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Puffed Rice Snack Bars- Nature Valley

From: Meenal Sethia, John Grace, Sumeet and Solwoo Kim


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Table of Contents Introduction .............................................................................................................................. 3

Market Analysis ....................................................................................................................... 4 General Mills ........................................................................................................................................... 5 Opportunities ........................................................................................................................................... 6 Idea screening and generation ................................................................................................ 6 Marketing Mix ......................................................................................................................... 7 Product .................................................................................................................................................... 7 Place ........................................................................................................................................................ 7 Promotion ................................................................................................................................................ 8 Price ........................................................................................................................................................ 9 Manufacturing/ Engineering Plan .......................................................................................... 9

Financial Analysis .................................................................................................................. 10 Appendix ................................................................................................................................. 12 Concept test- Exhibit 1 .......................................................................................................................... 12 Prototype testing- Exhibit 2 .................................................................................................................. 14 Manufacturing/Engineering and promotion - Exhibit 3 ........................................................................ 17 Exhibit 4- Marketing analysis ............................................................................................................... 19 Exhibit 5-Financials .............................................................................................................................. 21


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Introduction

According to Nation Master’s health statistics, American’s obesity percentage is

30.6%, which is the highest in the world compared to the lowest obesity country, South

Korea, with an obesity percentage of 3.2%. As a result of Koreans eating rice as their main

meal every day, they are the lowest obesity in the world. These days many Americans are

concerned with their health and eager to consume healthier food.

In the U.S. snack bars are considered a healthy snack, meal replacement or typically

breakfast. Snack bars (including energy bars and granola bars) are usually made with granola,

which is oats and nuts. They are a popular snack food in Northern America and some

European countries, for large part due to their good nutrition qualities. These bars are also

getting popular in some Asian countries as well. However Asians consume more rice in their

diets and don’t believe that granola bars give as much energy or are as healthy as rice

alternatives. There are all different kinds of snack bar flavors at the store such as honey,

chocolate, cinnamon, almond and peanut butter etc. However these are mostly based on

granola and there is little choice in choosing the main substantial ingredient.

Rice provides a similar amount of energy but far less fat than oats; for example a 100g

portion of rice has 370 kcal compared with oats 389 kcal. More importantly this portion of

rice contains only 0.66g of fat compared to oats, which contain 6.9g of fat. Overall rice

generates similar energy as oats but it contains less fat. An additional benefit of brown rice is

the multiple dietary minerals and several vitamins it contains, such as vitamin B1, B2, B3, B5,

and B6.

Nature Valley New Product Management team introducing new type of snack bar,

Nature Valley Puffed Rice Bar. Instead of granola and oats, this product contains 90% of

puffed brown rice with sun flower seeds, nuts, and pecan pieces, also it will mix with honey


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instead of sugar. Depends on the flavor, it will contain either dry fruits such as raisons and

pineapple or chocolate chips and peanut butter. According to our survey 33% of consumers

like to consume peanut butter and chocolate flavor and other consumer prefer raisons,

cranberry and fruit flavors. [Exhibit 1-6]. Therefore we decided to introduce two flavors

which are Nature Valley Puffed Rice Mixed fruits including raisons, cranberries, almonds

and pecans, and Nature Valley Puffed Rice Peanut Butter Chocolate chip.

Our development team came this idea from Korean’s traditional snack, “Gang-Jung,”

a style of snack bar, is made of puffed brown (or white) rice mixed with all kinds of nut

products, dry fruits and honey. “Gang-Jung” contains great food, generates energy and is

really good for health.

We anticipate that consumers would be interested in buying a puffed rice snack bar

because it is healthier and still has great taste and texture. We will have a similar or better

taste as traditional snack bars and provide a variety of flavors to appeal to American

consumers. We will emphasize the nutritious values of brown rice to target consumers who

considers their health.

Market Analysis The market for food bars in the U.S. is considerable and is growing at a significant

rate. Retail sales of cereal/granola bars and energy/nutrition bars approached $5.7 billion in

2011 and are projected to grow to $8.3 billion in 2016. This is equivalent to a compound

annual growth rate of 7.5% over the next five years [Exhibit 4-Table 1-1 & 1-2] (packaged

facts pg 17). The growth in the food bar segment is attributable to several long-term trends in

consumer eating habits. “Research from The Hartman Group shows that 48% of all eating by

adults occurs between meals, 44% of adult eating happens alone, and 11% of adult eating

includes foods or beverages consumed within an hour of purchase” (Packaged facts pg 18).


