Reference no: EM131118694

Carlos Family Foods Case

Ms. Richards, Marketing Manager for Carlos Family Foods Pizzas, sat at her desk contemplating the task that lay before her. She had been asked to investigate options that might be pursued to address the pizza division's sagging market share and profits and to develop a marketing strategy for the option she recommended.

The Frozen Pizza Market in Seattle. The $50,000,000 Seattle frozen pizza market can be broken into three subcategories based on quality and user. Low and medium-priced pizzas are a simple, inexpensive crust, low quality barely spiced tomato sauce, and familiar toppings (e.g., cheese, pepperoni, sausage). The vast majority (75%) of low and medium priced pizzas are purchased by parents for their children. Parents view pizza to be a -fun food? for kids, who usually disdain strong flavors or fancy toppings, and is an easy to prepare meal or snack. The remaining 25% of low and medium-quality pizzas are sold to price-sensitive adults for their own consumption. Low and medium-priced pizzas accounted for 70% of volume sales and grew at a rate of 8% last year. Premium-quality, high-priced frozen pizzas are consumed almost exclusively by adults who are looking for a convenient alternative to restaurant pizza. These pizzas tend to have higher quality crusts and substantially more ingredients and exotic toppings (i.e., pesto, more vegetables, etc.) than do the low and medium-priced brands. High-priced pizzas accounted for 30% of volume sales and grew at a rate of 15% last year. In general, manufacturer's margins on frozen pizza are high, ranging between 25-45%, with higher margins being associated with the higher-priced pizzas.

Over two dozen firms compete in the frozen pizza market in Seattle. Four or five leading brands have traditionally battled for the number one share position, with each firm obtaining between 10-15% market share. In recent years, The Pizza Company, a division of Kraft surged into the number one position with a 28% share. Kraft is seeking to continue its growth with a goal of achieving 31% share this year. The Pizza Company has historically emphasized moderate-quality, family-sized pizzas under the Tombstone brand name. The product line is delivered to grocers via an expensive store-door delivery system (i.e., the manufacturer delivers directly to the store instead of through a wholesaler). A clever TV ad campaign has created strong brand recognition by spoofing the Tombstone name (e.g., asking characters in life-threatening situations, such as in front of a firing squad, -what do you want on your Tombstone??). To capitalize on the growth in the premium, gourmet pizza segment, The Pizza Company introduced DiGorno Pizza several years ago. DiGorno has a crust that rises for the first time when the pizza is baked in the home, thereby providing the same fresh-baked taste as carry-out pizza. Although the technology required to produce this new type of crust is not proprietary, it is quite expensive and patents do protect the special packaging developed to preserve the freshness of the uncooked dough while it is in the freezer.

Schwan's Red Barron line of pizzas and Pillsbury's Tortinos and Jenos lines also offer branded medium priced pizzas and have 10% and 7% share respectively. In addition to the leading brands, there are several -commodity? producers of low-priced pizzas, which have extremely limited share and distribution.

Carlos Family Foods Pizzas. Carlos Family Foods, a medium-sized Seattle-based company that sells a variety of food products to large grocery chains, produces a line of frozen pizzas that are distributed regionally in the Northwest. Carlos' pizzas are of moderate quality, available in the standard varieties (e.g., all cheese, cheese and pepperoni, and cheese and sausage), and sizes (e.g., 5 inch snack pizza, a 10 inch family-size pizza, and a 14 inch deluxe pizza). Prices for Carlos' pizzas fall in about the middle of the mid-priced category and their contribution margin is approximately 35%. Although the company engages in considerable newspaper and point-of-purchase advertising, brand recognition for Carlos is substantially low relative to that of national brands (e.g., Tombstone, Red Barron, John's), which spend heavily on television advertising. Carlos generally has had good relations with large grocery chains because it offers better-than-average-margins and cost-efficient store-door delivery due to its local origin. Historically, this has resulted in broad distribution and good shelf position in the major chains. However, in the last two years, Carlos' share has dropped from 10% to 6% of the overall frozen pizza market. As a result, several grocery chains have threatened to discontinue the Carlos pizza line if share does not improve.

The Challenge. Ms. Richards and her colleagues had identified three broad strategies that might help reverse Carlos decline in market share and profits. These are described below.

1. One approach would be to bolster the current product line with either advertising or with a line extension. (Option A and B)

Advertising might be used to expand usage of the 5 inch snack product by advertising on the radio and on TV in the after school hours (A). The message would encourage children and teens to have satisfy their after school hunger with a Carlos rather than a peanut butter and jelly sandwich or some other snack. The emphasis would be on the fun and taste appeal of pizza. It was estimated that to have any impact such an ad campaign would require a minimum of $500,000.

