Kid Cuisine Brand Acquisition
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Transcript of Kid Cuisine Brand Acquisition
Company Acquisition ProposalDecember 16, 2011
Agenda
AcquisitionContext
OrganizationRecommendations
ResponsibilityFinancials Conclusion
2
Acquisition Proposal
* Data for this page was taken from the AC Nielsen Database - Sales exclude Walmart**http://thomson.mobular.net/thomson/7/3004/4313/
Why ConAgra Will Sell
Kid Cuisine is the dominant player in children’s frozen foods
Kid Cuisine has more potential than current value of $71 millionDPC can increase the NPV of Kid Cuisine to over $120 million
Why DPC Should Buy
$0
$2
$5
$7
$9
2010 2011 2012 2013 2014 2015
Current Estimated FCF’sAcquisition with Proposed Changes
Free Cash Flows in Millions
Smallest of ConAgra’s four frozen prepared food brands
Sales have declined by 4% (CAGR) over the past three yearsAccounts for 0.58% of ConAgra’s overall business
$100
$105
$110
$115
$120
2008 2009 2010
Retail Sales in Millions (excluding Walmart)
3
ContextFrozen Prepared Dinners
* Data for this page was taken from the AC Nielsen Database - Sales exclude Walmart
Overall sales are over $1 billion
Six brands account for 91% of the market share
Overall market shrank by over 5% (CAGR) from 2006-2010
ConAgra owns four primary brands, accounting for 69% market share
Market Sta8s8cs Sales Volume - Top 10
Overall Volume (Dollars)Overall Volume (Dollars)Overall Volume (Dollars)
*BANQUET
*MARIE CALLENDER'S
*HEALTHY CHOICE
HUNGRY-MAN
*KID CUISINELEAN CUISINE
AMY'S
BOSTON MARKET
SWANSON
CLAIM JUMPER
OTHERS
52 Weeks Ending 06/12/10
% Frozen Dinner Market
$201,237,060 22%
$171,419,784 18%
$164,614,390 18%
$132,488,544 14%
$103,313,725 11%
$66,728,644 7%
$17,057,759 2%
$13,718,543 1%
$13,576,044 1%
$13,007,980 1%
$32,875,821 4%
22%
18%
18%11%
14%
7%9%
*Banquet*Marie Callender’s*Healthy Choice*Kid CuisineHungry-Man (Pinnacle)Lean Cuisine (Nestle)Others
*ConAgra Brands
4
Consumers’ Needs & Decisions
Emerging Consumption Patterns: serving size, ingredients, ethnic variety
Threats: portion size, cooking is relaxing
Opportunities: open to new brands, useful under time constraint
Parent Child
Motivations
Role
Criteria
Power
Attitude
Saving Time & Money Tasty & Fun Meal
Gatekeeper/Buyer Influencer
Nutrition, Good Value Flavor, Packaging
Very High Medium
Negative Positive
Decision Making Unit
5
Kids between 6-11: 24 million
59% of children between 6-11 eat frozen meals: 14 million
Average consumption: 4 meals per month
Average MSRP: $2.17
$1.5 Billion
Total Poten8al Market Size for Kid Cuisine
Market Potential
6
Competitive Analysis
VarietyPriceQualityNutritional Value
Single-‐Serve Meals
ConveniencePriceQuality
Mul8-‐Serve Meals
0%
25%
50%
75%
100%
Brand Awareness in Northeast**
Kid Cuisine LunchablesHot
Pockets
Yes
No
Kid
Fri
end
ly
Low High
Price
“The competitive landscape includes the multi-serve world. Frozen pizzas and
lasagnas also compete for a share of the [kid’s] stomach.”
David Cox - Senior Director of Consumer Insights. ConAgra, Inc.
