Kraft

(a.) Referring to the “Elements of a Competitor Analysis” we used in class for the Southwest Airlines case, what could the short-run and long-run objectives be for Unilever in launching the new steak sauce? Why? 10 points

SHORT-RUN OBJECTIVES:

What drives this company?

• They already compete aggressively with Kraft in many other product categories, so why not do the same in steak sauce product category.

• They specialize in spices and marinades, so they already have capital that will support the steak sauce product line.

• Unilever described Lawry’s as “…USA’s leading provider of premium spice and seasoning blends, marinades, and other flavorings.”

What is the competitor doing and can do?

• April 1st is the first ship date in order to gain full distribution before the peak summer grilling season.

• They are matching the majority of the A.1. Steak Sauce’s ingredients and color for a similar taste and texture.

• Pricing of the new steak sauce will be about 1/5th lower than A.1. Steak Sauce.

• Unilever will be offering a promotion for the upcoming Memorial Day that is said by some to be almost impossible for A.1. to meet or exceed in pricing.

• They plan on dropping five FSIs (Free Standing Inserts) in 2003 and spending $20 million on advertising concentrated in May, June, and July.

• They will be supporting a large sampling program called Lawry’s Live! which compares its new steak sauce to A.1. Steak Sauce and others in the market. The program also features their Chef Brian Mannet cooking at several festivals and fairs, sharing recipes, and showcasing the ease and versatility of their marinades, spices, and (most importantly) their new steak sauce.

LONG-RUN OBJECTIVES:

• “Path to Growth” program will rationalize its brand portfolio focusing on the largest global brands. Their new steak sauce will have to make a big impression to stay in the mix after rationalization. (The sauce will have to meet the goal of at least $1 billion in annual sales.)

Assumptions: They can do it cheaper but with the same taste, a bigger bottle, and a bit different packaging.

WHY:

These objectives are measurable, obtainable, yet challenging. Unilever is going into the steak sauce market without knowing what the reaction from Kraft’s A.1. division will be. They have, however, obviously put a lot of thought, research, and time on their new line. They are ready to compete with A.1. Steak Sauce, no matter the resulting decision that A.1. representatives make.

(b.) Who are the potential competitive targets of this new launch? Why? 10 points

COMPETITIVE TARGETS:

According to Exhibit 6, the steak sauce competitors for Unilever’s Lawry division are A.1. Steak Sauce, Heinz 57, and some private label steak sauces. These steak sauces are competition on the basis of price. They are specifically targeting Kraft’s A.1. Steak Sauce by almost completely copying their quality, taste, and texture. Their difference (and most likely why they can cut the price so much) is that they are packaging their sauce in a plastic bottle, though it is 11 oz., compared with A.1.’s 10 oz., glass bottle.

(c.) What are the long run and short run objectives of A.1. Steak Sauce in the portfolio of Kraft Foods brands? 10 points

CURRENTLY:

• Kraft has spent 15% of its operating revenue on advertising for A.1. Steak Sauce.

• Consumer promotions were 5% of the operating budget.

• Kraft’s revenue on A.1. Steak Sauce was about $150 million in 2002 and operating profit was about $60 million.

• A.1. successfully re-launched the line of marinades (that in 2001 had disappointing results) in 2002.

o Kraft’s revenue on the A.1. Marinade line was $15 million, and the line had a 10% share of the marinades category.

• A.1. had little competition, substantial sales, excellent margins, and extremely high brand awareness.

• Dollar sales in the steak sauce category and for A.1. Steak Sauce had grown in recent years due to price increases, but unit and volume sales had been flat.

SHORT-RUN OBJECTIVES:

• A.1. was planning to focus on television spots with advertising running throughout the year.

• A.1.’s 2003 plan anticipated flat revenue and slight profit growth on A.1. Steak Sauce.

• A.1. is planning on launching a new marinade item to add to their existing marinades.

o They called for $10 million of advertising spending on the marinade line and $5 million of consumer promotion spending.

o The marinade line was expected to lose about $7 million in operating profit in 2003; however, this was an improvement from the preceding year’s loss of $10 million.

• The total brand’s 2003 budget called for profit on the A.1. portfolio to increase 10% from the previous year.

LONG-RUN OBJECTIVES:

• A.1. planned to drop four FSIs in 2004, one each quarter, at a cost of $1 million each.

o Each FSI included a $0.50 вЂ" off coupon good for one A.1. Steak Sauce product.

• A.1. was supporting a partnership with beef producers.

2.

(a) What are the set of potential responses that A.1. (Kraft) might consider? 10 points

At the meeting held to discuss what A.1. would do with Lawry’s