Marketing Strategy & Planning

RESIT COURSEWORK 2011/12

Depending upon your results you are required to resubmit coursework or resit the examination or both in order to pass this module. COURSEWORK Report

Read the Primark case study overleaf and compile a report to identify the key strategic marketing issues that the company faces today. Use any available secondary source material to develop your audit (1500 words)

EXAMINATION Seen Case Study

The resit exam will follow the format of the first sit exactly. You are required to answer three questions in three hours; two on the Divine case and one on a more general topic. A fresh copy of the Divine exam case study is attached to this note. You may download it, annotate it and bring it to the exam with you. No other notes will be allowed.

Primark (or Penneys) is a clothing retailer, operating in Ireland, the United Kingdom, the Netherlands, Germany, Spain, Portugal and Belgium. It operates a total of 196 stores with 38 in Ireland, 138 in the UK, 14 in Spain, 2 in Germany, 1 in the Netherlands, 2 in Portugal and 1 in Belgium. Whilst the company's main headquarters are based in Ireland where it trades as Penneys, the chain is a subsidiary of Associated British Foods plc (ABF). The company positions itself as marketing fashionable clothing at competitive prices.

Market position Primark is known for selling clothes at the budget end of the market. The company's success is based on sourcing supply cheaply, making clothes with simple designs and fabrics, only making them in the most popular sizes, buying stock in huge bulk and varieties and not advertising. All of the company's merchandise is made specifically for the company and as such Primark has its own brand names:

Working practices In 2005, Primark scored the lowest of all leading clothing chains in the UK - at just 3.5 out of 20 - on an ethical index that ranks criteria such as workers' rights and whether they do business with oppressive regimes. The figure was contested by Primark and Ethical Consumer released a statement indicating that marks had been skewed due to its position in a wider company group. In 2006, Primark joined the Ethical Trading Initiative, a collaborative organization bringing together businesses, trades unions and NGOs to work on labour rights issues in their supply chains. ETI members commit to working towards the implementation of a code of conduct based on the International Labour Organisation's core conventions.

Child labour On 23 June 2008, the BBC broadcast a Panorama programme that showed manufacturing practices which it considered to be unethical in Primark's supply chain. Undercover reporters exposed child labour in three of India's garment factories sub-contracted by Primark. The BBC alerted Primark to their findings, to which Primark replied: "Under no circumstances would Primark ever knowingly permit such activities". Primark has since halted business with the mentioned suppliers, although this action was criticised by child protection groups as being irresponsible and likely to cause additional hardship to the labourers, arguing it would have been better to ensure working practices were turned around. In July 2011 a ruling by the BBC Trust announced that the programme footage was discovered to have been faked. The Trust required Panorama to apologise on air. Primark welcomed the ruling saying millions of people had been deceived by Panorama.

Divine chocolate. Repositioning an ethical brand in the competitive UK confectionery market.

Charles Graham

Divine was launched in the UK in 1998, the first Fairtrade chocolate brand to win over consumers’ hearts, minds and taste buds in order to return a more equitable share of its overall profit to the cocoa farmers at the base of the value chain. The brand’s owner, a company with shares held jointly by a cocoa-farmers

co-operative, Bodyshop and a number of charities and socially responsible organisations, quickly gained listings for their radical innovation, and through multiple supermarkets, independent stores and third-sector retailers such as Oxfam achieved an annual turnover in excess of £12 million. Such marketing successes rarely go unchallenged. The recent adoption of Fairtrade standards for some brands owned by global competitors including Cadbury and Nestle have targeted Divine’s ethical consumers, while the expanding premium sector of the market is now crowded with smaller artisan brands, organic and own-branded Fairtrade offers,

and some well-supported premium propositions such as Green & Black’s which sell at a substantial price premium to Divine. The Fairtrade organisation itself, which grew up alongside Divine, now certifies a range of products with combined annual UK sales of £1billion. So is it time to reposition this pioneering ethical chocolate brand to regain its momentum?

Introduction Charlotte Borger and Tal Drori, the Marketing team at Divine chocolate, were in a strategy meeting in the boardroom at their offices by Tower Bridge in London. It had become clear that some radical decisions were needed in order to kick-start the next phase of brand growth in the changing market they now faced.

Thinking back to the late nineties when Divine had been launched, the playing field had been virtually empty; the brand was almost unchallenged in its ethical stance, had a stable of celebrity endorsers and the backing of the well-known Bodyshop brand, and in times of rapid economic growth it had quickly created quite a buzz and was adopted by the leading retailers as a torch-bearer for the emerging Fairtrade category. Now things were very different. The economic climate was tough, the big competitors Divine had set out to challenge were not only getting bigger, but also now had Fairtrade accreditation themselves on many of their brands. Volumes in the market had remained static for several years, price increases in raw materials had forced even the biggest brands to reduce bar sizes in

order to maintain price points, and the premium end of the market was crowded. What’s more, the predicted rise of the ethical consumer was hard to see. Fairtrade brands, although growing in several categories, appeared to be an occasional rather than a regular choice for most people while for many the concept of Fairtrade itself was simply baffling.

