Nestlé Refrigerated Foods CompanyMarketing Research

Begum Abad

Hanuman

Nicole Erard-Coupé

Naveen

Background

•1987- Nestle’ enters the refrigerated food market by acquiring Contadina Pasta and Sauces.

•Non—commodity refrigerated foods was a relatively undeveloped category in U.S in 1987

•Refrigerated foods were responsible for 7% of Nestlé's global sales despite little contribution from the potentially large U.S. Market

Market Summary:Refrigerated Foods

• Based on market research, Nestlé's decided to launch Contadina

• Contadina Fresh Past & Sauces rolled out nationally in 2nd half of 1988

• Product launch was very successful:– $75 mil. Retail sales in 1988– $150 mil. Retail sales by 1990– Pasta line accounted for nearly 80% of sales volume

Market Summary:Refrigerated Foods• Given Contadina’s success, the NRFC began

a product development process for a refrigerated pizza concept

• The pizza market was an $18.4 billion market

• By 1989 NRFC developed 2 new pizza concepts– Pizza Kit– Preassembled, heat and eat Pizza

Market Summary:Pizza

• Pizza market Statistics:– 88% of all pizzas sold by

restaurants– 60% of pizzas eaten at home– 76% of all U.S. families had

eaten restaurant pizza w.in past 6 months

– Pizza consumption strongest in northern and eastern parts of U.S.

– 10,000(+) franchised pizza restaurants

– 25,000 pizza outlets– frozen pizza market more

fragmented w/o clear market leader

Nestlé's Research of at Home Pizza Consumption

75%

16%5% 4%

delivered/take-out

frozen pizza(supermarkets)

fresh pizza (grocerystores)

homemade pizza

Product Development:Pizza Kit• Kit included:

– 12” crust– Sauce– Cheese

• Sauce: Tomato or Pesto

• Additional Toppings: Pepperoni, Sausage, 3-Cheese, Mushrooms & Bell Peppers (Sold Separately)

• Serve 2-3 people

Market Research:Concept Test

• Preliminary Concept test (200 Interviews)

– Positive purchase intent was 58% (49% among males, 66% among females)

– Results:• 128 Heavy Take-out users(once every 2-3 weeks(+))• 115 favorable to concept (out of which, 60 said they

would buy Contadina instead of another product)

Market Research:Bases II Line Extension Study• Involved both Concept & in-home product use

test:– Pizza Kit w/ Toppings Sold Separately

– Pizza Kit only (No Toppings Sold Separately)

• Determine the impact on trial kit by availability of separate toppings

• Analyze Strengths and Weaknesses of both concepts

Pizza Kit

Product– Support either Pizza Kit with or without toppings

Pricing (NRFC expected factory pricing to be 2/3 of retail prices)

– $6.39 for Kit– $1.29 for each additional Topping

Place– National distribution possible, could install a pizza

line @ the Danville factory

Promotion (Total $18 mil.)

• $9 mil. Advertising• $5 mil. Consumer Promotions• $4 mil. Trade Promotions

Target Market

• 95.5 Mil. Households– Contadina Pasta Users would Represent approx. 24%– MRD felt Parent Brand Penetration could range btw. 5%-

25% (recommended volume projections be sensitive to this range)

• Based on Promotion Plan, NRFC projected 37% overall awareness– Parent Brand Users likely to be more aware of

Contadina name

Pizza Kit & Pizza Kit & ToppingsToppings

Pizza OnlyPizza Only

Awareness

Users 60% 60%

Non-Users 30% 30%

Overall 37% 37%

ACV 58% 58%

Purchase Assumptions

Units @ Trial 1.2 Kits 1.1 Kits

Repeat rate 22% 22%

Repeat Purchase Units

1 Kits 1 Kits

Repeat Purchase Occasions

2 2

NRFC Data on Consumer Awareness & Purchase Assumptions

Pizza Kit

• Favorable to Pizza Toppings– 50% would purchase toppings every time purchased kit– 25% would purchase toppings ½ the time

• Business Requirements for Pizza – $45 mil factory dollar sales– $12 mil project Investment costs– .3% share retail pizza market

• Should NRFC launch a pizza product– Which option– How large market would they find– What market share could be achieved

Analysis:Volume Estimation

Fixed Data Contadina Users Non-Users Contadina Users Non-UsersPizza CalculationsUS Households 95,500,000Trial Penetration [%] 24% 76% 24% 76%Trial Unit Households 22920000 72580000 22920000 72580000Definitely Buy 30% 15% 22% 12%Adjustment 80% 80% 24% 12% 18% 10%Probably Buy 57% 59% 48% 42%Adjustment 30% 30% 17% 18% 14% 13%Weighted Trial 41% 30% 32% 22%Adjustments for:Awareness 60% 30% 60% 30%Distribution (ACV) 58% 58% 58% 58%Adjusted Trial Rate 14% 5% 11% 4%Trial Households 3278201.76 3750789.24 2552371.20 2803620.24Trial Transaction Size 1.2 1.2 1.1 1.1Trial Units 3933842 4500947 2807608 3083982

Option A: Pizza Kit & Toppings Option B: Pizza only

8,434,789 5,891,590

Analysis:Repeat Purchases

Contadina Users Non-Users Contadina Users Non-UsersOption A: Pizza Kit & Toppings Option B: Pizza only

