Imagination Farms, LLC

Julie Conn

Aiko Therese Landerito

Bonifacio Sessa

July 27, 2008

Company Facts

• Committed to:– Health– Quality– Safety

• Licensees:– Sell and ship product

• Expenses:– Outside marketing support– Licensing fees– Quality control measures

• Role:– Support Disney’s social corporate responsibility

“To increase the consumption of fruits and vegetables among children”

– Innovation– Integrity

Brand Strength• Consumers identify branded products excelling in:

– Quality and reliability– Design– Prestige

• Disney Brand– Parents perceive brand as

magical, high quality, and trust-worthy

– Kids perceive brand as

fun and popular among peers

Competition can’t match this brand image

Industry Assessment

• Projected 2008 per capita consumption: 244.99 lbs• 19% of produce was branded in 2002• Major Fruits: Berries, Apples, Grapes in 2006• Major Vegetables: Tomatoes, Potatoes, Onions in 2006

Fresh Produce

46%51%

3%

Vegetable Fruits

Other

Market Retail Share

Children’s Health Challenge• Challenge:

– 1/3 of American children are obese or at risk to obesity– Cost of obesity related disease: $117 billion– 50% of children’s calories are from fat and added sugar– Top three countries with childhood obesity: U.S., Mexico,

United Kingdom

• Marketing:– Food, beverage, and candy industry annually spends $7.3

billion on direct media advertising– Less than 2% of food advertising promotes fruits and

vegetables

• Response:– 5 A Day Campaign– More MattersTM

There is still a lack of consumer awareness

Awareness increasing but not enough action… need more convenience.

Marketing Food to ChildrenMarketing Categories by Population Sizes

a – mean servings

Approximately 11 servings each day not being met

Cases per year: 271.5 millionSales per year: $4.1 billion

License fee at 5%: $205 millionSales volume potential: 10.8 billion lbs

Group Age Range Population Size Average ConsumptionVegetables Fruits

Infants and Toddlers 0-2 year 11,416,676 0.9 – 3.5a

(combined consumption)Children 3-8 years 24,041,307 0.9 – 3.3a

(combined consumption)Tweens 9-12 years 16, 732, 311 2.6a 1.9a

Teens 13-19 years 28, 282, 971 3.6a 1.9a

Marketing Food to Children (cont’d)“There was a gap between the foods children requested and

the foods their mothers were willing to buy for them”

• Dual Marketing Strategy

– Children: Attractive packaging

Desirable taste

Fun

– Parent: Convenience

Nutritional value

Competitively priced

Product requested by children

Opportunity to engage more aggressively in retail “pull” strategy vs. co-packer “push” strategy

Internal

• Limited Resources

• Contract renewal and short term performance focus

• Small market share

• Food safety

• Lack of product visibility and commercial advertising

External

• Market competition

• Complacent consumer & co-packers

• Inherent variation in commodity quality

• Retailer-supplier Relationship

Company Challenges

Position Summary• Strength – Disney brand & increased concern for

child nutrition

• Weakness – Lack of product visibility & commercial

advertising

• Opportunities – Product differentiation & placement

along with potential school access

• Threats – Contract renewal & competition with other

firms and brands

Strategic Recommendation1.) School / Parent Program

– Education packets– Kids Food Calendar / stickers– Parent Shopping list

• Implementation– Contact school boards about purchasing the packets– Find government grants for product placement in schools– Single serve packaging for school lunches (convenience

and peer concept)Pre-packaged & pre-portioned

Strategic Recommendation2.) Expand Across Disney Company

– Provide fresh produce to Parks and Resorts• Have Disney Garden cases available at restaurants

– Advertising of Disney Garden products to park visitors

• Implementation– Utilize relationship with Disney for continued support of

Disney Garden

Strategic Recommendation3.) Retail Strategy

– Cross-promotional selling– Promote spoilage and labor savings

10% ↓ spoilage = 1.3 to 1.5% ↑ in sales– Price and product differentiation– Widespread product availability– Frequent buyer coupons and contests

