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Company History:
Odwalla Inc. is an American food product company that sells fruit
juice, smoothies and food bars. It was founded in Santa Cruz, California in 1980
and is headquartered in Half Moon Bay, California.
Youthful, hip, and fresh, Odwalla, Inc. went from backyard juicer to big
business faster than you can say 'Strawberry C Monster.' While an E.
coli scandal in 1996 squelched its explosive growth, the company's openness in
response to the crisis, won it kudos and it remains today one of the country's
leading brands of fresh juice. Other popular varieties of its 'Juice for Humans'
include Mango Tango, Femme Vitale, and Serious Ginseng. In 1997 Odwalla
converted most of its delivery trucks to run on compressed natural gas, for which
it won a Clean Air Award from the American Lung Association.
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Into the IPO Zone in 1993
Steltenpohl aimed for more than simple enthusiasm through
empowerment. 'If you can take wage earners and instill an entrepreneurial drive,
that translates into much greater productivity,' he told Nation's Business. People
were essentially trained to manage themselves, he said. Employees could also
design their own jobs to an extent. Corporate headquarters a couple of blocks
from the surf in Davenport, California also was considered a motivator.
Odwalla operated 35 delivery trucks in 1993, when sales were about $13 million
a year. It invested in state-of-the-art hand-held computers for its drivers, who
served as de facto PR reps as they escorted the juice along the 'cold chain' to
the 'O-Zone'--the company's distinctive in-store coolers.
The company launched its initial public offering (IPO) in December 1993, when it
had slightly less than 200 employees. The RvR Securities ('risk-versus-reward')
arm of San Francisco investment bank Hambrecht & Quist Inc. had begun
investing in the company in 1992, acquiring a 16 percent stake. The group was
impressed by Odwalla's strong customer loyalty and its distribution network.
Soon after the IPO, the company expanded into the Pacific Northwest via the
acquisition of Dharma Juice. It then bought Just Squeezed, based in Denver.
In 1994, Odwalla moved production to a renovated plant in Dinuba,
California surrounded by produce fields. It moved its corporate headquarters to
Half Moon Bay, California the next year. Odwalla by then dominated Northern
California's fresh juice sales, holding half the market. Its products were sold in
1,400 locations.
Odwalla began selling bottled water in the mid-1990s. It was supplied by
Idaho's Trinity Springs, whose aquifer held water carbon dated from the Stone
Age, 16,000 years ago. This new line was very much the opposite of its highly
perishable, unpasteurized fruit drinks. Water did not require refrigeration and
could be sold in more outlets, offering a distinctive growth opportunity.
Revenues for fiscal year 1996 were $59.2 million. Odwalla supplied 4,000
locations in seven states (California, Colorado, Nevada, New Mexico, Oregon,
Texas, and Washington) and British Columbia. Its largest customer was the
Safeway grocery chain. The natural foods market was growing at a rate of 25
percent a year. Steltenpohl estimated that the company would reach $100 million
in sales around 1999. He and co-CEO Stephen Williamson told shareholders:
'Our objective, our passion, is to lead the fresh beverage revolution.' It spent
heavily to get on Texas shelves in October 1996. Odwalla was on the verge of
becoming a national brand.
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Odwalla apple juice. Pure apple juice accounted for a tenth of the company's
revenues; it also was used in blended drinks, which accounted for a majority of
its business.
Investigators speculated that Odwalla may have been sent fallen apples
(or 'grounders') that had come into contact with animal feces (the bug lives
primarily in the digestive tract of cattle). Or it may have come from carrots
harvested from the earth. The Seattle Times reported that Odwalla's sanitation
was substandard in the week the tainted juice was produced.
Odwalla officials stated that they believed this strain of E. coli, only discovered in
1982, could not survive in cooled, acidic apple juice. The microbe appeared to be
evolving. Steltenpohl pointed out that it also could be spread on fresh lettuce.
Even minuscule amounts of the germ could spread infection. This was the same
virulent pathogen that in 1993 had killed three people in Washington State who
had eaten insufficiently cooked hamburgers at the Jack-in-the-Box chain.
Odwalla responded by recalling its juices containing apples or carrots,
which were processed on the same line. It offered to pay medical bills for
consumers who the juice made ill. The public relations problem was serious. As
Steltenpohl later toldForbes, 'Children's health problems are ranked as the worst
thing that can happen to a company.' Damage control took many forms. Aside
from holding press conferences and setting up an 800 number hotline, Odwalla
used the Internet to disseminate information about the health problem and
Odwalla's response to it. Edelman Public Relations had a web site devoted to the
crisis running on the same day Odwalla received word of the contamination. The
site received 20,000 hits in the first two days. Links to authorities like the Centers
for Disease Control helped firm Odwalla's credibility.
Odwalla's stock fell 40 percent. It would not be considered an attractive
takeover candidate by the major fruit juice brands. Its brand name was damaged.
