Toppits Foods Ltd.

INDUSTRY: Grocery

PRODUCT: Garlic & Herb Cubes 

COMPANY/BRAND: Toppits Foods Ltd.

SOURCE: Richard Ivey School of Business Foundation

WRITTEN BY: Elizabeth M.A. Grasby, Robert de Vooght, Stephen Rene Frey

PUBLICATION DATE: May 06, 2008

PROD. #: 908A05-PDF-ENG

Reader's comments would be much appreciated and replied to!!!

Analysis:

1.     How does competition affect Toppit’s marketing plan? 

SOLUTION:

Toppits has competition from 3 major areas:

A.    Substitute traditional products

B.     Indirect competition – Backyard herb gardens

C.     Direct competition

a.       Gourmet Garden

b.      McCormick

c.       Derlea Jars

Traditional products:

This product is not a direct competitor to Toppits since they have existed in marketplace for many years and targets a completely different segment (that has time to wash, chop, etc). This segment is not likely to buy or consume pre-packaged convenience food like garlic and herb cubes. (Table 1)

Market share	40% to 50% (Assume 50%)
No. of prospects	18,750,000 i.e. 18.75 million

However, given the size of the market Toppits should try to poach some of these customers through better in-store promotions where these products are sold

Indirect Competition:

These products are not sold but grown by consumers in their backyard herb gardens. Therefore, these consumers are not part of target market.

Given below is a direct competitor review and analysis (Table 2):

Competition	Strengths	Weaknesses
Gourmet Garden	International brand Australia market knowledge	New company Tube product Shelf life is 3 months Preservatives used  Product contains milk solids and dairy derivatives (allergens)
McCormick	Major multinational Large product base Good brand recognition Large distribution network	Tube product Lower quality ingredients
Derlea Jars	Garlic imported from China so higher margin Small business so low overheads	Small family owned business Limited product line Small distribution network Raw material dehydrated Preservatives used Product not fresh and natural Product lost flavor once jar is opened Flavor different from Toppits product

Toppits Foods Ltd. (Parentage Review):

1. Long industry experience (Started in 1899)
2. Good understanding of local market (Operating out of Toronto, Canada)
3. Large product base
4. Profitable (All division sales - $25million)

Toppits Garlic and Herb Cube product review (Table 3):

Feature	Customer segment addressed	Prospects	Competition affected
Ease of use	Women and students (See table 4 & 5)	14 million + 4.48 million	Indirect competition  Traditional products Derlea Jars
Convenience Pre-proportioned	Students (See Table 5)	4.8 million	Derlea Jars
Freshness	All	77% consumers want high quality produce (See Table 6)	Derlea Jars
Shelf life – 2 yrs	Students (See Table  5)	4.8 million	Gourmet Garden
Awards won	All (If used in Promotion Strategy)	All segments	All
All natural Preservative free Nut-free	All	77% consumers want high quality produce (See Table 6)	Gourmet Garden McCormick Derlea Jars
Kosher (does not contain dairy derivatives)	Jewish (See table 5)	0.32 million	Gourmet Garden
Large distribution network	Students and Jewish (See Table 5)	4.8 million + 0.32 million	Derlea Jars

Inspite of having so many strengths Toppits is unable to capture market due to one very apparent reason (Table 4)

Strategy	Problem	Suggestion
Specially designed freezer display	Limited exposure in stores Needs to be next to electrical outlet Not stocked next to competitor	Store stocking and placement MUST be corrected and we could see instant results if placed next to competitors.

From Table 2 and 3 we can clearly see that Toppit’s only serious competition is McCormick given Toppit’s current marketing strategy which relies heavily on these qualities – freshness, convenience, low cost, high quality products

Supplier/Switch/Sourcing Strategy:

Toppit’s cost price (From Israel)                                             $ 34.00/case

Toppit’s cost price (From China – 30% less)                          $ 23.80/case

Cost Benefits of switching to supplier from China                $ 10.20/case

Profit margin per unit before switch                                       $   8.60/case

Profit margin per unit after switch                                          $ 18.70/case

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Profitability per unit increased                                            FROM 25% to 55%

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However, the following effects should be considered

1.      The quality of the products will definitely be reduced which is the major differentiator from McCormick it’s only serious competitor.

2.      Derlea Jars already sources from China therefore the same supplier might give preference to Derlea Jars.

3.      Supplier from China might partner with McCormick (since similar strengths with Toppits) and thereby overcome it’s weakness of lower quality products

Therefore inspite of obtaining higher profitability per unit and maximizing listing productivity is one of Toppit’s main objectives sourcing strategy must NOT SWITCH to supplier from China.

