Royco Minute Soup CaseSOC Ltd. Consultancy Group

Mandate To introduce Royco Simmer Soup into the French Market - Paris, Lyon and Angers

Product launched through B2B - Supermarkets and Hypermarkets

Hiring trnd to facilitate with a WOM Campaign (B2B)

DeliverablesDevelop Simmer product within 6-9 months

Launch Royco Simmer Soup between 9-12 months

Number of Boxes sold (includes 4 sachets) 1,122,876

- Sales revenue of €1,177,671 - Profit €183,286

WOM Campaign launched in business districts with 2,500 connectors

External Analysis

Ambient Soup, French: 2013 Revenue Shares

Knorr39%

Liebig33%

Private10%

Maggi7%

Royco7%

Other4%

Sales

Knorr Liebig Private Maggi Royco Other

Buying Decisions• Soup is a moderate-involvement product, therefore

consumers pay attention when making purchasing decisions about Soup products. Especially in terms of KSF's such as Taste, Quality and Brand.

• This makes marketing and competing in this industry challenging.

• In order to excel, competing companies must establish a strong perceived differentiation (e.g premium quality or product innovation) or through cost (e.g low prices/promotion - sampling)

• Royco Minute Soup will need to develop a marketing plan to tackle and address this strategic issue

Attractiveness of the Market

• Life Cycle - Soup Market is in the Mature Stage of the Life Cycle

• Profitability - Soup market offers low profitability as it is in the Mature Stage of the Life Cycle and High level of Competition

Thus, the attractiveness of the market is LOW

Industry TrendsSoup Market• Five Categories: Instant dry, ready to serve, simmer, fresh and frozen -Ambient category: (90% of Sales) Instant dry soup (IDS) Simmer

Ready to serve

Business Districts of Paris, Lyon and Angers

-80% of office workers consume a snack in France at least one a day.-90% of offices have a kettle in their kitchens -Men are more reluctant to try a product than woman.

Advertising - Consumers Trust in relation to Adverts -Consumers trust recommendations from people they know

-Branded Websites

-Ads on Tv

Revenue (%)

9%21%70%

2013 2007 Difference

84% 78% 6%

69% 60% 9%

62% 56% 6%

Industry Trends (Continued)

Health • Consumers have become more health conscious

-Prefer snacks with less fat and less sugar.

Retail Prices• Ready to serve soup - €2.35/Litre• Simmer Soup - €1.09/Litre• ID'S - €1.58/Litre

Competitive Rivalry Level of Competition

• High Level of competition in the market • Direct competitors are Knorr, Liebig, Private Label,

Maggi • Ready to serve - Knorr, Liebig & Private Label • Instant Dry - Knorr, Royco Minute Soup, Maggi • Simmer - Knorr, Liebig, Maggi

Competitive Rivalry Market Size for France

• In 2013, Soup has a retail value of €422 million.

• Market Value:-€295,262,000 Ready to serve - €38,074,000 Instant dry - €89,551,000 Simmer• Royce Minute Soup €29,316,980 (77% - IDS)

Porters Five Forces

Fixed costs - High• Factory equipment, large staff numbers, Large quantities of

stockDifficulty in selling equipment - High• Specialised equipment that would be used to specific industries

packaging requirementsSpecialised skills – Medium• Certain parts of the industry require specialised skills specific to

soup production and would not be able to be utilised by other industries

Thus, barriers to exit it HIGH

Barriers to Exit

Threat of Substitutes

Home Cooking and Eating Out• Many people have a wide variety of options past soupLow Switching Costs• Cost of switching to alternatives is low and easyCulture• Cultural trends on popular lunch snacks can affect soup

market

Thus, threat of Substitutes is HIGH

Threat of New Entrants

Cost of entry - High. • Set up costs along with running of the business are of high costTechnology know-how - High• Significant amount of industry know how, food science’s and tacit

knowledge requiredDifficulty of brand recognition - High• Many well established brands on the market. High prices for

supermarket shelf positioning that current well known brands pay large amounts for

Life Cycle• Industry is in the Mature Stage of the Life Cycle, offering low revenues

Thus, threat of new entrants is LOW in soup industry

Bargaining Power of Buyers

Price Sensitivity – High• Consumers can easily switch products if a product is more expensive than

othersSubstitutes – High• The wide selection of substitutes means buyers can easily change productBackward Integration – Medium• Consumers can easily create their own soup. However not possible in

‘ambient’ categoryBuyer Fragmentation - High• Buyers and businesses are chasing each other for sales and value

