Nestle Refrigerated Foods:

Contadina Pasta & Pizza

Case Brief:

After the great success of Nestle Refrigerated Food Company (NRFC) product Contadina
pasta and sauces, NRFC was thinking to grab the growth opportunity through brand
extension of Contadina. As in case Cunliffe stated “Contadina became the market leader
in refrigerated pasta and sauces, but to continue our rapid growth, we need other new
product opportunities”

NRFC had established certain guideline steps that might help them a lot in developing
new successful product through out their business life. Those steps are as follow;

• Idea Generation
• Concept Screening
• Product development
• Quantification of Volume
• Test Market
• Commercial Evaluation
• Introductory Tracking

By following these steps NRFC come up with the idea of Contadina brand extension by
inducing “refrigerated pizza” in a line.

The case revolves around that either NRFC should launch refrigerated pizza/ pizza kit in
the market or not? If yes, than with topping or without topping?

Question 1

(a)
If he should launch a pizza product;

Before taking a final decision to launch or not introduce refrigerated pizza in a market,
first we have to analyze the market of USA, where NRFC wants to commercial its new
product.

Here we analyze the market with three perspectives;

1. Pizza market of USA

2. Competitor Perspective
3. NRFC’s perspective
 1. Pizza Market:

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%)].

2. Competitor Analysis:

Globally, NRFC competes primarily with Kraft and Unilever; within the United States,
Kraft poses the largest threat. Kraft test-marketed a refrigerated pizza product when they
were testing DiGiorno pasta and sauces. Kraft was expected to enter the market within 6
months with their refrigerated Pizza.

3. NRFC’s Analysis:

NRFC’s analysis can be done in three dimensions;

i) First Mover advantage

ii) Monetary analysis
iii) Brand Image

i) First mover advantage:

If NRFC step into the market before Kraft, than ultimately it will gain the first mover
advantage. First mover advantage here means building the brand equity before it is being
created by your competitor.

If NRFC lose the chance of being first, than they will never get the market share that they
deserve.

ii) Monetary Analysis:

As highlighted in the case “NRFC basic requirements for pizza is $45 million [factory
dollar sales], with their projected investment costs of $12 million”.

iii) Brand Image:

While taking ultimate decision of launching refrigerated pizza with the brand name of
Contadina, we have to look at its impact on brand as a whole. If a brand extension is
released successfully than it will aid the brand but if refrigerated pizza ends as a failed
product than it may hurt the image of Contadina as whole.
Opportunity Exists:

After analyzing the above three factors we can clearly see that opportunity for pizza
market exist. As most 75% customer of pizza are those who prefer takeaways/ deliveries
rather than sitting in the restaurant. There is a need to develop a product that can satisfy
the need of this segment who like to have pizza at home rather than in restaurant.

Decision:

Nestle Refrigerated Food Company should bring the Pizza Kit concept to market and
position it as a high quality, reasonably priced alternative to both the takeout/delivered
and frozen pizza segments.

(b)

Which option to be selected:

“By the end of 1988, NRFC developed two pizza concepts;

i) A Pizza Kit
ii) Pre assembled, heat and eat pizza”

“Further investigation by the R&D group indicated that the refrigerated pre assembled
concept was infeasible from production standpoint. Not only did the flavors of the sauces
and topping migrate into one another, but also the sauce and toppings infiltrated the crust
resulting in a poor quality product. The kit product, consistent with NRFC’s component
approach, however was feasible”

After selecting pizza kit as a product type, NRFC divided it into two classes;

a) Pizza kit with topping

b) Pizza only (without topping)

Option tested as per BASES II study:

a) NRFC conducted a market research to check the most feasible option among
pizza and toppings and other option of pizza only.

For the purpose of pizza and toppings total sample was of 399, out of which 304 favor
the concept and only 95 showed unfavorable responses to the option. That makes 76.19%
favor the option and 23.80% were not in the favor of the pizza and toppings option.

Whereas sample of 198 respondent of pizza only 116 were the one who favors the option
and rest 82 were the one who showed unfavorable response to the option. At the end
pizza only interview respondents were asked if they thought the pizza came with topping
or just cheese and sauce. Of those, 65% (76 people) understood that pizza came with just
sauce and cheese. Of the 82 unfavorable to the concept, 63% (52 people) understood that
the pizza came with just sauce and cheese.

b) While conducting a market research NRFC take in account the response of

Contadina pasta users in relation with nonusers regarding the topping option.
Results of that survey is as follow:

 Sample of pizza & topping = 399 (include 100 Contadina pasta users)
For this option, mean likability as per the six- point scale with 6 being like
extremely. By users it was 4.5 and by non users were 4.3.

 Sample of pizza only = 198 ( include 35 Contadina pasta users)

For this given option Mean likability by users was 4.4 and by non users it was 4.0

Difference:

On the basis of customer likeness there is no significant difference among both of

these options. Rating for the likeness by both users and nonusers for both options
is in the range of the 4-5.

Decision:

NRFC should come up with both of the options that are Pizza kit with topping and Pizza
only kit that is without additional topping. There is no obvious price difference among
these two options. The kit and toppings option priced at $6.39 for kit and $1.29 for the
toppings that make it $ 7.68 in total whereas the pizza only was priced at $ 6.39.

It’s up to the customer choice which ever option s/he picks to satisfy her or his need
NRFC should provide both the options at the market place.

(c)

How large a market he would find?

Market for pizza is very large in USA. As per the statistics 76% of all the US families
had eaten pizza at a restaurant within certain previous months that includes delivery
and takeout. “Pizza consumption was strongest in the northern and eastern parts of
United States”.

Nestle research of at home pizza consumption indicated that delivered/takeouts pizza

accounted 75% of pizza consumption frozen pizza account 16% fresh pizza from
grocery 5% and homemade account 4%.
Cunliffe can grab the attention of all these consumers to NRFC’s Contadina pizza
fresh. Their need can be effectively satisfied by them. These are the type of customer
who doesn’t like to go to the restaurant to have pizza, they prefer to stay at home and
enjoy quality food at home.

Nestle should bring the Pizza Kit concept to them and position it as a high quality,
reasonably priced alternative to both the takeout/delivered and frozen pizza segments.
The Pizza Kit concept registered a high probability of buying similar to that of
Nestlé’s successful pasta & sauce product, and the refrigerated pizza market is not
currently serviced by any of its competitor.

(d)

What market share he could achieve?

As per the words of the Cunliffe, “we only need to capture a 0.3% share of the retail
pizza market”

The NRFC believed that they could reasonable expect a market penetration of 25% of
the current Contadina users (24% of the 95.5 M target households). This base of
parent brand users represents sales of $36.6M, or 81% of Cunliffe’s figure for market
success, and does not include the additional sales of toppings. (Presumes household
purchase of 1 kit annually)