A1 Steak Sauce

Autor: rjsrls • March 6, 2017 • Case Study • 575 Words (3 Pages) • 815 Views

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Situation Analysis

Industry

As of 2002, there are two dominant brands in the steak sauce category, A.1. and Heinz 57, with a combined dollar share of 70%. The ‘Private Label, and ‘Other’ brands share the remaining 30%.

Steak Sauce Shelving and Market Shares, 2002
	Items Carried	Shelf Facings	Dollar Share	Volume Share
A.1. Original	3	6	54%	46%
A.1. Flavors	4	8
Heinz 57	2	4	16%	13%
Private Label	1	3	14%	19%
Other Brands	5	8	16%	22%
Category Total	15	29	100%	100%

Retail margins are approximately 30% in the steak sauce category; retailers only rarely reduce their margin on a percentage basis for in-store promotions – the manufacturer must reduce its margin to enable money-off promotions at the retail level
As of Spring 2003, Unilever’s Lawry’s brand is about to launch a steak sauce to compete directly with A.1.
Lawry’s currently has a 50% market share in the marinade category and is looking to capitalize on its success with the new sauce

Financial Results, 2002 ($ in Millions)
	Kraft	Unilever
Total Revenue	$29,723	$48,270
Operating Income	$6,114	$5,041
Income After Taxes	$3,398	$2,441

Company

Kraft Foods is the largest food company in the U.S.
Kraft spends 15% of its operating revenue on consumer marketing efforts/advertising
10% of A.1. sales occur over the week of Memorial Day and July 4th (each)
A.1. brand planning four free standing inserts (FSIs) in 2004, spending $1M in each of four quarters ($0.50 off coupon)
Failed launch of A.1. branded marinade product in 2001, successful re-launch in 2002

A.1. Steak Sauce & Marinade Operating Profit ($ in Millions)
	2002	2003
Annual Metrics	A.1.	Marinade	Total	A.1.	Marinade	Total
Revenue	$150	$15	$165	$150	$25*	$175
Operating Profit	$60	($10)	$50	$62	($7)	$55

*2003 Marinade revenue assumed with new product launch

Trends

Problem Definition

Lawry’s is launching a new steak sauce brand which will compete directly with A.1. and will be priced significantly lower ($4.99 vs. $3.99 per bottle) and ($0.50 vs. $0.36 per oz.)

Steak Sauce Retail Everyday Shelf Pricing, 2003
	Retail Shelf Price	Size (oz.)	Retail Shelf Price/oz.
A.1.	$4.99	10	$0.50
Heinz 57	$4.79	10	$0.48
Private Label	$3.49	10	$0.35
Lawry's	$3.99	11	$0.36

Lawry’s is negotiating with Publix supermarkets for the upcoming Memorial Day 2003 ad with a “2 for $5” promotional price point, which is half of the retail price of A.1.
Management needs to quickly decide whether they want to match the Lawry’s promotional price.

Alternatives and Evaluation

Alternative	Description / Rationalization	Risks
Do Nothing	A.1. has strong brand equity and should not be diminished Order-of-entry model suggests only 10% share for Lawry’s Retention of margins and brand equity	Lawry's price promotions could erode market share and margins if we are forced to match pricing later
Develop A.1. Line Extension	Lower priced alternative to original A.1. that compares to Lawry’s brand directly Prevent margin and brand erosion	Previous launch of poultry product was a failure Could diminish brand or cannibalize sales
Match Lawry’s Pricing	Reducing the price of A.1. to match Lawry's regular retail and promotional pricing Prevents losing market share and success of Lawry’s brand	Significant margin reductions and possible erosion of brand perception with long-term consequences
Beat Lawry’s Pricing	Aggressively undercut Lawry's pricing to prevent any market share erosion Might stifle or even cause failure of Lawry’s	Unilever has deep pockets Will likely counter our pricing maneuvers
Price Reduction but not Match	Lower the price or offer aggressive couponing to avoid losing significant margin or market share to Lawry's Allows for more competitive pricing without greatly diminishing A.1. brand	Margin erosion could be permanent and will likely prevent meeting corporate profit goals

Recommendation and Justification

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