Thus, power of buyers is HIGH

Power of SuppliersCommodity Product - Low• The main contents of soup are commodities produce can be

bought from a wide range of suppliersDifferentiation of inputs - Low• Suppliers of products for soup do not offer a difference of

inputs. Cost of Switching Suppliers - High• Soup companies would order large amounts of produce and

have presumably long term contracts

Therefore, power of suppliers is MEDIUM

Porters Five Forces Summary

FORCE LEVEL

Barriers to Exit HIGH

Threat of Substitutes HIGH

Threat of New Entrants LOW

Bargaining Power of Buyers HIGH

Power of Suppliers MEDIUM

Therefore, Competitive Rivalry is HIGH

Porters Five Forces Summary

Competitive Rivalry• The competitive rivalry within the industry is very high, this

causes intense competition within the industry and a strong downward pressure on prices

Buyer Power• There is a strong buyer power present once again putting a

strong downward pressure on pricesThreat of Substitutes• With a high threat of substitutes the soup industry as to

compete with more than direct competitors adding more pressure to promotion and pricing of products

Driving Forces• Supermarkets and Hypermarkets are both customers and

competitors through selling private labels (had 10% of overall market share)

-At the moment, retailers have roughly a 38% margin on selling branded soups. Supermarkets have high purchasing power and have the ability the to determine and vary price with their suppliers.

• Health and Nutrition -Customers have become more health conscious. The healthiness of snacks has become an important factor as customers prefer a snack with less fat and less sugar.

Key Success FactorsBranding• Royco has 3 main competitors along with various smaller

businesses to compete with standing out in this market is a necessity for sales.

• Royco Does possess this KSF

Quality• With the ease of switching to substitutes or competitors

along with consumers price sensitivity quality of produce is necessary for keeping and attracting consumers

• Royco does NOT possess this KSF

Key Success FactorsPrice• With high buyer power and competitive rivalry, price is an

important factor to consider when selling in this industry. Royco soups average price per litre is lower than the industry average, therefore Royco does possess this KSF

Taste and Nutrition• The most important measure of soup quality is taste. A

soup taste determines a customers choice in selection and is vital for developing a brand in the industry.

• Royco does NOT posses this KSF

Key Success FactorsKSF Does Royco possess this?

Branding YES

Quality NO

Price YES

Taste & Nutrition NO

Key Success Factors Summary

• We have established that there are four main KSF's are branding, quality, price and taste/nutrition.

• It is clear that Royco Soup possess some of the essential KSF's needed for this industry.

• It is clear Royco need to do more than meet KSF's, of quality and taste and nutrition in order to be competitive.

• The goal for Royco is to design a strategy that aims to be distinctively better than rivals on every one of the industry's KSF's.

Internal Analysis

Porters Generic Strategy

Cost Focus

Porters Generic Strategy

• Royco operate a cost (niche market) focus strategy.

• The company focuses on a narrow market to increase total customers by charging lower prices and therefore are pursuing a cost focus strategy

• A firm that has a cost focus strategy may possess a competitive advantage because they have the ability to obtain total customers in a niche market

Resources Tangible Resources

• Physical Resources: Products located and sold in various supermarkets and hypermarkets in Belgium and France.

Intangible Resources• Brand, image and reputation assets: Strong brand image in "IDS"

market (77% of market)• Relationships: Strong relationships with supermarkets and

hypermarkets across Western Europe. (Supermarkets are a crucial Driving Force within the Industry).

• Human assets and intellectual capital: Top Management - Has experience within the food industry and has tacit knowledge in KSF's such as branding

CapabilitiesBrand Management Capabilities

Over the last three years• Marketing campaigns aimed at brand recognition

such as TV commercials, radio, print and online advertising.

• Marketing budget has fluctuated but in 2014 is €1.2 million after several internal negotiations

Financial Analysis2011 2012 2013

Sales (Total IDS)

€44,209,000 €40,998,000 €38,074,000

Royco Sales - IDS

€21,368,000 €19,600,000 €18,445,000

Royco Volume

Growth - IDS

N/A -8.27% -5.89%

• New industry trends, stated above, show consumers have become more health consensus and looking for high quality and taste.

• This has caused negative growth in IDS market which is clearly evident in Royco Finacical performance.

• Royco has suffered unfavorably trends as it has experienced negative growth in the last two years due to being heavily involved in the IDS market.

