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Frito Lay – Cracker Jack Case Analysis

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Frito-Lay Company – Cracker Jack 1. Why has Borden Foods decided to sell Cracker Jack? Borden Foods is in the process of divesting of snack and non-food products in order to focus efforts and resources in growing their pasta and grain based meal segments. Borden management has also recognized the value and equity in the heritage Cracker Jack brand. The Cracker Jack brand currently (1996) sits in the number two position in terms of Ready-To-Eat (RTE) caramel popcorn product category market share with approximately $192 million in retail sales.

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With increased competition, Borden has unsuccessfully attempted to grow sales in the past five years, with the introduction of new flavor offerings. The Cracker Jack brand offerings is comprised of various packaging options, and maintains a hefty product line with 32 stock-keeping units (SKUs). Current Borden production facilities have only 32% of space allocated to Cracker Jack products, and operate at 33% of capacity. The sales and distribution methods have come under scrutiny by management as they involve large trade expenses and products are seemingly not readily available in desired locations including warehouse and grocery stores.

Management also significantly reduced investment in advertising and promotion efforts since 1993, instead attempting to rely on the brand equity of the Cracker Jack name to bring in sales and maintain a premier pricing position. 2. Why is Frito-Lay considering the purchase of Cracker Jack? Frito-Lay Company is considering the purchase of the Cracker Jack brand as a direct result of a new division in the company, New Ventures. This division has been directed to seek or create opportunities and products where the Frito-Lay Co. strengths can be capitalized and deliver consumer food solutions with a high impact.

Frito-Lay currently is the market leader in salty snack food products and of the brands represented nine hold positions in the top ten performers. The existing product mix is comprised of chips and salty snacks, but have only limited sweet flavored offerings. The Cracker Jack product would be a natural fit in the product line, as it contains both flavor elements. In addition to the flavor profile, the long untouched packaging offers opportunities to utilize the manufacturing expertise of Frito-Lay and explore new product categories including a snack bar.

Management in the Frito-Lay organization realize the opportunities exist to capitalize on their strengths including broad product distribution network, sale representation in key channels, and a strong financial position to invest in the very much needed advertising and promotion of a new product. All of the variables above are missing from representation by Borden and is evident by the stagnant growth of Cracker Jack. 3. Create a SWOT analysis for Cracker Jack based on the assessment of the Ready-to-Eat caramel popcorn category, Borden’s experience with the brand, and Frito-Lay’s own research.

What are the implications for Frito-Lay? Internal FactorsStrengthsWeaknessesExternal FactorsOpportunitiesThreatsManagementDedicated and growth driven new team in Frito-Lay (FL), New Ventures Borden Management has solid understanding of what is required to elevate the Cracker Jack (CJ) brand and sales. Owners of Borden Foods have diverse array of product holdings, and are an investment firm, not a snack manufacturer. Failed attempt at a volume based pricing strategy which eroded CJ margins and cannibalized small box sales, by Borden’s management team.

Consumer TrendsSales of packaging mix for CJ are 75% family boxes, 25% single serving boxes. An opportunity for CJ to reduce the # of SKUs. Research shows CJ products willing to be consumed in an extended timeframe and with others (Afternoon & evening with family) Popcorn products traditionally eaten only in evening and not throughout the day. CJ related products have a low consumption and repurchase rate at less than 2x per year. Potentially small market for RTE caramel popcorn snacks with only 12 % choosing these over alternatives. MarketingFL financial strength, ability and experience with mass market advertising.

FL experience with a variety of promotional methods including sponsorship (potential opportunity for individual box sales). CJ brand has been under marketed since 1992. In market testing, consumers are unaware of CJ new product offerings. CompetitionCJ is # 2 in RTE caramel popcorn market, with untapped potential identified by FL teams. Competition is actively advertising consumers. Manufacturing & DistributionFL has strong Domestic and International distribution channels and relationships. FL has unique position to have involvement throughout the food production and distribution chain.

