Eisha Marketing Assignment PDF

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Whiskey and Cheddar...

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Whiskey!and!Cheddar:!Ingredient!Branding!at!the!Caesan!Cheese!Cooperative! Executive Summary Caesan Cheese Cooperative (“Caesan”, “the cooperative”) is a cheese cooperative focused on natural cheddars. Caesan is known for its authenticity and rich Irish family-farm tradition. The cooperative currently has 1% market share in the cheese industry ($50 Mn in sales revenue) of the USA. Caesan’s customers (typically upper-middle class) includefoodies -45% & socially conscious buyers- 40% of its total revenue. Caesan’s margins on wholesale natural cheese are declining due to excessive pressures from the food distributors to reduce the wholesale price of its natural cheese (from $3 to $2.5) to be more price competitive. In a bid to improve its bottom line Caesan needs to launch a new product. Caesan experimented with producing Irish Whiskey Cheddar which won awards at a couple of events post which Pernod Ricard USA (PR–U), a leading distributor of spirits and wine in the United States, approached Caesan to partner with them. Caesan has to decide whether to partner with PR-U for launching its whiskey cheddar or using unbranded whiskey (launching the product on its own). Caesan also has the option of not producing anything.

Given the available choices, it is recommended that Caesan partners with PR-U to launch Jameson® Irish Whiskey Artisan Cheddar as Caesan has a lower brand recall (25% unaided brand recall) compared to its peers and it will be able to leverage PR-U’s brand name for increased brand recall of its own products. Partnering with PR-U will substantially reduce its marketing costs and Caesan will be able to tap a huge segment of loyal Irish Whiskey drinkers (Jameson has ~78% of the marketshare). Moreover, if the partnership with PR-U is successful, it can be expanded to add wine flavoured cheddars using Jacob’s Creek wines (most awarded winery in Australia). This partnership will provide Caesan with a first mover advantage and open up its future prospects.

Problem/Issue Statements Caesan Cheese Cooperative (“Caesan”, “the cooperative”) was founded in Wisconsin in the early 1900s by a well-known master cheesemaker using a family recipe from Northern Ireland. Caesan operated as a cooperative comprised of ~300 family farms. 86% of the cooperative’s sales were from cheddar cheese and the manufacturer targeted to uppermiddle class households with manufacturer’s suggested retail price (MSRP) per eightounce unit as $4.59. Caesan had 1% market share in the cheese industry of the USA but only had a 25% un-aided brand recall. Caesan’s customers included- foodies -45% & socially conscious buyers- 40%of its total revenue. Caesan’s margins on wholesale natural cheese are declining due to excessive pressures from the food distributors to reduce the wholesale price of its natural cheese (from $3 to $2.5) to be more price competitive. In a bid to improve its bottom line Caesan needs to launch a new product. Caesan experimented with producing Irish Whiskey Cheddar which won awards at a couple of events after which Pernod Ricard USA (PR–U, a leading distributor of spirits and wine in the United States), approached Caesan to partner with them. Caesan has to decide whether to partner with PR-U or launch the product on using unbranded whiskey. Partnership provides Caesan with brand leverage but has licensing agreement risks. Situational Analysis

Þ Caesan focuses on a natural cheddar (~27% market share of the cheese market) but the cooperative has negligible presence in American made Italian cheeses market which comprises 41.7% Þ The top 5 competitors account for less than 25% share of the US industry. Þ Kraft Heinz is the largest competitor producing a vast variety of cheese with 8% market share. This indicates that the market is very fragmented.

Þ Key success factors included access to reliable milk input suppliers, economies of scale, and product differentiation. Þ For Caesan to garner a huge market share, it needs to reach economies of scale as well as differentiate its products in terms of flavours offered and innovative packaging. Þ Manufacturer’s suggested retail price (MSRP) for Caesan’s 8-ounce natural cheddar was $4.59 and for artisan cheddar was $8 (targeted towards upper middleclass population) Þ Caesan distributed its cheese to wholesalers through food distributors who marked up another 15-20%. PESTLE Analysis: Cheese Industry

Element

Factor • Presently, there are many independent and government-sponsored associations to support the cheese industry in USA. The United States Department of Agriculture also funds programs to promote dairy consumption and protect the image of dairy farmers, dairy products,

Political

and the dairy industry. • The USA government in the future may not be pro dairy industry and cheese may not be considered healthy by the various health organizations. This will adversely impact Caesan’s business. •

In 2018, the United States was the single largest cheese producer in the world. In 2018, estimated sales were $48.8 billion ($2.1 billion in profit), with projected annual growth of 0.8%

•

Average retail price of cheddar –decreased annually from a high of $5.87 per pound in 2012 to $4.95 per pound in 2017.

Economic •

Caesan’s products are targeted to upper-middle class households and the sales of its cheese depends on the disposable income. If there was an economic downturn, people would shift to cheaper available cheese or may not eat cheese at all.