Sales and Costings Analysis

Retail Price(Average)

Cost (42% Margin

Assumption)

Profit Royco Cost Percentage Potential Change

1.11 - IDSIDS (Royco) 1.58 1.11 0.47 -

Simmer 1.09 0.76 0.33 32% ↓ Decrease

Ready to Serve

2.35 1.65 0.70 48% Increase ↑

Overall Soup Market Positioning

(Revenue)

0

50,000

100,000

150,000

200,000

LIEBI (CVC)

KNORR

PRIVATELABEL

ROYCOMINUTE SOUP

MAGGI

OTHER

Sales Performance• Sales Performance 2013 in the Instant dry

soup market in France amounted to €29,171,000

• Royco sold 19,710,135 units in 2013

• France with 65.7 million inhabitants vs. 11.7 million in Belgium – sales in each country were more or less equal

Competitive Advantage• Currently struggling to connect with professional

women working in medium to large offices• Royco has an overall 7% market share and although

their lower prices are beneficial for customers, it is not a competitive advantage in the specific market Royco is targeting

Royco does NOT have a competitive advantage

Current Customer Profile

Target Audience

• Senior Citizens (43% of Sales) and Families (29% of Sales)

Target Location

• Paris, Lyon & Angers

Purchasing Patterns

• Customers purchase 3 times per year• 8 sachets on each occasion• Spend €3.20 on each visit (8 sachets*€0.40)• Thus, annual spend per customer is €9.60

SWOT AnalysisStrengths

Resources (Intangible) Strong brand image in "IDS" market (77% of market)

(However this specific market is declining)

Relationships: Strong relationships with supermarkets and hypermarkets across Western Europe. (Supermarkets are a crucial Driving Force within the Industry).

Brand Management Capabilities Over the last three years Marketing campaigns aimed at brand recognition such as TV commercials, radio, print and online advertising. (However Royco brand reputation is only strong in the IDS market only)

KSF'sThe four main KSF's are branding, quality, price and taste/nutrition.It is clear that Royco Soup possess some of the essential KSF's needed for this industry i.e Brand & Price

Easy & practical to use productConvenient source of food to consume as a snack or lunch (not time consuming)

SWOT AnalysisWeakness

Sustainable Competitive Advantage

No current sustainable competitive advantage as their cost focus strategy can easily be replicated.Negative sales trend

Worrying financial trend as IDS's revenue is declining year on year due to New Industry Trends/Driving Forces

Forecasted growth The soup industry is in the mature stage of the life cycle

The attractiveness of the market is low, thus the product they are selling has sluggish growth and is highly commoditised.

Only present in a certain market RMS only operates in IDS's market - limited brand awareness

RMS is targeting the lowest revenue in the Ambient sectorKSF’s

Royco currently do not possess KSF’s of Taste/Nutrition and Quality

InnovationCurrently, Royce's innovation is low in the IDS segment

Average customer only purchases 3 time a year (buying 8 sachets each occasion)

SWOT AnalysisOpportunities

Target New Market SegmentTarget a different market segment by creating a cheap, entry

productSell current products in new markets

Begin selling a soup products in different location Royco could expand further into the European market or aim

to increase its market share in Western Europe New Marketing Campaign

Using WOM Campaign to increase brand awareness for Royco

SWOT AnalysisThreats

High level of competition The soup industry is densely populated with many

competitors High number of substitutes

Large number of substitutes in the market such as snack & energy bars and fruit Negative IDS Market Growth

IDS market is experiencing weak growth annually

Current Competitive Position

• In France-Possesses the KSF of Branding and Price-However they do not possess Quality and Taste

-Currently, Royco has a market share of 77% in the IDS sector

In Summary• Royco currently are the market leaders in IDS.

However, this sector is declining year on year.• Have strong relationships with Supermarkets &

Hypermarkets • They do no posses certain KSF such as taste &

quality • Only present in one market and there are a high

number of threats and substitutes present

Q2 - Issue Identification Customer

retention rate is extremely low

Revenue is slowly decreasing

Struggling to reach new potential

customers

Brand image not where they want it

to be

Do not posses KSF’s Taste/Nutrition and

Quality

Benefits of Solving Issues Issue Benefits of Solving Issues

1. Customer retention is extremely low

Total customers

2. Negative revenue growth Improves profitability and efficiency

3. Struggling to reach new potential customers

Offers new customer base

4. Brand image not where they want to be

Improves and creates strong brand awareness and loyalty

5. Do not posses KSF’s Taste/Nutrition and Quality

Improves quality of product and brand reputation

Q3 - How could Royco grow the business in its current markets or

expand into new markets?• Through using the Ansoff

Matrix, we decided to utilse Product Development Strategy

• This is to compete in related markets with a new product

• In this way, growth by developing products should occur to replace or compliment exiting products

