Oscar Mayer

Problem:

One of the key issues faced by McGraw is that there is a large gap between his projections for next year, and what the manager's are promising him . His goal is to obtain a 15% increase in the operating income from his division (OM, LR and NP). The managers are projecting a decrease of 5.2% from the current year. In absolute terms there is a gap of $27 MM in the projected divisions operating income.

If McGraw were to keep his A&P budget the same as last years, he would save $32MM over the managers' projections. Therefore, one solution could be to effectively use the strengths of the product lines and the A&P dollars by consolidating his sub-divisions.

Analysis:

Comparing the contributions and costs of the three product lines OM, LR and NP as a percentage of the total division's numbers for the three years can give a detailed picture on the successes and failures of each sub-division, their strengths and weaknesses.

This exercise lets us determine what percent of the divisions' A&P budget is dedicated to Oscar Mayer vs. what percent of the divisions operating income comes from OM vs. LR.

Louis Rich Brand

Strengths are growing market segment, "health conscious" segment contributing to the rise in the operating income exponentially. However, a 33% of division's advertising and promotional budget is being consumed for a 24% of total revenue or 14% of division's operating income. While contribution to operating income is exponential, it is still less than 1/4th of the total divisions operating income.

Oscar Mayer Brand

Oscar Mayer brand has been developed over 100 years. It has a strong brand name, brand equity associated with it. It has established marketing and distribution channels. The numbers show a decline in the operating income of 18% over 3 years in part this may be due to a decrease in percentage of division's A&P expenses directed towards OM brand. There is a question as to whether LR brand is cannibalizing OM brand.

New Product

Stuff' n Burger numbers shows that a proportionately large spending on A&P is still generating no operating income. It is in the red. This points out the difficulty and expense involved in developing new brand or products.

One of the key questions to ask is if the Louis Rich Brand is eating away into the Oscar Mayer's market share? The two tables below show a decrease in the Oscar Mayer Brands revenue, it's A&P expenses and it's operating income, while an increase in the Louis Rich Brand market share, which coincides with the consumer trend of preferring white meat over red meat. Additionally, LR brand generates less operating income for the number of pounds sold compare to Oscar Mayer.

Our next question follows, Can Louis Rich Brand alone make up the income short fall? The answer seems no, looking closely at the numbers, one can clearly see a decline in pound volume from 3% to 2% in the current year. Increase in the operating income is likely being driven by the change in consumer trend towards white meat, not superior management of the sub-division nor its marketing distribution channels. Additionally, LR is generating only 7cents per pound of operating income compare to Oscar Mayer which generates 16 cents per pound.

The decline in Oscar Mayer brand is also due to consumer trend, but is further compounded by a decline in A&P and increased competition. Loss of market share is evident by the 6% decline seen in pound volume matched by a 6% decline in revenues. Oscar Mayer has so far opted to loose market share rather than lower its price.

Based on this analysis, there is more to loose if the Oscar Mayer brand is allowed to wilt over the Louis Rich Brand. Giving up on Oscar Mayer would mean losing

it's well established, well recognized OM brand name and its equity. May be even future profitability may be lost if the trend towards white meat is only a