There were also numerous lawsuits, which the company faced with $27 million
worth of insurance and $10 million in cash. (The Jack-in-the-Box E. coli lawsuits
of 1993 cost Foodmaker $56 million in legal costs.) Most of the suits were settled
within a year. Sales fell 90 percent in the immediate wake of the crisis. Odwalla
laid off ten percent of its 650 workers by December 1996 and posted a loss of
$11.3 million for the fiscal year ending February 28, 1997. In December Odwalla
announced plans to flash-pasteurize its apple juice.
The crisis affected not just Odwalla; grocery store chains dropped other fresh
juice producers as well. Growers across the country grappled with the issue of
pasteurization as the FDA considered making it mandatory. Most felt that the
process destroyed the freshness with which they differentiated their offerings, in
addition to adding another set of costs. Some growers in the Apple Hill area of
California were among the first to implement a 23-point quality assurance plan
that, among other things, forbade the use of 'grounders,' or fallen apples. These
guidelines were referred to as Hazardous Analysis Critical Control Point
(HACCP) rules.
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Fresh juice accounted for only two percent of the total juice market in the
United States. Some producers resented attempts by Odwalla, the media, and
government to deflect criticism to the industry as a whole. 'Let's not lose track of
the real issue,' one told the San Mateo Times, 'Odwalla got animal poop on its
apples and failed to wash it off.'
According to FDA statistics, the fresh juice industry overall reported only
447 illnesses (including the one fatality) for more than 500 million servings
between 1993 and 1996. Nevertheless, the agency required juice marketers to
label the following warning on fresh apple juice beginning in September 1998
(and all other fruit and vegetable juices by November): 'WARNING: This product
has not been pasteurized and, therefore, may contain harmful bacteria which can
cause serious illness in children, the elderly, and persons with weakened
immune systems.' Juice produced to the HACCP standard was exempt from the
labeling requirement. The fresh juice industry naturally railed against the labeling,
believing it would scare away consumers.
1980:Odwalla begins juicing in Santa Cruz.
1994:First shipments delivered outside of California.
1996:E. coli outbreak traced to company's apple juice.
1998:Odwalla returns to profitability.
They complained that it was 'more aggressive' than that required even on raw
pork.
Although Odwalla's openness in the face of the crisis was commended by
many, the company received the highest food injury penalty ever in what was
reportedly the country's first criminal conviction in a food poisoning case. It was
levied a $1.5 million fine after it pled guilty to 16 counts of delivering adulterated
food products into interstate commerce, a misdemeanor. At Odwalla's
suggestion, one-sixth of the fine was earmarked for the Safe Tables Our Priority
charity and to researchers at the University of Maryland and Penn State
University. Fortunately, the resolution of this case made Odwalla stock safe
again for institutional investors, who owned about 28 percent of the company
before the crisis. That would fall to a low of four percent in 1998.
Rebuilding in 1997—98
Product offerings proliferated as the company pulled out all the stops to
win back consumers. A new type of liquid lunch debuted in May 1997. Odwalla's
Future Shake, designed to appeal to a younger market than that of nutrient-
fortified Ensure, was marketed as a 'drinkable feast' made from 'real food' like
oats, almonds, soy, banana, and mango. No diet drink (one pint contained 12
grams of fat), it offered a lunchtime alternative to fried fast food. These were
offered in Inner Chai, Dutch Chocolate, and Cafe Latte flavors. Odwalla
introduced an energy bar, its first solid product, in September 1998. This entered
the company in a $900-million-a-year market. There was also a new line of
'Nutritionals' enhanced with proteins, herbs, vitamins, and fruits. Redesigned
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packaging appeared in September 1999. The new bottles featured bolder
graphics and a sturdier cap but held slightly less juice. Odwalla also introduced
pasteurized versions of its citrus drinks.
Odwalla announced that it was again profitable by the third quarter of
1997--98, posting a profit of $140,000 versus the previous year's $1.8 million loss
for the period. Analysts reckoned there was still life left in its brand name. The
company continued to expand geographically, entering Philadelphia and
Washington, D.C. markets. This expansion was soon followed by entry into
markets of Chicago, Detroit, Minneapolis, and Phoenix. Analysts felt it wise for
the company to get a toehold in these new markets before someone else did,
even if it came at the expense of bottom line profits. Odwalla's revenues were up
12 percent in 1998, to $59.1 million.
'Odwalla is in the business of providing easy access to great-tasting
nourishment,' CEO Stephen Williamson told the Wall Street Journal. It was still in
business--sales were on track to reach $67 million in 1999, a rise of more than
12 percent. Nevertheless, a net loss was projected. One analyst estimated that
the company would have been a $150 million-a-year, national business were it
not for the E. coli incident.
