Kingsford Charcoal Business Case
During the summer of 2000 two brand managers were tasked with determining the cause of the softening in the overall charcoal category market and to provide recommendations that would change that. The Clorox Company was founded in 1913, its first product being the industrial strength liquid bleach made from a combination of chlorine and hydroxide. By 1957, Clorox was the leading producer of bleach in the US and was purchased by Procter and Gamble. Although the sale was completed, the US Federal Trade challenged the acquisition and thus P&G was forced to divest Clorox in 1969.
Since then Clorox has aggressively pursued a growth strategy driven by acquisition and internal research and development. By 2000, the company had over 50 products that were market to consumer all over the world and nearly all of its products were among the leaders in their respective categories. The Clorox Company Financials (Exhibit 1) shows net sales and net earnings slight up as compared to prior years; however the quarterly and six month consolidated statement show a decrease in the last two quarters more significant in the last quarter of the year.
Kingsford Charcoal Business Case Essay Example
This coincides with a decline in the volume growth for Kingsford (Exhibit 3) during the last two quarters as well as the grill penetrations and grill shipment trends both showing a decrease in the year 2000, thus, the importance of understanding, serving and growing the market for Kingsford’s product category. Part A. 1. Given your analysis of the Kingsford case, what are (or reasonably could be) the key drivers impacting the observed trend towards declining growth rates in recent years? Make sure that you include your rationale in your answer?
As we reviewed the case and the data available we found that various factors could have reasonably impacted the observed trends towards the decline in recent years. Some of these drivers had a stronger, more significant impact than others. A. Increase In Price The analysis completed by Smith Boyle and Warren shows that both the private label and Kingsford competitor had increase their price significantly over the last year, and that this increase in price may have led consumers to shift to other alternatives for grilling, such as gas grilling.
We agree that this may have impacted some of the decline, although we do believe the impact was small compared to other drivers. The price increase between competitors and private labels reduced the gap that existed between these brands and Kingsford approximately to 13. 9%-15% on regular charcoal and by approx. 7% in the instant # 8 bag. Although Kingsford kept their prices steady, some partners slightly increased the price for Kingsford charcoal as well. One of the reason we believe the impact was small is that although the overall charcoal market volume was dropping Kingsford market share increased from 51. % to 59% in 2000. Price increase in other brands, perceived to be of a lesser quality than Kingsford, drove those shares into Kingsford. Among other Charcoal brands Kingsford is well positioned, of superior performance and perceived superior quality over its competitors. It also provides unique variety between its regular bags and those treated with liquid fluid as well as convenience of use with the various sizes of bags. With this in mind we want to continue to have a healthy gap in price between the private labels, competitors and Kingsford.
B. Number of Category SKU’s: Private labels, Royal Oak, Kingsford Like all categories and increase in sku’s make it more difficult for consumers to choose and more difficult for differentiation. Although the article does not go into too much detail regarding the amount of charcoal competitors (mentions Private Labels and Royal Oaks) , private labels have many advantages and increasing market power over manufactured brands. Private labels are more profitable and usually will have lower cost in R&D, advertising, sales promotions and distribution.
In addition space at retail stores for displays and or promotions are scarce therefore a fee will be required for other brands to display or promote their brands without diminishing display of their private label products as well as making sure they are well stocked. In this situation, the reduction of sku’s is more for the retailer so that fees are managed and both private labels and other brands can display their products, since it will most likely be the case that if space was to be taken it will be from the other brands.
With that said, we are not recommending eliminating private labels, however we do feel that keeping things simple at the point of sale will allow for better opportunities to display and merchandise the product and provide consumer the opportunity to choose between two brands (private label and Kingsford ) versus having the retail make that decision for the consumer by reducing the amount of display for the other brands, not having other brands on stock or “over emphasizing” private label brands , which usually appeal more to a specific group of buyer.
Not providing consumers what they are looking for can lead and may have led to choosing alternative types of grilling over the charcoal category. Stronger collaboration with private labels will be needed in order to decrease the impact these have in the sale of Kingsford brand. Some recommendations includes: Partner effectively by seeking win-win relationships with retailers through strategies that compliments the retailer’s private label.
An example of this is the strategy Sales Director Nick Vlahos was recommending which is keeping prices same, to buy more time to build a better relationship with retailers that will be willing to increase distribution and merchandising support to Kingsford. As part fo the collaboration/partnership Kingsford would share data and help them understand how their sales increase when customers buy charcoal. Another recommendation would be for Kingsford to innovate with new products that beat private labels and protect the intellectual property of those innovations.
And lastly create winning value propositions that provides brand with symbolic imagery as well as functional quality that beats private labels. Private labels are perceived to be cost effective, “cheaper” product and thus Kingsford needs to ensure that their value proposition, quality and price reflect the premium product they are. C. Shift In Market; Gas Grilling Growth Vs. Charcoal Grill The charcoal category has slowed from 4% growth in 1998 to 1999 to a 2% growth from the 1st half of 1999 to the 1st half of 2000.
