Nestle Frozen Food

Q1.1 Although NRFC believe estimation of pizza sales could base on Contadina pasta's 24% market-penetration rate, more conservative calculation should take different ranges of penetration rate into consideration. By choosing three possible penetration rates of 5%. 15% and 25%, the estimated results are demonstrated in Exhibit 1. In all three scenarios, kit only concept will not make up to company's expectation. For kit and topping concept, only if penetration rate reach to 15%, launch decision could be supported.

1.2 Sensitivity analysis shows that pizza sale will be largely influenced by penetration rate of Contadina pasta (Exhibit 2).

Q2 Similarities: Both launches of refrigerated pasta and pizza are aim to catch up the growing trend toward ethnic foods. Both of these two lines try to capture this growing trend by providing convenience and freshness at the same time. In terms of competition, none of the refrigerated pizza and pasta category has a big brand play yet. Therefore, by taking quick reaction to the demand, both pasta and pizza opportunity might empower Nestle to become a market leader in both categories with first mover advantage.

Differences: Although both lines are new product concept, which try to target similar customer segment who are interested in Italian food, market potential might vary for different product line. First in terms of positioning, in pasta market, dry and frozen pasta occupied large market share due to its higher accessibility than fresh past sold at specialty store and restaurants. This might explain the fact revealed by research that 77% of respondents in favor of fresh pasta concept never purchased fresh pasta before. Therefore, wide distribution of refrigerated pasta will serve customers?desire of high quality, thus threat dry pasta's dominated position. However, fresh pizza in North America is a widely distributed food supported by various channels such as large franchise restaurants, which provide take out and delivery options to customers. Therefore, Customers?needs of both high quality and convenience are well served. As a result, refrigerated pizza's claimed benefit might be weaker than what refrigerated pasta could offer to customers. In terms of pricing, although BASES research indicated that price for pasta as a factor influencing customers?favorability was less important that other factors such as quality, it might not be true for pizza case, because refrigerated pasta has been priced close to competing substitute while its adding benefit of freshness has been well perceived by customers. Since take out pizza serve high quality and convenience well, refrigerated pizza priced closely to this substitute at $7.69 for both kit and topping might not be able to compete for existing fresh pizza market share. Moreover, its high price premium will also reduce its attractiveness to frozen pizza buyers. Furthermore, in terms of product development, Nestle took advantage by purchasing on-going operation, Lambert's Pasta & Cheese, which already have the production technology and had the marketing experience in this category. Therefore, although Nestle did not perform the test market for its pasta line, the purchase of on-going operation reduced the risk of product launch. However, refrigerated pizza not only faced some technical difficulty that forced Nestle to drop the more favorite concept of pre-assembling pizza, but also skipped test market due to competing pressure from Kraft. As a result, even though Nestle believed that refrigerated pizza was the line extension to pasta, due to the huge difference in both market, pizza opportunity imply a much high risk than pasta line. However, in terms of distribution, Pizza can take advantage of exiting distribution channel established by pasta line, thus, pizza line might be able to spend less for channel establishment. Lastly, as a trial of refrigerated food, pasta's launch gave Nestle valuable marketing experience, which might help company to reduce the risk in pizza opportunity.

Q3: According to calculation in first question, Nestle could make up to basic business requirement of $45 million if the kit plus topping concept was adopted. However, this concept also has limitation, which the success of pizza launch requires market penetration of parent brand pasta surpassing 15% of market share. If NRFC truly believed that Contadina pasta users would represent approximately 24% of the 95.5 million target household, which is much higher than bottom line of 15%, it could launch the pizza. However, there are also many reasons that NRFC should not rush into launch of refrigerated pizza. First, no evidence tells that NRFC was 100% sure about what exactly penetration rate would be. Since the market projection for pizza based on early success of Contadina pasta and sauces, any market change, such as pasta category's growth slow down or Nestlй's leading position was taken over by other competitor, will lead to inaccurate forecast for pizza sales volume Thus, make pizza a risky opportunity. Moreover, as mentioned in last question, BASES pasta research indicated the low importance of price factor. However, in pizza market, dominated franchise restaurants keep extending their distribution channel; price war in this market might be possible in near future. If take out pizza further reduce the price from average $9 to any price below Nestle pizza's price about $7.68, Nestlй's pizza will face sever threats and become a market failure.

Since Kraft already did test market and get better understanding about the market, its marketing plan might be more accurate than Nestlй's. Therefore, suggestion to Nestle is to do more marketing research and test market in order to get more information about positioning, pricing and distribution. If the test market further confirms the estimation, launch could be done with more confidence.

Exhibit 1 Estimated demand for refrigerated pizza

Contadina Pizza Volume Estimates (25% market penetration for parent brand pasta)

A: Pizza Kit and Toppings B: Pizza Kit Only

Trial Contadina Users Non-Users Contadina Users Non-Users

Target households (number) 23.88 71.63 23.88 71.63

Percent choosing Top box (definitely will buy) 30% 15% 22% 12%

Top box trial rate (adjustment: industry rule of thumb) 24.0% 12.0% 17.6% 9.6%

Percent choosing Second box (probably will buy) 57.0% 59.0% 48.0% 42.0%

Second box trial rate 17.1% 17.7% 14.4% 12.6%

Weighted trial (total trial