All of these factors were making it hard for Divine to maintain crucial multiple listings for its range of 100g bars, since competition meant that there was no longer a really obvious and compelling reason for retail buyers to include it in their assortments. Green & Black’s for example was both organic and Fairtrade. What Divine now needed was a new competitive positioning, a clear and motivating reason for consumers to buy the brand rather than the many alternatives, and a new strategy to communicate this reason widely and convincingly. Charlotte and Tal had commissioned research that would help them to understand the changes in the market, the ways their consumers were buying chocolate, and how they perceived the different brands. Armed with these reports they started to discuss alternatives.

The Divine Chocolate Company Ltd Divine had started life in 1997 as The Day Chocolate Company, a firm jointly founded by the Kuapa Kokoo cooperative in Ghana, Twin Trading an existing Fairtrade marketer, Bodyshop, Christian Aid and Comic Relief. The idea was simple. To launch a chocolate brand in the UK which would return some of the added-value earned in the developed economy to the growers of the raw material. This addressed a serious imbalance. For every non-Fairtrade chocolate bar sold in the UK today, cocoa farmers earn about 5% of the price, retailers can make around 17% and manufacturers over 50% (www.tradingvisions.org). By establishing a company partly owned by the farmers, Day Chocolate set out to create a more equitable division of the profits. The mission of the business was (and still is):

To improve the livelihoods of smallholder cocoa producers in West Africa by establishing their own dynamic brand proposition in the UK chocolate market, thus putting them higher up the value chain.

... or as Divine now say, “Owned by cocoa farmers, made for chocolate lovers”. The corporate objectives remain to take a quality and affordable range of Fairtrade chocolate

into the UK mainstream market, to pay a Fairtrade price for all the cocoa used in the chocolate sold, to raise awareness of fair trade issues among UK retailers and consumers of all age groups, to be highly visible and vocal in the chocolate sector and act as a catalyst for change, and finally, to be the leading Fairtrade chocolate company. The strategy was to take the fight to the market leader and launch a chocolate bar that tasted as good as Cadbury Dairy Milk. This David and Goliath story raised industry eyebrows, generated a welter of publicity and earned important listings in the major multiple supermarkets; to this day, Divine remains the only brand on the UK market that is partly owned by the cocoa growers that supply it. The farmers’ shareholding has now risen above 40% following the sale of Bodyshop to L’Oreal, the donation of its shares to the farmers and the restructuring of the business as the Divine Chocolate Company Ltd.

Turnover in 2010 was £10.4 million, and despite the fact that this represents a decline on the previous year, Divine still paid over £200,000 in producer support and $178,000 in Fairtrade premium payments, money that can make a real difference to communities in Ghana. While trading is challenging, the firm has maintained listings in Sainsbury and Waitrose for its core range of bars as well as a selection of seasonal lines such as Easter eggs and Valentine’s Day chocolate hearts. Sales are also strong through alternative trading organisations (ATO’s) such as Oxfam and Traidcraft, as well as through a large

number of independent food retailers all supplied through a national network of wholesalers. Some impulse products such as a 45g bar are also available for foodservice operators again distributed through specialist wholesalers.

The company is driven by its social responsibility, and as well incorporating Fairtrade ingredients into new products wherever possible, it has taken steps to cut down on wasteful packaging and convert to recyclable materials where it can. This is particularly an issue for all Easter egg and speciality ranges, which are often criticised as being over-packaged. The company does not own its own factories, but like many marketing organisations, has all of its products made to specification in Europe wherever it can find the most efficient producer. Nevertheless it has recently taken steps to substantially reduce the number of food miles the chocolate travels, which is good for the environment, and for cost.

In response to challenging economic conditions, the business has restructured again, adding two new directors who bring experience in sales and in export, and a new marketing manager with substantial FMCG experience. It is of course important that all stakeholders’ needs continue to be met, and the farmers on the board are included in policy development to ensure that Fairtrade delivers empowerment to their communities.

Kuapa Kokoo The Kuapa Kokoo cooperative in Southern Ghana now consists of over 4,000 smallholder cocoa farmers across 1300 village communities. It was established in the early 1990’s to ensure that individual farmers were no longer cheated by unscrupulous cocoa dealers, who frequently underpaid for the produce they collected. By organising on this scale the cooperative could take care of the bagging and weighing of the cocoa beans, the transport to market and negotiating the onward prices, as well as distribution to secondary manufacturing plants in Europe. The cooperative sells to many chocolate companies, including Cadbury, but the difference with Divine is that Kuapa is also represented on their board. Kuapa farmers regularly visit London to attend sales and export meetings and PR events on behalf of Divine.

