Marketing Class Project 2

Progresso:Ready-to-Serve the Industry

Margaret GentileSatoko HiraiChris Powers

Matt RedmondAlex SirkinSteve Wang

Agenda

2

•Executive Summary

•Industry Overview

•Company Analysis & Competitive Landscape

•Customer

•Product

•Distribution Channels

•Conclusion

Executive Summary

• High household penetration but moderate growth - Single digit growth in ready-to-serve (RTS) soup industry

• Two-horse soup race– Progresso and Campbell’s – Brand not important to customer

• Fierce position competition • Still, more pressure

– Low price private labels– Commodity inflation– Demands from distributors, especially Wal-Mart

3

4




•Customer

•Product


•Conclusion

Canned Soup: A $3.1 Billion Industry

50%

35%

15%

Sales by Type

Ready-to-serve wet soupCondensed wet soupReady-to-serve broth

49%

35%

5%

5%

7%

RTS Sales by Brand

Campbell'sProgressoHealthy ChoicePrivate LabelOther

Progresso:Strong #2

RTS Dominates Canned Soup Consumption

Units of canned soup sold (2007): ~2.2 Billion1

Average price of canned soup (2007): $1.431

1Calculated with equivalent unit data from AC Nielsen 2Mintel Report: Soups – US -- 2008

2 2

5

Overview of the Soup Market

Trends

• 4-5 % growth/year (2008-2012) 1

• Wal-Mart’s share of sales increase 1

• Private label brands growing fastest 1

Changes

• Key targets– Health-conscious– “On the go” people

• “Fresher is better”

6

Biggest Worry

• Raw materials costs

2,3,4

1 Mintel Report: Soups – US – 20082 Form 10-K, General Mills and Campbell Soup Company3 “Soaring grain prices affect many food costs” Seattle Post-Intelligencer, 15 Mar 084 AC710 Accounting Presentation – General Mills by Group 6 (“Six Sigmas”)

7




•Customer

•Product


•Conclusion

Progresso’s Fit with General Mills

• Emphasis on wholesome product– Removal of MSG– Reduced sodium line

• History of innovation– Birth of Progresso Light from G-WIN 5, 6

• Commitment to Corporate Social Responsibility– Susan G. Komen can

Progresso Sales FY

20081

Progresso Sales

as % of GIS Sales2

A&M Budget Growth3 NPV4

$565 Million 4% 16% $621 Million

8

1 Data from AC Nielsen2 For fiscal year 2008: total sales of Progresso sales from AC Nielsen divided by net sales on GIS 10-K3 Year-over-year growth from 2006 to 2007; Facenda, Vanessa L. “General Mills Outlook ‘Healthy’ with New Products, Increased Ad Spend. Brandweek .com Feb. 22, 2008 4 See Appendix, Slide 255 General Mills G-WIN website http://www.generalmills.com/corporate/open_innovation/index.aspx6 Jusko, Jill. “Happy Anniversary for General Mill’s G-WIN” Industry Week, 1 Jul 2008; Obtained through www.highbeamresearch.com

Competitive Analysis

Brand

Strategy• Competitive

pricing during peak season

• “Bottom-line driven pricing”4

• Lower price, comparable taste

• Value-add

Position• Premium• Healthy

• Sentimental• Natural

• Low-cost

Strengths

• Effective use of promotions

• Identify market trends

• Innovator

• Brand recognition• Clear message• Innovator• High margins

• Same-store promotion

• Low-cost

Weaknesses• Concentrated

customer base• Cannibalization

• Concentrated customer base

• Price pressure

• Smaller selection

1 http://www.bettycrocker.com/products/progresso/Progresso-Product-Landing-Page.htm2 http://www.campbellsoup.com/default.aspx3http://www.roboticjelly.co.uk/discount-soup-can.jpg4Michman, Ronald D., et al., The Food Industry: Marketing Triumphs and Blunders, Greenwood Publishing Group, 1998. P. 97-100.Other data obtained from Mintel Report: Soup (September 2008)

12 3

Progresso’s Pricing Strategy: Seasonal Aggressiveness

1 AC Nielsen

Sum

mer

'05

Win

ter '

05 -

'06

Sum

mer

'06

Win

ter '

06 -

'07

Sum

mer

'07

Win

ter'0

7 -'0

8$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

0

50

100

150

200

250

300

350

400

Seasonality of Soup Sales and Prices1

Campbell's Private Label

Progresso Volume: All Canned Soup

Season

Pri

ce p

er

Equiv

ale

nt

Unit

($)

