Case Analysis for Culinarian Cookware2006-2010
Andrei Grechko Shane Johnston Nakia Lape Kyle McDaniel Kevin Niehaus
Prepared for Ned Jackson, MKT 625 March 28, 2010
Table of Contents
Situational AnalysisA. EnvironmentI. Economic conditions and trends As evidenced by the case material, the US cookware market experienced growth by generating approximately $3.36 billion in revenues from 2002 to 2006. However, due to economic recession of the recent years (2008-present), cookware market faced new challenges and opportunities. The following developments appear to create several opportunities for cookware manufacturers. Due to slow economy and unemployment, consumers cut back on dining out and defer back to home meals. According to Cookware Manufacturers Association (CMA), consumers have rediscovered their kitchen during 2009. Thus, visits to restaurants, carry-outs and frozen entrees have been replaced by meals prepared in the home kitchen. This trend highlights the possibility of increased demand on cookware products. In the foreseeable future, economists predict growth in private and commercial real-estate markets (by 2013). This potential development could boost demand for cookware when consumers, for example, start to move in to newly bought houses. However, the demand for cookware products would not move in the same direction for all price ranges. Due to elastic demand for high-end and luxurious products, it is reasonable to expect that consumers will try to either buy less of premium priced items, or try to shift their preferences to less expensive models altogether. This fact could burden some companies in the industry that rely mostly on manufacturing and distribution of premium priced products. Despite slow economy, current and future economic environment provides potential opportunities for players who could adjust their marketing strategy to meet changing demands of consumers. Culinarian Cookware could serve its target markets by focusing advertising efforts on their less expensive product lines, e.g. DX1 and CX1. Potential threats to the cookware market include growing unemployment and prospects of higher inflation in the near future. Current unemployment has climbed over 10% in 2009 (see Exhibit 1), which reduced the purchasing power of many US households. According to the U.S. Bureau of Labor Statistics, consumer price index (inflation) has grown pretty steadily in the recent years (see Exhibit 2). Additionally, many economists predict higher inflation in the coming year (primarily due to increase in the monetary base, high deficits, and underfunded liabilities) that will further reduce the purchasing power of consumers if the wages and salaries do not keep up with the pace (Marks, Gene , Staying Cool If Inflation Heats Up, Business Week, 06/26/2009, http://www.businessweek.com/smallbiz/content/jun2009/sb20090626_938025.htm, accessed March 13, 2010). These potential threats could signal to Culinarian Cookware that consumers might be more price-conscious in the near future, hence stipulating the company to re-evaluate its marketing mix.
Labor Force Statistics from the Current Population Survey
Series Id: LNS14000000 Seasonally Adjusted Series title: (Seas) Unemployment Rate Labor force status: Unemployment rate Type of data: Percent or rate Age: 16 years and over
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 4.0 4.1 4.0 3.8 4.0 4.0 4.0 4.1 3.9 3.9 3.9 3.9 4.2 4.2 4.3 4.4 4.3 4.5 4.6 4.9 5.0 5.3 5.5 5.7 5.7 5.7 5.7 5.9 5.8 5.8 5.8 5.7 5.7 5.7 5.9 6.0 5.8 5.9 5.9 6.0 6.1 6.3 6.2 6.1 6.1 6.0 5.8 5.7 5.7 5.6 5.8 5.6 5.6 5.6 5.5 5.4 5.4 5.5 5.4 5.4 5.3 5.4 5.2 5.2 5.1 5.0 5.0 4.9 5.0 5.0 5.0 4.9 4.7 4.8 4.7 4.7 4.6 4.6 4.7 4.7 4.5 4.4 4.5 4.4 4.6 4.5 4.4 4.5 4.4 4.6 4.6 4.6 4.7 4.7 4.7 5.0 5.0 4.8 5.1 5.0 5.4 5.5 5.8 6.1 6.2 6.6 6.9 7.4 7.7 8.2 8.6 8.9 9.4 9.5 9.4 9.7 9.8 10.1 10.0 10.0 9.7 9.7
Source: U.S. Bureau of Labor Statistics, Data extracted on: March 13, 2010 http://data.bls.gov/PDQ/servlet/SurveyOutputServlet
Consumer Price Index
Series Id: CUUR0000SA0 Not Seasonally Adjusted Area: U.S. city average Item: All items Base Period: 1982-84=100
Source: U.S. Bureau of Labor Statistics, Data extracted on: March 13, 2010 http://data.bls.gov/PDQ/servlet/SurveyOutputServlet II. Cultural and Social values and trends A few trends in the cultural and social areas have become visible in the recent years. These changes are and will continue to affect the cookware market. Due to increasing obesity epidemic in the country and rising healthcare costs, the nation as a whole has become more health conscious. This change results in the emergence of numerous diet and health plans. Most diets emphasize the importance of and reliance on home cooking as the means of achieving successful results and as a consequence leading to a better health. Thus, as more consumers opt to cook more meals at home as part of a diet plan or other reason, the demand for cookware would increase. Also, consumers have become more environmentally friendly over the recent years. Customers continue to scrutinize the quality and health hazards of many products, including cookware. Consumers are increasingly becoming more interested in products that are exhibiting environment-friendly traits, and those products that are deemed or proven to be less harmful to ones health. There is no new information that could suggest that these trends will not continue into the future. Cookware industry needs to recognize the fact, and focus on providing consumers with products that satisfy their health and environmental standards.