Links between the UK and the village communities of growers are considered important, and through Fairtrade programmes, alongside investments in community infrastructure, committees have been established to ensure that children attend school and do not take part in hazardous activities connected with cocoa supply. Divine has now set up an educational charity, Trading Visions, which works in Ghana and the UK, linking children in the two countries to spread the important Fairtrade message through school conferences and events such as Greenbelt, the arts festival.

Fair Trade The Fairtrade Foundation was established in 1992 by CAFOD, Christian Aid, Oxfam, Traidcraft, The World Development Movement and the National Federation of Women’s Institutes. The Foundation is the independent non-profit organisation that licenses use of the Fairtrade mark on products in the UK (see logo) in accordance with internationally agreed Fairtrade standards. The Fairtrade vision is of:

“ a world in which justice and sustainable development are at the heart of trade structures and practices so that everyone, through their work, can maintain a decent and dignified livelihood and develop their full potential. To achieve this vision Fairtrade seeks to transform trading structures and practices in favour of the poor and disadvantaged. By facilitating trading partnerships based on equity

and transparency, Fairtrade contributes to sustainable development for marginalised producers, workers and their communities. Through demonstration of alternatives to conventional trade and other forms of advocacy, the Fairtrade movement empowers citizens to campaign for an international trade system based on justice and fairness.”

http://www.fairtrade.org.uk

The Foundation has four main areas of activity: 1. The independent certification of the trade chain, licensing use of the Fairtrade mark as a

consumer-guarantee on products. 2. Marketing activities that increase demand for Fairtrade products, enabling producers to sell to

traders and retailers. 3. Working with partners to support producer organisations and their networks 4. Raising public awareness of the need for Fairtrade and the importance of the Fairtrade mark.

The Foundation demands certain minimum standards be met by producers such as the members of

the Kuapa Kokoo cooperative and in return, Fairtrade licensees such as Divine pay the farmers a minimum price for raw material plus a Fairtrade Premium based on volume. The Fairtrade standards comprise the minimum social, economic and environmental requirements that producers must meet to be certified, plus “progress requirements” that encourage continuous improvement in those standards. The Fairtrade minimum price defines the lowest possible price that a buyer of Fairtrade products must pay the producer, and it guarantees the cost of sustainable production. However, when the market price is higher than the Fairtrade price (commodities such as coffee and cocoa are traded on the world’s exchanges and prices fluctuate dramatically), the market price is payable. In addition to the Fairtrade price, licensees must pay a Fairtrade premium to suppliers, to be invested in social, environmental and economic development projects such as schools and wells for the farming communities.

By 1994 the Foundation had certified three brands, Cafedirect coffee, Clipper tea and Maya Gold chocolate, for sale on the UK market, but Divine was to become an important pioneer in the category, and sales grew hand in hand as the nation appeared to develop a social conscience. In 1998, when Divine was launched, Fairtrade-licenced retail sales were just £16.7 million. By 2006, total Fairtrade retail sales in a number of categories had reached £290m, and Divine was a big part of this story, leading a number of high profile initiatives. In 2000 the Co-Op supermarket launched a Fairtrade chocolate co-branded with Divine, the first such own label, while Divine also launched Dubble, a children’s impulse brand sold in support of Comic Relief. In 2002, Starbucks introduced a co-branded Divine chocolate bar, and by the following year recognition of the Fairtrade logo had reached 23%.

By 2007, Fairtrade awareness had risen to 57% of the adult population, and appeared to have caught the zeitgeist, moving into the mainstream. In 2009 Cadbury Dairy Milk committed to going Fairtrade, Starbucks converted all espresso-based coffees in the UK and Ireland, and Sainsbury's licensed all of its own-label roast and ground coffee. Nestle KitKat joined the following year, and total Fairtrade UK retail sales exceeded a billion pounds in categories including fruit, cotton, gold and flowers as well as coffee, tea and chocolate (All facts and figures from www.fairtrade.org.uk).

This astonishing success story has created something of a dilemma for Divine: on the one hand, the exponential growth in Fairtrade sales brings immense benefits to producers in emerging economies, and publicly Divine has been entirely supportive of the moves made by Cadbury and Nestle. On the other hand, these tactics represent a substantial erosion of the competitive positioning established over a decade, and threatens a real weakening of the relationship between Divine and Fairtrade, since the balance of power has now shifted so substantially in favour of the global firms. These factors potentially threaten the brand’s very existence as competition intensifies in the UK chocolate market.

The UK Chocolate Market According to Mintel, the total UK chocolate market was worth £3.7 billion in 2010. Parts of the industry are highly seasonal. Novelties and gift boxes account for a significant proportion of total value, but even excluding these lines, annual sales in the remaining market sectors reached £2.4 billion last year. Mintel reports that volumes have been declining slightly overall, although prices have been rising, partly as a result of raw material cost increases being passed on to consumers. A general trend towards healthy eating may also be having an impact by constraining increases in chocolate volumes.