2. Which consumer group should Toppit’s target and how does this affect Toppit’s marketing plan?

SOLUTION:

Customer segment currently serving (Table 5):

Segment	Age Group/Sex	Factor for selecting product	Approx number of prospects
Women	25-54, Female	Limited time to cook Healthy meals	14,400,000 i.e. 14 million (45%)

Toppit’s present market share - 4% i.e. 576,000 million consumers

Prospective customer segments to be targeted (Table 6):

Segment	Age Group/Sex	Factor for selecting product	Approx number of prospects	Comments
Student	18-25, Male and Female	Convenient and healthy Limited access to grocery stores Easy-to-use Long shelf life	4,480,000 i.e. 4.48 million (16%)	Limited transportation Restricted budgets Condensed in tight geographical areas
Jewish community	Not specified	Imported from Israel Kosher	320,000 i.e. 0.32 million (1%)	Jewish media coverage Concentrated in small metropolitan areas

If Toppit could open a store close to University area then it could capture the Student segment of 4.48 million consumers, since all the features that student segment wants are present in Toppits cube product. Also if a Warehouse store is opened close to University area then the price factor would also be resolved (71% consumers felt this was important – See Table 7) since students would get a price advantage of $1.53/tray (See Solution to Q6)

Therefore, Toppits must concentrate on the Student Segment for long term profitability. But if the suggestion in Table 4 is followed we would see immediate results from the Women Segment.

3.     What are the different distribution channels available to Toppit? Evaluate these distribution channel options qualitatively and quantitatively.

SOLUTION:

The consumers’ choice of distribution channels depends on following factors (Table 7):

Rank. No	Factor for selection	Percentage of consumers	Comments
1.	High quality produce	77 %	Already delivered
2.	Low prices	71%	See comparison analysis
3.	Specials Items on sale (Papers + Flyers)	38%	See Promotional strategy
4.	Coupons (Mail)	36%	See Promotional strategy

The 5 major distribution channels that the grocery industry has are (Table 8):

Sr. No	Channel	Annual Growth Rate	Comments
1.	Mass Merchandisers	5%	See Walmart analysis below
2.	Convenience stores	5%	See comparison analysis below
3.	Dollar stores	5%	Low Margin – so not analyzed
4.	Warehouse stores	2 %	Average dollar amount double of 1 and 2 Distributors targeting this group
	Traditional grocery stores	1%	Very low growth – so not analyzed

A.    Quantitative Analysis:

Toppit’s cost price                                           $34.00/case

Toppit’s margin (25%)                                    $  8.50/case

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Grocery store price calculation:

Toppit’s wholesale price                                 $42.50/case

            Distributor’s markup (25%)               $10.63/case

Distributor’s price                                           $53.13/case ~ $54.00/case

            Grocery stores’ markup (40%)          $21.60/case

Grocery store’s price                                      $75.60/case

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Price consumer pays                         $4.73/tray (16 trays per case)

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Wholesale store’s price calculation:

Toppit’s wholesale price                                 $42.50/case OR

                                                                        $ 2.67/tray (16 trays per case)

            Warehouse store’s markup (20%)       $ 0.53/tray 

Warehouse store’s price                                  $ 3.20/tray OR

                                                                        $ 9.60/pack (3 trays per pack)

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Price consumer pays                         $ 3.20/tray (16 trays per case)

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Price advantage to consumer           $1.53/tray – IF BUY FROM WAREHOUSE STORE

Qualitative Analysis:

Therefore, it is profitable from point of view of customers that they buy from the warehouse stores rather than from convenience stores (For Toppit the profitability margin remains at 25% for both). The only foreseeable issue is that there are only 10 warehouse stores in Canada, but it also mentioned that according to statistics consumers were making fewer trips to all other distribution channels EXCEPT warehouse stores, which means that even they have begun to realize this price advantage.

So, Toppit’s strategy must be to strengthen the warehouse store distribution channel to take advantage of greater consumer numbers there.

Walmart store distribution expansion plan analysis:

Quantitative Analysis:

Toppit’s cost price                                           $34.00/case

Toppit’s margin (25%)                                    $  8.50/case

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Walmart store price calculation:

Toppit’s General wholesale price                    $42.50/case

Toppit’s price to Walmart (10% less)          $38.25/case (Profitability per unit reduced)           

            Walmart’s markup (25%)                                $ 9.56/case

Walmart store price                                         $47.81/case

Price consumer pays                                     $2.99/tray (16 trays per case)

Note: Advertising budget not included here

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Price advantage to consumer                       $0.21/tray–IF BUY FROM WALMART STORE

Margin reduction per unit                               FROM  $8.5/case to $4.25/case

Profitability per unit reduced                      FROM 25% per unit to 13% per unit

Therefore, although it is profitable from point of view of customer to buy from a Walmart it hurts Toppit’s profitability per unit and therefore should be avoided.