A box of Banana Nut bars and two Chocolate Chip Protein bars A bottle of Odwalla Future
Shake
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B) Situation Analysis
• Category analysis
Energy bars is the one of the segments of the broad snack bar category. Snack
bars include such item as granola bars while health bars include for example,
cereal or diet bars. Energy bars are defined as vitamin-enriched, nutritious bars
intended either to boost performance or replenish nutrients following exercise or
as a complete snack or meal replacement. The energy bar category is highly
fragmented with over 100 competitors and 700 brands.
a) Category size
Overall snack bar sales were over $1.4 billion in 2002; of this, energy bars were
nearly $300 million with 28 percent growth rate over 2001. The industry experts
expect the energy bar category to continue to grow in the 25-30 percent range
annually. Energy bar category contains four primary brands, plus their sub-
brands and over a hundred smaller players.
b) Category growth
In between 1997 and 2001, the average annual growth rate is 57 percent. U.S
energy bar category sales forecasted at $750 million in 2003 for a continued
expected growth of 22 percent. The industry reports suggest current annual
growth for the energy bar market at 25-30 percent. The category was expanding
because the new competitors are entering the market, the existing brands are
expanding with new products and flavors, market penetration and usage
occasion is increasing.
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c) Product life cycle
Both the category and Odwalla Bars specifically are both securely in early stages
of the growth phase.
d) Sales cyclicity
While energy bars are premium-priced for their convenience and nutrient level,
the base dollar point of $1 to $3 per bar is low such that they are not directly
impacted by GDP variations.
e) Seasonality
It’s a year-round sales. Category overall may experience a slight sales increase
in the spring and summer months during “race season” and as users are
engaged in more outdoor activities and desire quick, portable energy.
f) Profits
As most major competitors are within the product portfolios of larger consumer
goods companies, it is difficult to benchmark profitability within the energy bar
category specifically. Nevertheless, the recent acquisition of the leading
competitors reflects an expectation for strong profit potential. Increased category
competitiveness may lead to lower pricing and profits.
A strong potential for new competitors given that the category is profitable, fairly
easy to enter, and increasingly relevant to consumers. Further, with the “big
three” brands strongly in place (PowerBar, Cliff (including Luna) and Balance), it
is most likely that small competitors will enter through the natural foods channel,
creating more direct competition with Odwalla bars. The barriers to entry erected
by the existing competition are key to the likelihood that new competitors will
enter the market. Some of the potential barriers to entry follow:
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1) Economies of scale
2) Product differentiation
3) Capital requirements
4) Switching costs
Switching costs are very low, opening the door to potential competitors.
5) Distribution
As the suppliers of raw inputs for energy bars are largely agricultural, the
commodity nature of agriculture keeps prices and supplier power low. While still
relatively low, supplier power will be higher for nutrient supplement suppliers.
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d) Pressure from substitutes
Fresh fruit, cereal bars, smoothies, candy bar, etc. are all suitable portable
substitutes for the mainstream energy bar consumer. True athletes are most
likely to substitute with higher nutrient level energy bars.
e) Category capacity
Very high. A differentiation is largely by taste and flavor variety and by targeting
unique market segments.
a) Technological
b) Economic
While premium priced, energy bars have so far seemed to fare the recession
well. However, if economic conditions persist, consumers may opt for less
expensive alternatives like fresh fruit or non-energy snack bas.
c) Political/regulatory
The energy bar category is regulated by the FDA as are other food products.
There are not to our knowledge, however, additional regulations directed toward
the energy bar category.
d) Social
As lives get busier and mealtimes shrink, energy bars will continue to be an
acceptable meal replacement.
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• Competitor analysis
The major competing brands to the Odwalla bar are PowerBar, Balance Bar, and
Clif brand their variants. An additional competitor, Kashi GoLean, comes from the
natural food/energy bar category.
All four brands appear to be pursuing market share growth strategies. The
category is at a relatively early stage in the product life cycle, so it is too early to
be going exclusively for profits. The smallest brand, Kashi, also seeks to increase
its presence in the channels.
a) PowerBar: This brand invented the energy bar category. While it has
maintained a loyal following of athletes, it lost ground to competitors as the
market expanded to include more mainstream consumers. As a result, the
brand has launched a number of extension, including PowerBar Pria
targeting woman and a breakfast bar, Harvest.
b) Balance Bar: This brand does not appear to have a strong focus. Like
PowerBar, it has focused on brand extension funded by its parent, Kraft,
and is attempting to fill as many segments as possible.
c) Clif Bar: This is the only independent company among the top brands. It is
looking to hold on to its top market position in the face of competition with
much greater resources. To lure athletes, the brand launched an
extension, Ice Bar, and a salty Mojo Bar straddling the health and snack
categories.
d) Kashi : Its marketing focus has been to expand its distribution. It has used
its parent, Kellogg’s, to accomplish this.
