Kayem Case Study

Katherine Mac Neil Amy Onda Goldeen Sam

Executive Summary Throughout its existences as a company, Kayem Foods has transformed itself from a small, meat processing company to a multimillion dollar company. Over the past few years they have experienced success; however their profit margins have been diminishing. In attempts to compensate for these margins Al Fresco introduced c hicken sausage while in 2004 they implemented a Buzz marketing campaign which le ads them to become the number one brand in its niche market. Matt Monkiewicz, di rector of marketing for Kayem Foods Inc, was faced with the challenge to decide whether or not to implement another Buzz marketing campaign for its Al Fresco ch icken sausage in the coming year. His many alternatives that were under consider ation were; status quo, Integrate Buzz Campaign, implement series of trade adver tisements, distribution of consumer price of coupons, and advertising in special ty food magazines. After various calculations and research we chose that the mo st beneficial alternative would be to integrate the Buzz marketing campaign thro ughout Southwest and Mideast geographic regions. This option proves most feasibl e as it is shows the best alternative for break-even, giving them a low unit bre ak-even and high profits. We plan to stay consistent with how the Buzz campaign was run in the Northwest region, however to receive more buzz hits we will be of fering additional free coupons to those agents whom report 10 hits. Problem Statement Matt Monkiewicz, director of marketing for Kayem Foods Inc, was faced with the c hallenge to decide whether or not to implement another Buzz marketing campaign f or its Al Fresco chicken sausage. This product is a brand leader in its niche ma rket, and question has rose on how to promote the product. Kayem Food Inc must w eigh out their options and see if implementing another Buzz marketing campaign w ould be feasible or not for the sale of their Al Fresco chicken sausage. They ha ve a limited marketing budget and must use it to the best of their ability to in crease market share, and sustain the growth they have made. They only have two w eeks to decide which marketing activities would work best to implement. Situational Analysis Industry Sausages serve as a staple item for all three meal categories, which recently ex perienced a modest growth in sales. Approximately half of the chicken sausage do llar value came from privately labeled companies. Kayem introduced Al Fresco in 1999 and was positioned as a convenient, all natural, low carbohydrate, low fat main meal entre. Entrance into this market is difficult as there are currently ot her dominating brands and they would need to enter with a unique product and pri cing strategy. This product is seasonal as the majority of sales are generated d

uring the summer months, which means that due to the hot weather in the summer, more consumer uses sausages for events like barbeques and picnic and more. The B ar Chart below shows the sales by month for Al Fresco Chicken Sausages (factory Shipment). The sales are in $(000). Competitors There are three dominate brands in the sausage market including; Hillshire Farms (18.3% national dollar market share), Johnsonville (13%), and Ball Park (13.2%) . Specifically in New England Hillshire Farms held (46% market share), Perri (20 %), and Kayem held (7%) including its several brands. The chicken sausage catego ry is relatively small; therefore it made it difficult to find many specifics ab out competition. In terms of advertising, their competition also had a huge budget compared to Al Fresco. The Table below shows how much they spent on advertising and where they allocated their advertising budget. Company Advertising Dollars Spent Media of Advertising Hillshire Farms $29 Million per year Mostly TV Ads Johnsonville $13 Million per year $8 mil on TV, $3.5 on Radio Emeril $1 Million per year Mostly in magazines Aidell $200,000 Magazine Campaign Customers Families under all income levels purchased sausages, with 59% of households purc hasing sausage once minimum in 2004. Customers who purchased sausages spent an a verage expenditure of $16.95 annually. The target market for Al Fresco chicken s ausage was 25-54 year old women who are health conscious and have a preference f or all-natural foods. They also are interested in gourmet foods, and the prepara tion that is involved with these foods. These customers are residents in the Nor theast, Southeast, Mideast, California and Florida. However residents in the Sou th had the highest amount of sausage consumption. Company Kayem Food Inc. is a medium sized privately held, family controlled meat process ing company which has had almost 100 years of experience. They have had success as a processor and distributor of fresh delicatessen meats, hot dogs, and sausag es. The firms primary trading area was New England and parts of the Mid-Atlantic and Kayems products were sold primarily through supermarkets and other retail foo d stores in the Northeast. In recent years they broadened their distribution to the Midwest and Southeast, with some distribution in California and Florida. Kay em emphasizes on freshness and high quality. Kayem has proven successful with in creased sales and profits yearly, and with Al Fresco chicken sausage also increa sing its sales. Kayem produces a number of different products within the food in dustry. The pie chart below shows Kayem sales by brand for fiscal year ending Fe b 28, 2004. SWOT Analysis Strengths Established brand name, almost 100 years experience Sales of $140 million in 2004 Health conscious product, 75% less fat than traditional pork sausage Buzz marketing Strong distribution through supermarkets and retail stores in the Northeast Wide variety of flavors 65% of people who reported on Al Fresco sausage said they would purchase them ag ain Currently market leaders for small niche market of chicken sausage Surpassed Aidell with 11% market share Established distribution channel