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These trends have had a significant impact on the consumption of snack/nutrition bars. In the

past decade the percent of U.S. adults who reported eating these products at least once every

two weeks increased from 12% to 23%. According to a recent report from Packaged Facts,

“these products appeal to virtually all demographics: for peak performance and recovery with

weekend warriors; for vitality and youth with Baby Boomers; for a healthier snack alternative

for all ages; and as replacement meals or meal supplementation with the elderly” (packaged

facts pg 72).

General Mills General Mills is one of the strongest players in the food bar market with its Nature

Valley brand line. Food bars only accounted for 3.2% of General Mills’ revenue in 2011 but

they hold a very high market share with 38.3% of the granola bar segment in 2011 [Exhibit

4-figure 3-2] (Packaged facts pg 112,109). General Mills takes first place in mass-market

granola bars with $387.2 million in sales, representing a 15.3% sales gain over the previous

year. Much of this success is attributable to Nature Valley products, which generated $238.8

million in sales in 2011, a 22.7% increase over 2010 sales. [Exhibit 4- Figure 3-2; Table 3-6]

(Packaged facts, Pg 108)

Nature Valley’s has achieved the largest consumer base with 14.7% of adults, or 33.3 million.

They also experienced the most significant growth in their consumer base for any brand from

2009-2011 with 4.6 million new consumers over this period. [Exhibit 4- Table 3-11] Nature

Valley consumers also have the highest frequency of consumption out of all cereal/granola

bar brands with 10.5 million adult consumers eating more than one product weekly; this is

double the number of the closest competitor. [Exhibit 4-Table 3-12] All of this data conveys

the brand strength and growth of the Nature Valley brand line; it is very clearly the strongest

brand in its category.

Current Nature Valley products include Crunchy Granola Bars, Protein Bars, Chewy


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Trail Mix Granola Bars, Chewy Granola Bars w/Yogurt Coating, Sweet & Salty Nut Granola

Bars, Roasted Nut Crunch Granola Bars, Granola Nut Clusters, and Granola Thins.

Opportunities The competition for healthy snack food is fierce and the future success of products in

this category depends largely on product positioning. General Mills, as the market leader,

needs to continue adding to its offerings if it hopes to retain its market share. The trend in

granola bars is towards simpler, recognizable, and wholesome ingredients. According to

Packaged facts, “Products introduced in the past few years have emphasized functional health

benefits, all-natural and organic ingredients, taste, flavor and form variety” (Packaged facts,

pg 19). One ingredient offers a prime opportunity to fulfill all these needs, a puffed brown

rice bar would be an excellent addition to the Nature Valley brand line.

Idea screening and generation

We did our marketing research through Concept testing and prototype testing. We made a

survey to be sent out online for our concept testing. The result of the survey can be found in

[Exhibit 1,2]

Through the prototype test we conducted amongst 26 participants we came up with

several conclusions, which helped us decide the initial flavors, the price and the number of

bars to be sold in a package. After tasting our prototype 70% participants said they would

either ‘probably buy’ or ‘most definitely buy’ our product, which is a very healthy result for

an initial prototype test. Out of our prototype participants 88% consume snack bars ranging

from 1 to 10 every week. Through this we can infer that majority of our participants know the

snack bar industry fairly well.

Our prototype test was also used to find out the price and the quantity our participants


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would want to buy our product in. Through our survey after the test we could draw the

conclusion that none of our participants were willing to pay for than $2.00 for a single bar of

our product. We also found out that half our participants wanted the product in a package of

three bars. We decided to sell our snack bars in packages containing three bars and at the cost

of only $3.99, as 73% of our participants would prefer to purchase the product in a price

range of $1.00-$1.50 per bar.

There are several snack bars in the market, and to differentiate our product we

decided to introduce three flavors to start our campaign. Through our prototype testing we

could infer that our participants chose Peanut Butter, Chocolate and Strawberry and Banana

as their top three flavors. These three flavors were the preferred majority as they were the top

three choices of 58% participants from a list of ten different flavors. Hence, these will be the

flavors we plan to introduce in the market, initially.

Marketing Mix Product The product is explained in the introduction.

For the packaging, out initial survey shows us that there are a variety of consumption

needs among snack bar users. We would tailor our packaging differently for various

distribution channels. Convenience stores would sell individual bars, super markets will sell

boxes of 6 bars, and large 12 or 24 bar boxes can be sold at wholesale stores [Exhibit 3-2]

Place According to General Mills’ market report, supercenters/mass merchandisers such as

Wal-Mart, Target, and Kmart account for a 28% of energy/nutrition bar dollar sales, with

supermarkets and grocery stores claiming second place at 24%, and convenience stores

coming in third at 12%.


