Oreo Cookie Products Nabisco is a company that has been in existents since 1898. During their 109 years in existence, they have grown through natural growth, mergers, and acquisitions. This has allowed Nabisco to be the leading snack maker in the world. Being the leading snack maker has allowed Nabisco to introduce a diverse selection of foods. However in recent years Nabisco has been reluctant to adapt to current market trends. The company was focusing on producing new versions of existing products to make them more convenient.
However Nabisco was ignoring that other companies were creating similar products that were cheaper and also healthier products. Recently, Nabisco realized this trend and began creating healthier foods such as 100-calorie snack packs, low carb foods, and low fat foods. With these new products, Nabisco has been able to serve people that have chosen to adapt to a healthy eating life style. The new Fat Free OREO that Nabisco will be introducing next year will solidify Nabisco as a company that is willing to support those that have adopted that healthy eating life style.
Nabisco is expecting the new Fat Free OREO to become one of the leading fat free snacks on the market. Nabisco hopes to expand to other fat free products like OREO piecrust, OREO ice cream cones, and snack size packages of Fat Free OREO for vending machines or individual purchases in 2009. Situation Analysis In 1898, The National Biscuit Company was formed in the US through the merger of several regional baking companies. In 1952, the now familiar red Nabisco triangle first appeared on the upper left corner of National Biscuit Company products. National Biscuit Company changed its name to Nabisco in 1971.
In 1981, Nabisco, Inc. merged with Standard Brands (founded in 1929) to become Nabisco Brands. To expand their global presence and to strengthen their position in the fast-growing consumer snacks sector, Philip Morris Co. Inc. acquired Nabisco Holdings in December 2000. Philip Morris purchased Nabisco for $14. 9 billion in cash plus assumed $4 million in debt (Grant 243). Nabisco is the world’s largest manufacturer and marketer of cookies and crackers, based on retail sales. Eventually, Philip Morris integrated the Nabisco brands with its Kraft Food operations (Cookies 4).
In March 2001, Philip Morris created a new holding company for the combined operations known as Kraft Foods Inc. (lacking the comma of the previous Kraft Foods, Inc). The previous Kraft Foods was renamed Kraft Foods North America (Grant 243). The people of Kraft have recognized that the business has an important role in society- a responsibility that included understanding and meeting the public’s expectations, helping to address important social, environmental and economic issues and making a difference in local communities and the world.
They firmly believe that “Our success will depend importantly on our willingness and ability to listen, get feedback on what we’re doing from those both inside and outside Kraft and act responsibly on issues of important concern. ” Beginning in the early 1990’s cookie sales began to slowly decline because consumer’s buying habits were shifting towards lower calorie. When more brands began making low fat products, then sales began to slowly increase again. By the early 2000s the low fat trend was out and the low carb trend was in. Therefore, cookie sales fell by 1. 9 percent.
The low carb craze has diminished in the eyes of Americans. There are numerous diets that are setting the trend for the low fat craze. Among them are the South Beach Diet, Jenny Craig, and Weight Watchers. However, these diets do not ban but actually encourage the consumption of “good” fats. In order to gain back old consumers and attract new consumers, companies have had to develop a wide variety of products containing a low or no amount of fat. Numerous companies are creating low fat/no fat versions of their products and other companies are specializing primarily in low fat/no fat foods.
When Nabisco introduced their fat free cookies to the market in 1995, US sales zoomed peaking at about $490 million. The turnout of the product’s sales will give other companies an insight on whether they should create a fat free cookie product. Objectives Nabisco has been very successful with its OREO products. Now is the time to become more competitive in other areas by becoming more attractive to potential customers. Nabisco now plans to focus on better-for-you-products with less marketing to children.