The sales in the valuable UK market are now divided between just three well-resourced global businesses. Nestle, the world’s largest food company takes 20%, Kraft, the world’s second-largest food company has a 35% share and Mars accounts for 28%. Each firm controls a portfolio of long-established and very familiar brands including Dairy Milk, Flake, KitKat, Snickers, Galaxy and Aero and supports them with substantial advertising and promotion budgets (see Table 2). Recently the big three have resorted to building global share through acquisition rather than organic growth, the latest deals being the £11.5 billion takeover of Wrigley by Mars in 2008 and the £11.9 billion sale of Cadbury to Kraft in 2011. At the industry level then, competitive rivalry in the UK is intensely fierce. One measure of this is that own-brand chocolate sales are restricted to just 6% of the total, yet despite this rivalry the remaining 11% of the market is divided between a large number of small brands including Divine, many of which are new entrants.

Excluding novelties and gift boxes, the industry can be partitioned into three sectors by product form; countlines (impulse chocolate confectionery such as Snickers or Wispa), moulded bars (such as Green & Black’s or Cadbury Dairy Milk), and selflines, defined by Mintel as sharing packs of wrapped or unwrapped branded chocolate. Table 1 shows the relative market development in these sectors since 2006. Table 1: Retail sales of chocolate confectionery by sector, 2006-10

Sector 2006

2008

2010

Change

£m % £m % £m % %

Countlines 1,033 53 1,103 51 1,262 53 14.3 Moulded Bars 610 31 667 31 748 31 12.1 Selflines 310 16 391 18 384 16 -1.7 Total 1,953 2,161 2,393 10.7

Source: Mintel - Chocolate Confectionery - 2011

Divine compete mainly in the moulded bars category, a sector worth nearly £750 million in

2010, and the second most popular choice of chocolate format after impulse countlines. Chocolate bars are bought by two thirds of all UK adults, and sector sales have increased in value by around 3% a year since 2006, just slightly ahead of total industry growth. Even in the moulded bar category there is very wide consumer choice in quality, price and product variant within every one of the many well-established brands, each of which might be regarded as virtually substitutable. Nevertheless, the market

power of the big three across so many strong brands gives them a powerful bargaining position with the major multiple retailers, and this, along with the fact that branded chocolate is such an affordable indulgence, may be the reason for the low impact of own-label (except in the premium part of the category).

Another feature of the UK chocolate market is the surprisingly low level of any meaningful new product development: very few “new to the world” products or brands have emerged in recent years, with most innovation confined to ingredient, flavour or pack-size variants such as the new “sharing” sizes or limited editions. At the premium level single-source & country of origin cocoa variants have emerged, along with increasing interest in dark chocolate with higher cocoa content, but these offers are now common to many brands and own-brands too, and do not differentiate. Rather, the major names have almost all chosen to extend out of the category into cakes, biscuits, drinks and ice cream, leveraging brand equity to build sales elsewhere.

As a result of the intense competition and the lack of differentiation, price promotions are both frequent and generous in almost every retail channel from supermarkets to garages, and even premium brands are not immune to it.

Competitors & Segments Divine is facing growing pressure for space on-shelf from an increasing range of products and brands. All the major manufacturers have moulded bars, and retail space is also being squeezed. Kraft Foods Kraft foods is a US business selling cheese, biscuits, confectionery, coffee and dairy products in over 50 countries worldwide. It now owns 11 brands that generate over $1 billion in sales annually, including Milka and Cadbury. Kraft has promised to leave the Cadbury brand intact, and has denied rumours that it will be selling Green & Black’s. Instead Kraft will be managing both Milka and Cadbury in its portfolio, retaining Dairy Milk (now a Fairtrade brand) as UK brand leader. As well as Cadbury and Green & Black’s, the portfolio also contains Terry’s Chocolate Orange, Terry’s All Gold, Toblerone and Daim and the recently launched Cadbury Bliss, targeted at female consumers.

Green & Black’s represents a significant threat to Divine’s listings since it occupies the same competitive space, being premium, ethical (both organic and Fairtrade) and higher priced, supported by regular advertising (see Table 2). Mars Mars inc operates in 68 countries worldwide and turns over $30 billion annually in several divisions including pet food, drinks, gum and sweets as well as chocolate. Apart from impulse lines like Mars, Twix and Snickers the company owns the Galaxy brand which competes in the moulded bar category with a number of variants. Significantly, the company also owns a premium ethical brand, Seeds of Change, which has made little headway in the market to date, but is already listed in Sainsbury and could expand its distribution against Divine.