III. Political and legal issues The political and legal environment in the cookware market is characterized by the presence and enforcement of laws and regulations imposed on the use of certain materials in the cookware manufacturing process. This is especially true when it comes to materials that are used in contact with food. United States Food and Drug Administration (FDA) is responsible for regulating these materials. FDA conducts safety evaluations of all materials that are proposed by the industry for use in food contact applications. One of the most frequently cited investigations is the one related to safety of nonstick coatings used on cookware (EPA Seeking PFOA Reductions, 01/25/2006, http://yosemite.epa.gov/opa/admpress.nsf/68b5f2d54f3eefd28525701500517fbf/fd1cb3a075697aa4 85257101006afbb9!OpenDocument). The U.S. Environmental Protection Agency (EPA) is reviewing available information on PFOA, a chemical used in manufacture of fluoropolymer resins which in turn are used in non-stick cookware surface applications. EPA is investigating sources of human exposure to these chemicals because of some claims of various harm to humans health. Even though the studies of this chemical are still continuing, EPA Administrator Stephen L. Johnson stated that . . . to date EPA is not aware of any studies specifically relating current levels of PFOA exposure to human health effects (Short Statement on Nonstick Cookware Safety, Cookware Manufacturers Association (CMA), May 26, 2006 http://www.cookware.org/safety_statement.php, accessed March 05, 2010). It is important for the cookware industry to continue full cooperation (as has been the case) with FDA and EPA evaluations of all materials with questionable safety records. For Culinarian, it is important to continue utilizing safe materials in the manufacturing process and promoting the quality of its products to satisfy increasingly health conscious and environmentally aware consumers. IV. Summary of environmental opportunities and threats As indicated above, significant opportunities and threats are floating in the future of the cookware industry in the coming years. Those companies that find a way to capitalize on those opportunities and to reduce potential threats, should be able to maintain or grow their revenues and expand their market share. V. Implications for strategy development Current state of the economy makes it difficult to predict how exactly consumers are going to react to the prospects of higher inflation or unemployment. If consumers continue to cut back on restaurant dining and prefer to prepare more meals themselves, it would present a clear opportunity to Culinarian to capture more customers. However, is this also going to mean that due to decrease in disposable income consumers will try to seek value versus quality and brand image? If so, Culinarian because of its focus on higher-end premium priced goods, might find itself in a difficult situation where tradeoffs might need to be made between its brand image and pricing/promotion. Overall, current state of the environment and future prospects will pose challenges to Culinarian and will require adjustments in companys marketing mix.
B. Industry InformationI. Industry Overview Culinarian Cookware is in the fabricated metal product, pot & pan, and kitchen utensil manufacturing industry. The NAICS code for this industry is 332214. Culinarian is one of 80 manufacturers in this industry, with increasing demand coming from Southeast Asia, competing for projected domestic demand of $2.2 billion. The 80 manufacturers in this industry employ over 6,000 employees with aggregate annual payroll exceeding $216 million. The industry's revenue for the year 2008 was approximately $1.7 billion USD, with an estimated gross profit of 31.73%. Competition from 42 countries imported $600 million of supply in 2008 compared to U.S. exports of $25.3 million to 86 countries. II. Industry Trends Declining Long-Term Demand U.S. kitchen utensil and cookware production has lagged the rest of the economy. From 1995 to 2005, while US manufacturing output grew 35 percent, cookware and cutlery pr