Product Development

Options

Product Development - Remain in the IDS market, or to develop into a new market segment

New marketing campaign

Options for Product Development

• Remain in IDS

• Ready to Serve

• Simmer (Sachet)

Product DevelopmentRemain in existing market or enter a

new segment

IDS• Risk – Continued negative growth in market sector• Cost – Costs are minimal as product is already

established for Royco• Potential Reward - Doesn’t increase brand

awareness and reputation as IDS sector is only 9% of overall market share

Product Development Remain in existing market or enter a

new segments

Ready to Serve• Risk – Leading players (Knorr & Liebig) control a

large market share in the sector• Cost – Establishing Ready to Serve as a product

would be very costly - an increase of 48% current manufacturing costs. (Shown in Sales and Costings Analysis)

• Potential Reward – Offers the largest market size in the ambient sectors. Presents the opportunity to attract new customers.

Product Development Remain in existing market or enter a

new segmentsSimmer

• Risk – Knorr dominates the market with a market share of 67%

• Cost – Creating Simmer as a product would involve less current manufacturing costs (Saving of 32%)

• Potential reward – Offers a new market segment but market size is smaller in comparison to Ready to Serve market.

Product Development Evaluation

Evaluation Criteria Option that Scores Best

Risk IDS - 77% market share but experiencing negative revenue growth

Cost Simmer - Offers huge cost efficiency

Potential Reward Simmer - Offers a new market segment with less number of competitors

Thus, Royco should pursue a Product Development of Simmer

Options for Marketing Campaign

• Adverts on TV

• WOM Campaign

• Ads on Radio

Marketing CampaignAdverts on TV

• Level of Trust: Adverts on TV offer a moderate level of trust to consumers (62% in 2013)

• Cost: Royco previous costs in 2013 was €720,000 (60% of €1,200,000 marketing campaign). Forecasted costs are €480,000 for 2014

• Ability to reach Target Market: Previous marketing campaign has shown that Adverts on TV is not reaching the Target Market (300,000 people in Business Districts) desired

Marketing Campaign WOM Campaign

• Level of Trust: WOM campaign offers the highest level of trust to consumers. (84% in 2013)

• Cost: With a sample of 2,500 participants, costings would be estimate of €120,000. (fee+spokesperson)

• Ability to reach Target Market: Over 188,000 conversations would be created towards the target audience with a sample of 2,500 participants

Marketing Campaign Adverts on Radio

• Level of Trust: Adverts on radio offer moderate level of trust to the target audience (57% in 2013)

• Cost: Royco previous costs in 2012 was €322,000 (23% of €1,400,000 marketing campaign) Forecasted costs are €180,000

• Ability to reach target audience: Previous marketing campaign has shown that Adverts on radio has been unsuccessful in reaching the Target Market (300,000)

Marketing Campaign Evaluation

Evaluation Criteria Option that Scores Best

Level of Trust WOM - offers the highest level of trust to consumers (84% in 2013)

Cost WOM - most cost effective as it estimated to be €63,000 for a sample of 2,500 participants

Ability to reach Target Market WOM - most effective method in reaching target audience as over 188,000 conversations would be created

Thus, Royco should pursue a WOM Campaign

Strategic Plan

Recommendation - Product Development

SimmerDefine • Creating a Simmer (Sachet) product under Royco's name

Features• It will be a premium quality • Flavors will be decided with the WOM Campaign by consumers

who will be enabled to create & vote on new suggestions • The selling point will be that it is a healthy snack product for the

business professions • It will be launched in line with WOM Campaign to gain as much

exposure as possible• Sampling of flavors

Recommendation - Product Development

Simmer (Sachet)Benefits• Solves issues

-Of operating in a negative revenue growth sector-Improves brand image and reputation as product is seen as a much healthier snack option-Provides greater quality and taste/nutrition as Simmer is a high quality product

• Flavors will be decided with the use of the WOM Campaign by consumers who will new suggestions Thus, creating and building customer engagement

Who will be our Simmer customers?

