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Anton Mc Menamin

Classico Pasta Sauce Brand Audit

Spring 2010

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Company Analysis

H.J. Heinz (Heinz) acquired the Classico pasta sauce brand in June 2001 from the Borden Foods Corporation.i

Chairman, President and Chief Executive Officer of the FMCG giant William R. Johnson stated it was an excellent

acquisition for Heinz “due to the tomato based experience of the brand and the marketing opportunities available with

the brand to compliment the current Heinz brand portfolio brands”.

During the fiscal years 2008 and 2009, Heinz have delivered record annual global sales in excess of $10 billion. Over

$3 billion of these sales were incurred from sales of North American consumer products. In this time frame sales of

the Classico pasta sauce brand have grown steadily, with a 13.4% sales increase in the 2008 fiscal year, followed by

an 8.4% increase in the 2009 fiscal year.ii

Since acquiring the brand in 2001 Heinz have supported Classico exceptionally, making it one of their top four priority

brands after the Heinz Ketchup brand. In recent years the promotional emphasis of the brand has shifted from initially

predominately promoting the Classico Beef flavored range, to promoting the brands organic range. This shift has

seen an increase in the sales of Classico organic sauces by over 9% in both the 2008 and 2009 fiscal years.iii

Overall Heinz expenditure on marketing and advertising (including production and communication costs) for the fiscal year 2009 was $316.0 million.iv In the first nine months of the 2010 fiscal year, Heinz have spent over $308 million in marketing, representing a 15% increase of the respective period in 2009. In line with this increase in marketing activities, in the first quarter of 2010 Classico have become one of four Heinz portfolio brands to participate in the „Consumer Value Program‟, a marketing initiative aimed at increasing retail volume growth through consumer coupons, promotions and increased advertising.v From this program and the brands consistent recent growth it is clear that the company‟s situation has aided the brand. In times of recession consumers cut costs where they can, therefore it is essential for Classico to maintain brand awareness and reinforce a positive brand attitude, as it has traditionally been viewed as the premium brand in the pasta sauce category. This emphasis of advertising and promotion through a recession is echoed by Professor Jeff Inham Frey from the University of Pittsburgh, who states “companies that increase marketing in a down economy can benefit from an increased share in the communication space, since many other companies pull back on spending”. vi This clearly has been a focus of Heinz, with CFO Art Winkleback announcing that the current fiscal year illustrates a 60% increase in marketing over a four year period.

In addition to the financial backing of the Heinz parent company to the Classico brand, in 2008 research by University of Michigan's American Consumer Satisfaction Index revealed that Heinz scored 90 out of a possible 100 points, making it the “most satisfying company in America”. This is due to the company‟s brands providing high reliability, quality service and price. vii

What problems and opportunities are the company currently facing?

The national positive image associated with the Heinz brand, in addition to the company‟s incentive to invest in advertising and promotion provide an opportunity for the Classico brand to emphasize its relationship with Heinz and benefit from the positive name associated with the FMCG company. In addition, part of the Heinz company high performance plan for 2009-2010 is to focus on the growth of the company‟s core portfolio, through continuous innovation and investment, with the „Consumer Value Program‟ having the potential to increase sales of the brand. In addition, this provides Classico with an opportunity to increase the image of the brand, demonstrating that it is consumer focused, not solely profit orientated, as the „Consumer Value Program‟ name suggests.

Market Analysis

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In 2007 Mintel reported that pasta sauce was represented in both the shelf (96%) and refrigerated (4%) forms.viii

Sales of refrigerated pasta sauces are currently growing at a greater rate that shelf based sauces, with a 16%

increase recorded between 2001 and 2006. These sauces are popular among the growing Hispanic population;

however, Classico do not currently operate in the refrigerated pasta sauces market to date.

A major issue currently facing the market is the rise in presence and sales of private label brands in the pasta sauce

category. From 2004-2006 Mintel report a rise of 28% in private label brands in FDM channels excluding Wal-Mart,

with two in five consumers stating that they often buy private label brands.ix Accompanying this, through my own

store check analysis I found that private label brands currently represent 6.9% of the market share, acting as the No.

5 brand in the category. I will use this store check throughout this audit as an assumptive representation of the

market share, however these percentages are estimates and do not represent the entire U.S. market accurately

(please see Appendix 1 for detailed graph and assumed market share statistics).

The pasta sauce category is currently growing, with the market valued at $1.7 billion in 2007in comparison to $1.6

billion in 2001. Since this research has been conducted the category has continued to grow, with Nielsen (2008)

revealing that pasta sauces were one of five recession proof categories, based on previous recessionary data, in

addition to the increase in homemade meals due to a cut in general household expenditure.x

The key category dynamic is the variety of options available to consumers, with 21 different brands available during

my store check. It has been found that 22% of consumers in the category are brand loyal and always buy the same

brand, with another 47% stating that they have two to three favorites. xi Mintel (2007) state that 80 % of households

purchase pasta sauce. This figure fluctuated only narrowly from 70-83% for different age demographics, displaying

that pasta sauce is a commodity which appeals to a broad range of age groups. Additionally 31% of pasta sauce

consumers stated that “I buy whatever seems best at the moment”, representing almost 1/3 of purchase decisions

being made in store.xii In addition to this, 86% of people stated they agreed that they purchased pasta sauce as they

did not have time to make homemade sauce, emphasizing that convenience is a key issue in the decision making

process.xiii

The market is highly segmented with a large range of flavors available under each brand. Classico have 25 different flavors available, which as a result appeals to a variety of demographics as it has been found that the flavor purchased fluctuates per age group (please see Appendix 2). A key factor being addressed in the market is the volume size of the sauces available. As household sizes fluctuate it is essential to cater to the needs of both small and large families. Due to this, Classico pasta sauce can be purchased in 26oz and 44oz jars. Classico trail their competitors in catering to the needs of households of 5 or more, with only a 10% penetration (please see Appendix 3). In contrast, their competitors (e.g. Ragu, Prego) have a higher penetration rate in these households than their respective average penetration levels. Respondents from larger households report using more pasta sauce on a monthly basis. The average consumption for a household of five or more is almost four jars used in the previous 30 days, versus three for respondents from households with four or fewer members, with the presence of children clearly having an impact.xiv

What problems and opportunities are the market currently facing?