Mars has recently reduced the saturated fat content of its entire range in response to healthy-eating trends, and launched a number of “lite” snack lines including Flyte. Nestle Nestle owns a number of very successful chocolate brands including KitKat and Aero. According to the company, the Aero bar range experienced sales increases of 70% year on year in 2010, no doubt fuelled by increasing distribution and national advertising. Nestle has been a target for Greenpeace, due to

controversy over its palm oil suppliers (an ingredient in much mass-market chocolate including KitKat), but the company has recently taken action to improve its ethical standing. KitKat gained FairTrade accreditation in 2010, and Nestle signed up to The Forest Trust Fund. Nevertheless, in recent weeks further ethical controversy has emerged in the UK press and on the BBC, as the company’s cocoa suppliers in Ivory Coast have been accused of child labour practices and operating in hazardous conditions. Lindt Swiss chocolate manufacturer Lindt & Sprungli is expanding its presence in the UK multiples with a wide range of variants in the bar category. The quality is excellent, and some unusual flavours including both Chilli and Sea Salt are gaining distribution as well as word of mouth coverage. Lindt has a reputation for quality, and the bars achieve strong shelf presence with appetising and eye catching visuals set against a bright white background. The brand was the first to put its bars in an individual box, which adds to its premium positioning. Own-label Sainsbury, Tesco and Waitrose have premium own-label ranges, including flavour variants, organic and Fairtrade offers. These trade happily in the recent premium tiers such as Tesco Finest and some consumers even consider the quality to be high enough for gifting. In larger stores these ranges may have seven or more facings, often packaged in individual boxes. Artisan & Super-Premium Finally, in larger and more upmarket stores newer local brands such as Montezuma are appearing, positioned as hand-crafted and sporting very unusual flavour combinations which lift them well beyond the mainstream. Eye catching post-modern packaging breaks the category rules to grab attention, and once sampled the flavours are not easily forgotten.

Promotion Of course given such intense competition it is no surprise that the large brands are investing heavily in advertising in order to maintain their relative market shares. In 2010 in addition to sponsoring the England team in the World Cup, Mars increased spend by nearly 40% over the previous year. The focus for all brands has been on associating themselves with sport, energy and fitness, Cadbury as an Olympics sponsor, and KitKat through football. Table 2 gives relative above the line spends from 2007 onwards. Table 2: Main monitored advertising spend on bars and countlines 2007-2010.

2007 2008 2009 2010 % change

£m £m £m £m 2007-10

Total ATL Spend 62.9 56.0 53.3 65.8 5

Mars Confectionery 22.1 16.8 17.9 30.6 38

Cadbury 15.8 18.8 17.1 15.5 -2

Nestle 14.6 14.6 13.3 14.1 -4

Lindt & Sprungli Ltd 1.5 0.1 1.1 1.7 13

Ferrero Uk Ltd 3.6 3.1 1.7 1.7 -51

Kraft 3.4 1.3 0.6 1.1 -68

Green & Black's 1.2 0.3 1.0 0.6 -47

Divine Chocolate Ltd 0.2 0.3 0.1 0.1 -43

Source: Nielsen Media Research/Mintel Mintel-Chocolate Confectionery-April 2011

Divine has supported its brand locally above the line, but the main thrust of its communications are PR based, through tastings and events and through generating word of mouth. In 2010 over half a million people tasted Divine for the first time, and by September that year the brand had over 4,000 Twitter followers and 2,800 on Facebook. The brand was seen at Glastonbury 2011, and at the G8 summit later in the year, as well as at the BBC Good Food Show and countless other events and festivals up and down the country. The brand has been supported by Mica Paris, Clare Short and Natasha Kaplinsky in 2010, as well as by literati, celebrity chefs and the great and the good. While it certainly helps to be seen in the right company, there is no immediate prospect for Divine to match the kind of adspend enjoyed by Mars, Cadbury or even Lindt.

Consumers The UK is a nation of chocolate lovers. Chocolate was eaten in around 90% of households in 2010, and eaten fairly regularly too; according to TGI data, over two thirds of adults eat chocolate at least once a week. Given its high penetration, growth is really only possible through increased purchase frequency, but at present the volume trend is either stable or reducing slightly. This may be because of widespread concern for healthy eating, or a marked decline in disposable income as a result of the recession, although others have argued that chocolate remains an affordable treat when times are tough. There has been a small decline in the volumes consumed by children, especially amongst those who used to eat more than two bars a day.

There are few opportunities to grow brands in segments that are currently not using the category. Both men and women consume chocolate regularly, and men are among the heaviest users when they do consume. Weight of purchase, heavy, medium and light has remained in thirds across the population for some years.

The bar category is used both for gifting and for eating oneself. 40% of respondents in a Toluna/Mintel survey had bought bar chocolate as a present, although other chocolate products including boxed chocolates might say more about the giver! Another use that has emerged recently is for sharing, as households go out less. A chocolate bar shared with friends or family while watching TOWIE or I’m a Celebrity could make an evening at home more special, although the new sharing packs are also designed for just this purpose.

