TruEarth Healthy Foods To launch or not to launch pizza?

GRom

Young (founded in 1993) but organized company

Producer of healthy gourmet pastas and sauces from superior ingredients

Product line: standard pastas whole grain pastas tomato-based sauces refrigerated fresh pastas pastas with blended ingredients

Home Meal Replacement increase in dual-income households “time poverty” desire for variety and freshness

“Semi-prepared” products Consumers still involved in preparing

dinner, but it is easier Growth of refrigerated fresh pasta Awareness of the importance of whole

grains in diet

Assess the current situation on the market

Analyze the position of TruEarth Assess whether TruEarth should

launch the pizza concept and what the volume would it be?

Competitive environment

Segments delivered/takeout(47%) restaurant pizza (23%) frozen pizza (19%) homemade pizza (2%)

Competitors Giants: Nestle and Kraft Medium-sized: Papa John’s and Pizza Hut TruEarth-like: the only such competitor is Rigazzi

Brands Threat!

Rigazzi is about to launch a similar whole grain pizza

Cucina Fresca Experience

Ideas Quick and tasty home meal replacement broad range of choices

Preparation focus groups market research advertising and promotion ($10m) large investment in production facilities

Promising trial results Performance

$18m retail sales in 2nd half of 2006 $35m in 2007 slowdown in 2008

Risks

Rigazza is not far from launching its whole wheat pizza

Refrigerated pizza brings up with an association with frozen pizza

The offered price can be too high

Advantages of our pizza over other refrigerated pizzas can be overestimated

Basic Assumptions

During trial period the product is consumed by 3 types of households:

1. Consumers of Cucina Fresca Pasta.

2. Non-consumers of brand who already aware of product.

3. Non-consumers of brand who become aware of product due to additional advertising and promotion.

Additional marketing plan would cost $10M and results in 800 GRP.

Additional advertisement would affect only unaware targeted population with pure increase in awareness on 17%.

The wholesale volume to be exceeded is $10M+$12M = $22M

#Hh (Pasta consumers) = [Target Hh] x [CF customers Rate] x [Trial Rate for TruEarth customers (by thumb rule)] * [ACV] * [Customer Awareness] = 55.8 * 0.11 * [26 * 0.8 + 53*0.3] * 0.4 * 0.5 = 0. 47 MM

#Hh (Aware Non-customers) = [Target Hh] x [Non-customers Rate] x [Trial Rate for non-customers (by thumb rule)] * [ACV] * [Customer Awareness] = 55.8 * 0.89 * [15* 0.8 + 39 * 0.3] * 0.4 * 0.12 = 0. 65 MM

#Hh (UnawareNon-customers) = [Non-consumers Hh ] x [Rate of unaware non-comsumers] * [Trial Rate for non-customers (by thumb rule)] * [ACV] * [Customer Awareness from additional advert] = (55.8 * 0.89 ) ( 1- 0.12)* [15* 0.8 + 39 * 0.3] * 0.4 * 0.17 = 0. 81 MM

Whole trial #Hh = = 0. 47 MM + 0. 65 MM + 0. 81 MM = 1.9 MM

Define those who are favorable to product as participants of the trial period.

Hence, Only people who are favorable to product influence the repeat rate of it.

With given prices 28% of population which is favorable to product suggested that pizza needs no improvement (Exhibit 10).

Hence even in the worst scenario at least 28% of trial households would participate in repeat period given price unchanged.

The price of the kit (pizza + toppings) remains unchanged – 12.38$

Repeat volume = [Trial Hh] * [Repeat Purchase Occasions] *[Repeat Transaction Amounts] * [Repeat Rate] = 1.9MM * 2.0 * 1.25 * 0.28= 1.3MM

Whole Volume during financial year = Repeat volume + Trial Volume = 1.33ММ+ 1.9 ММ = 3.2MM

Retail Sale Volume = [Whole Volume] * [price per kit] = 3.2MM * $12.38 = $39.6 MM

Gross revenue = Retail Sale Volume * [1- Retailers Part] = $39,6 MM * 0.65 = $25.7 M

Gross profit = Gross revenue – Investments =$25.7 M- 22 M = $3.7M

Case of the Worst Scenario

Conclusions

Even in the worst scenario the firm would meet its requirements with $3.7 M of gross profit.

Even in the worst scenario the expected volume to produce exceeds 3.2 MM units.

The firm definitely should enter this new market.