Montreaux Chocolate USA Adrian Nguyen ATeam UWMCC Case

Montreaux Chocolate USA Adrian Nguyen A-Team UWMCC Case Competition “Introducing Euphoria Pomegranate by Healthy Cravings – Reward yourself with happiness and good health”

Outline � � � Situation Big Questions Ideal Corporate Targets Thought Framework Recommendation Supporting Evidence › Qualitative and quantitative � � Revisiting Corporate Goals Summary � Supplementary Information

The Situation � Apollo acquires rights to Montreaux for America on June 2011 � Consumer Food Group (CFG), a subsidiary, forms Montreaux USA � Andrea Torres, director of new development, is faced with multiple decisions

The Big Questions � Next steps for Montreaux USA? › How are we launching the product � Time to upgrade logistics? › Pennsylvania factory

The Big Questions � American or European branding? › Heritage › New product line �Brand �Sub-brand � New product name?

Ideal Corporate Targets � National distribution of Montreaux product line � $115 million in annual sales by 2015 � 0. 60% market share › Top 25 in revenue � Acceptable hurdle rate of $30 MM › Needed for full national rollout

Thought Framework Support each decision with evidence � Calculate projections � Pros and cons matrix � Nielsen’s 12 Product Success Factors �

Recommendation - The Product � Name › Euphoria by Healthy Cravings � Branding › Apollo sub-brand � Features › › � 70% Cocoa Pouch Bag Format Premium chocolate Health positioning � Slogan Flavours › Pomegranate › Blueberry › Cranberry � Price › $4. 49 MSRP � Acquire Pennsylvania factory “Introducing Euphoria Pomegranate by Healthy Cravings – Reward yourself with happiness and good health”

Recommendation - Montreaux USA Launch Strategies Further Testing The Market Pros • • Launch in Selected Test Stage a Regional Rollout Markets • Fine-Tune Consumer Insight • Most Limited Liability and Risks • Gather Additional Consumer Insight • • Possibly Redundant Data • Delaying Market Entrance Display Commitment to Retailers • Biggest Opportunity to Increase Market Share • Greatest Revenue Opportunity • • • Cons Middle-Of-The-Road Approach • Most Representative of Market Condition Discover New Opportunities • Delaying Market Entrance • Difficulty In Finding Suitable Test • Markets • Convincing Retailers for Limited Batch Purchases • • Most Expensive ($3 MM) Limited Production Capabilities Average Expenditures Limited Liability and Risks Begin Market Share Dominance Long Result Reading Time (1 Year) • National Launch • • • Conservative Strategy • Potential Lost Opportunity Less than 100% Commitment to • Market • • Very Expensive Requires New Factory Greatest Resource Commitment Requires New Factory Poor Regional Selection SELECTED LAUNCH PLAN

Marketing Strategies and Tactics � Market Trends � Product Choices � Capturing the Market › The Ideal Customer � Mainstream Distribution Channels

US Chocolate Market Trends 2011 � � � Low-calorie options such as reduced fat and aerated chocolate Premium chocolate products moving to mainstream channels (i. e. , supermarkets, mass merchandisers) Dark chocolate popularity rise Packaging transition to stand-up pouches and bigger sizes New labeling with terminology emphasizing shareability, portion control, and saving a piece for later Increases in pricing attributable to rising commodity costs

Product Choices – BASES Testing � 70% Cocoa concentration › Preferred taste versus 90% in qualitative testing › Emphasize health positioning � Bold Flavours › Blueberry, pomegranate, cranberry �Narrowed from top five ‘winners’ � Pouch format › Shareability, portion control, economical › 3. 5 oz – less unique, less revenue generation � Healthy Cravings – Apollo sub-brand �Confusion in European credibility “Introducing Euphoria Pomegranate by Healthy Cravings – Reward yourself with happiness and good health”

Capturing The Market Socioeconomic Status � Cater to as many demographics as possible › › 45 -64 Age group Everyday sophisticates Brand loyalists Women Consumer Type Age Gender Differences

The Ideal Customer � Older aged upper-middle class female � 45 -64 age group � Motivations › › Personal health considerations Luxurious reward Mood enhancement Enjoys trying out new flavours

Quantitative Data � Purpose › Identifying ideal launch path � Calculating Sales Projections � Chocolate Market’s Future › Relation to Corporate Goals

Montreaux USA Launch Strategies � Explaining the details Further Testing The Market Pros • • Launch in Selected Test Stage a Regional Rollout Markets • Fine-Tune Consumer Insight • Most Limited Liability and Risks • Gather Additional Consumer Insight • • Possibly Redundant Data • Delaying Market Entrance Display Commitment to Retailers • Biggest Opportunity to Increase Market Share • Greatest Revenue Opportunity • • • Cons Middle-Of-The-Road Approach • Most Representative of Market Condition Discover New Opportunities • Delaying Market Entrance • Difficulty In Finding Suitable Test • Markets • Convincing Retailers for Limited Batch Purchases • • Most Expensive ($3 MM) Limited Production Capabilities Average Expenditures Limited Liability and Risks Begin Market Share Dominance Long Result Reading Time (1 Year) • National Launch • • • Conservative Strategy • Potential Lost Opportunity Less than 100% Commitment to • Market • • Very Expensive Requires New Factory Greatest Resource Commitment Requires New Factory Poor Regional Selection SELECTED LAUNCH PLAN