What kind of chocolate do people prefer? Although dark chocolate is growing in popularity, over half the population prefer milk chocolate – even though dark chocolate is regarded as being better for you and better quality it is seen almost as a medicine, to be taken slowly but regularly. There is also a very wide range of increasingly exotic flavours available from the traditional Fruit & Nut and Caramel variants, to Chilli & Lime and Ginger & Orange, catering to the nation’s ever more experienced palate. As to Fairtrade, one in five buys it when it is available, only 14% consider it to be better quality and one in ten say they prefer the taste. Fairtrade chocolate is therefore not perceived to be differentiated by quality, and ethical consumers, if they exist, now have plenty of choice. According to Mintel, Fairtrade advocates tend to be aged 16-34, employed full-time or students, affluent ABs, university-educated, broadsheet readers who shop in the Co-Op, Waitrose or Marks and Spencer. Those most unconvinced by the fair trade proposition tend to be in the 45-54 age-group. Charlotte Borger had recently been interviewed for Marketing Week on the subject of ethical consumers and was quoted as follows:

“Ethical consumers are not a homogenous group. They cover a spectrum from extremely ethical consumers to occasionally ethical. Some are more concerned about the planet and environment, others about people and exploitation in the supply chain and others about animal welfare.”

On the issue of price, there is a degree of annoyance among consumers that manufacturers have been reducing the size of chocolate bars without drawing attention to the fact, in order to maintain the price point. Two thirds of consumers felt strongly that they should be told if pack sizes are reduced, while over half said they would feel cheated if it happened (although it already has!) There is the potential for serious damage to brand image here if manufacturers are caught out.

Divine Products & Channels to Market The entire Divine Chocolate range is shown at Appendix 1. As well as the 100g bars, the range includes gift packs, seasonal lines, fudges and drinking chocolates. These products are made to the same exacting standards in a variety of plants around Europe. The 100g bar range contains 12 flavours from Milk Chocolate to the super-indulgent 85% Dark Chocolate bar, but includes White Chocolate and Strawberries as and Dark Chocolate with Ginger and Orange. Independent retailers, and many third sector shops including Oxfam and Traidcraft stock a wide range of these products, which are distributed via third party wholesalers who cover the country, and handle the retail customers. Divine also sell into foodservice outlets through catering wholesalers, and can make products to order for special events, and one-off occasions.

The major multiples take bulk deliveries into their own central distribution, and are managed at the head office level by the Divine sales & marketing team. These outlets generally stock a limited range, two or three flavours, and even these are normally listed in only the biggest stores, since space is limited and competition intense. Four multiples control two thirds of all food and drink sales in the UK. It is therefore imperative for any FMCG brand to be represented in those stores, and work with them where possible to maintain and build distribution.

In Search of a Positioning In forming their marketing strategy, Charlotte and Tal had decided to focus on the core range of Divine-branded 100g bars. The seasonal and gift product lines were regularly updated and could be adapted to any new positioning that emerged from this work, while the co-branded business could be developed independently. On the other hand, the core products were constantly under threat of delisting from multiple distribution, sometimes in order to make space for retailers own-brand lines, and buyers had often been slow to re-list Divine when ranging for the new season. In the face of intensifying competition, the brand was experiencing a vicious circle in which listings were being eroded, often to only a couple of facings, which reduced impact in store and therefore reduced rate of sale. This lower rate of sale then threatened the listing itself so that business was often at risk, and was becoming hard to build. A new positioning that would motivate consumers to choose Divine, and the retailers to stock more permanently, was urgently needed along with a new strategy to drive it through. It had to fire the imagination, give the brand a new meaning and generate large amounts of word of mouth publicity in order to build listings, and earn higher profits to return to the farmers in Ghana, and the shareholders in London.

Three primary research projects were undertaken and results had recently been presented. The first was an audit of pricing and assortment in the chocolate fixtures in four major multiple stores, in order to understand the competitive set. The second was a small consumer panel reporting buying behaviour in the moulded bar category, and the third was a series of focus groups conducted with chocolate buyers in four demographic segments; young single adults, couples with no children, families with children, and empty nesters. The broad research objectives were:

1. To describe the distribution of the current competitive set.

2. To measure the extent of consumer portfolio buying of chocolate brands.

3. To discover if different brands attract different levels of loyalty.

4. To identify how (and how often) consumers use different brands or products to meet different

needs, and their perceptions of available choices.

5. To identify if brand choices vary by demographic or behavioural segment.

6. To describe through perceptual mapping the current positioning of Divine.

Findings Distribution Table 3 summarises the distribution of the main 100g bars in the largest multiple outlets, where the widest assortment can be found. Smaller stores stock restricted ranges, and the convenience formats have little or no own label, generating profit from the more expensive brands. It can be seen that Divine is in distribution in Sainsbury and Waitrose with only a limited assortment of two or three bars. Green and Blacks by contrast has seven flavours in most stores, and Lindt has a strong presence too. Where it is stocked, Divine is recessive on shelf, and does not stand out.