Canned S

oup S

old

(M

illions o

f Equiv

ale

nt U

nits

)

Equivalent Unit Prices in 20071

Progresso Campbell’s

Winter $1.46 $1.57

Spring $1.64 $1.70

Summer $1.84 $1.77

Fall $1.47 $1.53

11




•Customer

•Product


•Conclusion

Initiator

Influencer

ApproverBuyer

User

Gatekeeper

Diet ProgramsGeneration Z

Decider

ApproverBuyer

Women Dominate Selection…

12

Baby BoomersGeneration XGeneration YGeneration Z

Whi

te

Hispan

ic

Black

Asian

0%

20%

40%

60%

Demographic Shifts2

20082050 (est)

Notice ads on billboards

Pay attention to commercials

Remember advertised products

0.0% 50.0% 100.0%

Receptivity to Marketing & Advertis-ing1

Hispanic

Asian

Black

White

All

1Mintel Report: Soups – US – 200822008 US Census Bureau Report

…and Select Based on Flavor

Brand

Health

Price

Flavor

0% 10% 20% 30% 40% 50% 60%

Criteria by Gender1

All Female Male

Brand

Health

Price

Flavor

0% 10% 20% 30% 40% 50% 60%

Criteria by Age1

All Baby BoomersGeneration X Generation Y

Chunky

Campbell's

Progresso

0% 20% 40% 60% 80% 100%

Promoter Passive Detractor

Flavor carries the day in soup selection criteria

Net Promoter Scores for major labels/brands demonstrate consumer’s “brand agnostic” selection criteria

13

NPS-57

-62

-85

1Mintel Report: Soups – US -- 2008

Targeted Ethnic Opportunities

With seafood

With beans

Vegetable/vegetarian

Cream-based

With beef

With noodles

With chicken

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

All White Black Asian Hispanic

141Mintel Report: Soups – US -- 2008

Black and Hispanic populations shows an above-average interest in chicken, noodle, and vegetable-based soups

Black, Asian, and Hispanic populations show an above-average interest in seafood soups

15




•Customer

•Product


•Conclusion

Progresso Soup: Product Length and Depth

SKUs2 Positionin

g

Sales in 2007

($ Million)1

Traditional 26 Taste 253

Vegetable Classics

17 Taste 109

Rich and Hearty

12 Taste 91

Low Sodium

8 Healthy 53

Light 5 (11) Healthy26 (launched

8/2007)

Total 74 531

Low Sodium11%

Light12%

Veg-etable Clas-sics19%

Rich and Hearty15%

Traditional43%

Progresso Soup Sales by Product Line1

4 weeks ending 12/01/07

2

1 JP Morgan Analyst Report from Jan 08, 20082 http://www.bettycrocker.com/products/progresso/progresso-products.htm3 http://www.generalmills.com/corporate/brands/product.aspx?start=P4 http://www.wtopnews.com/?nid=111&sid=1483005

• Partnership with Weight Watchers3

– 6 SKUs with 60 calories, 0 points – 5 SKUs with 70 – 80 calories, 1 point

• $100 million in sales in first year4

17




•Customer

•Product


•Conclusion

Growth of Soup Sales via Mass Merchandising

Food stores76%

Drug stores

2%

Mass Merchandisers / Other 22%

2008 Soup Sales By Retail Channel¹ Soup Sales by Mass Merchandisers:• 21% growth from 2006-2008¹• $206 Million¹

Primarily causes:• Rising energy costs• Higher priced consumer

packaged goods• Uncertain economic

conditions

18¹Mintel Report: Soups – US -- 2008

Distribution Margins

36% / $0.38 $1.77

GIS Variable Unit Cost of Soup

% MarginSelling Price Margin in $

$0.67 36% $1.05 $0.38 19

Manufacturer Distributor Retailer Consumer

23% / $0.31 23% / $0.411 2 3 4

1 http://www.generalmills.com/stream_image.aspx?rid=51192 http://www.supervalu.com3 http://www.rsspieces.com/m/blogs/herrington/Kroger_New_Logo.jpg4 http://www.generalmills.com/stream_image.aspx?rid=5119