Borden is inefficient, only operating at 33 % capacity and CJ brand takes up 32% of space. CJ has small # of representatives. Poor focus on CJ as it must compete for attention with offerings across multiple product lines. Ineffective distribution mix with 65 independent food brokers. Industry/Market StructureCJ has 97% brand awareness and 95% among current consumers of caramel popcorn products. CJ has maintained a positive, and consistent image since inception. Recent growth opportunities in the low/no fat product offerings. Rising material costs FinanceFL demonstrated financial strength with $1. 3 billion operating profit and $9. 68 billion in net sales. Annual growth rate of 13% between 1991-1996. Borden continues to integrate regular price increases to maintain profitability rather than improve efficiency or reduce costs. Borden’s operating capital is diminished as the Trade Promotion expense is high relative to sales. R & DFL has current resources available for R & D of new product variations. Borden has not invested in expanding CJ product offerings from original formula. OfferingsFL has branding expertise holding #1 market position for salty snack products, and represent 9 of the top 10 brands. 2 different stocking options 4. How should Cracker Jack be marketed as a Frito-Lay brand? Should Frito-Lay proceed with acquiring the Cracker Jack brand, I recommend the following mix of marketing activities. Product: Reduce the number of SKUs by 50% to 16, primarily by standardizing on two packaging sizes (8-oz flex bags and individual serving boxes). This step would allow the flexibility of introducing additional flavors without cannibalizing existing products. An additional benefit would be improved manufacturing efficiency gained by standardization.

Price: It is suggested that in the first year the price of the product remain the same and focus should be directed to achieving cost reduction. Cost reductions can be achieved by capitalizing on the extensive distribution and sales network of Frito-Lay and the reduction of trade promotion expense. The additional revenue generated from increased sales will assist in maintaining profitability and sales margins. Promotion: The first year promotional efforts should focus on overall awareness of newly developed products, which were lacking in exposure according to preliminary market research.

As new flavor profiles and methods of consuming (snack bars) Cracker Jack products are introduced, a significant amount of advertising and promotional dollars (approx $7. 5 million) should be planned. Two themes of messages are advised in keeping with the brand image of Cracker Jack: baseball and sharing memories with family. With sponsorship of baseball related activities the nostalgia of singing the traditional Buy me some peanuts and Cracker Jacks. , individual sized boxes with high margins would be available for sale.

This theme could offer the potential tie-in of additional salty peanut based Frito-Lay products to be introduced or co-branded with Cracker Jack. The second message theme involves a family consuming Cracker Jacks together at home and reminiscing about the early days when parents at Cracker Jacks. This strategy is supported not only be the positive brand association by adults, but as market research showed children were fans of the taste. Additionally, Frito-Lay is providing the opportunity for more product to be consumed by the entire family encouraging higher re-purchase rates.

Place: It is advised that the Frito-Lay sales force continue it’s distribution channel mix, with the majority of product being placed in warehouse stores, the alternative snack aisles in leading grocery chains, and potentially vending machine offerings with the individual sized packaging. 5. What dollar amount does Borden Foods want for Cracker Jack? The analysis of fair market value involved reviewing sale and acquisition history of competitive manufacturers, including the $1. 2 billion sale of 80% of the current market leader American Home Products (Crunch ‘n Munch) in November 1996.

Borden the current manufacturer of the Cracker Jack brand was acquired in 1994 for $1. 9 billion, while the flagship dairy business was divested in 1997. Borden’s sales projections were deemed to be significantly inflated, following evaluation of growth trends and research. The Frito-Lay financial team revised the forecast and reduced sales revenue by approximately 10%, which significantly alters the calculation in identifying a fair present value. Additionally, the business teams of Frito-Lay believe capital investment is not necessary to degree anticipated by Borden management, due to existing production and packaging resources.

The timing of potential expenses is also likely able to be delayed which contributes to additional working capital. Another variable Borden likely over estimated in projections is the amount of trade promotion and advertising. All of these variables contribute to a lower valuation of cash flow and market value. Regardless of the Frito-Lay’s strengths, any new investment of this volume carries a degree of risk. Borden’s activities or lack thereof, have not damaged the Cracker Jack brand irreparably, but have served as good stewards of the general brand equity. I would recommend that Frito-Lay offer a purchase price of $ 75 million.

Cite this Frito Lay – Cracker Jack Case Analysis

Frito Lay – Cracker Jack Case Analysis. (2018, May 14). Retrieved from https://graduateway.com/frito-lay-cracker-jack-case-analysis-essay/

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