• Implementation– Use PLU stickers as a coupon for another Disney product (value

added to fresh)– Focus the main product line on staple products and differentiate

the seasonal products– Create a customer rewards card– I-Farms, co-packers should work in conjunction with test stores to

identify spoilage and labor cost savings (consumer and retailer)

1852-773-9002

Projected Inventory Sales using the 80-20 Concept

Product RankProjected Sales

($millions) ABC $MTomatoes 1 23.28 AApples 2 17.94Berries 3 14.25Grapes 4 11.60 $67.07Bananas 5 9.62 BPotatoes 6 8.11Lettuce 9 5.23Carrots 10 4.60Oranges 11 4.08Broccoli 12 3.65Avocados 13 3.28Cherries 15 2.69Pineapple 20 1.76Nectarines 23 1.42 $72.11Grapefruit 26 1.17 CLimes 27 1.10Spinach 32 0.83Greens 33 0.79Eggplant 34 0.75 $17.32Totals $156.50 A = 35% of salesB = 56% of salesC = 9% of sales

Source: Produce Marketing Association

Future Recommendations

• Product placement in Disney shows– E.T. and the Reeses Pieces phenomena

• Food Quality Technology– Packaging – RFID

Strategic Summary1) Educational based School/Parent Program

emphasizing nutrition and convenience

2) Growth into Disney Parks & Resorts

3) Pull Retail Strategy to increase sales volume

4) Consider future recommendations for advertising and consistent quality assurance

Thank you!

Questions, Comments

Strategic Recommendation3.) Retail Strategy

– Cross-promotional selling– Promote spoilage and labor savings

10% ↓ (5 – 7%) & 8% = 1.3 to 1.5% ↑– Price and product differentiation– Widespread product availability– Frequent buyer coupons and contests

• Implementation– Use PLU stickers as a coupon for another Disney product (value

added to fresh)– Focus the main product line on staple products and differentiate

the seasonal products– Create a customer rewards card in conjunction with test stores to

identify spoilage and labor cost savings (consumer and retailer)

0% 20% 40% 60% 80% 100%0%

20%

40%

60%

80%

100%

Total Items %

To

tal S

ale

s (

%)

The 80-20 Curve with the Fresh Produce Industry Sales, Sept 2007

Projected Inventory Sales using the 80-20 Concept

Product RankCumulative % of

Total SalesCumulative % of Total

ItemsCumulative Sales

($million)Projected Sales

($millions) ABC $MTomatoes 1 10.27% 2.22% 23.276 23.28 AApples 2 18.96% 4.44% 41.219 17.94Berries 3 27.58% 6.67% 55.474 14.25Grapes 4 35.56% 8.89% 67.071 11.60 $ 67.07Bananas 5 42.97% 11.11% 76.691 9.62 BPotatoes 6 50.24% 13.33% 84.799 8.11Melons 7 56.26% 15.56% 91.726 6.93Lettuce 9 65.78% 20.00% 102.938 5.23Carrots 10 69.46% 22.22% 107.539 4.60Oranges 11 72.88% 24.44% 111.620 4.08Broccoli 12 75.10% 26.67% 115.266 3.65Avocados 13 77.31% 28.89% 118.542 3.28Cherries 15 81.02% 33.33% 124.190 2.69Pineapple 20 88.40% 44.44% 134.612 1.76Nectarines 23 91.90% 51.11% 139.182 1.42 $ 72.11Grapefruit 26 94.43% 57.78% 142.914 1.17 CLimes 27 95.22% 60.00% 144.011 1.10Spinach 32 97.61% 71.11% 148.645 0.83Greens 33 97.96% 73.33% 149.431 0.79Eggplant 34 98.23% 75.56% 150.180 0.75Parsnip 45 100.00% 100.00% 156.500 0.46 $ 17.32Totals $ 156.5

