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Nestle S.A.

Nestle S.A. is a Swiss multinational food and beverages company headquartered in Vevey, Switzerland. Nestle has 468 factories in 86 countries around the world and around 330 000 employees. Nestle has more than 2000 local and global brands. Largest food company in the world, measured by revenues.

TIMELINE
1866: Nestles milk and infant products

Chocolate, Instant coffee, culinary, ice cream, mineral water & pet foods
1985: Carnation Co; coffee mate creamer & Friskies pet foods. 1986: Lamberts Pasta & Cheese

1987: Contadina Pasta & Sauces


1991: Nestle + Carnation = Nestle USA

Refrigerated Foods
In the Prepared Dishes and Cooking Aides line, they planned to introduce the refrigerated foods category in the U.S. market 7% of their global sales came from refrigerated foods in the European market. Attempt to enter through a pudding dessert product but pre-empted by Jell-O. The next step was the Ethnic Foods category with refrigerated pasta and sauces.

Lamberts Pasta and Cheeses


The time taken for internally developing refrigerated pasta would take away their advantage. Thus they started by purchasing Lamberts Pasta and Cheeses, a small New York based Pasta company in 1987. They purchased the $15 million revenue company for $56 million.

Refrigerated Pasta
Pasta available in the U.S. market either as fresh pasta in gourmet restaurants or as dry pasta in ethnic foods aisles in grocery stores. Refrigerated pasta was branded under Carnations Contandina brand as it was associated by the market with authentic Italian food. The Contandina Pasta & Sauces was highly successful growing to more than $100 million in sales by 1990.

Refrigerated Pizzas
Following the success of the refrigerated Pasta line and the possible tapering off of sales in the refrigerated foods market, Nestle contemplated launching refrigerated pizzas. They planned to launch it under the Contadina brand name as people recognized that brand. This case considers the possible launch of refrigerated pizzas.

Product Lines Of Nestle


Beverages Milk Products & Dietetics Prepared dishes & cooking aids
Contadina Pizza !!!

Chocolate & Confectionery


Pharmaceuticals

Idea Generation
Success of Pasta-$100 million sales by 1990. Pasta- New companies entered (Kraft). Ethnic similarity between pasta and pizza. Target $18.4 billion pizza market which did not have refrigerated foods. Nestl's expertise in refrigerated goods. First mover advantage in the pizza market.

Concept Screening/Idea Refinement


Pizza was available in 3 forms: 1)Frozen 2)Freshly prepared 3)Take home/Home delivery 76% of all US families had eaten in last 6 months. 60% pizza taken at home. Frozen pizza market-No clear market leader. Available in 6,8,12 size. 75% going for 12. 10,000 pizza restaurants, 25000 other outlets.

Product Development
Pizza Pre assembled

Pizza Kit

Pizza Kit (Crust + Cheese + Sauce )+ Toppings(optional) Separate Packets 12 pizza- $6.40 $1.30 extra toppings

Heat and Eat Variants 1) Italian Pepperoni 2) Italian sausage 3) Italian Three-cheese 4) Italian Mushroom 12 pizza- $7.60

Product Development [Contd.]


Next Step-Test of two concepts Find interest in new offerings 58% showed interest in kit 42% in pre assembled pizza R&D investigated and indicated that pre-assembled concept was not feasible

TRIAL VOLUME ESTIMATION


Definitely Buy Adjustment Probably Buy Adjustment 30% 80% 30% 24.00% 57% 17.1% 15% 12.00% 59% 17.7% 22% 17.600% 48% 12% 9.600% 42%

14.400% 12.600%

Weighted Trial
Adjustments Awareness ACV Adjusted Trial rate Trial Households Units Purchased at Trial Trial Pizza units Total Pizza units

41.1%

29.7%

32%

22%

60% 58% 14%

30% 58% 5%

60% 58% 11%

30% 58% 4%

3168928.37 3750789.24 1.2 3802714 8303661 1.2 4500947

2552371.2 2803620.2 1.1 1.1

2807608 3083982 5891591

REPEAT PURCHASES
Pizza Kit & Toppings Contadina Users Non-Users Repeat Rate Repeat Households No. of Purchases Repeat Occasions No. of Repeating Units Repeat Units Total Units Total Units 22% 721204.2 2 1442408 1 1442408 5375890 11527185 22% 825173.6 2 1650347 1 1650347 6151294 Pizza Only Contadina Users Non-Users 22% 561521.7 2 1123043 1 1123043 3930651 8248226 22% 616796.4 2 1233593 1 1233593 4317575

TOPPINGS VOLUME ESTIMATION


Pizza Kit & Toppings Users Non-Users Buy topping every time Buy topping half the time 50% 12.50% 62.50% 3933842 2458651.25 1.5 3687977 50% 12.50% 62.50% 4500947 2813091.875 1.5 4219638

Total Pizza Units Total Pizza Units with Toppings Trail Transaction size Total Trail Topping Units REPEAT TOPPINGS CALCULATIONS Repeat Units Repeat transaction size Total Repeat Topping Units Toppings Total Topping units

1442409 1 901505.625 4589483 9840587

1650347 1 1031466.875 5251105

REVENUE ESTIMATION
Pizza Kit & Toppings Pizza Only

Users
Total Market Units Pizza Toppings 5375890 4589483

Non-Users
6151294 5251105

Users
3930651

Non-Users
4317575

Total Market Revenue


Pizza($) Toppings($) Revenue($) 6.39 1.29 34351937 5920433 40272370 39306770 6773925 46080695 25116860 27589304

25116860

27589304

Total Market Total Factory Dollar Sales NRFC Requirement

86353065 57568710 45000000

52706164 35137443 45000000

Difference($)

12568710

-9862557

Consumer Perception

Pricing
Pizza Contadina Fresh Takeout/delivered pizza Frozen pizza from supermarket $6.39 Toppings $1.29 $8-$10 $2-$3

Price competition with delivered pizza 75% of pizza consumption at home was delivered/takeout pizza There is always the cheaper frozen pizza that can be cooked at home but requires de-freezing before heating

Promotion criteria

Promotion strategies
Leverage the successful Pasta platform, Contadina brand Capitalize on the growing Italian food market segment

Distribution
NRFC has a highly efficient distribution system for transporting refrigerated products

Using brokers to sell rather than relying on the traditional sales force

Pizza Kit

Packaging
cheese

12 inch pizza

Toppings

Italian Sausage

Italian 3 Cheese

Italian Mushroom and bell pepper

Italian Pepperoni

Competition(Presumed)

Recommendations
The simulated test result shows that the users rated delivered pizza over the refrigerated pizza. The new product was pitted directly against the delivered/take away category. No data proves that there was a latent demand for refrigerated pizza. The decision to enter the market with refrigerated pizza solely based on a market research conducted by the competitor Kraft Foods. The new product has no value proposition to attract newer customers. The only means of becoming profitable was to eat into the existing market share of delivered pizza..

What happened actually


1991-Nestle launched Contadina Pizza 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. Pizza kit was priced at $6.19 Toppings were priced at 1.49

What happened actually [Contd.]


Company faced disappointing results by not meeting any targets 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

What happened actually [Contd.]


Abandoned the toppings Sold pepperoni and cheese kit and a cheese kit at $5.99 and $5.49 respectively

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