•

Caesan has limited presence in the American made Italian cheese segment which comprise ~41% of cheese sales in America

• Customers perceive cheese as high quality, healthy and good for snacking. • Customers are increasing getting socially conscious (good sign for

Sociological

Caesan as it is farmer owned) • Growing veganism might impact the industry adversely. • Sales via the internet grew by 234% since 2013 although they still accounted for only 1.2% of the market share. Technological

• Caesan must focus on online market since it provides minimal selling and distribution expenses. • Sale of whiskey cheddar to minors might get the cooperative into

Legal

legal troubles. • Livestock is a huge source of methane which causes global warming

Environmental

and therefore there may be a strong movement against dairy in the future

SWOT Analysis

Strength Weakness • Authentic- from Irish family farm • Caesan has ~1% market share tradition

(perceived

superior

quality • Caesan only has 25% unaided brand

image)

recall

• Produces natural cheddar (100% real • Caesan cheese)

sells

cheese

through

food

distributors which eat up a huge margin.

• Foodies comprise 45% of Caesan’s

• Average retail price is on higher side and

total revenue-and are more receptive to

might impact the business in case of an

newer tastes and varieties and will stay

economic downturn

loyal • Farmer owned business- garners huge

• Packaging isn’t suitable for on the go people

support from the socially conscious • Limited presence in the American made buyers

Italian cheese segment which comprise ~41% of cheese sales in America

Opportunities • Increase in

per

capita

Threats cheese • Change in customer preference

consumption in the USA

• Competitors collaborate with a bigger

• Convenient packaging of the cheese as a snack • Tapping

brand & come out with whiskey cheddar • FDA declares cheese unhealthy

the

food

services

and • PR-U terminates its contract during 2020

restaurants (comprising 32.2% of the

due to unforeseeable circumstances.

market) • Selling directly to big chain stores and

eliminating the food distributors Financial analysis • Caesan’s has ~1% market share (revenue: $50 million) in the $5 Bn cheese industry in USA. •

Caesan’s operating profit is 16.2% of the revenue which can be improved considerably by reducing its distribution expenses as the food distributors take up a huge margin.

•

Also, Caesan’s unaided brand recall is only 25% which means Caesan should spend more on its marketing.

•

Caesan’s direct to consumer (DTC) sales account only 2% of the total sales, whereas retail sales comprise 98% of the sales. Therefore, Caesan should focus more on the DTC segment since that segment provides higher margins

Alternatives available with Caesan are: a) Producing Whiskey Cheddar with Jameson (Partnership with PR-U) Pros: •

Caesan has low brand recall which can be solved primarily with its partnership with Jameson.

•

Jameson accounts for 78% of the Irish whiskey market (7.5% of the total whiskey market) and would help tap Caesan a new market niche. Also, Loyal Irish whiskey drinkers are typically young to middle age and had high disposable incomes which is exactly the market segment that buys Caesan cheese.

•

Marketing effort and expense is estimated to be significantly lower as Jameson® is a wellknown brand.

•

A greater percentage of people preferred the taste of Jameson Irish Whiskey Artisan Cheddar in the A/B test

•

If the partnership is successful, it can be expanded to add wine flavoured cheddars using Jacob’s Creek wines (most awarded winery in Australia). In the long term, the partnership with PR-U (if successful) will definitely provide Caesan with competitive advantage.

•

The brands could cross market their products effectively, hence reaching maximum people

Cons: •

Only 17% of the people in the A/B test chose the Jameson Whiskey Cheddar.

•

Licensing agreement risks- The agreement is ambiguous and states that PRU may terminate the agreement, if in its sole judgement, they sense that the sales of Jameson Irish Whiskey are adversely impacted.

•

If this variety of cheddar becomes popular Caesan will have to pay royalty till the time the contract is valid for every unit of Jameson® Irish Whiskey Artisan Cheddar.

•

Competitors may enter into agreement with other recognised whiskey brand.

b) Producing Whiskey Cheddar without branded whiskey Pros: •

Higher contribution margin per unit as the cooperative does not have to pay royalty.

•

Caesan is not bound by any agreement and has free will to do what it deems fit.

Cons: •

Consumers may not be willing to experiment with non-branded whiskey.

•

Higher marketing effort and expense is estimated since we are using unbranded ingredient and also Caesan already struggles with lower brand recall and hence launching with nonbranded ingredient might not help out case.

•

A lesser percentage of people preferred the taste of unbranded whiskey Artisan Cheddar in the A/B test.

c) Launching no new product Pros: • No capital outlay (reduced risk)

Cons: • Proposed decrease in wholesale price of natural cheese impacts the profitability and not launching a high margin product could be detrimental to the cooperative’s financial situation Note on financial Feasibility of the alternatives: (please refer to the appendix for the break-even analysis) Þ The contribution margin per unit of non-branded Irish Whiskey Cheddar is higher ($1.83) when compared to Jameson Irish Whiskey Cheddar ($1.62) due to the royalty component payable to PR-U. Þ There is a huge difference in the fixed costs for both the alternatives, primarily due to lower marketing and selling expenses to the tune of $400,000. Þ Break-even units for Jameson Irish Whiskey Cheddar are 864,347 and for Irish Whiskey Cheddar are 983,758. Þ Reaching Break-even levels for Jameson Irish Whiskey Cheddar is easier due to lesser fixed costs.

