelloni, agnolotti) $2.99 Sauce Variety.. 1. Plum tomato $1.992. Bolognese $2.493. Alfredo $2.494. White clam $2.795. Pesto $2.79

PROMOTION $7 million for advertising campaign (85% for television advertising and 15% in print

media.) $5 million for consumer promotion. $4 million for trade promotions.

PLACE U.S 77.4M households which represent 89% of U.S households

SWOT ANALYSIS

Strengtho Good qualityo Greater market shareo Pioneer in the U.S marketo Easy to prepareo Efficient distribution through brokerso Component approach

Weaknesso Shorter Shelf life

Opportunityo Brand awarenesso Market leaders

Threatso Increasing competitiono It is a market leading to a cash cows

CONSUMER BUYING BEHAVIOUR

BCG MATRIX

ANSOFF MATRIX

COMPLEX BUYING BEHAVIOURVARIETY-SEEKING BUYING BEHAVIOURDISSONANCE REDUCING BUYING BEHAVIOURHABITUAL BUYING BEHAVIOURNESTLE vs. KRAFT

FEW DIFFERENC

ES BETWEEN BRANDS

SIGNIFICANT

DIFFERENCES

BETWEEN BRANDS

HIGH INVOLVEME

NT

LOW INVOLVEME

NT

NESTLE REFRIGERATED

PASTA & SAUCES

STARCASH COWS

QUESTION MARK

?DOGS

RELATIVE MARKET SHARE

MAR

KET

GRO

WTH

LAUNCH OF PIZZA

o NRFC decided to extend its product line into refrigerated pizza.o In 1988, NRFC develop two new concept

1. PIZZA KIT:Crust packed together with separate packets of cheese and sauces. Size available 12”. Price $6.40. Additional topping $1.30.

2. PRE-ASSEMBLEDAvailable in 4 varieties. Size available was 12”. Price $7.60

ACCEPTANCE OF PIZZA KIT

MRD conducted preliminary concept test to assess market interest in its new offerings. Findings from the study indicated (Exhibit 13 & 14) –

Positive purchase intent for the pizza kit – 58% Positive purchase intent for pre-assembled pizza – 52%

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.

PIZZA KIT CONCEPT

MARKETPENETRATION

MARKETDEVELOPMENT

PRODUCTDEVELOPMENT

DIVERSIFICATION

EXISTING

MARKET

EXISTING

PRODUCT

NEWMARKET

NEWPRODUCT

NRFC conducted another market research study on pizza product

Pizza Kit with topping sold separately(Pizza & Toppings)

Pizza Kit withno additional toppingssold separately (Pizza only)

It conducted Bases II Line Extension Study to analyze strength and weakness of both the concept

BASE II LINE EXTENSION STUDY

VOLUME ESTIMATE OF PIZZA ONLY

REPEAT PURCHASE

CONCEPT PURCHASE INTENT

Pasta Research Results: 15% Definitely will buy

43% Probably will buy

ADJUSTED TRIALIndustry Rule of Thumb: 80% “Definite” actually buy

30% of “Probables” buyTherefore, Adjust Trial:(80%)(15%) + (30%)(43%) = 24.9%

ENVIRONMENT ADJUSTMENT

SeasonalityMARKETING PLAN

ADJUSTMENT37% awareness58% ACV(24.9%)(37%)(58%) = 5.34%

VOLUME ESTIMATE OF PIZZA & TOPPINGS

REPEAT PURCHASE

TRIAL HOUSEHOL

DS(95.5MM)

(5.34%)= 5.1MM

REPEAT RATE22%

REPEAT PURCHAS

E OCCASIO

NS2.0

AVG. REPEAT

PURCHASE AMOUNT

1.0 kits

xx

x2.24 MM

(units)=

ESTIMATED TRIAL VOLUME5.1 MM 1.1 = 5.6 MM

In dollar amount : (5.6 + 2.24) = 7.84 MM

7.84 MM * $4.2 = $32.9 MThis is less than the basic business

requirements of $45 M

CONCEPT PURCHASE INTENTPasta Research Results: 17% Definitely will buy

59% Probably will buyADJUSTED TRIALIndustry Rule of Thumb: 80% “Definite” actually buy

30% of “Probables” buyTherefore, Adjust Trial:(80%)(17%) + (30%)(59%) = 31.3%ENVIRONMENT

ADJUSTMENTSeasonalityMARKETING PLAN ADJUSTMENT

37% awareness58% ACV(31.3%)(37%)(58%) = 6.72%

MARKETING MIX

PRODUCT PRICE Pizza and Toppings Pizza kit with the option of

Available toppings sold separately. $ 6.39 For Toppings $ 1.39 Pizza only (crust, cheese and sauce) $6.39 PROMOTION Approximate - $18M $ 9M in advertisement $ 5M in consumer promotion

TRIAL HOUSEHO

LDS(95.5MM)

(6.72%)= 6.42 MM

REPEAT RATE22%

REPEAT PURCHAS

E OCCASION

S2.0

AVG. REPEAT

PURCHASE AMOUNT

1.0 kits

xx

x 2.82 MM

(units)=

ESTIMATED TRIAL VOLUME6.42 MM 1.2 = 7.7 MM

In dollar amount : (7.7 + 2.82) = 10.52 MM

10.52 MM * $4.2 = $44.2 MMESTIMATED TRIAL VOLU

ME7.7 MM

RATIO OF

FAVORABLE76%

50% +25% *0.5ESTIM

ATED REPEA

T VOLU

ME2.8 MM

RATIO OF

FAVORABLE69%

50% + 25% *0.5

In dollar amount : 5.49 + 1.21 = 6.70 MM6.70 MM * $0.86 = $5.76 MM

$5.76 M +$44.2 M = $49.96 MM ($50 M approx.)