Sales and profits increased Had a lot of people talking about the campaign and creating buzz through word of mouth Weaknesses Relatively weak bargaining positions Profit margins eroding, gross margin declining for several years Hard to find products in supermarkets Profits below expectations due to low-margin and high-margin brands Premium price Companys goal for profit margin for all products wasnt reached Limited promotional budget Lack of awareness of products Unable to measure how effective the buzz campaign was No guarantee Opportunities Continue to grow more market share Expand distribution even more throughout the Midwest and Southeast Niche market Currently the fastest growing product segment Buzz campaign may pose increased sales Threats Risk of failure Substitute product for similar price and health benefits Consumers lifestyles shift to healthier living may not feel sausage is healthy Analysis Summary The potential is there for Kayem to increase their market share. Their p ast experience definitely gives them an advantage, as they can forecast more acc urately, and also improve on their previous errors; however their limited time o f two weeks may pose a problem. Do they have the time available in which to make the appropriate decision and implement it in a successful way? Alternatives Status Quo - market in the current geographical regions with traditional marketing Integrate Buzz campaign in the Midwest and Southeast geographic regions Implement series of trade advertisements Distribution of consumer price of coupons Advertising in specialty food magazines Analysis of Alternatives & Financials Status Quo If Kayem were to maintain status quo they would continue to market their product in the current geographical regions, and would market this product with traditi onal marketing campaigns and promotion mediums including; magazine advertising, consumer coupons, or point of purchase material. If Kayem were to market their p roduct this way they wouldnt implement another Buzz campaign. The Al Fresco chick en sausage already had success selling their product without the Buzz campaign. The retailers price will remain at a premium of $4.49 per 12 ounce package with t he target market continuing as 25-54 year old women whom are health conscious. Unit Selling Price = $3.58 (to manufacturers) Variable Costs = $1.98 Contribution Unit = $3.58 - $1.98 = $1.60 Contribution Margin Ratio = $1.60/$3.58 x 100 = 44.7% Sales = $1,820,000 (1.3% 0f $140, 000, 000) for Al Fresco Gourmet Chicke n Sausage.

Retail Price = $4.49 to consumers Units Sold = $1,820,000/$3.58 = 508,380 units Current Break-Even in 2004 for Al Fresco Break-Even in units = Fixed Costs/Selling Price Variable Costs $90,000/3.58 1.98 = 56,250 units Marketing Communications Budget $90,000 which included campaign costs of $47,000 plus cost of coupons. Sales $1,820,000 Less: Variable Expenses (508,380x1.98) $1,006,592 Contribution Margin $813,408 Less Fixed Expenses 90,000 Net Operating Income $723,408 Integrate another Buzz campaign Kayem will use the Buzz campaign in geographic regions that were not covered in the previous Buzz campaign, thus they will do this campaign in the; Midwest and South-eastern states. The target market will consist of families from all income levels, thus including the original target market of 25-54 year old women whom are health conscious. The price will remain the same for retailers at a premium of $4.49 per 12 ounce package. Break-Even in units = Fixed Costs/Selling Price Variable Costs $75,000/3.58 1.98 = 46,875 units Campaign Costs $47,000 + Marketing Communications Budget $90,000 = $137,000 Sales $1,820,000 Less: Variable Expenses (508,380x1.98) $1,006,592 Contribution Margin $813,408 Less Fixed Expenses 75,000 Net Operating Income $738,408 Series of trade advertisements The target for this is not based on the consumers, however is targeted towards b usiness to business advertising which consist of those who influence consumer av ailability, such as; supermarket executives and buyers. Matt would be informing these executives and buyers at trade shows and supplier to retailer relationship building dinners. This gives Matt the opportunity to share his story of the bra nds sales and profit potential creating an impact on potential food retailing mak ers. This seems like a strong alternative as it creates a business relationship with the executives retailers, and with this relationship creates trust which lea ds to the wholesaler being more likely to supply their product in and placement in high volume areas of the store. They also market through trade shows which gi ves them the opportunity to market to a large range of executives where they can recommend their product. This alternative shows opportunity for Kayem to cost e ffectively increase their market share and gain strong relationships. Break-Even in units = Fixed Costs/Selling Price Variable Costs $80,000/3.58 1.98 = 50,000 units Sales Less: Variable Expenses (508,380x1.98) Contribution Margin Less Fixed Expenses 80,000 Net Operating Income $733,408 $1,820,000 $1,006,592 $813,408

Distribution of Consumer price off coupons This is a more price-oriented promotion, which entails distributing cons umer price-off coupons to consumers. Distribution of these coupons gives consume rs the opportunity to try a product at a discounted rate thus getting them inter ested in the product and once they try it, they have the potential to be repeat buyers. This is a good alternative in the sense that repeat purchases are likely

to happen if they enjoy the product, however it is their only means of marketin g and a large majority of consumers through coupons away or dont know where they can get them, leaving the possibility of lost marketing money in these coupons. This would costs in total $90,000. Break-Even in units = Fixed Costs/Selling Price Variable Costs $90,000/3.58 1.98 = 56,250 units

