This case study analyzes Nestle‘ Refrigerated Food Company’s contemplation to the introduction off refrigerated pizza product into the U. S. Market.
The industry that is being discussed is the frozen/refrigerated foods industry. This industry has many players Including Nestle’, Kraft, Milliner, Healthy Choice, and a few others. Specifically, we are dealing with the frozen/refrigerated pizza market. This is a highly competitive industry. Each competitor must fight and strive to become the best and to increase market share.
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A main characteristic of this industry is convenience.
Convenience is what consumers are looking for when they purchase frozen or refrigerated foods. An analysis of demand for refrigerated pizza and variations of it is included In this case study followed by a suggestion as to whether or not Nestle’ should go through with Introducing the refrigerated pizza product to the U. S. Market. To summarize this case study up until now, main points and focuses were taken from the study. In 1990, the Nestle refrigerated food company contemplated the introduction off refrigerated pizza product to the U.
S. Market. In 1987, Nestle’ had entered the refrigerated food market with Contain pasta and sauces. The product had been very successful with sales of $50 million In Its first year, and growing to over $100 million in sales by 1990. It was recognized that Nestle©’s rapid growth In the refrigerated pasta market must taper off as new competitors entered the market niche.
In 1993, Nestle’ was one of the world’s largest food companies with sales of over $37 billion. It’s 500 plants operated in 60 countries employing over 195,000 people producing a wide range of food and beverage products.
Frozen foods usually have to be reheated or cooked from the frozen state. When stored at a temperature of zero degrees Fahrenheit, frozen foods have long shelf lives that can last months. Refrigerated foods are kept cool, but not frozen, which allows rapid cooking or reheating by the consumer. Stored at temperatures of 33-40 degrees Fahrenheit, these products have shorter shelf lives of 12-90 days.
Convenience and perceived quality attract consumers to refrigerated food. The freezing process stops microbial growth whereas refrigeration only slows It.
Believing in the viability of the fragmented food category In the U. S. And the strong growth trend In the Italian food segment, Nestle’ considered the benefits of in-house development versus purchasing an existing company.
In 1987, Nestle purchases a small New York pasta company called Lamberts pasta & cheese. They developed a process that extended the shelf life from the usual two to three days to 40 days through a series of technical innovations, which includes replacing the residual oxygen In the pasta package with nitrogen.
The key was that Contain fresh pasta sauces were rolled out nationally in the second half of 1988 ND quickly became the established market leader, with $75 million in retail sales in 1988 and $150 million by 1990. The pasta line accounted for nearly 80% of the sales volume and Nestle had beaten its competitors to market with a high quality refrigerated food entry. Nestle’, Kraft, and Milliner compete against each other on a global basis.
For Nestle’ and the future of Contain, it was strategically important that the battle against Kraft be won in the U. S. With this product.
An important lesson was learned from the Disgorging attack. We had the advantage of being the first mover in a new reduce category.
If we had waited, we could not have sustained the Disgorging entry into the market. NRC (Nestle’ Refrigerated Food Company) began a product development process for a refrigerated pizza concept. Pizza was a part of the large Italian ethnic food category and it came in three forms: frozen, deli-made, or freshly made. Restaurants dominated the $18.
4 million billion pizza market. Estimates were that 76% of all U. S. Families had eaten at a pizza restaurant within the previous six months.
Nestle’ Refrigerated Food Company developed two new pizza concepts that included a pizza kit” and a pre-assembled, heat and eat pizza.
Both products were intended to serve two to three people. The product development group expected the 12-inch crust, sauce, and cheese to sell for around $6. 40. Additional toppings would be sold separately for about $1. 30 per topping. The varieties of toppings would come in pepperoni, sausage, vegetable, and extra cheese.
The second concept was a refrigerated pre-assembled pizza available in four varieties: Italian pepperoni, Italian sausage, Italian cheese, and Italian mushroom and bell pepper.
The expected selling rice of the 12-inch pre-assembled pizza was $7. 60. Further investigation by the research and development department indicated that the refrigerated pre-assemble concept was infeasible from a production standpoint. National distribution was a possibility and given the state of the art robotics that could be installed in a pizza line at a factory, there was considerable support for a uniform, high-volume pizza product. The Nestle’ refrigerated food company marketing staff believed that the Contain pasta users would represent approximately 24% of the 95.
Million target households. Their intention was to support either the pizza and topping or the pizza only option with $18 million in market support. Based on this plan, Nestle’ refrigerated food company projected a 37% overall awareness. The BASE research indicated that 50% of those favorable to the pizza and topping option would buy toppings at every pizza kit purchase and that an additional 25% would purchase topping half the time. We’ve used our technology to develop a good product at a reasonable price, in a new food category.
Our models indicate that our basic business requirements for pizza are $45 million. With our projected investment cost of $12 million we only need to capture a 0. 3% share of the retail market. The decision that is being suggested is to go ahead with the refrigerated pre- assembled concept. Even though this concept is infeasible from a production standpoint, and initial start-up fees would be high, the demand would be highest for higher for the pre-assembled pizza is convenience. It is more convenient to be able to Just pull it out of the freezer and pop it into the oven.
If people wanted to make a pizza, they would make it from scratch. This isn’t what people want. They want a quick, convenient pizza. With only needing to capture a 0. 3% share of the retail market, this is the time to act.
We expect a refrigerated pizza from Kraft within the next three months. Since we have knowledge of Karat’s plans to release a refrigerated pizza, this meaner their research has unveiled a place for refrigerated pizzas. We already learned that if we miss this opportunity to be the first in this new market, we might not stay alive if we come in after the market has been introduced.
Also, since there are presently no others in this market, we will be the first, which will vive us the advantage of name recognition and a playing field that is solely ours. No competition is the best environment and we will have it for a short time. So the decision is to launch the pre-assembled pizza has been made and now we will look at the size of the market that Stephen Confide will find.
The previous two pie graphs represents the monetary support that the NRC marketing staff compiled from their own estimates for which ever product is launched. “NRC projects a 37% overall awareness based on this plan. “(ABBEY course packet, pig. 14)