The forecasted growth did not show improvement and by the end of 2000 the entire category was down relative to 1999. Although the charcoal category seems to be declining the grilling industry overall was growing. The number of events of barbecue had gone up in the U. S. from 1. 4 billion in 1987 to 2. 7 billion in 1995 and over 3 billion in 2000. Most of this growth had come from ownership being among younger, larger, higher, income families. Common reasons for grilling great flavor, desire to be outdoors, gathering with family and friend, easy clean up and informality.
For those who choose charcoal as their type of grilling do so for the hands on experience and those choosing gas as their preferred method do so for the convenience, easy clean up , shorter cooking time etc. As we reviewed the data for the gas grilling category we observed that shipments for grills have continuously shown growth since 1997, almost 50% in a period of 3 years. The grill penetration trends confirm the decrease in charcoal needs since the data shows the percent of household that owned a charcoal grill has declined approximately 3% percent since 1998, while the gas grill increased by 2%.
Household containing both types of grill have remained relatively flat year over year, which leads us to believe that the direction is towards gas grilling as the preferred method for those that left charcoal. A portion of this shift may be due to the price increase consumers experience although, as mentioned above in the price increase section our understanding based on the data that a minimal amount of consumer chose to go with gas grilling versus charcoal because of price increase.
We believe that the younger, larger and higher income families that were contributing in the growth of grilling overall were probably not as familiar with the charcoal method and since gas grilling has invested significantly in advertisement over $10 MM in 2000, this may have contributed significantly in capturing the new generation of “grillers” into that category. D. Decrease in Advertisement Spend Impacting Overall Category Grilling is part of the American fabric and Kingsford is well positioned through its perceived quality to continue to dominate within its category; charcoal.
The grilling industry is a mature one and Kingsford owns 57% of the market share, while private labels brands capture 34% and Royal Oak has 7%. During the last several years the advertisement dollars has been significantly reduce (83%) not only by Kingsford, but by the category overall. Given the maturity of this market and the fact that a shift in the market seems to be occurring as stated in factor C the reduction in this area seems to have significantly impacted the category. In addition the gas grilling had increase their advertising spends from less than $4M in 1998 to over $ 10 M in 2000.
Although Charcoal is a mature business, which means we should allocate funds differently when it comes to marketing the product, the fact that gas grilling has increased their advertisement dollars in the last several years, helping customers understand why they should buy a gas grill and have effectively increased their sales and ratios as compared to charcoal grill sales we believe this is an indication that there is a strong need for the category to revamp or reeducate consumer on why charcoal. E. Promotions Charcoal is generally sold through a modified push strategy.
Charcoal is often an impulse purchase and good visibility, availability and incentives are important to keep sales flowing. Although Kingsford had very slight changes compared to prior year regarding the amount of time and volume promoted, its competitors did reduced the amount of dollars invested in promoting thus impacting somewhat the overall category. The reduction in the category overall impacted the incremental volume as compared to the prior year. All major brands in the category show a decrease in volume impact, although Kingsford was very small.
In addition the investment/weeks per types of promotions run were different between competitors. The data regarding these promotions show that price reduction as a promotion indexed high overall. As we reviewed the data for Kingsford we noticed that more weeks were spend on the promotion that indexed less, Display indexed at a 98 vs. 108 which was temporary price reduction and although the difference between the indexes isn’t significantly high a reallocation in the feature and or price reduction promotion most likely would have resulted in a higher impact in volume generated.
Past experiences also show that there is a significant spike when prices are reduced. In addition we noticed that the gap between the category consumption compared to Kingsford’s consumption of charcoal seems to be larger during the peak season and very specific event driven months, reference Exhibit 2- Sales by week. Beginning with Mothers Days’, then Memorial Day, July 4th, etc. , noticed that the gap in consumption is much higher than those during the months of Feb and March. January shows another significant gap between Kingsford and the overall category as it relates to consumption.
Although price discounts are considered revenue reduction versus investment, since it has proven to drive significant spikes this type of promotion should be considered to help increase consumption levels for Kingsford. By increasing the consumption level we would increase sales. F. Weather Patterns One final factor impacting the softening of sales is the weather pattern. Precipitation and temperature comparisons between 1999 and 2000 showed a slight increase in rainfall and average temperature of 10 degrees lower than prior year.
According to the article fall and winter grilling are correlated to temperatures, thus 10 degrees lower during these months would most likely have discouraged grilling during this season. Although we do believe this had some impact in the overall sales we also believe that compared to the other factors mentioned it was minor. Charcoal consumption during fall and winter months equates to approx. 19% between both seasons (on average about 3. 9% / month). 2.
