Fall

08

Case 4: Nestl Refrigerated

Foods: Contadina Pasta &
Pizza

Class: MKTG-361
For: Prof. Harmon
By: Laura Freeman
Date: December 14, 2016

Section I: Overview
Nestl Refrigerated Foods Company is located in Glendale California as a subsidiary of
Nestl, S.A. Henri Nestl founded the original company in 1866. The products were based on
TO: Prof. Harmon TOPIC: Nestl Refrigerated Foods
CLASS: MKTG-361 FROM: Laura Freeman

milk products and infant formula. Now, the company offers a variety of products including
chocolate, instant coffee, culinary, refrigerated and frozen products, ice cream, mineral water,
and pet foods (pg. 46). In 1987, Nestl entered the refrigerated food market by first introducing
Contadina fresh pasta and sauces. They out bid their rival Kraft for the purchase of Lamberts
Pasta and Cheese for $56 million. They had developed a new way of making fresh pasta that
would have a 40-day shelf life rather then 12 days. Before putting these products on the shelves,
there was extensive market research performed by BASES, a market research firm. Nestls
marketing department developed a seven-step process to follow to test new products. After the
new products were deemed successful through the tests then they would be put in the market.
The products had sales of $50 million in its first year, growing to over $100 million in sales
by 1990 (pg. 46). Based on the success of these products, Nestl decided to enter the pizza
market.
Nestl Refrigerated Foods Company entered the refrigerated pizza market in 1990.
Stephen Cunliffe, the president of the company, said it best to continue our growth, we need
other new product opportunities (pg. 46). Ever since Nestl opened its doors in 1866 they have
been committed to the research and development of new products and ways to improve old
products. In order to become bigger in the refrigerated foods market, Nestl combined with
Carnation to form Nestl USA. This way, Nestl could focus on building its refrigerated foods
business. Through extensive product development tests Nestl is confident in their decision to
work on developing an existing market rather than start a new one.

Business Problems / Issues:

Nestle did a preliminary concept test rather than the full BASES study on their products
prior to entering the pizza market
They started working on a new product to build their refrigerated food category before
they fixed the problems with their pasta and sauce entry.
Nestle is worried about their competitors, Kraft, launching their own pizza product in the
next few months

Section II: Marketing Options

1. Should we test the market first by introducing pizza sauce to our current line of sauces?
2. Should we launch the pizza and toppings option at the same price as the pizza only kit?
3. Should we promote our refrigerated pizza and toppings option by giving out sales
promotions?
Section III: Facts
1. Was dominated by restaurants, with 88% of all pizza sold by restaurants even though
an estimated 60% of pizzas were eaten at home (pg. 57).
2. Pizza was a part of the large ethnic food category, with pizza available in three forms:
frozen, deli-made, or freshly prepared in restaurants for eat-in-dining, home delivery, or
takeout (pg. 57).
3. At-home pizza consumption indicated that delivery/takeout pizza accounted for 75%
of the last 10 incidences of pizza consumption, with frozen pizza from supermarkets
accounting for 16%, fresh pizza from a grocery store 5%, and homemade pizza 4% (pg.
57).

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TO: Prof. Harmon TOPIC: Nestl Refrigerated Foods
CLASS: MKTG-361 FROM: Laura Freeman

4. Positive purchase intent for the kit was about 58% overall (49% among males and
66% among females) (pg. 58).
5. Not only did the flavors of the sauce and toppings migrate into one another, but also the
sauce and toppings infiltrated the crust resulting in a poor quality product (pg. 58).
6. The average retail price for Contadina pizza and toppings is about $8.00 (assuming 1.25
toppings per pizza) (pg. 81).
7. The BASES research indicated that 50% of those favorable to the Pizza and Toppings
options would buy toppings at every pizza kit purchase and that an additional 25% would
purchase toppings half the time (pg. 60).
8. Women over the age of 18, who lived within a 45-minute drive of the mall interview
site, and were the principal grocery shoppers (pg. 58).
9. Nestl sought to purchase an established regional player in the refrigerated pasta and
sauces category, thereby leapfrogging its competition to market (pg. 49).

