Contadina Pizza
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Decision Problem
The Nestle Refrigerated Food Company (NRFC) has the opportunity to extend its Contadina brand name into the refrigerated pizza market. NRFC must determine whether adding a pizza, with or without extra toppings, will meet specific financial objectives and increase sales.
Possible Decision Alternatives
Our analysis shows that NRFC can 1) maintain the status quo, 2) introduce the refrigerated pizza without toppings, or 3) introduce the refrigerated pizza with toppings.
Analysis of Industry
Pizza is part of the large and rapidly growing Italian ethnic food category. Restaurants like Pizza Hut and Domino’s capture 88% of the $18.4 billion pizza market. Although 75% of the last 10 incidences of pizza consumption were delivered/takeout, 25% of the pizzas were purchased from a grocery store [frozen (16%), fresh (5%) or homemade (4%)]. Globally, NRFC competes primarily with Kraft and Unilever; within the United States, Kraft poses the largest threat. At present, there is no real leader in the refrigerated pizza market in the U.S.
Analysis of Company
Nestle, one of the world’s largest food companies, produces a variety of products like chocolates, beverages and prepared dishes. NRFC has a profusion of brand awareness throughout the world, an effective marketing strategy, a strong balance sheet, a comprehensive new product development process, and a profound understanding of what its diverse consumers’ needs and wants are. Moreover, NRFC maintains a long-term focus, which is why it is so committed to the expansion and improvement of product lines and manufacturing and distribution processes.
Although the seven-step new development process is very thorough, it could prove to be a weakness at some point. Since it is so exhaustive, it could hinder NRFC’s ability to act quickly when there is an immediate need. For example, had NRFC been able to identify a need for pudding and quickly get a high-quality product to market, it could have gained a first-mover advantage over Kraft’s Jell-O pudding and achieved a large market share and revenues.
Evaluation of Alternatives
Alternative 1: Status Quo
Advantages: The NRFC is already a leading player in the refrigerated foods market in the United States. Maintaining the status quo would allow the NRFC to continue to grow its current product lines and achieve an even greater market share in those areas. This option would also enable NRFC to forgo the risk of investing in a market that is dominated by restaurants.
Disadvantages: NRFC took a risk by entering into the fresh pasta market in the U.S.; the product generated $50 million in sales its first year and achieved 100% growth within its first three years. The rapid growth and success of refrigerated Italian food (pasta and sauces) should not be ignored. Moreover, the new product development process is almost complete and the financials are very promising. NRFC may be forgoing a huge opportunity by not extending the Contadina brand and gaining a first-mover advantage in the refrigerated pizza market.
Alternative 2: Launch Pizza Kit Only- No Toppings
NRFC could launch the “Pizza Kit Only” (without additional toppings). Priced at $6.39, the product will include a 12-inch crust, cheese and sauce; the consumers will have the option of adding their desired toppings.
Advantage: In Exhibit 19, BASES II Study Concept test shows respondents who are favorable of “Pizza Only;” 53% like the concept of “Can add amount of toppings desired,” 44% like “General taste/flavor,” and 26% agree with “Fresh pizza tastes better.” Another advantage of launching “Pizza Only” is the reduced risk and rollout of toppings. The BASES research indicated only 50% who are favorable to “Pizza and Toppings” would buy toppings at every pizza kit purchase, and an additional 25% would purchase toppings half of the time. Launching “Pizza Only” would reduce the risk of failure and avoid the rollout of toppings.
Disadvantage: Launching “Pizza Only” forgoes the potential opportunity to gain revenue/profit from the sale of toppings. Most importantly, “Pizza Only” option does not meet the minimum baseline requirements of $45M in factory revenues. Using the same model as in Exhibit 9, the total projected volume of “Pizza Only” is 7.85MM units (see Appendix 1) and forecasted revenues are $33.5M, which is $11.5M under the minimum baseline (see Appendix 2).
Alternative