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Consumer will easily find Nature Valley Rice bar products in all mass merchandisers

such as Wal-Mart, K-mart, Target and Kroger etc., food stores, supermarkets, convenience

stores, drugstores, and club stores. Moreover Nature Valley Rice products will also target the

natural food stores, the healthiest grocery stores in America, such as the Safeway, Harris

Teeter in the Southeast, Hannaford in the Northeast, Albertsons in the West, and Food Lion

in Mid-Atlantic. Also to target college students, individual Nature Valley Rice bar will be

provided at small markets in the student union and discount store as well.

Promotion Nature Valley since beginning in the early 70s, has regularly introduced new

products to its brand line. The proposed puffed rice bar should be introduced soon to

capitalize on current market trends and to establish its position in the market.

According to our survey, 79.4% of consumer said, “Taste” is the most important fact to

choose snack bar.[Exhibit 1-5] The rice bar is pretty new to consumers, so it is important to

let consumer know that rice bar taste is good. To raise new brand recognition and promote

Nature Valley Rice products, we will give out free samples at mass merchandiser and

shopping malls for first couple month when it comes out to the store. Also we will work with

health magazines like Health, Men’s health, Women’s health, and give out free samples

through the Health magazine. Whenever readers take survey and send us survey cards, we

will send them a sample bars for the first month. Health magazines will also emphasize how

rice is good for health and diet. Also we will use magazine’s print advertisement. [Exhibit 3-

4]

Also Nature Valley Rice bar products are not only helping you in a good shape and in

good health but also it helps the hungers in the poor country. Nature Valley Rice products

will cooperate with Free Rice.com which runs by the United Nations World Food Program. If

you buy Nature Valley Rice bar products, each bar, you can donate 100 grains of rice to the


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hungers in the Cambodia, Haiti, Bangladesh, Uganda, Nepal, Bhutan and Myanmar.

Consumer can donate free rice by entering codes from the Nature Valley Rice product

package at freerice.com. [Exhibit 3-3] The example of donating free rice website.

Price Based on the product initial survey, 73% of consumers like to pay $1 to $1.50 for the

rice bar. [Exhibit 1-3: How much would you pay for 1 bar?] Many of other competitors’

snack bar prices are between $1.50 and $2.75 per bar. Our product management team and

financial department decided $1.39 (Wholesale Price: $0.99) for the Nature Valley Rice bar if

consumer individually buys at drug store or club store. Also it will be wholesale price of

$2.75 for the box including 6 bars at mass merchandiser. Other Nature Valley products costs

are between $4.00 to $5.00 depend on the ingredients and the store per box. We decided the

similar or same price as other Nature Valley products so that consumer won’t choose only

cheaper products.

Manufacturing/ Engineering Plan

Our objective was to come up with a quality new product for nature valley in the

puffed rice snack bar market. Currently to make our product, nature valley would not require

a huge investment. Since nature valley already has all the required machinery, which it uses

to make snack/ energy bars; there wouldn’t be any significant start up cost to make this

product. If the existing infrastructure, machinery, packaging and distribution channels, is

used, it would be a very cost effective technique, and earn higher profit margins for nature

valley. However, our product will have research cost associated with concept testing and

prototype testing for a larger customer base. One of the other biggest costs, Nature Valley has

to occur for this product would be the marketing costs.


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Our puffed rice snack bar are made by firstly, mixing the puffed rice with starch

syrup, honey and brown sugar. After mixing the mixture for a while, flavors like peanut

putter, chocolate chips, raisins and cranberries, mixed nuts, etc. are added to it. These flavors

were determined from the need of the customers from our prototype and concept testing. A

detailed description of the manufacturing process can be seen from figure 3.1. All these

materials used in the prototype product were of higher quality and were purchased from Wal-

Mart. We spent $ 20 on the ingredients and made 48 bars, which cost us only 41 cents per bar.

We believe that if nature valley produces these bars on a large scale, they would definitely be

able to reduce the cost of making the product.

Financial Analysis We believe that, Nature Valley can make a lot of profit from this product, even after

all the R & D, marketing and research cost, shelf space, distribution cost is covered. From our

financial analysis, we believe nature valley can make $ 20 million of net profit from the

puffed rice snack bar.

We used the ATR model to do sales forecast for puffed rice snack bar from our

market research data. For the ATR model we used three scenarios, the optimistic, pessimistic

and most likely. We obtained the following calculation:

Total market*Availability*Awareness*Trial (concept testing)*Repeat Purchases (Prototype

testing)= 15890175(around 16 million) units sold in the most likely approach, around 20

million in optimistic approach and 10 million in pessimistic approach. [Exhibit 5-1]. We had

a very good percentage of repeat purchase % from our prototype testing of 70 % [Exhibit 2-

1], which helped us to get a higher sales forecast figure

We also did breakeven analysis and estimated our fixed cost to be 1 million $ for all

the marketing, R&D and coupons expense. To estimate the variable cost we had the nature


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valleys variable cost of production of other nature valley snack bar products in the market.

