Brannigan Foods Essay
Strategic Marketing Planning for the Soup Division
Brannigan Foods Soup Division is a 100 year old company with mature products which account for 40% of the whole soup market and it is the most significant division of the Brannigan Foods group. The most important category is the RTE soups which account for 78% of total sales. (Exhibit 2) Other products include Low sodium RTE “Heart Healthy”, dry soups and mixes and private label and Annabelle’s fast and simply. Annabelle’s was a soup company acquired 5 years ago in order to add healthier sups, dry soups and fast to the company’s portfolio, a growing trend in the market. In terms of costumer perception of Brannigan comparing with competition, Brannigan’s falls behind in the following:
Flavors-especially popular regional ones
Seasonal products outside cold weather
Retailers perceive Brannigan to be:
-less profitable than store brands and competition
Over the past 3 years the results of the division have been decreasing and there are several reasons behind this: The whole soup industry has been declining for several years. The largest and most loyal segment of soup consumers, the baby boomers, which account for 20% of American population and are the main target, have been showing increasing concerns with processed food and high sodium content shifting to healthier alternatives. Increasing trend within working mothers who tended to prefer “convenience”.
Bert Clark, vice-president and general manager of Brannigan Foods’ Soup
Division needs to take action and present a plan to senior management to go back to growing sales within the division and increase profits by 3% next year, reversing the 1-2% declining turnover and 2-3% declining volume. With this in mind he has asked his key directors to submit a plan of action independently and now he has to decide which of the 4 proposals he will bring to senior management. The fact that Clark has his 4 keys managers working separately limits their assessment to each of their experiences and thus their proposals are narrowed to their field of expertise.
Also, by choosing one particular direction may leave 3 directors uninvolved hence with a minor sense of responsibility. When making hard decisions it is always better, in my opinion, to have everyone on board. On the other hand it provides Clark with 4 proposals instead of one. Nonetheless making the 4 directors work together would have a provided a team solution and a broader approach to the problem. Now, by choosing one particular approach, Clark will have to find a way to involve all directors in this strategy.
Looking closely at each proposal:
Srikant Tipha, Director of the Simple Meals unit
Srikant wants to strengthen the strategy of growing categories of dry soups, healthier soups and meal-in-pouch soups by investing $18 million on advertising and promotion. These products were a direct result of Annabelle’s acquisition, a smaller competitor Brannigan had acquired 5 years ago. Skirant wants to induce trial by increasing advertising; to provide coupling for new flavors: Gazpacho for the warmer months and Teriyaki for positioning in the fast growing Asian soups category.
Pros: Focuses on growing segments which address health concerning issues and/or focus on the new flavors Cons: Srikant focuses his whole strategy on the new lines/products which account for 15% of the revenues of the division and completely leaves out the 78% which are the star products, or the cash cow and basically finance the new developments.
Claire Mackey, Director of Finance & Planning
Claire focuses on the new healthier and more convenient products gaining territory in the market. Claire suggests the best way to quickly have a strong presence in these segments would be to acquire a small competitor with significant presence on these new products. Pros: Brannigan would very quickly be able to have an adequate response to new trends, as the whole operation is set up and products are already tested. By maintain the current brands, they would increase their shelf space. With joint synergies, the new acquired products would have a margin increase by reducing costs.
Cons: Recent bad experience with Annabelle’s Foods although the project is gradually gaining track. It would take a large investment in advertising and promotion if they kept the acquired brands, if they changed into their own, there was a greater risk of cannibalization and of losing shelf space in big retailers.
Anna Chong, Chief Innovation Officer
Anna feels that her department could develop new lines that meet the market’s new trends and that the company should increase investment in advertising and promotion for the new products already tested with consumers and investment in R&D for new products. Pros: the proposal addresses the markets new trends, avoiding the risk and investment of a new acquisition and all risks it entails. The new flavors would allow a price increase hence increase in margin. Cons: 1/100 products developed were actually launched in the market and reached Brannigan’s threshold for success. The costs of developing 100 products and launching 9 with only 1 to be successful are very heavy. Also launching products that may eventually fail means also costs for retailers which are becoming increasingly intolerant and more demanding for better conditions.
Bob Pugh, VP Sales and Marketing, Brannigan Soups
Bob focuses his proposal on the core products: reduce selling price to make the gap between private label and Brannigan less significant (PL increasing by 5%) . Also he wants to invest in advertising the products and wants to optimize the plants in order to recover losses due to reduction of selling price. Bob also wants to bring back a former campaign more appealing to younger generations. Pros: The aimed products are guaranteed successes and retailers will appreciate the strategy. Cons: This plan totally ignores the new market trends and price reduction could damage margin objectives as well as brand positioning.
Looking at each proposal individually I think Clark should favor Bob Pugh’s proposal because it focuses strongly on the divisions main core, enables to increase gross margin by reducing production costs and increasing volume and there is no cannibalization effect. However, in long term this strategy does not secure the new trends which may or may not be the next cash cows. Then also noteworthy is the proposal by Anna Chong which goes in a very different direction but is as well an interesting approach. Anna, as the Chief Innovation Officer, focuses, not surprisingly, on developing new products, there is of course a large investment involved, but it does take into account the new trends. My last pick would be the proposal made by Claire Mackey, Director of Finance & Planning, since it represents a very large investment and recent experience with Annabelle will make it hard to pass it by the board.
Her preference goes to Red Dragon Foods:
Current Sales: $36 million
Cannibalization of Sales: 0.45% (Mackey says 0.3%; Clark 0.6%):
$13 million Estimated EBITDA $4.2 millions
Estimated Cost: $29.4 million (considering highest price)
Amortization + interest per year: 2.54 million (in 10 year period)
Gross Margin: $16.2 million
Gross Margin with cannibalization effect: $10.3 million
Cost of A&P: $11 million
Net Earnings in the First Year: -$3.24 million
In 5 years:
Estimated revenues: $75.85 million (growth rate of 2.5% for whole division) Estimated Gross Margin in 5 years (50% instead of 45% as Clark estimates increase of 10% I will be more conservative and just add 5% ):
From the analyzed companies by Mackey, the emerging competition is mainly focused on the area where Brannigan’s is not as strong: health oriented products (MSG free and low sodium), new flavors (Asian flavors) and trends (Deli like). These yet small sub categories may well grow in the next years and this may pose as a problem because costumers will lose brand awareness, recognizing other brands as the Healthy soup or as the Chinese Soup. On the other hand, it will be difficult for new brands to try to compete with Brannigan on their strongest products and in which they are the unquestioned leader. So the natural strategy for new companies is to target the products where there is not such a strong recognized brand.
This point must be considered by Clark when making his decision. Can Brannigan’s afford to leave these new products wide open or should he get his hands on this before it escalates? In my opinion Clark needs to take action on the growing needs of the market before it is too late. Brannigan’s Soup needs to lock its position as market leader in soups as a whole concept and not as a segmented market. Clark needs to address two main issues: maintain leadership in the classic flavors and keep up with new demands.
For this he should bring in Anna Chong and Bob Pugh and have them work together in defining the new strategy. Bringing their proposals together the cons of each of them are mitigated. Anna addresses the new trends Bob has left out and Bob will secure the financing of the new products that Anna will develop which may become the next cash cows. Reinforcing the current strong products of the company is important but may not be enough in a permanently evolving market. A leader position requires investment in R&D in order to keep up with changing trends.