Nestl Refrigerated Foods Company

Marketing Research
Begum Abad Hanuman Nicole Erard-Coup Naveen

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

Noncommodity refrigerated foods was a relatively undeveloped category in U.S in 1987 Refrigerated foods were responsible for 7% of Nestl's global sales despite little contribution from the potentially large U.S. Market

Market Summary: Refrigerated Foods

Based on market research, Nestl'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 Contadinas 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
Nestl's Research of at Home Pizza Consumption
delivered/take-out 5% 4% 16% frozen pizza (supermarkets) 75% fresh pizza (grocery stores) 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

NRFC Data on Consumer Awareness & Purchase Assumptions

Pizza Kit & Toppings Pizza Only

Awareness
Users 60% 60%

Non-Users
Overall

30%
37% 58% 1.2 Kits

30%
37% 58% 1.1 Kits

ACV
Purchase Assumptions

Units @ Trial
Repeat rate
Repeat Purchase Units Repeat Purchase Occasions

22%
1 Kits 2

22%
1 Kits 2

Pizza Kit
Favorable to Pizza Toppings
50% would purchase toppings every time purchased kit 25% would purchase toppings 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 Pizza Calculations US Households Trial Penetration [%] Trial Unit Households Definitely Buy Adjustment 80% Probably Buy Adjustment 30% Weighted Trial Adjustments for: Awareness Distribution (ACV) Adjusted Trial Rate Trial Households Trial Transaction Size Trial Units 95,500,000 24% 22920000 30% 24% 57% 17% 41% 60% 58% 14% 3278201.76 1.2 3933842 76% 72580000 15% 12% 59% 18% 30% 30% 58% 5% 3750789.24 1.2 4500947 24% 22920000 22% 18% 48% 14% 32% 60% 58% 11% 2552371.20 1.1 2807608 76% 72580000 12% 10% 42% 13% 22% 30% 58% 4% 2803620.24 1.1 3083982 Option A: Pizza Kit & Toppings Contadina Users Non-Users Option B: Pizza only Contadina Users Non-Users

80% 30%

8,434,789

5,891,590

Analysis: Repeat Purchases

Option A: Pizza Kit & Toppings Contadina Users Non-Users
Repeat Purchase Calculations Repeat Rate Repeat Households Repeat Purchases Repeat Occasions Repeat Purchase Units Repeat Units Total Units 22% 721204 2 1442409 1 1442409 22% 825174 2 1650347 1 1650347

Option B: Pizza only Contadina Users Non-Users

22% 561522 2 1123043 1 1123043 22% 616796 2 1233593 1 1233593

5376251 6151294 11,527,545

3930652 4317575 8,248,227

Analysis: Pizza Toppings

Option A: Pizza Kit & Toppings Contadina Users Non-Users

Toppings Calculations Topping Trial Rate Calculation 50% Buy Topping Every Time 25% Buy Topping Half the Time Trial Pizza Units Trial Units with Toppings Trial Transaction Size Trial Toppings Units Repeat Toppings Calculations Repeat Units Repeat Topping Trial Repeat Toppings Transaction Size Repeat Toppings Units Total Toppings

63%

63%

3933842 2458651 1.5 3687977 1442409 63% 1 901505 4589482

4500947 2813092 1.5 4219638 1650347 63% 1 1031467 5251105 9,840,587

Analysis: Revenue Estimation

Revenue Estimation for Nestle's Refrigerated Pizza Launch
Fixed Data Total Market [Units] Pizza Toppings Total Market at [$]/unit Pizza Toppings Revenue [$] Total Retail Market Total Factory Market NRFC Business Requirement Option A: Pizza Kit & Toppings Contadina Users Non-Users 5376251 4589482 $6.39 $1.29 6151294 5251105 Option B: Pizza only Contadina Users Non-Users 3930652 4317575

$34,354,243.16 $39,306,770.92 $5,920,432.38 $6,773,925.37 $40,274,675.54 $46,080,696.29 $86,355,372 $57,570,248 $45,000,000

$25,116,864.03 $27,589,305.33 $25,116,864.03 $27,589,305.33 $52,706,169 $35,137,446 $45,000,000

$12,570,248

-$9,862,554

Analysis: Sensitivity Analysis

5% Penetration
Pizza & Toppings
Total Trial Units Total Retail Market 6,445,734 $65,991,428

Pizza Only
4,439,896 $39,719,312 $26,479,541

Total Factory Market $43,994,285

15% Penetration
Pizza & Toppings
Total Trial Units Total Retail Market 7,492,605 $76,709,293

Pizza Only
5,204,552 $46,554,500 $31,036,333

Total Factory Market $51,139,529

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
Pizza
5% 15% 24% 8,809,170 10,239,894 11,527,545

Topping
7,52,023 8,741,373 9,840,587

Market Share

Recommendations
Nestle should first work a lot to refine the taste of its 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 Nestl sold Contadina to Del Monte Excluded from sale was line of refrigerated pasta & sauces Nestl's changed name of refrigerated pasta and sauces to Buitoni

Volume Estimation

Revenue Estimation for Nestle's Refrigerated Pizza Launch Option A: Pizza Kit & Toppings Option B: Pizza only Fixed Data Contadina Users Non-Users Contadina Users Non-Users Total Market [Units] Pizza 5376251 6151294 3930652 4317575 Toppings 4589482 5251105 Total Market at [$]/unit Pizza $6.39 $34,354,243.16 $39,306,770.92 $25,116,864.03 $27,589,305.33 Toppings $1.29 $5,920,432.38 $6,773,925.37 Revenue [$] $40,274,675.54 $46,080,696.29 $25,116,864.03 $27,589,305.33 Total Retail Market $86,355,372 Total Factory Market $57,570,248 NRFC Business Requirement $45,000,000 $12,570,248 $52,706,169 $35,137,446 $45,000,000 -$9,862,554