Nestle S.A.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 TIMELINE

Refrigerated FoodsRefrigerated 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.

LambertLambert’’s Pasta and s Pasta and CheesesCheeses

The time taken for internally developing refrigerated pasta would take away their advantage.

Thus they started by purchasing Lambert’s Pasta and Cheeses, a small New York based Pasta company in 1987.

They purchased the $15 million revenue company for $56 million.

Refrigerated PastaRefrigerated 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 Carnation’s 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 PizzasRefrigerated 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

ContadinContadin

a a Pizza Pizza

!!!!!!

BRAND BRAND

EXTENSION..!!EXTENSION..!!

Idea GenerationIdea 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.

Nestlé's expertise in refrigerated goods.

First mover advantage in the pizza market.

Concept Screening/Idea Concept Screening/Idea RefinementRefinement

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 DevelopmentProduct Development

PizzPizzaa

Pizza Pizza KitKit

PrePre

assemblassembleded

• Pizza Kit (Crust + Cheese + Sauce )+ Toppings(optional)

• Separate Packets• 12” pizza- $6.40• $1.30 extra toppings

• Heat and Eat• Variants1)Italian

Pepperoni2)Italian sausage3)Italian Three-

cheese4)Italian

Mushroom• 12” pizza-

$7.60

Product Development Product Development [Contd.][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

Definitely Buy 30% 15% 22% 12%

Adjustment 80% 24.00% 12.00%17.600

% 9.600%Probably Buy 57% 59% 48% 42%

Adjustment 30% 17.1% 17.7%14.400

%12.600

%Weighted Trial 41.1% 29.7% 32% 22%

Adjustments

Awareness 60% 30% 60% 30%ACV 58% 58% 58% 58%Adjusted Trial rate 14% 5% 11% 4%

Trial Households3168928.

373750789.

24255237

1.2280362

0.2Units Purchased at Trial 1.2 1.2 1.1 1.1

Trial Pizza units 3802714 4500947280760

8308398

2

Total Pizza units

8303661

5891591

TRIAL VOLUME TRIAL VOLUME ESTIMATIONESTIMATION

Pizza Kit & Toppings Pizza OnlyContadina Users Non-Users

Contadina Users

Non-Users

Repeat Rate 22% 22% 22% 22%Repeat Households

721204.2

825173.6

561521.7

616796.4

No. of Purchases 2 2 2 2Repeat Occasions 1442408 1650347 1123043 1233593No. of Repeating Units 1 1 1 1Repeat Units 1442408 1650347 1123043 1233593

Total Units 5375890 6151294 3930651 4317575

Total Units115271

85824822

6

REPEAT PURCHASESREPEAT PURCHASES

Pizza Kit & Toppings Users Non-Users

Buy topping every time 50% 50%Buy topping half the time 12.50% 12.50%

62.50% 62.50%

Total Pizza Units 3933842 4500947Total Pizza Units with Toppings 2458651.25

2813091.875

Trail Transaction size 1.5 1.5Total Trail Topping Units 3687977 4219638

REPEAT TOPPINGS CALCULATIONS

Repeat Units 1442409 1650347Repeat transaction size 1 1

Total Repeat Topping Units 901505.6251031466.87

5

Toppings 4589483 5251105

Total Topping units 9840587

TOPPINGS VOLUME TOPPINGS VOLUME ESTIMATIONESTIMATION

Pizza Kit & Toppings Pizza Only

Users Non-Users Users Non-UsersTotal Market UnitsPizza 5375890 6151294 3930651 4317575Toppings 4589483 5251105

Total Market Revenue

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

Revenue($) 40272370 46080695 25116860 27589304

Total Market 86353065 52706164

Total Factory Dollar Sales 57568710 35137443

NRFC Requirement 45000000 45000000

Difference($) 12568710 -9862557

REVENUE ESTIMATIONREVENUE ESTIMATION

Consumer PerceptionConsumer Perception

PricingPricingPizza Toppings

Contadina Fresh $6.39 $1.29Takeout/delivered pizza

$8-$10

Frozen pizza from supermarket

$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 criteriaPromotion criteria

Promotion strategiesPromotion strategies

Leverage the successful Pasta platform, Contadina brand

Capitalize on the growing Italian food market segment

DistributionDistribution

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

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

12 inch pizza cheese

Pizza KitPizza Kit

ToppingsToppings

Italian Sausage Italian 3 Cheese Italian Mushroomand bell pepper

Italian Pepperoni

PackagingPackaging

Competition(Presumed)Competition(Presumed)

RecommendationsRecommendationsThe 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 actuallyWhat 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

• 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 What happened actually [Contd.][Contd.]

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

cheese kit at $5.99 and $5.49 respectively

What happened actually What happened actually [Contd.][Contd.]