RFID

• RFID – Radio Frequency Identification– Collects readings indicating pH, humidity, and temperature– Monitors food quality throughout supply chain– Helps reduce waste– Large retailers require tags for main suppliers– Retailers testing potential to improve distribution of fresh

produce (Publix and Del Monte along with the University of Flordida)

– Could help differentiate product through cutting edge technology and aid in food quality measures

• 80-20 Mathematical Computation• Y = [(1 + A) X]/ [(A + X)] (eq.1) Where:

Y= cumulative fraction of sales

X=cumulative fraction of items

A= a constant to be determined by manipulating (eq. 1):

A = [(1 - Y) X]/ [(Y - X)] (eq. 2)• For fresh fruits, 19% of the items (X= 19.05 %) results in

56% of the sales (Y=56.7%)

A = [(1 – 0.56) 19]/ [(0.56 – 0.19)] = 0.219

• If annual sales of I-farm shipment sales volume are expected to be $ 156.5 millions in 2010, how much inventory investment should be expected from I-farms co-packers?

• Applying the 80-20 concept on the Retail Fresh Produce Industry Sales of Sept 2007 for fresh produce items licensed by I-farms:

• 20% of the items accounts for approximately 65% of the total sales.

• A= 0.1495• The sale for the first item (Tomatoes) would be found

multiplying equation 1 to $ 156.5 million: Y = [(1 + 0.1495) 0.0222]/ [(0.1495 + 0.0222)] * (156.5 million) = $ 23.25 million, AND given turn over ratios average inventories can be obtained for each product category by dividing the projected sales by the turn over value.

• Relationship specific investment between I-Farms and co-packers

• Define tactics to achieve competitive advantage– Reducing transaction and operating cost– Product differentiation with supply-chain base through

technology and innovation

• Focus on strategic performance measures– Total Cost Acquisition– Market Growth

• Geographical decentralization of product placement• Recall response implementation strategy

– Advantage of traceability with branding

Internal

• Product differentiation– Price and quantity

• Building good reputation between the supplier and the retailer

• Long-term commitments– Visible– Understandable– Credible

• Information Sharing

External

Fruits Wal-Mart Harps IGARed Disney Garden ($/lb) No Brand ($/lb) No Brand ($/lb)

Cherries 3.68 4.99 5.49

Pineapple Del-Monte (Each) Coast Tropical (Each) Cost Tropical (Each)(whole) 3.93 5.99 2.49

Grape Del-Monte (1-pint) 3 Generations (1-pint) 3 Generations (1-pint)

Tomatoes 1.98 3.99 3.49

BananaDole ($/lb) Dole ($/lb) Dole ($/lb)

0.64 0.65 0.69

Vegetables Celery Tanimura & Antle (16 oz) Ocean Mist (16 oz) Ocean Mist (16 oz)(Heart) 1.96 2.49 2.99

SpinachFresh Express (6oz) Dole (6oz) Dole (6oz)

2.88 2.89 2.99

Carrots Baby GGF (160z) Bolthouse Farms (16 oz) 1.69 1.89

Fresh Fruit and Vegetable Price Differentiation

Source: Fayetteville, AR

• Quantity Volume Approach– Low price to increase the volumes of sales– Cooperation in order to meet consumers preferences– Use of cost cutting tactics through the supply chain– Competitive advantage through cost reduction and by

internalize social responsibility – values and environmental issues

• Strategy Implementation– 80-20 concept:

tomatoes; 3%

tomatoes, organic; 1%

tomatoes, on the vine; 11%

tomatoes, grape; 6%

tomatoes, grape organic; 3%

Asparagus; 1%

Beans, round green; 5%

Broccoli; 4%

Broccoli, organic; 1%

Cabbage; 2%

Carrots, baby; 8%

Carrots, baby organic; 4%

Celery; 1%

Corn; 4%

cucumbers; 7%

Lettuce, iceberg; 2%

Lettuce, romaine; 3%

Mushroom, white; 9%

Onions, yellow; 3%

Onions, sweet; 7%

Peppers, bell green; 3%

Peppers, bell red; 3%

Potatoes, russet; 1%

Squash, zucchini; 9%

Vegetable as Percentage of Total Vegetable Ads(July 18, 2008)