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Brand PositioningCompetitive Positioning
Organic Healthy Alternative Filling Satisfying
Kid Cuisine Positioning to Kids Focused on fun and creativity
Kid Cuisine Positioning to Parents Reward your kids Be a “YES-Mom”
8
Production and Distribution
Contracted Farmers
Food Processor
Distributor
Supermarket Hypermarket
Other Retailer
Local / Regional Farmers
Open Market
Supplier RetailerDistributorManufacturer
Excellent relationship with supplier network
Manufacturer margin of an estimated 25%
Key functions such as packaging and transportation outsourced
Core competency in food processing
9
Retail ChannelsAverage ACV of 71%
41% of sales in south
15% of sales through non-supermarket channels vs. industry average of 5%
Alternative channel retailing growing faster than supermarkets
Frozen Food Industry Profile: United States; Nov20092010 STATE OF THE INDUSTRY REPORT. (cover story), refrigerated & Frozen Foods Retailer; September 2010, Vol. 8 Issue 8Mintel Frozen Meals - US - September 2010
67%
18% 6%4%
5%
ConAgra Distribution
Super/HypermarketsWalmartDrug stores and othersSpecialized retailersConvenience stores
Kid Cuisine should keep the production and distribution
processes similar to those currently used by ConAgra
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Understanding ConAgra
Strategy: Focused, socially responsible and environmentally friendly “food company”
Structure: Organization structure shows focus on quality, innovation and consumer experience
Systems: Emphasis on accountability, simplification and collaboration
Shared Values: One Company. One Goal. Making foods you love.
Style: Strong and focused - Gary Rodkin, CEO, ConAgra
Staff: Currently 24,400 employees
Skills: High investment in employee development
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Transition to DPCMaintain current 141 ConAgra employeesProvide attractive compensation packages for top managersLease new plant in the proximity of existing ConAgra plantRecruit employees based on expertise from:
PepsiCoJimmy DeanWhole Foods
IT DirectorKid Cuisine
Breakfast BrandManager
Jimmy Dean
Healthy BrandManager
Whole Foods
Dinner BrandManager
Kid CuisinePepsi
Marketing DirectorKid Cuisine
Finance DirectorKid Cuisine
DistributionKid Cusine
ManufacturingKid Cuisine
Operations DirectorKid Cuisine
Pepsi
HR DirectorKid Cuisine
Dave CoxKid Cuisine Brand Manager
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Recommendation #1 Healthier Ingredients
Product: Improved image; targeted changes to select dinners
Pricing strategy: Increase MSRP by $1 in the Northeast and West regions
Distribution: Grocery stores and Peapod
Promotion: Online and television
Economic Analysis (est.)NPV= $14 millionIncremental yearly sales= 3.4 million (4% CAGR over 4 years)
Goal: Drive consumers to eat twice as many Kid Cuisines per month and expand current customer base
0%
10%
20%
30%
40%
Nothing+ $0.50
+ $1.00+ $1.50
+ $2.00
No Differen
ce
Survey Results: “How much more would you be willing to pay for a
healthier frozen dinner?”
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A Need for Healthier FoodChildhood Obesity is on the rise
More than 12% of adolescents are overweight or obese. 46% of parents are concerned that their children may become obese.
The United States Government is more focused on children’s health
Competitors are introducing healthier options
Lunchables
Lean Pockets
Other organic options more prevalent
Yes
No
Kid
Fri
end
ly
Low High
Healthy
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Relationships: Price, Product & Promotion
Goal: Improve the image of Kid Cuisine by focusing on the healthy ingredients
Test: Determine if healthier ingredients or healthier positioning increase sales
Plan: Launch national advertising campaign focused on the idea that Kid Cuisine is made from ingredients that are better for children.
“Our experience shows that there is a fine balance between Mom’s stated desire to give her kids healthy food and her actual desire to
get the kids to eat something.” - David Cox, ConAgra Director of Consumer Insight
West:Original ProductModified Price
Northeast:Modified Product
Modified Price
Central and South:Original Product
Original Price
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Positioning Statement: Kid Cuisine is made with ingredients that are good for kids, allowing busy moms to spend less time preparing food and more quality time with their kids.
Budget: $4.3 million annually
Media: Television advertisements and onlineinitiatives:
New website focused on nutrition factsFacebook integrationContinue current promotions with Krazy Kombos and Kidz Bop Music ManiaNew promotion: Kid Cuisine QuestRedesigned box
Healthy Advertising Campaign
NPV(est.) = $14 million
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Recommendation #2Breakfast
Goal: Drive consumers to eat twice as many Kid Cuisines per month
Breakfast Lunch Dinner
ProductExpansion in the breakfast category with three new products
Price and Distribution Remain consistent
Promotion 8-week launch campaign Total cost: $3.75 million
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Market potential: Kids between 6-11: 24 million
48% eat frozen breakfasts: 12 million children
Average consumption: 4.6 frozen breakfasts per month
Average consumption: 643,004,928 units per year
Why Breakfast?
Frozen Breakfast Category - Forecasted Sales (in millions)
$0
$275
$550
$825
$1,100
20052007
2009
2011 (fore.)
2013 (fore.)