We compared our product, which is the brand extension of nature valley to this data. As a

result we found that our Profit per Unit would be $1.07, variable cost would be 1.68 and Price

is at 2.75. With these numbers we estimated our revenues to be 16 million if we used the

most likely sales approach [Exhibit 5-2]. If we take into account Retail margin, it would

reduce this revenue by 30-35%. Still it is a very profitable brand extension for Nature Valley

to introduce in the market. If we consider the optimistic approach of sales forecasting, we can

make around $20 million and in the worst scenario, the pessimistic approach, we can make $

11 million in revenue and still it would be a very profitable new brand extension for Nature

Valley.


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Appendix

Concept test- Exhibit 1 1-1

1-2

1-3

Clif Bar 12%

Power Bar 9%

Nature Valley Granola Bars

22%

Nutri-Grain

Cereal Bar 20%

Chewy Granola Bars

20%

Special-K bar 17%

Have you ever tried any of these Products?

never

1-3 times

4-10 times

More than 10

29.40%

41.20 %

26.50%

2.90 %

How often do you eat snack bars each week

73%

18%

6% 3%

How much would you pay for 1 bar?

$1- $1.5

$1.5- $2

$2- $2.5

$2.5- $3


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1-4 How do you feel about purchasing this snack bar?

1-5

1-6 What Flavor do you prefer?

Definitely would buy

0%

Probably would buy

48%

Unsure 27%

Probably would not

buy 22%

Definitely would not

buy 3%

79.4%

14.7% 26.5% 41.2% 23.5%

47.1%

5.9% Taste Texture Organic Protein Fat calories Brand

name

What Aspect of snack bar is important to you?

Chocolate 18%

Peanut Bu1er 15%

Vanilla 10% Yogurt

6% S'mores 12%

Raisins and Cranberries

10%

Blueberry 5%

Strawberry and Banana

11%

Mango and Pineapple

5%

Apple Cinnamon

8%


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Prototype testing- Exhibit 2 2-1

\ 2-2

4%

66%

15%

15%

After sampling the product how likely are you to buy

this product?

Definitely would buy

Probably would buy

Unsure

Probably would not buy

Definitely would not but

0 12%

1-3: 73%

4-10: 15%

More than 10: 0%

How many snack bars do you consume per week?


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2-3

2-4

Individual Bar: 31%

Box of 3 Bars: 8%

Box of 6 Bars: 50%

Box of 12 Bars: 11%

Which are you more likely to purchase?

$1.00 - $1.50: 73%

$1.50 - $2.00: 27%

$2.00 - $2.50: 0%

$2.50 - $3.00: 0%

How much would you expect to pay for this type of product? (Per

1 individual bar)


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2-5

20%

21%

5% 5% 9%

6%

6%

5%

3% 17%

3%

Please circle your top 3 flavor preferences

Chocolate

Peanut Butter

Vanilla

Yogurt

S’mores

Raisins and Cranberries

Apple Cinnamon


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Manufacturing/Engineering and promotion - Exhibit 3 3-1 Manufacturing process

Boil Corn Syrup and Honey Together

Mix Boiled Syrup with Puffed Rice and all organic ingr

edients

Slice it by bar sizes

Put those in the tray and cool down

1.  Boil Corn Syrup and Honey Together (You can use Brown Sugar instead Honey) 2.  Mix Boiled Syrup with Puffed Rice and all organic ingredients


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3-2 Packaging

Promotion 3-3

3-4


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Exhibit 4- Marketing analysis


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Exhibit 5-Financials 5.1- ATR MODEL ANALYSIS

5.2 BREAK EVEN POINT Fixed Cost-‐ Marketing/ R&D 1000000 Variable Costs Raw Material 0.5 Manufacturing 0.54 Coupons 0.4 Logistics 0.24 Price 2.75 Profit/unit 1.07 Break Even Point 934579

ATR Optimistic Most Likely Pessimistic Total Market

US Population 311591917 311591917 311591917 Nature Valleys Market 41.63% 41.63% 41.63%

%Availability 75% 70% 65%

%Awareness 60% 50% 40%

%Trial (Purchase Intent from Concept tests) 50% 50% 50%

%Repeat Purchase (Purchase intent from Prototype tests) 70% 70% 70%

Forcasted Sales 20430225 15890175 11804130 Difference between breakeven and sales 19495646 14955596 10869551 Revenue $20,860,341 $16,002,488 $11,630,420

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