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iv. Marketing mix
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b) Balance Bar : Their main competitive advantage is a solid distribution
system as it is marketed in natural foods, mass merchandise, club, grocery,
and a number of other channels of distribution.
• Customer analysis
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65.8% of volume is from households where the Head has some college
education.
39.4% of volume is from households with the Head under 35 years old.
Customer segments:
“Hard-core athletes” : the origin consumer target, who use energy bars,
gels and other portable food products to maintain a high level of strenuous
activity.
Convenience
Taste
Texture
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Health benefits
Performance/ energy
Hunger satisfaction
Availability
Meal replacements
Snacks
Outdoor retailers
Grocery stores
Drug stores
Convenience stores
Mass merchandizers
Club stores
v. Odwalla customers
We assume (optimistically) that consumers eat an average of one bar per day ( a
real “saturation” level) . We then examine how many people are potential
customers. Here we start with the entire population and then subtract those we
consider not to be consumers due to age, allergies, or income level. (Note in
doing this we over-adjust since some consumers fall in multiple categories, i.e.,
are over 74 and poor). The resulting potential number of customers is 215,430.
Therefore
Potential = (215 million) (365 bars/year) = 78.5 billion bars per year
Notice here how critical the usage assumption (bars consumed per week) is to
this estimate; if we assume a more realistic 1 bar per week average, the potential
estimate drops to a more reasonable, but still hard to attain, 11.2 billion bars per
year, a far cry from current levels.
Forecasting U.S. sales of energy bars is difficult for several reasons. First, there
are relatively few years of data to go on (here we use five years, 1997-2001, to
forecast 2002). Second, many of the macroeconomic variables one might use
(e.g., household income, CPI) are highly correlated, forcing a choice of one (here
number of household). Third, causal variables such as price and new product
entries are difficult to forecast. For the sake of the example, we use advertising
spending of PowerBar, the category creator, partly because it was available.
(Note we need to forecast this for 2002, which introduces more uncertainty in the
forecast. The resulting regression model produced an R2 of .998, inflated
because of the scarcity of data points. The model was
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18,600,000 used, as a conservative estimate of the uncertainty, are the following
_______________________________________________________________
Power Bar
________________________________________________________________
Advertising level Forecast Range
Note that, even with R2 above .99, there is significant uncertainty stemming
mostly from uncertainty about the causal market factors (here PowerBar
advertising) which drive sales. Notice also how much less this is than the
potential estimate, suggesting the result is feasibly attainable.
c) Marketing Strategies
Odwalla bars that produces energy bars category and other all natural and
organic food targeted at people with active lifestyles. Their introduce the brand
extension in the energy bar category in 1998. Marketing strategy fo Odwalla Bar
is :
• They can introduce new brand will be based on their popularity when they
success to produce the product with natural ingredient. So, that can help
them to promote their new product and will be done through a variety of
method.
• They can use promotion for a targeted segment such as sampling in the
market for taster.
• Do in-store activities being favored and can use the primary form of
communication with sponsorship because the demographics of their
readership are fairly similar with their brand’s name.
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• The message Odwalla Inc will seek to communicate and this message will
be communicate through a variety of method. The first method will be
advertisement. The bulk of the advertisements will be in the Willamette
Weekly, a weekly entertainment guide.
d) Marketing Objectives
i. Marketing mix:
• Pricing – the pricing scheme is based on standard price for energy bars
category.
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ii. Customer targets
• Kashi Go LEAN
• Power Bar
• Balance Bar
• Calorie Mate
v. Product positioning
The Odwalla Inc will position itself as a reasonably price and natural
ingredient (nutrition and health).
Odwalla Foods
When Odwalla's apple juice was thought to be the cause of an outbreak of E. coli
infection, the company lost a third of its market value. In October 1996, an
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outbreak of E. coli bacteria in Washington state, California, Colorado and British
Columbia was traced to unpasteurized apple juice manufactured by natural juice
maker Odwalla Inc. Forty-nine cases were reported, including the death of a
small child. Within 24 hours, Odwalla conferred with the FDA and Washington
state health officials; established a schedule of daily press briefings; sent out
press releases which announced the recall; expressed remorse, concern and
apology, and took responsibility for anyone harmed by their products; detailed
symptoms of E. coli poisoning; and explained what consumers should do with
any affected products. Odwalla then developed - through the help of consultants
- effective thermal processes that would not harm the products' flavors when
production resumed. All of these steps were communicated through close
relations with the media and through full-page newspaper ads.
Thus, Odwalla had a very successful contingency plan during their crisis
managemen. They manage to control their company financial profits as the key
elements towards the continuity of company growth.
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Appendices:
Gerry Percy
Bonnie Bassett
Employees 900[1]
Website Odwalla.com
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References :
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1. www.scribd.com
2. http://en.wikipedia.org
3. www.google.com
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