2015 (fore.)
6.1% growth
* Mintel “Breakfast Entrees and Sandwiches” November, 2010
64% of kids think “breakfast is the most important meal of the day”*
Primary competitor: Jimmy Dean
Reduced SKU’s by 30% while increasing sales year
Recently launched Jimmy D’s
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Breakfast LaunchPositioning statement Quick, guilt-free, and easy
alternative for your kid’s breakfast or breakfast for dinner.
Total cost:$3.75 million
Total reach: (over 8 weeks)Greater than 60% of target
Media:Television
OnlinePoint of purchaseMovie integration
Economic analysis (est.) NPV = $28 million Market share = 5% Incremental sales= 13.7 million units (25% CAGR over 2 years)
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Corporate Social Responsibility
An Active and Healthy Future
Goals1. Increase brand awareness2. Change brand perception to ‘a nutritious, energy-packed meal’3. Create a sense of loyalty
Sustainable packagingFour-sided packaging, $0.02 saving per box100% recycled materials
Stewards of growth programEmployee development and safety
BPA-free packagingMore vegetables and whole wheat
20
Non-Profit SponsorshipFive-year, strategic alliance with Boys and Girls Club of America
44% (1.85 million) of BCGA members 6-10 years old65% (2.73 million) of BCGA members minorities
What$5 millionDonate meals Eating healthy educational seriesKid Cuisine Learn to Swim Program
BenefitsEnhance brand imageIncrease brand awarenessYearly $380,000 tax shield Five-year increase in sales of 17 million units, resulting in net revenues of $5 million
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Sales and Margins
* ConAgra 2010 10K - Page 80** Beaman, J.A., Johnson, A.J., A Guide for New Manufacturers Food Distribution Channel Overview, Oregon State University, 2006.*** Broker fee of 3-5% buried in SG&A
Margin % Margin $ Sale Price
COGS
Manufacturer
Distributor
Retailer
$0.90
25% $0.30 $1.20
15% $0.21 $1.41
35% $0.76 $2.17
AC Nielsen Walmart (18%) Total
Kid Cuisine Sales (FY2010) in 000’s $103,314 $22,679 $125,992
Est. Units Sold in 000’s
Revenue ($) in 000’s
EBIT ($) in 000’s
Kid Cuisine Sales (FY2010) 58,061 69,673 6,914
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DCF Valuation & Industry Ratios
* Please refer to Appendix I & II for Income Statement and Balance Sheet** http://academic.mintel.com.ezproxy.bu.edu/sinatra/oxygen_academic/search_results/show&/display/id=482903/display/id=548674?select_section=548675*** ConAgra 10-K 2010
Kid Cuisine DCF Valuation*Kid Cuisine DCF Valuation*Present Value of Cash Flows (in 000’s) $18,258
Present Value of Terminal Value (in 000’s) $53,272Estimated Firm Value (in 000’s) $71,530
Assumptions
Five-year growth rates were taken directly from Mintel reports** 9% depreciation charge based off current parent company*** Financing mix of 2:1 debt to equity Tax rate: 38% WACC: 6.02%
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Monte Carlo SimulationOverall:
Growth (taken directly from a Mintel report)Unit price variation (+/- 2%) historically stableUnit cost variation (+/- 5%) based on corn, plastic, cardboard, and lean manufacturing initiatives
Healthy line inputs:Growth (twice the current rate) as compared to comparable productsVariation (+/- 10%) as compared to comparable products
Breakfast line inputs:Growth (five times the current rate) new product introduction in a healthy market growing at 6.1% vs -5% frozen dinnerVariation (+/- 25%) new contender in a growing market, with some proven success, but strong competition
$ in 000’s
NPV Mean
25th Percentile
50th Percentile
75th Percentile
124,838
82,801
118,561
159,903
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Free Cash Flow Estimation
$0
$2,250
$4,500
$6,750
$9,000
2010 2011 2012 2013 2014 2015
Current StatusHealthy LineBreakfast LineAll Changes
}
in 000’sProposed Changes Increase NPV from:
$71 million to
$120 million
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SummaryKid Cuisine is a relatively neglected brand, and ConAgra may be interested in selling
We believe that with a few changes: We can increase the current market shareWe can enter a similar, but growing market
ROI of 76% over life of project “Don’t leave money on the table”
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a proud brand of
Acquire Kid Cuisine
27
ReferencesAC Nielsen Database. www.nielsen.com
“ANtudes Toward Food: Weight and Diet,” May, 2009. Mintel Database. www.mintel.com.