The three main brands, Cadbury, Aero and Galaxy are in full distribution and the trading discipline that the bigger companies exert is evident by comparing the relative prices. Aero is consistently the cheapest of the three on shelf, perhaps accounting for its increasing sales. No brand is exempt from promotion, even the more luxurious offers. Premium own-labels have a strong presence in the biggest stores, except in ASDA, which has targeted Cadbury with its range of 100g own-brand bars. One or two super-premium brands do not feature in the table, such as Montezuma priced at £2.99 or more, but their distribution is sketchy, limited mostly to Waitrose. Seeds of Change organic chocolate is listed only in Sainsbury and Waitrose, while Milka, the Kraft brand is fairly widely stocked and competitively priced, frequently under £1.00 for the milk variant.

It is clear that Divine is at risk of losing further distribution and has fallen into a confusing positioning with price; 10p more bar for bar than Cadbury but 40p less than Lindt and 60p less than Green and Black’s. This gives little incentive to the retailer if rate of sale is slow and risks confusing consumers as to brand quality.

Table 3: Chocolate bars distribution summary by brand & retailer

Tesco Sainsbury ASDA

Waitrose

Cadbury

6 Flavours 120g £1.39 1 Flavour 400g £3.34 Bliss 3 Flavours £1.20

6 Flavours 120g £1.39 1 Flavour 400g £3.34 Bliss 3 Flavours £1.20

6 Flavours 120g £1.42 1 Flavour 400g £3.34 Bliss 3 Flavours £1.20

6 Flavours 120g £1.42 1 Flavour 400g £3.34 Bliss 3 Flavours £1.51

Galaxy

5 Flavours 120/35 £1.00 (Offer)

5 Flavours 120/135g £1.26

5 Flavours 120/ £1.26

5 Flavours 120/ £1.39

Aero

3 Flavours 110g £1.00

3 Flavours 110g £1.00 (3 for 2)

3 Flavours 110g £1.00

2 Flavours 110g £1.00

Lindt

11 flavours 100g £1.74 – 1.83 (2 for £2.50)

8 Flavours 100g £1.74- £1.83

4 Flavours 100g £1.49

4 Flavours 100g £1.83 4 Flavours 150g £2.49

Milka

5 Flavours 100g £0.95/£1.29

5 Flavours 100g £1.15

4 Flavours 100g £0.96

1 Flavour 100g £0.96 (3 for 2)

Green & Black Organic

11 Flavours 100g £2.06 (2 for 3.00)

7 Flavours 100g £2.06 (2 for £3.00)

7 Flavours 100g £2.06

7 Flavours 100g £2.06

Divine

Not Available 2 Flavours 100g £1.49

Not Available 5 Flavours 100g £1.49- £1.78

Seeds of Change Organic

Not Available 1 Flavour 100g £2.09

Not Available 1 Flavour 100g £2.09

Own Label

8 Finest 100g £1.11-1.39 (3 FT)

Taste the Difference £1.11 (incl. FT)

14 Varieties 100g £0.60- £1.20

7 Belgian 100g £1.62

Consumer Panel Data Table 4 reports the summary of buying metrics derived from the usable diary panel data for seven leading brands. Market shares (calculated from purchase occasions), brand penetrations, purchase frequencies and average portfolio size are revealing. The data show a fairly close match to recent large-scale panel data, and appear to be representative at least for the largest brands.

The usual Double Jeopardy pattern seen in such data is clearly apparent; smaller brands such as Green and Black’s suffer twice in having fewer buyers who buy the brand slightly less often. Cadbury, the largest brand, has the most buyers and the highest purchase frequency. This indicates that the concept of niche brands (usually defined as a small brand with few, but very loyal buyers) is not seen in this chocolate category. There is however clear evidence of portfolio buying, since even the buyers of Cadbury, who buy on average 2.4 times in the month also buy other brands about half the time. The average purchase frequency for the category is 4.7 occasions.

The average portfolio size reflects the number of brands a consumer of any one particular brand bought in the month, so for example Aero buyers bought just over three brands, Aero and two others. Unlike penetration, which rises with market share, portfolio size descends: the smaller the brand, the higher the number of other brands its buyers consume. This means that small brands are usually bought by heavy category buyers who explore their choices in a large portfolio (a brand on the side), rather than by heavy-buying sole-loyal customers. If that were the case, then portfolio size would reduce not

increase with lower market share. This finding may have important implications for positioning strategies, but clearly shows that the major brands, Cadbury, Galaxy and Aero are competing equally with the smaller brands. Divine’s most important competitor is Cadbury; their customers could be thought of as Cadbury buyers who occasionally buy Divine. Table 4: Summary brand metrics. Four-week purchase diary panel 296 UK respondents, moulded chocolate bars.