Given your response to question 1, identify one of the key drivers that are resulting in lower growth rates and then develop a recommendation for Kingsford to address this identified core issue? Make sure that you site the relevant pros and cons of your recommendation. There are several drivers from the list above that would impact the softening in revenue Kingsford is experiencing in the 2000. Price being one of those drivers that in short term would deliver an increase in revenue although most likely will not do anything as it relates to capturing the growing market in grilling.
In the article the brand managers are considering this approach to help fund the other types of tactics in the areas such as promotion and advertisement, however after reviewing the data if we could only choose one driver our recommendation would be to keep prices as is and focus on Advertisement and Promotions in tandem as the driver to increase not only revenue, but also volume growth. The advertisement focuses on the consumer education and converting “grillers” into charcoal “grillers, competing with gas grilling as the alternative method.
The promotions focused on marinating a healthy market share in the charcoal category from private label and potentially other brands that might resurfaced with the growth in the charcoal category. Advertisement and Promotions The analysis completed by the 3rd party indicated that the effects of advertising on Kingsford sales in past years drove a 7% incremental volume in targeted markets in 1998 and the benefits accrued in 1999 as well 3-4% volume increase from a the residual impact of advertisement.
And although there seems to be a shift in the market as it relates to the grilling experience the desire to grill continues to hold strong in the American culture. As mentioned above the number of events grew from 2. 7 billion in 1995 to over 3 billion in the year 2000. Kingsford reduced its advertisement spend during the last several years by $5 million. During this same time frame gas grilling increased its media spending from less than $4 million to over $10 million. Gas grilling penetration also increased as well as the shipments for gas grills during he same period of time. With a new and younger generation wanting to enjoy the all American way of cooking education of the various alternatives becomes critical for the success of the category. Therefore a plan to advertise charcoal grilling would benefit the category. In addition we propose to combine these with promotions as part of the collaboration with partners to incentivize partners and customers to buy charcoal as their choice for grilling. Objectives of Advertisement and Promotions: Educate consumers on the benefits of charcoal grilling • Create ads that are targeted : Regular Exclusive and Instant Elusive • Focus messages on those statements that were statistically significant in the attitudes survey. • Have product available for consumers at time of purchase • Incentivize consumers to purchase • Help partners (channels) grow their business Kingsford has already determined that over 50% of charcoal users do the vast majority of barbecuing, according to the data this is approx. 85% of all occasions.
They also know the three types of users and their grilling attitudes; important to each group: Exclusive Regular, Instant Acceptor and Instant Exclusive. Target promotions towards unique features and audience will connect better with the types of users. Example the quick starting product is ideal for those seeking convenience, concerned with knowing how to make a fire and do not consider themselves as expert griller. Combining ads and promotions help provide a more integrated approach towards connecting with the various targets we want to reach. Research data has also provided the most popular occasions for grilling are specific holidays.
These holidays also correspond to the three major spikes in charcoal purchases every year. Therefore Kingsford advertisement campaigns should be available during this season and ran with the appropriate amount of time prior to the holiday itself. Promotions that incentivize retailers to display Kingsford product during these key holidays will provide the consumer a better experience as we create a bit of a “pull” during this time. Barbecue events with “taste” opportunities are fun ways to expose consumers, especially as they are buying groceries or other products, which has them planning the week ahead.
This also provides a great opportunity to promote messages around taste, versatility and authenticity. In addition, studies show that the areas where Kingsford lost its volume growth are in the food channel and FDM. The food channel represents 66% of the total charcoal sales and drug stores as well as non-tracked channels represent 18% – 19% of sales. Mass channels showed a slight increased, although the 2nd half of the year was almost flat. Therefore, promotions and partnering with the food stores will be critical to quickly impact the revenue and help support the advertisement spend.
Providing promotions that bundle the charcoal, and food ingredients to make the “ideal dinner” is an easy one stop shop for consumers. Partnering with retailers benefit both Kingsford and the retailer since data shows that customers ten to spend 30% more during their store visit when purchasing charcoal. Advertisement messages should also encourage “additional” days to grill. Helping consumers see other opportunities in which grilling is just the perfect meal for the day and stressing the ease of using charcoal over grill because of its portability, ease making a fire as well as its great taste should be part of the key messages.
