Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

Back Matter Cases © The McGraw−Hill

Companies, 2002

In late 2001, a stockholders’ revolt over low profits (in

2001, they were only $500,000) resulted in Healthy Foods’

president and two of its five directors being removed. Don

Warren, an accountant from the company’s outside auditing

firm, was brought in as president. One of the first things he fo-

cused on was the variable and low levels of profits in the past

several years. A comparison of Healthy Foods’ results with

comparable operations of some large competitors supported his

concern. In the past 13 years, Healthy Foods’ closest competi-

tors had an average profit return on shareholders’ investment

of 6 to 12 percent, while Healthy Foods averaged only 2.5 per-

cent. Further, Healthy Foods’ sales volume, $650 million in

2001, has not increased much from the 1983 level (after ad-

justing for inflation)—while operating costs have soared

upward. Profits for the firm were about $8 million in 1983. The

closest Healthy Foods has come since then is about $6 mil-

lion—in 1991. The outgoing president blamed his failure on

an inefficient sales department. He said, “Our sales depart-

ment has deteriorated. I can’t exactly put my finger on it, but

the overall quality of salespeople has dropped, and morale is

bad. The team just didn’t perform.” When Don Warren

e-mailed Lars Svensson, the vice president of sales, with this

charge, his reply was,

It’s not our fault. I think the company made a key mistake in the

late 70s. It expanded horizontally—by increasing its number of

product offerings—while major competitors were expanding ver-

tically, growing their own raw materials and making all of their

packing materials. They can control quality and make profits in

manufacturing that can be used in promotion. I lost some of my

best people from frustration. We just aren’t competitive enough

to reach the market the way we should with a comparable prod-

uct and price.

In a lengthy e-mail from Lars Svensson, Don Warren

learned more about the nature of Healthy Foods’ market. Al-

though all the firms in the food-processing industry advertise

heavily, the size of the market for most processed foods hasn’t

grown much for many years. Further, most consumers are

pressed for time and aren’t very selective. If they can’t find the

brand of food they are looking for, they’ll pick up another

brand rather than go to some other store. No company in the

industry has much effect on the price at which its products are

sold. Chain store buyers are very knowledgeable about prices

and special promotions available from all the competing sup-

pliers, and they are quick to play one supplier against another

to keep the price low. Basically, they have a price they are will-

ing to pay—and they won’t exceed it. However, the chains

will charge any price they wish on a given brand sold at retail.

(That is, a 48-can case of beans might be purchased from any

supplier for $18.10, no matter whose product it is. Generally,

the shelf price for each is no more than a few pennies different,

but chain stores occasionally attract customers by placing a

well-known brand on sale.)

Besides insisting that processors meet price points, like for the

canned beans, some chains require price allowances if special lo-

cations or displays are desired. They also carry nonadvertised

brands and/or their own brands at lower price—to offer better

value to their customers. And most will willingly accept produc-

ers’ cents-off coupons—which are offered by Healthy Foods as

well as most of the other major producers of full lines.

At this point, Don Warren is trying to decide why Healthy

Foods, Inc., isn’t as profitable as it once was. And he is puzzled

about why some competitors are putting products on the mar-

ket with low potential sales volume. (For example, one major

competitor recently introduced a line of exotic foreign vegeta-

bles with gourmet sauces.) And others have been offering

frozen dinners or entrees with vegetables for several years. Ap-

parently, Healthy Foods’ managers considered trying such

products several years ago but decided against it because of the

small potential sales volumes and the likely high costs of new-

product development and promotion.

Evaluate Healthy Foods’ present situation. What would you

advise Don Warren to do to improve Healthy Foods’ profits?

Explain why.

Pillsbury’s Häagen-Dazs

Jan Phillips is the newly hired ice cream product-market

manager for the United States for Häagen-Dazs—the world’s

leading brand of super premium ice cream (now available in 55

countries) and the market leader in the U.S. Pillsbury says

Häagen-Dazs (www.pillsbury.com/main/brands/haagen) is

profitable globally, with total sales of more than $900 million.

The company saw its sales grow rapidly during the 1990s, but

now its markets are facing significant change and very aggres-

sive competition. Phillips is responsible for Häagen-Dazs’ ice

cream strategy planning for the United States.

Other product-market managers are responsible for Europe,

Japan, and other global markets. Therefore, Phillips will be ex-

pected to focus only on the United States while knowing that

“everyone” will be watching her (and the United States) for

clues about what may happen elsewhere.

Overall, ice cream sales in the U.S. have been off 1 to 2

percent in recent years. Still, some new entries have made a

big splash. Starbucks, the coffee king, is one such brand. In its

first year in grocery-store freezer sections, its Frappuccino

bars—in several flavors—were a big hit. In addition, the

Starbucks brand quickly became the nation’s top-selling pre-

mium coffee ice cream. Häagen-Dazs, along with a few other

super premium producers, are continuing to grow at rates of 2

to 3 percent. But most other U.S. super premium producers

are reporting flat sales—and some are going out of business.

The easy availability of super premium ice cream in super-

markets has hurt some of these producers who sell through ice

cream stores, which specialize in take-out cones, sundaes, and

small containers of ice cream. It is also thought that, at least

in part, the decline in sales growth of super premium ice

cream in the U.S. since the early 1990s is due to competition

from other products such as lower-calorie yogurts and low-fat

ice cream.

Despite a real concern about healthy diets, Americans

seem to swing back and forth in their yearnings for low fat and

rich taste. There is some evidence that “dessert junkies” who

want to indulge without too much guilt are turning to low-fat

frozen yogurt and low-fat ice cream. This has encouraged a

number of super premium ice cream competitors to offer these

products too. Pillsbury’s Häagen-Dazs, International Dairy

Queen, and Baskin Robbins are selling frozen yogurt. And

Kraft—which makes Frusen Glädjè, Edy’s, and Dreyer’s Grand

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Cases 713