Source: USDA; Agricultural Marketing Service

Plums; 9%Cantaloupe; 6%

Honeydew; 1%

Cherries; 8%

Watermelon, Mini; 4%

Watermelon, Seedless; 3%

Peaches; 13%

Pineapple; 3% Limes; 3%

Lemons; 1%Avocadoes,

Haas; 5%Bananas; 1%

Nectarines; 11%

Strawberries, Organic; 5%

Grapes, Green/Red; 11%

Mangoes; 6%

Strawberries; 8%

Fruit as Percentage of Total Fruit Ads(July 18, 2008)

Source: USDA; Agricultural Marketing Service

Industry Assessment (con’t)

Fresh Fruits• Major Fruits(2006):

Apples – $4,260 M

Berries – $ 4,226 M

Grapes – $3,911 M• Per Capita Consumption

(2005):

126.0 lbs• Projected Production

(2008):

22,437 M lbs

Fresh Vegetables• Major Vegetables (2006):

Tomatoes - $4,393 M Potatoes - $3,201 M

Onions - $2,336 M• Per Capita Consumption

(2005):

198.6 lbs• Projected Production

(2008): 101,692 M lbs• Total Acre Harvested:

1,250,830 acres

Produce Industry AnalysisThreat of Entry

-Market Share-Brand Strength

Internal Rivalry- Price rivalry between firms- Variation between co-packers- Existing number of firms

Buyer Power- Retailer and consumer negotiate purchase price

Supplier Power- Pricing limited due to

availability of substitute- Increase demand for FFV

Substitutes and Complements- Pricing should minimize the threat of substitute

-Increase awareness to promote fresh produce- Political pressure

Company Analysis• Opportunities

– International Expansion– Selling out to Disney– Product differentiation– Expansion to Theme

Parks/Resort

*placement

*growing awareness

• Threats– Brand damage from food

safety– Contract renewal– Competition with other

firms and brands

• Strengths– Association with the

Disney Brand– Business ethics and

child nutrition– Customer driven

business model*relationship w/copackers

• Weaknesses– Limited resources– Small firm compared to

competitors– Lack of commercial

advertising*visibility

References:Ballou, R. H. 2003. Business Logistics/Supply Chain Management, 5th Edition. Prentice

Hall Publishing.

Besanko, D. et.al. 2006. Economics of Strategy. 4th Edition.

Dennison, B.A, et.al. 1998. Fruit and Vegetable Intake in Young Children. Journal of the American College of Nutrition. Vol.17, No.4, 371-378

Hampl, J.S. et.al. 1999. Intakes of Vitamin C, Vegetables and Fruits: Which School Children are at risk?. Journal of the American College of Nutrition. Vol.18, No.6, 582-590

McGinnis, J. M. et. Al. 2006. Food Marketing to Children and Youth: Threat or Opportunity. National Academies Press. U.S.A.

Produce for Better Health Foundation. 2007. National Action Plan to Promote Health through Increased Fruit and Vegetable Consumption.

Produce Marketing Association. Retail Fresh Produce Industry Sales.

Story M. and Simone French. 2004. Food Advertising and Marketing Directed at Children and Adolescents in the U.S. International journal of Behavioral Nutrition and Physical Activity.

USDA. Agricultural Marketing Service. National Fruit and Vegetable Retail Report. Vol. 11, No. 29

USDA. Per capita Consumption of Major Food Commodities. Table 9. http://www.ers.usda.gov.

USDA. USDA Agricultural Baseline Projections to 2015. 2006. Baseline Report OCE-2006-1