Market Penetration Purchase Portfolio Share Frequency Size % %

Total 92 4.7 2.5 Cadbury 30 53 2.4 2.8 Galaxy 20 39 2.1 3.1 Aero 15 30 2.1 3.1 Lindt 9 25 1.6 3.3 Milka 5 14 1.6 3.6 Green & Black's 4 13 1.3 3.5 Divine 2 10 1.0 3.5 Average 1.7 3.3

Sample size: 296 Focus Groups Focus groups were conducted with four demographics, and many commonalities emerged. Few respondents were aware of the brand, and found it hard to position in its competitive set. Clear groupings emerged in every group between the three main brands, the more premium offers and own-labels which were well-known and liked, but Divine was unfamiliar, and many found it hard to read the cues. Where most groups organised competitors by quality and price, the subtleties of organic, ethical or Fairtrade were largely seen as premium attributes, but not necessarily clearly understood or distinguishable. There was also often a sense that these attributes contributed to price, but not necessarily to the taste experience. Some differences emerged between the groups’ motivators, which are described next. Young single adults Young singles were looking for new experiences, sophistication and pleasure. They regarded exotic flavours as a treat best experienced when shared. Taste and flavour combinations were important and Divine’s white chocolate and strawberry combination impressed at least one group. But the importance of flavour over almost everything else was stronger in men than women, who considered familiar brands a reassurance when trying anything new.

One criticism of the packaging was that it made the brand look “un-innovative”. Respondents in one group tried the dark chocolate and found that it was not as bitter as the packaging made it look. It was reported from several groups that: “Fairtrade is important but wouldn’t make me change brand”. Couples with no children Young couples with no children bought premium chocolate mostly for special occasions or sometimes for personal treats. Some commented that organic and Fairtrade are roughly the same thing, indicating a real level of confusion. Many found it hard to place Divine, which is neither an everyday, supermarket or premium brand. One respondent considered the packaging “looks like cooking chocolate”, while another thought a map of Africa (or at least Ghana) would help communicate the origins. Families with children This group are open about buying two grades of chocolate, a treat for me and something for everyone else. They normally eat standard chocolate regularly and “the thin bars” now and again. To most respondents in this category Divine “looks expensive”, so it must be like Green & Blacks - another “chocolate on the side”. On the other hand, to others the packaging “doesn’t look ethical”. Families are looking for healthy treats nowadays and this “looks healthy and good quality.” There were also a number of comments about controlling the amount of chocolate eaten by the children – to once every three days, or at weekends. Empty nesters The empty nesters had firm views about quality – “It’s not just about price – premium chocolate should not be sold in supermarkets”. Some also felt that when it comes to package design, plainer looks more premium. The boxes used by Lindt were considered to be a sign of quality in this group. As to Fairtrade, the views were split between sceptical: “Just another way to make you pay more” and better informed: “You can eat this chocolate with a clear conscience”. Figure 1. A perceptual mapping of the competitive set.

When presented with the competing bars, most groups produced a positioning map similar to the example in Figure 1, and all had trouble understanding where Divine might fit. The brand, like several others shown to the groups, has low awareness. However, respondents were able to read the cues in the cases of Montezuma and Kalari, positioning these brands as high priced premium. It was also interesting to note that the own-brand chocolates were generally perceived to be higher in price, but not necessarily much higher in quality than the mainstream, occupying a centre ground that does not quite capture their value proposition. One group felt strongly that Lindt belonged in the mainstream, a positioning Divine originally aspired to, while several grouped Seeds of Change with the own-brands.

Observations, Insight & Strategy

It was time to make sense of these research findings; to start thinking about a new brand positioning and a winning strategy. The research had made it very clear that Divine was stuck in the middle. No longer the talked-about pioneering brand with a social conscience, the ethical alternative to Cadbury. Its packaging now suggested a premium quality, off-putting to many buyers, while its price suggested value-for-money, off-putting to others. Then, the Fairtrade positioning, once Divine’s over-arching raison d’etre, had been eroded by the big brands, and was no longer a point of difference. In addition, Green & Black’s was now most strongly associated by consumers with social responsibility, although perceived as rather boring in contrast with say Innocent drinks or Ben & Jerry’s ice cream. But in any case, for many the Fairtrade concept remained confusing, and some were even cynical about its implications – is money really being sent to Ghana, does it help change anything, does Fairtrade chocolate cost more?

There is of course a small and dedicated “fan club” of Divine devotees, several thousand of whom are followers on Facebook, but while investment continues in PR and experiential marketing, brand awareness is clearly still very low. To those many chocolate buyers who do not yet know the brand, the message is a confusing one. Should Divine therefore become a super-premium offer, competing with Montezuma and other artisan brands? That part of the market looks crowded, now dominated by Lindt. And what about Divine’s product quality? So should the move actually be

HigherQuality

LowerQuality

HigherPrice

Lower Price

downmarket? But with no advertising budget to speak of, how would the brand get noticed among its far larger global competitors? And what would be the one single thought that consumers should have of it? Real insight and understanding is now needed in order to develop a new and motivating competitive positioning and a strategy for the next stage of the brand’s development.

Further Research The full Divine product range and much more is available at www.divine.co.uk