Business

Professions

HypermarketsSupermarkets

Wholesaler

Simmer Costings Breakdown of Costs Costs

Flavour Costs €0.05

Packaging Costs €0.10

Distribution Costs €0.04

Total Cost per sachet €0.19

Overall cost of producing box containing 4 sachets is €0.76

Population of France 65m Market Size €89.5mForecasted Market Penetration 1.3%Projected Royco Simmer Revenue €1,177,671Number of Simmer Boxes Sold 1,122,876Production Cost per box €0.76Sales Price per Box (Margin 38%) €1.05

Sample Costings

• Royco have the resources and capabilities to give out samples of 50,000 in selected cites

City Number of Samples

(includes 2 sachets)

Costings (0.19*2=0.38)

Paris 25,000 €9500

Lyon 12,500 €4750

Angers 12,500 €4750

Total 50,000 €19,000Royco (Margin 38%)

Revenue €1,177,671 (€1.05* 1,222,876) Costs of Production (1,122,876*0.76) €853,385

Sampling €19,000

WOMCampaign €122,000

Profit €183,286

Supermarkets (Margin 36% on

€1.05)

Will be explained in detail later on

Simmer Strategy• Royco should pursue a Product Development strategy to

enhance brand awareness and attract the target audience• Place Penetrate market in business districts of Paris, Lyon

& Angers • Promotion Street sampling during peak times 'Lunch

rush' - with explanation of product & demonstration (WOM Campaign will also be key promotion factor)

• Product Premium health product that is a convenient snack

• Price Per box (includes 4 sachets - €1.05)

Recommendation WOM Campaign

Define - Amplied WOM - trnd• Launching a WOM Campaign in Business Districts to increase brand

awareness to increase sales Features• Educate the public about product as a healthy alternative • Create communities such as a forum on our website so that

information can be shared easily • Through this forum we can create & build customer engagement • 2500 participants to create over 180,000 conversations• Spokesperson to be hired• Samples will be disrupted in selected cities during lunch hours and

during commuting times to and from work

Recommendation WOM Campaign Benefits• Solves issues

-Struggling to reach new potential customers-Customer retention is extremely low-Brand image not where they want to be-Negative revenue growth

• WOM Campaign will give Royco the ability to reach its target audience in Business Districts

• It will improve brand awareness by encouraging customer engagement through voting for flavours

• Trnd has the database to access our target audience to encourage word of mouth promotion

Campaign Format & Particapants

Metric ValueWOM Modules Basic+Dialogue+Visibility

Locations Paris, Lyon and Angers

Number of Samples 50,000 (2 sachets in each)

Metric Value

Number of Participants 2,500Male % 25%

Female% 75%

Costing of WOM Campaign - trnd

Number of connectors 2500

Number of conversations 187,500

Fee (€) 40,000

€/conversation 0.21

Printing materials and shipping

Total trnd Fee

€22,000

€62,000Spokesperson

Total WOM Campaign €60,000

€122,000

Implementation 0-3 Months• Contact Trnd to begin negotiation of WOM Campaign• Register Simmer brand name3-6 Months• Inform B2B relations about the prospect of new product

launch• Begin preparing for marketing campaign, promotions and

packaging• Using WOM Campaign to identify flavor selected by target

audience • Prepare for manufacturing - Royco Simmer Soup

Implementation 6-9 Months • Begin WOM Campaign with 2,500 connecters • Prepare to distribute samples to connectors in selected cites • Hire Spokesperson to be the face of the Simmer Brand • Develop pricing & promotion • Continue preparation for product launch 9-12 Months Launch• Distribute boxes to numerous retailers • Create communities for target audience to engage about the

product - forums on website

Risk & Contingency

Recommendation

Royco Simmer Soup

& WOM Campaign

Risk

Supermarkets are not

interested in new product

Mitigation

Intensive preparation before informing supermarkets about the new product

Contingency

Joint Venture with Maggi

Mitigation & Contingency explained

Mitigation• To mitigate against this risk, intensive preparation

should be arranged before informing supermarkets and hypermarkets of the new product.

• This can be an opportunity to persuade supermarkets about the benefits, such as Simmer being a prosperous market compared to IDS, and ensure supermarkets are interested.

• White paper should be prepared explaining the benefits of Royco Simmer Soup

Mitigation & Contingency explained

Contingency• Should the Royco Simmer Soup launch fail, Royco

should contact Maggi about the prospect of Joint Venture.

• Benefits for Maggi: Royco should explain that they are a leading player in the IDS market.

• Benfits for Royco: Maggi has a market share of 36% in the Simmer market

What

Royco Simmer Soup

When Starting now and beginning

launch between 9-12 months

How Using current resources and

capabilities Also through WOM Campaign

Where

Business districts of Paris, Lyon and Angers

Supermarkets & Hypermarkets

Summary

Who

Royco