TruEarth Healthy Foods Analysis

TruEarth Healthy Foods: Market Research for a New Product Introduction

Group 3, Section C AMIT JAT

IPM2011012

ANKIT GOHIL

2014PGP041

KIRAN KUMAR MS

2014PGP162

P ABHISHEK

2014PGP238

PRANEET SINGH

2014PGP262

GUPTA TARU

IPM2011032

DILIP VATSAL KUMAR

2014PGP416

Group 3 | Section C

Problem Statement Whether to go ahead with TruEarth What will the sales be given various scenarios?

whole

grain

pizza

concept

or

not?

TrueEarth – the Company    

Formed in the year 1993 by DeRosa Maker of gourmet pastas, sauces and meals One of the first companies to focus on whole grain products, offering both 60% and 100% wholegrain pastas Change in consumer trends in 1990s o Increase in disposable income coupled with time poverty led to HMR o Growth of refrigerated fresh pasta over the dry-shelf stable pasta o Growing awareness of the importance of whole grains

Case Facts: Cucina Fresca (Fresh Pasta and Sauce)        

Enjoyed first mover advantage in the category Fresh refrigerated whole grain pasta line with full range of choices along with sauces Designed to be consumed in a single meal for two compared to dry pasta and shelf-stables sauces that came in larger sizes Benefits: shorter cooking time, option of filled pastas and perception of being healthier and of better quality Fresca’s potential sales volume was estimated using Nielsen’s BASES model Results indicated a 76% positive purchase intent(who would definitely/probably buy) Marketing plan involved $8 million in advertising and $2 million in promotional coupons By 2007 sales had reached $23 million but started slowing down in 2008 because of entry of competitors (Rigazzi being the main competitor)

Case Facts: Whole-grain refrigerated pizza     

Growing health concerns and popularity of less carbohydrates in diets presented an opportunity for TruEarth to introduce this product Pizzas formed core component of Italian-American food category, with annual sales of $53 billion in 2007; 77% of consumers ate pizza at least once a month Restaurants already served whole grain pizza but there was a potential first mover advantage in the refrigerated pizza segment Store-brought refrigerated pizza market was 11% of total sales and amounted to $5.8 billion TruEarth decided to price the pizza kit at $8 (additional toppings sold separately). Each kit would feed 2-3 people

Group 3 | Section C

Porter’s Five Forces Analysis of the Whole Grain Fresh Refrigerated Pizza Market Threat of Competitors: HIGH TruEarth faced a formidable competitor in Rigazzi Brands, which was not only of a similar scale, but also sold all the same products as TruEarth. It competed with TruEarth for the limited shelf space & had previously targeted TruEarth’s high priority cities with its own line of whole grain fresh pasta. It had also offered high trade discounts to retailers and high-value coupons to consumers in the process. It had also tested its own pizza concept and was likely not far from an introduction.

Threat of New Entrants: HIGH Like in the case of whole grain pastas (pp 5-6), it would not be long before other companies figured out how to make whole grain fresh refrigerated pizza that also tasted good, just like Rigazzi. The entry barrier was low. Therefore, in the whole grain fresh refrigerated pizza market, TruEarth could face a high level of threat from new potential entrants.

Threat of Substitutes: HIGH Whole grain fresh refrigerated pizza faced a whole array of substitute products. For those customers who were inclined to consume whole grain pizza out of health concerns, restaurants such as Papa John’s and Pizza Hut, as well as local pizzerias had offerings. In general, pizzas were available as takeout/delivery, restaurant pizzas refrigerated pizzas, frozen pizzas (from Kraft and Nestle) and homemade pizzas.

Threat of Buyers’ Growing Bargaining Power: MODERATE As more players enter the whole grain fresh pizza market, the bargaining power of the buyers’ would increase. However, TruEarth had the reputation of supplying high quality and tasty products and hence, the threat would be moderate.

Threat of Suppliers’ Growing Bargaining Power: ? TruEarth used only high quality ingredients, and hence was susceptible to some extent to supplier’s bargaining power. However, the case does not provide much data regarding this aspect. From Porters’ model, the market does seem to face a high level of threats, and does not seem very attractive.

Quantitative Market Analysis Assumptions Some of the assumptions considered in the quantitative analysis are given below: 1. The awareness level of Cucina Fresca customers with regard to the pizza offering would be higher (50%) as compared to a 12% awareness level for non-customers 2. The penetration level of Cucina Fresca among the target market for the pizza product varied from 5% to 15% and was reported to be 11% by the BASES survey 3. The pattern of 80% of “definitely would buy” and 30% of “probably would buy” respondents actually making a purchase would hold in case of the pizza market as well.

Group 3 | Section C 4. 5. 6. 7. 8. 9.

An ACV level of 40% would be achieved. Each purchase would involve 1.25 units being sold Average spend per purchase would be $12.38 Each purchaser would have 2 repurchase occasions in a year 49% of purchasers would go for a repurchase Wholesale sales would need to exceed $12 million to meet the company’s return requirements

Analysis Refer Excel Sheet

Findings from quantitative analysis There were 3 scenarios to be anticipated with varying penetration of the pasta product in the target market. The results of the analysis from each of the three scenarios shows that the company will be able to meet its target of $12 million in wholesale volumes and therefore, should go ahead with the new product launch.

Critique of Analysis The analysis & underlying assumptions can be critiqued on the following fronts: 1. A 50% awareness of the pizza product from existing Cucina Fresca customers seems overly optimistic 2. A 40% ACV value is relatively a low target and may lead to a missed opportunity. For Cucina Fresca, the company had targeted a 50% ACV value. 3. Only 2 repurchase occasions in a year seem to be on the lower side, while 49% repurchase seems to be on the higher side

Other aspects 1. As pointed out in the case, pizza is essentially an indulgence food. Positioning pizza as a healthy food choice and basing our whole marketing strategy on this position would be a risky option. 2. There is the risk of not being able to match the quality of takeout/delivery, restaurant and homemade pizza. 3. The varieties of topping offered are severely limited compared with the vast choice normally available to a buyer when purchasing a pizza. For instance, in exhibit 6, surveyed users gave lower ratings to the TruEarth pizza on taste and variety attributes compared to takeout pizza. 4. Given the limited life of the product, any drop or adverse fluctuation in demand, even in the short term, would lead to heavy costs in terms of unsaleable inventory, especially given the practice of retailers seeking markdowns and high guaranteed sell-through performance.