Krispy Naturals Case Study

Launching Krispy Naturals

Background:

Pemberton, a U.S. based market leader in sweet snacks (cookie & bakery bites) wishes to make an impact in the salty snack market. It acquired Krispy Inc., a manufacturer of salty snack- crackers- in the Southeastern U.S., in 2008. Pemberton utilized company owned DSD distribution system for its existing low shelf life products. However, this system was costing $0.2 for every $1.0 of sales, and thus was expensive.

Cracker industry in the U.S. was a $6.9 Billion industry with Kraft (Nabisco brand), Kellogg’s (Sunshine, Keebler, Carrs & Austin brands) and Pepperidge (Goldfish brand) as the leading players with 75% market share in total. The existing flavours & products were not very satisfying to the customer.

Standalone flavor was the major criteria for the customer with regards to purchase decisions. Also about 53% of the consumers considered overall healthfulness as an important factor. Survey also indicated over 50% of the consumers wanted portable quantities that are conveniently packed.

Krispy was originally marketed as ‘Grab & Go’ snacks with single serve packaging & few products line

R&D was undertaken which improved product taste & quality. Also multi-serve packets & 6 new exciting flavours were introduced to give variety & a superior taste experience to the customers. The new range of crackers were branded as ‘Krispy Naturals’

Consumer taste test showed a 77-92% positive purchase intent for the new ‘Krispy Naturals’. Almost 4-to-1 preference for the White Cheddar flavor compared to the leading competitive cracker.

‘Krispy Naturals’ was decided to carry a premium ‘Visual’ pricing, i.e., prices similar to competitors but with lesser quantity. Also the DSD channel could accommodate test market quantities but it couldn’t accommodate a national rollout.

Challenges:

Krispy Naturals did not achieve impressive results in the existing market of the southeast. Market share increased from 9% to only 10% during the 16-week test, whereas, in Columbus, Ohio, which was a new market for the company, the results were beyond expectations. Krispy doubled the share target in Columbus, achieving an 18%. In Southeast, Krispy Naturals attained a lower store & display penetration (85%) than Columbus (94%){Source: Exhibit 5}. Ashley Marne, the Executive VP of Sales & Marketing was very optimistic since even in the worst case scenario Krispy Naturals was achieving the $500 Million sales target.

Test market results for Southeast & Columbus showed conflicting (both discouraging & encouraging) results. Adding to that, an industry analyst put forth that the positive test market results were driven by significant trade discount, couponing & sampling which might not be sustainable on a national level.

There was another view in the industry which believed that the taste preference claims of Krispy Naturals were inflated and the flavour was no better than current brand offerings. This claim, if true, had the potential to disrupt the national ambition of the company and a careful analysis was required.