REPORT ON NESTLE 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 worlds 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 Lamberts Pasta and Cheese 1988 Contadina fresh pasta and sauces were rolled out nationally in second half of 1988. 1993 Nestle S.A. was worlds 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 group b. Refine the idea into preliminary concept 2. Concept screening / idea refinement a. MRD conducted a survey b. Diagnostic information on product design, positioning and target market section. 3. Product Development a. Prototype product were developed b. Product testing at a central location or in homes 4. Quantification of Volume a. Bases I

b. Bases II c. Bases II line extension 5. Test Market a. Recommended when little capital investment is required b. Perceived high risk in the product itself or its marketing 6. Commercial Evaluation a. Television advertising b. Creating brand awareness c. Purchase interest 7. Introductory tracking a. 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 LAMBERTS PASTA & CHEESES

Lamberts pasta & cheese had been established in the early 1980s 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. Carnations 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 DEFINITELY WOULD BUY PROBABLY WOULD BUY TOP TWO BOX CONTADINA (N=301) 24% 51% 75% INDUSTRY MEDIAN 20% 41% 61%

EXHIBIT 8
PURCHASE INTENT DEFINITELY WOULD BUY PROBABLY WOULD BUY TOP TWO BOX HOMEMADE (N=97) PASTA DINNER (N=102) 19% SUPERIOR (N=102) INDUSTRY MEDIAN

27%

24%

20%

43% 70%

56% 75%

54% 78%

41% 61%

VOLUME ESTMATE OF PASTA

REPEAT PURCHASE

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.

Requires 3 days to complete the consignment

Distributed through trucks to 6 pooling locations.

Truck were unloaded and crossed docked with other Nestle products

Optimization of weight and volume carrying capacity of the trucks

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

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 Contadinas products. 12 Contadina sales managers managed 50 brokers who had 1200 sales people calling on food retailers.

CONTADINA LAUNCH
NRFCs main strategy was to capitalize on Lamberts 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
Krafts 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 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 angels hair) 2. Filled Pastas (ravioli, tortellini, totelloni, agnolotti) Sauce Variety.. 1. Plum tomato 2. Bolognese 3. Alfredo 4. White clam 5. Pesto

$1.99 $2.99 $1.99 $2.49 $2.49 $2.79 $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
Strength o Good quality o Greater market share o Pioneer in the U.S market o Easy to prepare o Efficient distribution through brokers o Component approach Weakness o Shorter Shelf life Opportunity o Brand awareness o Market leaders Threats o Increasing competition o It is a market leading to a cash cows

CONSUMER BUYING BEHAVIOUR

BCG MATRIX

ANSOFF MATRIX

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-ASSEMBLED Available 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

NRFC conducted another market research study on pizza product Pizza Kit with topping sold separately (Pizza & Toppings) Pizza Kit with no additional toppings sold 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

VOLUME ESTIMATE OF PIZZA & TOPPINGS

REPEAT PURCHASE

MARKETING MIX
PRODUCT Pizza and Toppings Pizza kit with the option of Available toppings sold separately. For Toppings Pizza only (crust, cheese and sauce) PROMOTION Approximate - $18M PRICE

$ 6.39 $ 1.39 $6.39

$ 9M in advertisement $ 5M in consumer promotion $ 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. 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) Contadina Pizza Takeout Pizza Frozen Pizza from Supermarket Fresh Pizza from Supermarket Homemade Pizza 75% 16% 5% 4% % of Next 10 Pizza Eating Occasions (n=60) 28% 58% 9% 1% 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 Advantage Pizza critical to launch as Krafts had already tested its Pizza product

REASONS FOR SUCCESS OF PASTA

Acquisition of Lamberts 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 Lamberts 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.