Repeat Purchase CalculationsRepeat Rate 22% 22% 22% 22%Repeat Households 721204 825174 561522 616796Repeat Purchases 2 2 2 2Repeat Occasions 1442409 1650347 1123043 1233593Repeat Purchase Units 1 1 1 1Repeat Units 1442409 1650347 1123043 1233593

Total Units 5376251 6151294 3930652 4317575

11,527,545 8,248,227

Analysis:Pizza Toppings

Toppings CalculationsTopping Trial Rate Calculation 63% 63%50% Buy Topping Every Time25% Buy Topping Half the TimeTrial Pizza Units 3933842 4500947Trial Units with Toppings 2458651 2813092Trial Transaction Size 1.5 1.5Trial Toppings Units 3687977 4219638Repeat Toppings CalculationsRepeat Units 1442409 1650347Repeat Topping Trial 63% 63%Repeat Toppings Transaction Size 1 1Repeat Toppings Units 901505 1031467Total Toppings 4589482 5251105

Contadina Users Non-UsersOption A: Pizza Kit & Toppings

9,840,587

Analysis:Revenue Estimation

Fixed Data Contadina Users Non-Users Contadina Users Non-UsersTotal Market [Units]Pizza 5376251 6151294 3930652 4317575Toppings 4589482 5251105Total Market at [$]/unitPizza $6.39 $34,354,243.16 $39,306,770.92 $25,116,864.03 $27,589,305.33Toppings $1.29 $5,920,432.38 $6,773,925.37Revenue [$] $40,274,675.54 $46,080,696.29 $25,116,864.03 $27,589,305.33

Total Retail MarketTotal Factory MarketNRFC Business Requirement

$86,355,372$57,570,248

Option A: Pizza Kit & Toppings Option B: Pizza only

Revenue Estimation for Nestle's Refrigerated Pizza Launch

$45,000,000

$52,706,169$35,137,446$45,000,000

$12,570,248 -$9,862,554

Analysis:Sensitivity Analysis

• 5% Penetration

• 15% Penetration

Pizza & Toppings Pizza Only

Total Trial Units 6,445,734 4,439,896

Total Retail Market $65,991,428 $39,719,312

Total Factory Market $43,994,285 $26,479,541

Pizza & Toppings Pizza Only

Total Trial Units 7,492,605 5,204,552

Total Retail Market $76,709,293 $46,554,500

Total Factory Market $51,139,529 $31,036,333

Summary• Should launch Pizza Kit with Toppings

• Require @ least 7% Market Penetration to meet Basic Business Requirement of $45 million factory dollar sales ($45,423,334)

• Market Size

• Market SharePizza Topping

5% 8,809,170 7,52,023

15% 10,239,894 8,741,373

24% 11,527,545 9,840,587

Recommendations• Nestle should first work a lot to refine the taste of

it’s pizza.• It should also lower the prices of its offerings.• Company should fine tune its manufacturing

facilities before the product launch.• Post launch, company should use the same

distribution network as it did for Pasta.• The product should also be supported heavily

with huge advertising outlays.

What Happened?

• 1991-Nestle launches Contadina Pizza.• Positioned as a quick, convenient, yet

fresh alternative to frozen pizza.• Pizza introduced in a kit format

composing of a 12 inch refrigerated pizza shell, packed together with separate pouches of cheese and sauce.

What happened?

• Toppings also were merchandized adjacent to the kit.

• Toppings included pepperoni, three cheese blend and Italian Sausage.

• Pizza kit was sold for $6.19

• Toppings were priced at 1.49

What happened?

• Product launched in selected cities.

• Marketing support amounted to $11 million in 1991 and $10.5 in 1992.

• Company faced disappointing results by not meeting any targets

• Sold 4 million units in Year 1 that amounted to $13 millions in sales.

What happened?

• Tried to improve the advertising themes by testing three more ads.

• All these ads also failed in terms of recall.

• Company maneuvered with price promotions but failed in this aspect.

• Company had 60% spoilage on the toppings

What happened?

• Abandoned the toppings • Sold pepperoni and cheese kit and a

cheese kit at $5.99 and $5.49 respectively.• Company paid the price for relying on the

pasta data that was in the initial stage.• “Pizza wars” also hampered the profits

What Happened?Marketscan: Americans Hunger for a More Homey Pizza, WSJ, June 29, 1993

1993• Kit sold for $5• Held 15% of the $170 mil-a-year market for

refrigerated pizzas & pizza kits• Kraft introduced Boboli Shells• 1997 – Nestlé sold Contadina to Del Monte

– Excluded from sale was line of refrigerated pasta & sauces

• Nestlé's changed name of refrigerated pasta and sauces to Buitoni

Volume Estimation

Fixed Data Contadina Users Non-Users Contadina Users Non-UsersTotal Market [Units]Pizza 5376251 6151294 3930652 4317575Toppings 4589482 5251105Total Market at [$]/unitPizza $6.39 $34,354,243.16 $39,306,770.92 $25,116,864.03 $27,589,305.33Toppings $1.29 $5,920,432.38 $6,773,925.37Revenue [$] $40,274,675.54 $46,080,696.29 $25,116,864.03 $27,589,305.33

Total Retail MarketTotal Factory MarketNRFC Business Requirement

$12,570,248 -$9,862,554

Revenue Estimation for Nestle's Refrigerated Pizza Launch

$45,000,000

$52,706,169$35,137,446$45,000,000

$86,355,372$57,570,248

Option A: Pizza Kit & Toppings Option B: Pizza only