Beaman, J.A. and A.J. Johnson. “A Guide for New Manufacturers: Food Distribu8on Channel Overview.” Oregon State University Food Innova8on Center.
Boys and Girls Club of America Na8onal Headquarters. Phone call. December 8, 2010.
Boys and Girls Club of America Website, Facts and Figures. h[p://www.bgca.org/whoweare/Pages/FactsFigures.aspx
“Breakfast Sandwiches and Entrees -‐ US -‐ November, 2010” Mintel Database. www.mintel.com.
Business Wire. “Strategy Engages Kids by Building Story Arc for KC Character”. November 19, 2009. h[p://www.istockanalyst.com/ar8cle/viewiStockNews/ar8cleid/3650619
“ConAgra Foods 2010 Annual Report.” Mobular Technologies, 2010.h[p://thomson.mobular.net/thomson/7/3004/4313/.
“ConAgra Foods 2009 Annual Report.” Mobular Technologies, 2010.h[p://thomson.mobular.net/thomson/7/3004/4313/.
“ConAgra Foods 2008 Annual Report.” Mobular Technologies, 2010.h[p://thomson.mobular.net/thomson/7/3004/4313/.
ConAgra Food Inc. “ConAgra Foods to Reduce Sodium in Products by 20 Percent by 2015”. October 15, 2009. h[p://media.conagrafoods.com/phoenix.zhtml?c=202310&p=irol-‐newsAr8cle&ID=1342465&highlight.
ConAgra Foods, Inc. ADVFN website. h[p://www.advfn.com/p.php?pid=financials&symbol=NYSE%3ACAG.
ConAgra Foods corporate website. h[p://company.conagrafoods.com
ConAgra Foods financial repor8ng. Morningstar.com. h[p://morningstar.gravitystream.com/quick-‐stocknet-‐bonds-‐12/USA/CAG.shtml?p=0
“ConAgra Foods, Inc.” Cogmap. h[p://www.cogmap.com/chart/conagra-‐foods,-‐inc.
Cox, David, Senior Director, Consumer Insights at ConAgra. Inc. Personal interview. Conducted October 20, 2010.
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References“Frozen Foods -‐ US -‐ September, 2010” Mintel Database. www.mintel.com.
“Frozen Snacks,” October, 2010. Mintel Database. www.mintel.com.
Iden8ty Works. “ConAgra Foods”. h[p://www.iden8tyworks.com/reviews/2009/ConAgra.htm
Interview with Michael Steinberg, Food Produc8on Manager at Boston University -‐ GSU. December 10, 2010.
Johnson, Leonard. "A Note on the 7-‐S Model." OB 713: Managing Organiza8ons and People. Page 67.1997
“Kids Market Promises Phenomenal Poten8al Growth.” Food Market, October 24, 2006. h[p://www.allbusiness.com/agriculture-‐forestry-‐fishing/4437631-‐1.html
Li[le League Baseball and Solball Organiza8on’s Website: About Our Organiza8on. h[p://www.li[leleague.org/learn/about.htm
Lowe, Lexie, Media Supervisor, AKQA Adver8sing and Media. Personal Interview. Conducted December 10, 2010.
Nielsen Ad Relevance. Current Kid Cuisine Online Media Spend.
“Shelf Stable Meals and Meal Kits -‐ US -‐ September 2010” Mintel Database. www.mintel.com.
Staff of the Mayo Clinic. “Children’s Health: Nutri8on for Kids. Guidelines for a Healthy Diet” h[p://www.mayoclinic.com/health/nutri8on-‐for-‐kids/NU00606
Transcript. “ConAgra CEO Discusses F1Q11 Results -‐ Earnings call transcript” September 21, 2010. h[p://seekingalpha.com/ar8cle/226343-‐conagra-‐ceo-‐discusses-‐f1q11-‐results-‐earnings-‐call-‐transcript
Muller, Tom. “Dollar Dinners From ConAgra Threatened by Costs”. August 19, 2010. h[p://www.bloomberg.com/news/2010-‐08-‐19/conagra-‐s-‐recession-‐proof-‐1-‐meals-‐threatened-‐by-‐rising-‐commodity-‐costs.html
Wong, Elaine. “How Sara Lee Beefed Up Jimmy Dean Brand.” AdWeek, March 24, 2010 h[p://www.adweek.com/aw/content_display/news/strategy/e3id51767e5e16b097944d2403df25385c5
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