Sales Less: Variable Expenses (508,380x1.98) Contribution Margin Less Fixed Expenses 90,000 Net Operating Income $723,408

$1,820,000 $1,006,592 $813,408

Advertising in Specialty food magazines This type of promotion has high costs associated to it but needs a higher budget in order to create an impact on retailers to deem that Al Frescos sausage is in high demand, and has a high profit margin. This money will be allocated to two f our color page advertisements within both Food and Wine, and Cooking Light magaz ines. This implementation would pose an advantage to Al Frescos demand as promot ing in two smaller circulation magazines would achieve broad exposure to retaile rs and consumers. With the promotion of Al Fresco chicken sausage in these two m agazines they create a large amount of views of advertisements for their product as the distribution for these magazines has a high circulation of 8.5 million b etween them both, which is a good form of advertisements. However to get people to try a new product they should have in store promotions as well. Better Homes & Gardens Magazine - full Page, Four Colour costs $359,000, half pa ge is 60% of full page = $215,400 and quarter page is 30% of full page = $107,00 0 Break-Even in units = Fixed Costs/Selling Price Variable Costs Full Page 1/4Page Break-Even 224,375 units 134,625 66,875 Sales $1,820,000 $1,820,000 $1,820,000 Less: Variable Expenses (508,380x1.98) $1,006,592 $1,006.592 $1 ,006,592 Contribution Margin $813,408 $813,408 $1,006,592 Less Fixed Expenses 359,000 $215,400 $107,000 Net Operating Income $454,408 $5 98,008 $899,592 Food & Wine Magazine - full Page, Four Colour costs $66,275, half page is 60% of full page = $39,765 and quarter page is 30% of full page = $19,883 Break-Even in units = Fixed Costs/Selling Price Variable Costs Full Page 1/4Page Break-Even 12,427 Sales $1,820,000 Less: Variable Expenses (508,380x1.98) $1,820,000 $1,006,592 $1,820,000 $1,006.592 $1 41,422 units 24,853 1/2Page 1/2Page

,006,592 Contribution Margin $1,006,592 Less Fixed Expenses 39,765 19,883 Net Operating Income 73,643 $986,709

$813,408 66,275 $747,133

$813,408

$7

Cooking Light Magazine - full Page, Four Colour costs $96,400, half page is 60% of full page = $57,840 and quarter page is 30% of full page = $28,920 Break-Even in units = Fixed Costs/Selling Price Variable Costs Full Page 1/4Page Break-Even 18,075 Sales $1,820,000 Less: Variable Expenses (508,380x1.98) ,006,592 Contribution Margin $1,006,592 Less Fixed Expenses 57,840 28,920 Net Operating Income 55,568 $977,672 $1,820,000 $1,006,592 $813,408 96,400 $717,008 $7 $1,820,000 $1,006.592 $1 60,250 units 36,150 1/2Page

$813,408

Decision Criteria Qualitative Long term potential Making sure that the employees and staff are experienced, effective & ef ficient. Quantitative Ability to increase profit and market share Impact on profits Ability to cover additional costs/breakeven Choice and Rationale We decided that the best alternative for Kayem would be to integrate the Buzz ma rketing campaign in the Midwest and Southeast. This option proves most feasible as it is shows the greatest amount of profits and break-even for Al Fresco. The campaign has already shown success in the Northwest geographic region, thus impl ementing this campaign in the Midwest and Southeast where the product has alread y established a name for itself shows great potential. This gives them the oppor tunity to increase the market share, thus adding to overall sales. With past suc cess in their previous campaign the implementation will pose a lower risk and gi ve them the opportunity to learn from their past mistakes. Below is a table to s how how our marketing budget will be used to advertise in the Midwest and Southe ast from March 1, 2005 to Feb 28, 2006. Marketing Expense Budget March - August Sept - Feb Buzz Campaign Fee $60,000 $60,000 Coupon Reimburse for retailers $13,000 $15,000 Implementation and Control Rather than integrating the Buzz campaign into the same region as the original c ampaign, we decided to integrate it into the Midwest and Southeast as these geog raphic regions have not met their full potential. The South is also where there is the most sausage consumption. We are going to have an estimated 2,000 buzz a gents marketing the Al Fresco chicken sausage, each will be given 3 free product

coupons for their personal use, along with 10 one dollar off coupons for them t o give to potential buyers. To increase the percentage of follow ups and feedbac k on the buzz hits, every Bzzagent must file a Bzz-report and per 10 hits they w ill be compensated with additional free coupon. If the forecasted sales for maintaining status quo in the Midwest and Southeast remain relatively the same with the integration of the Buzz campaign after six w eeks the campaign will be discontinued. The coupons that would have been distrib uted to the buzz agents for themselves and the individuals they speak to about t he product will then be distributed to the retail outlets that sell the Al Fresc o chicken sausage. The coupons will be distributed through an in store demonstra tion at the main supermarkets in these regions. We would need to eliminate the m ajority of our agents, however keep a maximum of 40 agents for these demonstrati ons based on willingness and amount of buzz hits.