Extending the seasonality range for grilling would most likely require campaigns that emphasis in family values, friendships, time to relax, and other leisure activities in early spring or late fall. Pros • Consumers are educated regarding alternatives and their decisions will reflect better their desires in the grilling industry • Kingsford charcoal business will grow or stabilize • Partners business/revenues will grow Opportunities for new markets such as woman and younger families to join the charcoal category • Relationships with partners will be stronger because of the interdependencies on each other for success • Less competition at point of sale by using two brand strategy with retailers • Alignment with Clorox’s strategy of being premium product in its category • Benefits for Consumers regarding product innovation; Kingsford will need to stay abreast of new features and functionality to compete with private label • Excitement around the grilling experience; growth in the grilling industry
Cons • All other brands in charcoal category will grow as a result of Kingsford expense • Innovation on product, quality and differentiation will be a must to distinguish itself within the category • Production capacity, increase demand may strain the ability to fulfill orders • May miss the opportunity to diversify their business or play in the gas grilling arena • May alienate certain targets or segments if positioning isn’t done correctly —————————————
Part B. Given that Kingsford is currently operating at 80% of total capacity, and that it is reported to be difficult and expensive to add capacity, what long term strategy(ies) do you recommend for Kingsford? Discuss at least two different major alternatives (pros and cons) and then support whatever recommendation you make. • Research and Development investment in New Product Development– this aligns well with Clorox growth strategy and its strength; acquisitions and internal research and development.
We reviewed several new products that could be developed and increase Kingsford market share, revenues and profits should they be successful. These options would not require additional production capacity and still help grow the company since our assumption is that the process to manufacture would be different. o Gas-cooking products – Kingsford might have an opportunity to produce coal required for gas grills, products and or seasoning under the Kingsford brand that would provide some of the flavors charcoal grilling has in gas grilling or produce gas grills under the brand of Kingsford in order to cover expanding market pportunities. ? Pros of this alternative would be additional income form the products launched in a growing market. In addition Kingsford would be diversifying their portfolio and thus the risk of a year over year decline. ? Cons – It requires high expenses and time for developing the new business. There is also high possibility of a failure what will lead to damage of brand value and loss of traditional Kingsford customers. In addition Kingsford could accelerate the shift of charcoal grillers to gas grillers quicker than what the market was pacing at.
It seems that producing grills might take them slightly off their core business of producing charcoal as an alternative to grilling. o Label licensing to introduce supplementary products that enhances the grilling experience ? Pro this option will increases sales and profits as well as support the promotion of charcoal in general. Depending on the type of products Kingsford may capture new markets that had gone to gas grilling ? Cons -In case of quality problems with additional products, the brand name could be damaged.
Moreover, it would require additional financial resources and time for arranging the details, distributing and launching the new products in the market. Risk of this business failure is quiet high and will directly impact Kingsford brand. Lastly if the introduction of supplementary product created an increase in charcoal volume Kingsford would have the fulfillment issue at hand. o New charcoal product – The creation of environmentally friendly/healthier varieties of charcoal as well as flavored types of charcoal.
This new product would be developed not using the conventional charcoal process and or materials, which today consist of wood scraps, limestone and sawdust. A potential type of charcoal could be created that seems more “natural”. Kingsford could use hickory, mesquite, maple or other woods to impart their distinct flavors. This new product could be used to target more environmentally friendly types of markets or organic types focusing on the healthy aspect of charcoal grilling as for the consumer and the environment. ? Pro – Kingsford would once again lead the charcoal market in innovation. Natural” varieties would appeal to the “green” and health conscious market segments. Kingsford could position these new products to enhance the cachet of the Kingsford brand. ? Cons – Uncertain, of significant demand for “green” or health conscious charcoal. Flavored and “green” charcoals would have somewhat increased costs for Kingsford and introducing “natural” charcoal could bring undesirable attention to perceived environmental and health concerns of existing products. New varieties could cannibalize regular charcoal sales.
In addition, new varieties increase sku’s for Kingsford as well as private labels which may impact revenue if the products continues to depend mostly on a push strategy • Implement and Overall Equipment Effectiveness Strategy Kingsford currently operates at 80% of capacity. This does not tell us much as they could be at 80% of capacity of operations with 60% efficiency. Since we do not know that piece of information we will for sake of analysis assume that there is an opportunity to improve efficiency and thus increase capacity.
Capacity is defined as the maximum amount of work that Kingsford is capable of completing in a given period of time with its existing resources. Mathematically capacity is defined as: #Machines or Workers x # of shifts x Utilization x Efficiency The first strategy for Kingsford to deal with a possible increase in sales is to implement an efficiency increase throughout their facilities with and Overall Equipment Effectiveness strategy. The goal is to become more efficient to gain capacity and reduce current production costs to increase profitability.
We believe the charcoal market category growth has reached a plateau showing a pattern similar to that shown by a growth-Slump-Maturity pattern. [pic] The charcoal industry could have been growing as shown above through period 25 then possibly during this period the gas grills were introduced and demand for charcoal started decreasing. Kingsford and the charcoal industry are not to the extreme shown in the graph above but the charcoal category has started to grow at a decreasing rate. The article mentions that growth slowed from 4% in years 1998 to 1999 to 2% from the first half of 1999 to the first half of year 2000.