An alternative approach would be to extend the product line by creating a version of the 10 inch pizza that used a low fat/low cholesterol cheese substitute (B). Because substitute cheese is less expensive than real cheese, the company would realize a cost reduction. Ms. Richards reasoned that this might allow Carlos to increase retailer margins yet allow the retail price of the pizza to be the same as for the real cheese products. The product label could highlight the health benefits (low fat and low cholesterol, lactose-free) of the new pizza and, as necessitated by law, would clearly indicate that the product contained cheese substitute rather than real cheese.

2. A second option would be to launch an entirely new but related product line. (Options C and D)

One possibility was to develop a line of pizzas for the rapidly growing premium-priced gourmet pizza market (C). Such pizzas might be topped with trendy specialty items such as sun-dried tomatoes, goat cheese, pine nuts, arugula, pesto etc. Ms. Richards recognized that competition for freezer space would be intense so she tested the concept on several local grocers. They expressed guarded interest in carrying such a line on a trial basis, provided that the new line allowed adequate retail margins, was backed by substantial television advertising, and that Carlos was willing to pay the normal slotting fees.

An alternative new product idea was to develop a snack item tentatively labeled a -pizza-pocket.? (D) This product would be bit-sized logs of dough with a pizza filling (tomato and cheese, tomato, cheese and sausage, etc.). The pizza pockets would be microwavable and would be packaged one dozen to a box.

3. A final option was to focus on increasing volume sales by obtaining a contract with one or more food service companies. (Option E and F)

A new manager Ms. Richards thought that she might explore supplying the food service company that serves students in cafeterias housed in Seattle public schools (E), or might win a contract with one of several food service companies that run cafeterias in office buildings around the city (F). Under this option, Carlos would provide direct delivery to the individual cafeterias that the food service company operated. An appealing feature of this plan was that, because sales would be to another company, no consumer advertising would be required. Though Carlos would have to accept smaller margins than ones that could be obtained in the retail channel, the potential volume of pizzas was several times greater than the amount that they currently produced.

Questions-Answer these questions directly. Do not write a goal, impediment, strategy, tactics paper. Use the GIST to lay out the case and then simply provide answers/justification to the specific questions asked.

1. Strategic Analysis

Using concepts and tools presented in the class, assess the core competencies and discipline of the firm and evaluate the competitive and consumer environment.

Use this background to lay out your evaluation of each of the six options that are suggested in the case. List the pros and cons of each option (charts and bullet points are fine here), then make a specific recommendation and justify why you believe it is the best approach

Write a positioning statement for the option that you choose and explain why you believe that the proposed positioning will be effective.

2. Marketing Mix Questions(SHORT answer. Answer each of these questions directly, whether or not you have chosen this option as your recommended direction.)

a) Pricing- Assuming that the new brand manager Ms. Richards chooses Strategy #3 and seeks a contract with the food service company that supplies the Seattle public schools. What are the ways that Carlos Family Foods can create value competitively? How should she think about setting price and why? What issues must she consider?

b) Distribution - Suppose that for the line extension described in Strategy #1, Ms. Richards is also considering expanding distribution to health-food stores, using the new -cheese substitute? feature to target lactose intolerant and vegan customers. Health food stores tend to be small, low-volume outfits that are geographically dispersed and are typically serviced by wholesalers specializing in health food. Discuss the wisdom of expanding distribution to include these retail outlets and make a specific recommendation about how (i.e., via direct delivery versus through wholesalers) you would distribute to these outlets, and whether you would recommend doing this or not.

c) Product- A key issue if Carlos decides to launch an premium line of Pizzas as described in Strategy#2 is how to brand such a line. Should it keep the name Carlos or use some other name? Briefly discuss the pros and cons of each branding approach, and make a branding recommendation.

Promotion - Assume that the Ms. Richards chooses to pursue the premium line discussed in Strategy #2. In developing advertising for the line, she is considering two approaches: first, taking advantage of convenience trends, the ads could suggest that Carlos' new line offers the same quality and interesting varieties as restaurant pizzas delivered to your home, thus substituting for pizza delivery. Alternatively, the ads could suggest that Carlos offers more interesting varieties and better-quality ingredients than DiGorno. Which (if either) of these approaches would you recommend? Justify your choice, suggesting any alterations you deem necessary. What other elements of the promotional campaign could you use to overcome any difficulties that you anticipate?