Since the weight loss trend is targeting more awareness of fat intake, instead of low fat products, we are choosing to shift some of our weight towards the fat free market. The Fat Free OREO will help broaden our marketability in the cookie industry. Strengths Among Kraft Foods’ many strengths is its standing as the largest branded food and beverage company in North America and the second largest worldwide. Kraft Foods are found in more than 99 percent of all households (Company Overview 1). Nabisco is one of the seven Kraft brands that bring in more than $1 billion in revenues each year ($3. billion) (Grant 235). Nabisco is ranked as the top cookie maker, with $1,432,539,000 in sales for the year of 2006 (see appendix A). Nabisco has consistently been the leader in the industry, selling nine of the top twenty cookies worldwide, including OREO, the world’s largest selling cookie brand (for cookie sales, see Appendix B). One of Kraft’s most important strengths is the power of their brands. They work to grow these brands by: •Focusing on fast growing sectors such as snacks, beverages, and convenient meals. •Addressing consumer needs for health and wellness. Expanding their presence in faster growing distribution channels. •Targeting fast growing demographics and economic segments. Focusing on fast growing sectors is the strength we will base our new product on. Kraft Foods will be introducing a new fat free OREO cookie. As we closely observed the shift in society’s eating habits, we realized that we needed to come up with a new product to accommodate those who do not purchase our products; those who are not currently purchasing our products. This may include consumers who abide by some kind of strict diet plan.
Since the new recent health diet trend is low or no fat diets, we used the facts and statistics in the development of our new product, the Fat Free OREO. Our new product will contain 0 grams of fat per serving and 0 grams of sugar, because we are substituting sugar for the sweetener, Splenda Weaknesses While Nabisco is the top cookie maker, our sales have slowly declined the past few decades. An important reason for the declines in Nabisco’s cookie and cracker business is that during the 1980’s, Nabisco aggressively increased its price causing consumers to buy less (Cookies 2).
Nabisco still holds the largest part of the business; however, private labels have begun to heavily cut into Nabisco’s market share. Our product will be made with more expensive ingredients as all healthy foods are, therefore, we will not be lowering the cost of our product which will be a weakness. The price of our new product will be a few cents higher than the price of the regular OREOs. While the original OREOs are priced around $3. 00 per package, the Fat Free OREO will be sold for $3. 15 per package. Another reason for the decline in sales is that we do not make products that serve the health conscious society.
Nabisco has introduced several reduced fat products, but consumers more recently have become interested in low or no fat intake. Nabisco’s OREO cookies have a total of 7 grams of fat and 14 grams of sugar per serving (three cookies), while one of our competitors are marketing new cookies that have 4. 5 grams of fat and 5 grams of sugar per serving. We hope that developing this new product will raise our sales and reach the target audience we are aiming our marketing efforts towards. Also, since our competitor’s cookies only contain 4. 5 grams of fat, it will be essential to have less fat but still have a great taste.
Financial Information It will cost Kraft Foods Inc. 10 million dollars to develop the formula for the Fat Free OREO. There is an increase cost of production of around seven cents per package compared to the traditional OREO. The majority of this difference is due to more expensive ingredients. We are estimating to charge an additional 15 cents per package, which will continue our current profit margin. All marketing costs will be taken from Kraft Foods total marketing budget, so that the marketing costs do not directly factor into the cost of production.
Break Even Analysis With a cost of $3. 15 per package, Kraft Foods Inc. will continue on the same profit margin as the traditional OREO, which is double the cost of production. The cost of producing a package of Fat Free OREOs is approximately $1. 57 per package. By dividing $1. 57 into $10 million, Kraft Foods Inc. figures it will take approximately 6. 4 million packages to break even. Sales Forecast Kraft Foods Inc. is projecting first year sales to be around 5 million packages with most of those being sold in the second half of the year.
The reason that Kraft Foods Inc. is expecting greater sales in the second half of the year is that once the product hits the shelves, it will take time for all the consumers to hear about the new product. They are expecting sales to increase in the second year by 2 million packages for a total of 7 million packages. The reason for the increase in sales is that by 2009, all stores should be carrying the Fat Free OREO and through our aggressive marketing campaign most people would have heard about the Fat Free Oreo and they will desire to buy the product.
By the end of the first quarter of 2009, Kraft Foods Inc. forecasts that the Fat Free OREO would have sold enough packages to earn a profit. Work Cited “Strategies for Growth”. Kraft Foods Inc. http://164. 109. 16. 145/investors/strategies. html “Responsibility”. Kraft Foods Inc. http://www. kraft. com/responsibility/index. html “Company Overview”. Kraft Foods Inc. http://164. 109. 16. 145/investors/strategies. html