Recommendations Based on the above evaluation, we recommend that Jameson® Irish Whiskey Artisan Cheddar product should be launched. Jameson drinkers have high disposable incomes and based on Caesan’s current offering’s; it’s new product should be targeted to upper middle-class population. Jameson’s brand resonates with Caesan’s brand and is an ideal partnership. Moreover, with this partnership, Caesan would be saving on marketing expenses due to Jameson’s popularity and Caesan’s problem of low brand recall would also be solved primarily with its partnership with Jameson. Jameson and Caesan could also cross-promote their products across. Also, with the Jameson® Irish Whiskey Artisan Cheddar, Caesan will be able to tap a new market segment of loyal Irish whiskey market (Jameson has a market share of 78 % in the Irish whiskey market). The taste of this product is superior/preferred over non-branded Irish Whiskey Artisan Cheddar. Additionally, if this partnership with PR-U is successful, it can be expanded to add wine flavoured

cheddars using Jacob’s Creek wines (most awarded winery in Australia). The brands could cross market their products effectively, hence reaching maximum number of people.

The wholesale price to the retailers should be $5 as Caesan will incur royalty payments of $0.25 per unit, so the price should be increased by $0.25 compared to selling nonbranded whiskey cheddar. Caesan should set the MSRP marginally higher than the competitor indicating its snob value and premium quality ingredients. Additionally, due to higher wholesale price, the distributors might want to pass on the extra costs to the customers. Therefore, ideally the product should be priced at $7.99 for the customers. The cheese should be distributed to big chain stores/big brands directly as the food distributors take up 20% margin. For the smaller stores, services of the food distributors may be utilised.

Caesan can also renegotiate its contract with PSU, and leverage PSU’s incredible distribution network. Caesan’s should also target the food services and the restaurants segment which comprise a major chunk of the market (32.2% of the market) with the help of PSU. They could offer bundled products to restaurants comprising Jameson Whiskey and cheddar. Caesan should also distribute its products directly to large retail chain stores and use the food distributors for the remaining market. Caesan should also explore various convenient innovative packaging forms, like sticks, snack bites paired with seeds and nuts to give the product a premium and trendy feel since most of its consumers are young/middle aged people. Also, the packaging should mention, “best paired with XX “

Action Plan •

Although we recommend launching Jameson® Irish Whiskey Artisan Cheddar, however, before that the product should be tested with a larger audience. 500 sample size isn’t enough, to give a realistic picture.

•

The cooperative should re-negotiate the agreement with PSU and include a cross branding clause as well. This will be a win-win situation for both the companies.

•

The duration of the agreement should be checked (not more than 3-7 years) as Caesan should not have the liability of royalty after a period of time.

•

Caesan should contact the chain stores/big brands directly, which will improve its bottom line.

•

The legality of the sale of this variant of cheese to minors must be looked at (the percentage of alcohol should be at optimum level for sale to minors)

•

High end restaurants should be targeted for this whiskey cheddar and PSU might be able to bundle it along with its own whiskey.

•

The packaging should be made more convenient for this whiskey cheddar and it should be packaged as small cubes or such to target the busy working people’s onthe-go lifestyle.

•

As mentioned in the case, the key success factors in the industry are reliable milk supply, economies of scale and product differentiation. Therefore, the Jameson® Irish Whiskey Artisan Cheddar should be produced at optimum levels so as to reach economies of scale and bring the cost down. Also, the product should be differentiated on its packaging as discussed above.

Exhibit: A) Financial Analysis

Jameson Irish Whiskey Cheddar

Irish Whiskey Cheddar

*All figures in $ Wholesale Price Raw Material* Production* Distribution* PR-U Royalty Coupons & Retail Allowance

4.75 0.60 1.13 0.95 0.25 0.20

*All figures in $ Wholesale Price Raw Material* Production* Distribution* Coupons & Retail Allowance

4.75 0.60 1.13 0.95 0.24

Total Expenses

3.13

Total Expenses

2.92

Contribution Margin

1.62

Contribution Margin

1.83

Fixed Cost

1,400,000

Fixed Cost

Break Even Units

864,347

Breakeven Units

Sales Revenue Target Units sold to achieve sales target

2,000,000

Sales Revenue Target Units sold to achieve sales target

421,053

1,800,000 983,758

2,000,000 42,1053

*These expenses have been calculated on the basis of Artesian Cheddar (% of wholesale price), assuming they will follow a similar cost structure

Artesian Cheddar Wholesale Price

4.45

Raw Material Production Distribution

% of wholesale price 0.561 13% 1.06 24% 0.89 20%

Total Expenses

2.51

Contribution Margin

1.94...