Section IV: Recommendation

I recommend that we launch the pizza kit and toppings idea, however, we should change
the price to better comply with the test results we found. I recommend that we promote our new
product by giving out sales promotions to Contadina customers as well as the primary grocery
shoppers for the household. I recommend that we introduce a pizza sauce option in addition to
our line of sauces for our pasta.
We are entering in a new market with our refrigerated pasta and sauce products.
However, for our new refrigerated pizza product, we are entering an existing market. It is the
logical next step for us to keep our company progressing in the right direction. There are things
to consider of course before fully committing ourselves to launch a new product. We just
launched our line of Contadina pasta and sauces line. We have barely been able to calculate its
success in the market and we are developing a new product. Understanding that Kraft is in the
works of creating a similar product is definitely what is keeping up on our toes to quickly rush
through our marketing research process.
Launching the pizza and toppings kit will give our customers a chance to be creative in
the kitchen with our products, yet they dont have to purchase the toppings if they so choose.
Researching some background information of pizza sales in the U.S. was helpful for us to
determine a product that would sell. The pizza market, making $18.4 billion, was dominated
by restaurants, with 88% of all pizza sold by restaurants even though an estimated 60% of pizzas
were eaten at home (Fact 1). Pizza was a part of the large ethnic food category, with pizza
available in three forms: frozen, deli-made, or freshly prepared in restaurants for eat-in-dining,
home delivery, or takeout (Fact 2). Throughout our research we discovered at-home pizza
consumption indicated that delivery/takeout pizza accounted for 75% of the last 10 incidences of
pizza consumption, with frozen pizza from supermarkets accounting for 16%, fresh pizza from a
grocery store 5%, and homemade pizza 4% (Fact 3). Knowing this information, we knew we
did not want to enter the pizzeria market nor the fragmented frozen pizza market; we wanted to
be different and add on to our existing refrigerated foods market niche.
Based on the preliminary concept test with potential customers, positive purchase
intent for the kit was about 58% overall (49% among males and 66% among females) (Fact 4).
When conducting more research on the product development, we discovered that our pre-
assembled pizza option would be infeasible. Not only did the flavors of the sauce and toppings
migrate into one another, but also the sauce and toppings infiltrated the crust resulting in a poor

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TO: Prof. Harmon TOPIC: Nestl Refrigerated Foods
CLASS: MKTG-361 FROM: Laura Freeman

quality product (Fact 5). This information helped us further develop our idea of a pizza kit.
Having the pizza toppings sold separately increased the overall price of our refrigerated pizza.
Exhibit 24 in the casebook shows the average price consumers are willing to pay for a 12 pizza
for two-three people. They are willing to pay about $6.32. The average retail price for
Contadina pizza and toppings is about $8.00 (assuming 1.25 toppings per pizza) (Fact 6). By
launching our pizza only kit at $6.39, we can better appeal to our customers to gain the ultimate
customer satisfaction. The get people to purchase the additional toppings for the kit we can
change the price. However, the BASES research indicated that 50% of those favorable to the
Pizza and Toppings options would buy toppings at every pizza kit purchase and that an additional
25% would purchase toppings half the time (Fact 7).
Another way to get consumers to purchase the kit as well as the toppings would be to
offer promotional deals. We could offer a discount of; if you purchase a Contadina Pizza Kit we
will give you two toppings of your choosing for free. So essentially consumers would be
purchasing around $8.00 of product for only $6.39. We could do this to gain customers as well as
develop a strong brand image for ourselves. According to Addendum a, female customers, age
34-55 are the ones to typically use mobile coupons when shopping, specifically on food and
beverage items. This would be a strategic move considering the majority of our research tended
to be with females. We interviewed women over the age of 18, who lived within a 45-minute
drive of the mall interview site, and were the principal grocery shoppers (Fact 8). The coupons
will help use gain new customers as well as gain repeat purchasers of our brand of products.
We should also continue our efforts in improving the pasta and sauce line we originally
developed. One idea would be to extend the line by adding a pizza sauce. This way we could
have a refrigerated pizza option as well as offering a pizza sauce for the people who prefer to
take their own. Although the homemade pizza was only 4% (Fact 3), it is proven that people
prefer eating pizza in the comfort of their home rather than at restaurants. This extension would
benefit our existing product line of pasta and sauces. It would also help us introduce our new
refrigerated pizza kit product extension.
The fact they we had purchased an established regional player in the refrigerated
pasta and sauces category gave us a huge advantage in the competitive market with Kraft
(Fact 9). By introducing two new products, both for brand extension, would be a huge step for us
in counteracting the competitive threats of Di Giorno. We were the first company to branch into
this product category of refrigerated fresh pasta and sauces, so we are determined to be the first
to expand our brand into something bigger. By implementing these recommendations we will be
able to further develop a successful product while expanding an already successful brand name.

4
TO: Prof. Harmon TOPIC: Nestl Refrigerated Foods
CLASS: MKTG-361 FROM: Laura Freeman