This more than the basic business requirements of $45 MM

UNITS PURCHASED

AT TRIAL

1.5REPEA

T PURCHASE UNITS

1.0

xxxxxx= 5.49

MM

= 1.21 MM

$ 4M in trade promotion. PLACE U.S 95.5M target households

SWOT ANALYSIS

Strength Good quality Large variety Convenient to prepare Established brand

Weakness Present competitors Poor quality of pre- assembled pizza

Opportunity Brand awareness New source of income

Threats Possibility that the competitors could launch the same product in the recent future. Though the product is not yet been launched it is impossible to anticipate the reaction

of the market.

Contadina Pizza offering is favored more than the current frozen pizza in the market.

EXHIBIT 13

EXHIBIT 14

Both the concepts (Pizza Kit & Assembled Pizza) measure slightly behind the Takeout Pizza.

Large differences were found in some of the attributes of Takeout Pizza & Pizza Kit. Attributes are:-

Soggy Crust Product Variety Freshness Appropriate for special meals Taste

There is slight difference between the two Contadina's offerings as more people are in favor of the Pizza kit as compared to Assembled Pizza.

EXHIBIT 15

% of Last Pizza Eating Occasions (n=60)

% of Next 10 Pizza Eating Occasions (n=60)

Contadina Pizza 28%

Takeout Pizza 75% 58%

Frozen Pizza from Supermarket

16% 9%

Fresh Pizza from Supermarket

5% 1%

Homemade Pizza 4% 4%

Future Pizza Kit sales would come from customers who prefer Takeout Pizza, Frozen & Fresh Pizza from supermarket.

The largest segment of customers comes from Takeout Pizza followed by Frozen Pizza from supermarket.

EXHIBIT 19 & 20

Bases II study was conducted to determine likes & dislikes of Pizza & Toppings and Pizza only.

Out of 399 respondents for Pizza & Topping, 304 respondents were in favor of this concept.

Out of 198 respondents for Pizza only, 116 were in favor of this concept. Among these 116 respondents, 76 understood that Pizza comes with just sauce & cheese.

EXHIBIT 21

Purchase intent for Pizza & Topping – 76% Purchase intent for Pizza Only – 58% According to the Bases II Line extension study:-

87% of Contadina Pasta Users are likely to purchase Contadina Pizza & Toppings. Only 70% of Contadina Pasta Users are likely to purchase Contadina Pizza only.

This shows that Pizza & Toppings is the popular choice.

COMPARISION OF EXHIBIT 19, 20, 21 WITH EXHIBIT 6

Pasta Concept Test was performed with BASES I approach whereas Pizza Concept Test was performed with BASES II approach.

Pasta Concept Test was bases on volume estimates within 25% accuracy range whereas the Pizza Concept Test involved a concept test in combination with a product taste test and was reliable within 20%.

Purchase intent for Pasta – 75% Purchase intent for Pizza & Topping – 76% Purchase intent for Pizza Only – 58% Pizza only option did not have same luck as compared to Pizza & Topping. This shows that Nestle should launch Pizza & Toppings Concept.

EXHIBIT 23

It shows how the product will be perceived by the respondents after its consumption. 69% of respondents are in favor of repeat purchase of the product In the Favorable Category,

34% believe that pizza should be quick & easy to prepare 33% believe that no improvements are needed 23% believe that the price should be lowered

In the Unfavorable Category, 33% believe that it is too expensive & the price should be lowered 22% believe that the overall taste should be improved

EXHIBIT 24

It shows the price which the consumers are willing to pay for 12” pizza. In the favorable category, respondents are willing to pay between $4 - $10 In the unfavorable category, respondents are willing to pay between $3 - $7 Consumers are willing to pay more for refrigerated pizza rather than frozen pizza because

of it convenience to prepare & freshness

COMPARISION OF PIZZA AND PASTA OPPORTUNITY

SIMILARITIES Focuses on growing trend of Ethnic Italian Food Aim at Providing Convenience & Freshness First mover advantage No market leader Targeting similar customer segment

DIFFERENCES Market Potential Varies Major threat for Pasta – Dry Pasta (90%) whereas for Pizza – Fresh Pizza (88%) Improving the existing product of LPC in case of Pasta whereas complete in-house

development for Pizza. Timing of launch:-

Pasta – First Mover AdvantagePizza – critical to launch as Kraft’s had already tested its Pizza product

REASONS FOR SUCCESS OF PASTA

Acquisition of Lambert’s Pasta & Cheese Extended shelf life from 2-3 days to 40 days. “Contadina Fresh” as a brand name. Thorough market research and analysis. High Quality Positioning as a Light meal/Side Dish. Effective and Efficient distribution system. Utilization of brokers for distribution of product. First mover advantage

NEW PRODUCT DEVELOPMENT PROCESS

Well structured & Systematic Flexible

PASTA All the steps were followed except Product Development & Test Market.

Acquisition of Lambert’s Pasta & Cheese Test Market could not be conducted because huge capital investment was

required.PIZZA All the steps were followed except Introductory Tracking

Decision to launch Pizza is Pending.

WHETHER TO LAUNCH PIZZA OR NOT??

Exceeds basic business requirement of $45 M. Bases II study indicates purchase intent is 76%. Leverage existing 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.

RECOMMENDATION

Lower the price (Exhibit 23) Improve the overall taste (Exhibit 23) Bases random sample study was conducted only in high potential market. They should

also consider volume projections sensitive to range between 5% - 25%. Use of Brokers for distribution of Pizza & Toppings product. Launch the product in a specific area before launching it nationally to know the customer

reaction towards the product.