Also, budget considerations must be taken into account (From Exhibit 3)

Toppit’s Promotion Budget                $ 200,000

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Walmart Option:

            Walmart’s demand                  $   50,000

Budget Remaining                            $ 150,000

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Warehouse Option:

            Packaging (3 tray pack)          $   20,000

            Freezer placement                   $     8,000

Budget Remaining                            $ 172,000

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Therefore, even taking budget considerations into account the Walmart expansion plan is not good.     

Qualitative Analysis:

Walmart already has 276 stores in Canada compared to just 10 Toppit warehouse stores and plans to expand by 15 to 20 new stores every year and could be used to tap a huge consumer market that prefers the mass merchandising channel. But this is very subjective and cannot be verified using quantitative data.

4.     Develop a promotional strategy & budget for Toppit.

SOLUTION:

PROMOTIONAL STRATEGY

Do’s

Toppits should research and develop a diverse product base in cubes. After making operational adjustments to maximize returns on their new operations Toppits should implement the following key marketing strategies:

• Toppits should increase their wholesale price by 15-25% to increase their unit contribution and increase profitability.
• Toppits should create new recipes using the cubes and have them published in magazines like Chatelaine and Canadian Home and Living, etc., that are popular amongst American households especially women.
• The Toppits freezers should be aligned along with the competitor’s frozen food items line, but should be placed at the premium sight only, making them clearly visible.
• The freezers should be of variable sizes (front doors with big see-through glass). Also big freezers should be installed at all major locations like big grocery stores.
• Toppits should implement advertising strategy of wrapping the freezer with posters highlighting different products features.
• Toppits should implement a 2-phase coupon strategy that will not only introduce consumers to products but will encourage the purchase of several different varieties of the cubes.
• Introduce new pack of 4 cubes of garlic & herbs at a rate of $20.99 (pack of 16 cube costs $74.37 in grocery stores and $51 at warehouse store)

Don’ts

• Toppits should not change suppliers from Israel to China.
• Toppits should not compromise on its quality to earn more profits.
• Toppits should stop on spending more on sampling, and should instead focus on other means of promotion.
• Toppits should not focus on making the product available across various stores, but instead through its own warehouses.

BUDGET (Table 9)

INITIATIVE	ACTUAL	SUGGESTED	BUDGET REMAINING
Total budget allocated	200,000	200,000
Initiatives Undertaken:      Sampling (for promotion)      Magazines      Television advertisements      Radio      Packaging      Food festivals      Freezer placement      Website Design      Coupons, Newspaper Fliers & Brochures	40,000 36,000 40,000 20,000 20,000 10,000 8,000 15,000 NIL	20,000 36,000 40,000 30,000 30,000 (including 4cube packaging) 10,000 10,000 10,000 14,000
Total	189,000	200,000	NIL

We have suggested introducing the tray in smaller packets of 4 cubes each for first time customers who did not get a part of the sample, and to make them quit the brand they currently using to gain market penetration. A customer might not want to buy a packet of 16 cubes, because of the high price, to try a new brand and a small pack of 4 cubes will attract more customers to try it. Once they are acquainted with the quality that Toppits provides, they will readily buy the pack of 16. Along with this, a tray of 4 cubes will also be profitable as it can be sold at a slightly higher rate and can be concentrated on the mass. As we know a pack of 16 can cost around $75 in stores, this tray can be sold close to $19 - $20, with no significant cost induced on promotion of the 4 pack.

Analysis of Budget:

1.      The sampling cost has been reduced to half, and instead small trays of 4 cubes of each have been introduced to increase profitability, sales and market penetration.

2.      The budget for magazines, television advertisements have been unchanged because they have helped in increasing sales.

3.      The budget for radio advertisements have been increased as it has a higher CPM.

4.      The budget for packaging has been increased as a tray of 4 cubes is to be introduced.

5.      The cost of freezer placement has been increased so that it is better placed and visible as compared to competitors’ freezers.

6.      The budget for website design has been reduced as it has a lesser impact on sales.

7.      The budget for newspaper fliers, brochures and coupons has been introduced as it will help boost sales and profitability.

5.     What should Gremont do?

SOLUTION:

Toppit’s market strategy aims to target the following objectives:

• Maximize line productivity
• Promote awareness
• Ensure that consumers repeatedly purchase product

To achieve these objectives Toppit has 3 alternatives to choose from

• Distribution strategy - Expand into different distribution channels (Walmart explained in Q3)
• Sourcing strategy – Changing to a low cost supplier (See Solution to Q2)
• Promotion strategy – Changing focus of current promotional activities (See Solution to Q5)