Calculating Projections Methodology � Calculated all possible sales volumes scenarios using methodology formulas › Market-adjusted trial rates, repeat volume, etc. › 3^3 = 27 Possible Scenarios › Determined sales volumes � Combination of three factors › Awareness type �Marketing campaign effectiveness › ACV type �Market reach effectiveness › Product quality �Repeat rate of consumer

Calculating Projections – Work Example � Calculating repeat volume Type Awareness Type ACV Low Medium High Low High Medium High # of Trial Households (MM) 2. 82 3. 05 3. 71 2. 82 3. 71 4. 51 3. 42 4. 36 5. 30 Quality of Product Mediocre Average Excellent Mediocre Average Excellent Mediocre Average Excellent % of Households Repurchasing 28% 33% 38% 28% 33% 38% 28% 33% 38% Repeat Purchase Occasions 4 4 4 4 4 4 4 Repeat Volume (MM) 3. 16 3. 72 4. 29 3. 42 4. 03 4. 64 4. 16 4. 90 5. 64 3. 16 3. 72 4. 29 4. 15 4. 90 5. 64 5. 05 5. 95 6. 85 3. 83 4. 52 5. 20 4. 89 5. 76 6. 63 5. 94 7. 00 8. 06

Projections – Graph $ 70. 00 Retail Sales Value ($ MM) Montreaux Sales Volume ($ MM) Acceptable Hurdle Rate $ 50. 00 $ 40. 00 � $ 30. 00 $ 20. 00 $ 10. 00 $- 5. 98 7. 10 7. 09 7. 87 9. 35 6. 54 7. 86 9. 35 10. 46 7. 26 8. 63 10. 12 11. 24 13. 36 Sales in $ MM $ 60. 00 Number of Purchases in MM Band range of ACV, Quality and Awareness

Ideal Corporate Goals Revisited � Corporate 2015 goals overly aggressive › Despite double annual market adoption rate � Accomplished national rollout Chocolate Market Size (BN) 2012 Market 2015 Estimate Aggressive 2015 $ 17. 664 $ 19. 120 Annual Growth Rate 2% 4% Average Montreaux Sales (MM) $ 39. 02 $ 42. 24 $ 45. 65 Market Share 0. 22% 0. 24%

Nielsen’s 12 Product Success Factors � Acceptable downsides › Taste � Findability › ACV focus � Product delivery and loyalty › New factory › Perpetual improvement

Summary � Market goals › Nielsen’s 12 Success Factors › Accomplished national rollout � Expand manufacturing capabilities › Pennsylvania � Montreaux USA marketing plan › Target demographics › Focus on supermarkets � Product specifications › Euphoria by Healthy Cravings › Pouch › 70% Premium Cocoa � American credibility › Sub-brand of Apollo “Introducing Euphoria Pomegranate by Healthy Cravings – Reward yourself with happiness and good health”

End of Presentation

Additional Potential Opportunities and Risks � Opportunities › Partnering with other firm than the Big Two › Develop better infrastructure �Perhaps more factories and manufacturing centers › Product specifically targeted to men › Virtual integration with Suppliers �Mexico � Risks › Introduction of superior rival product › Product not well-tested › Manufacturing capabilities not up to par › Ability to Scale

Porter’s Five Forces Analysis Bargaining Power of Buyers � › › � Low to moderate Large volume orders Lack of threat of backward integration Reliance on industry product � Threat of New Entrants Bargaining Power of Buyers › › › Competitive Rivalry Within Industry Threat of New Entrants Low Very expensive manufacturing costs Lack of distribution channels Regulatory restrictions Confectionery and chocolate market relatively saturated Threat of Substitutes › › › High Alternate confectionery available Competition during holidays � Threat of Substitutes � Competitive Rivalry Within Industry › › › High Equally capable competitors Slow growing High storage and fixed costs High exit barriers Bargaining Power of Suppliers › › Moderate to high Supplier group is concentrated No threat of forward integration Industry is important customer to supplier Source: http: //jmfrrell. blogspot. ca/2011/06/chapter-4 -industry-analysisporters-five. html

Distribution Methods � Go through retail channels Distribution Channels Breakdown › Supermarkets and grocery focus � Premium chocolate moving into this distribution channel Supermarkets/Groc ery 15. 8% 11. 7% 54. 7% 9. 0% 8. 8% Convenience Stores Drugs Stores Big-Box Supercenters Other

Distribution Formats Market Share Revenue ($ in MM) Snack-size Chocolate; 2. 522 Bar/Bag/Box (>3. 5 oz); 7. 149 Bar/Bag/Box(< 3. 5 oz), 3. 479 Bar/Bag/Box (>3. 5 oz) Seasonal Chocolate; 4. 407 Bar/Bag/Box(<3. 5 oz) Snack-size Chocolate