20




•Customer

•Product


•Conclusion

The Road Behind, The Road Ahead

21

Strengths• Going outside for

innovative technology in new products

• Partnerships/first mover on trends

• Good turn-over on booked sales1

Weaknesses• SKU proliferation without

growth in shelf presence• Market share• Long-term liquidity

Opportunities• Continue exploring

healthy eating options• Targeted ethnic-based

marketing programs• Streamline future productions

via capital investments

Threats• Campbell’s push into

Premium offerings2

• Private label growth• Strong-armed by

influential distributors3

• Commodities prices and effects on inventory

1 AC710 Presentation by Six Sigmas on General Mills; GIS: Financial Ratios. investing.businessweek.com2Campbell’s Select Harvest Website URL: http://www.campbellsoup.com/select.aspx3”Wal-Mart cuts food prices by up to 30%”, Mintel, 20 June 2008

Appendix

Margin Calculations

From 10K(In $

Millions)Supervalu Kroger General

Mills

net sales 44,048 70,235 13,652

cost of sales 33,943 53,779 8,778

gross margin 10,105 16,456 4,873

gross margin %

22.9% 23.4% 36.7%

Unit cost % Gross margin

Selling Price Margin

General Mills

$0.67 35.7% $1.05 $0.38

Supervalu $1.05 23.4% $1.36 $0.31

Kroger $1.36 22.9% $1.77 $0.41

Consumer $1.77

Method:1. Obtained 10K filings from Supervalu, Kroger, and General Mills and pulled the reported Net

Sales and Cost of Sales. 2. Determined the gross margin as a percent of net sales and used these margins as the gross

margin on Progresso soup (see Table on Right, Column 3).3. Starting with $1.77 (obtained from AC Nielsen) for one can of Progresso soup, determined the

unit cost for the retailer, distributor, and General Mills using % gross margins calculated in Step 2 to obtain $0.67 as the cost of one can of Progresso for General Mills.

Assumptions:The % gross margin on a can of Progresso soup is the same as the average company % gross

margin for all 3 channels.Supervalu and Kroger’ gross margins on soup are representative margins on Progresso soup for

the food distribution and retail grocery industries.

NPV Calculations

TABLE 1Year

Projected Total RTS Soup

Sales2 ($ Million)

Sales of Progresso($ Million)

Progresso Projected

Gross Profit ($ Million)

2007 actual 1,609 532.0 112.17

2008 (projected)

1,627 538 113.42

2009 (forecast)

1,661 549 115.79

2010 (forecast)

1,705 564 118.86

2011 (forecast)

1,752 579 122.14

2012 (forecast)

1,797 594 125.27

2013 (forecast)

1,845 610 128.62

TABLE 2Ex. 2008

Soup Sales($ million)

% Gross Margin

Projected Gross Profit($ million)

General Mills 204.30 35.7% 113.42

Supplier 317.74 23.4% 94.36

Retailer 412.11 22.9% 125.88

Customer 538

$113.42

2009 2010 2011 2012 2013 2014

Year-end 2008NPV of Progresso = present value of these expected cash flows = $621 million

Projectedcash flows in $ million $115.79 $112.14$118.86 $128.62$125.27

r = 6.40% per year1

Method:1. Calculated the market share of Progresso soup (33% of RTS, see 2007 data

from Table 1)2. Using the projected and forecast data for total RTS soup sales over 2008 –

2013 found on Mintel, extrapolated the projected sales of Progresso over the same time span (Table 1, Column 3) as a fixed percentage of total RTS soup sales using their market share percentage from 2007 (ex. in Table 1, Row 2: $1,627,000,000 x 0.33 = $538,000,000 projected Progresso sales)

3. For each year, calculated projected gross profit for Progresso from projected sales of Progresso using the margin analysis described earlier (see previous slide and Table 2)

4. Placed all projected gross profits per year (i.e. the projected cash flows from Progresso for years 2008 – 2013) in time line

5. Consider 2008 as year 0.6. Calculated the Net Present Value of all projected cash flows at r = 6.40%

per year (the trailing five year average of prime rate from 2003 – 2008) as of year-end 2009.

Assumptions:Cash flows (i.e. projected gross profit) occur at end of calendar yearPrices of soup stay constant Progresso’s market share stays constantConsumer Sales at current prices General Mills, supplier, and distributor margins all stay the samePrime year rate is the appropriate interest rate measurement for ProgressoTrailing five year average of prime rate (2003-2008) is representative of the average of prime rate (2009-2013)

Marketing Class Project 2

Documents