As almost 1/3 of purchase decisions are being made in store, there is an opportunity for Classico to increase sales

through increasing brand recognition. There is also an opportunity for Classico to increase their market share by

increasing the loyalty of their existing consumers with 22% of consumers seen as brand loyal in the category and

47% having 2/3 brands in their repertoire. A problem facing Classico in the market is that the brand does not have a

high penetration rate in comparison to their competitors in larger households (five residents plus), who have a higher

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purchase frequency in the households in comparison to smaller households. The company also faces the increasing

threat of private label brands, which are increasing their market share on an annual basis.

Brand Analysis The Classico pasta sauce brand was established in 1986. The traditional tomato and basil sauce was the first flavor

released under the brand, which has since established itself as the premium brand in the pasta sauce category. The

brand was created with the mission to bring the regional tastes of Italy to America. This has aided the development of

the brands functionality, which is represented through the natural taste and healthy nature of the product, in addition

to the quality handcrafted ingredients used in the brands production. The added values associated with Classico are

the brands premium appeal, which in conjunction with their consumer orientated approach has led Classico to be

viewed as the highest quality pasta sauce brand in the category, while differentiating the brand from their

competitors.

Based on my store check analysis Classico is currently the #2 brand in the category. Sales of Classico have

increased in recent years, positively positioning itself as one of Heinz‟s most prominent brands. The marketing goals

for the future are positive for Classico, with Heinz promising to invest heavily in the brand as part of the „Consumer

Value Program‟ it is currently launching. This has resulted in 89.83% of Classico items participating in a promotional

campaign with reductions in store, which I calculated as part of my store check analysis (please see Appendix 4).

Traditional Classico TV and print ads have focused on the authentic homemade taste of the Classico brand, with the

messages “We Make It Like You’d Make It” xv, and “Handcrafted Recipes” (please see Appendix 5) in their ads.

However, advertising efforts for Classico have been limited, with a minimum quantity of traditional media being used.

The brand also has a limited online presence; instead the brand has been the focus of many promotional campaigns

including coupon specials and in store trials (please see Appendix 6). In addition to the aforementioned „Consumer

Value Program‟, the brand has partnered with the National Cattleman‟s Beef Association to provide “beef specific

coupons” throughout 2010 to promote the use of beef and the Heinz Classico Beef flavor range.xvi

What problems and opportunities are the brand currently facing?

The brand currently has an opportunity to capitalize on the „Consumer Value Program‟ currently being established in

stores across the nation, with a potential increase in sales. However, this campaign must be carried out correctly and

analyzed constantly to ensure the brand attitude (premium brand) associated with Classico pasta sauces does not

diminish due to constant promotion. This is essential as the premium nature of the brand is its core point of

differentiation.

Consumer Analysis From my research I can assume that the current consumers of the Classico brand are families, and individuals

seeking a premium solution to their pasta sauce needs (please see Appendix 3). The benefit consumers are currently

gaining from Classico pasta sauce is the brands rich heritage, handcrafted ingredients, and authentic Italian taste,

which combine to provide an excellent dish for home made meals. In addition to this, a key belief regarding Classico

pasta sauce is the brands high quality and consumer satisfaction focus. This is emphasized by Heinz CMO Brian

Hansberry, who believes that although they are attempting to cut costs to satisfy consumers needs, “the one thing we

won't sacrifice is what comes in the packages, and that's the taste, hence our emphasis on taste.”xviiThese factors

combined with the brands premium positioning have led to a positive attitude and knowledge among consumers in

the pasta sauce category of the brands offerings.

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From the market analysis I have conducted I can speculate that Classico is the number one brand for consumers

who are seeking a premium store purchased pasta sauce experience. However, on average consumers have at least

two brands in their repertoire, with a high degree (47%) of brand switching existing in the category, with 2/5

consumers stating they often buy private label brands, as previously discussed.

Classico is renowned as the premium pasta sauce brand in the category, which has seen a positive attitude

portrayed among the market, ranking as the number two brand in the category with a market share of 13.56% as

based on my store check. My research also indicates that, as previously mentioned, the brand is purchased by

consumers who do not have the time to make homemade pasta sauce, yet seek the equivalent quality from store

purchased products. In addition to this, in an economic climate where consumers can no longer afford to dine in

restaurants as frequently as they have previously, as highlighted in the Nielsen (2008) report, Classico pasta sauce

offers the opportunity of a premium meal in your home for a fraction of the price. Therefore my research highlights

that cost and convenience are two of the main concerns for consumers when making a decision in the pasta sauce

category.

Heinz CMO Brian Hansberry believes that "People look to food for comfort, security, escape and high-quality time

with your family, and a number of our categories are taking off: pasta sauce, gravy, potatoes. We play right in the

sweet spot."xviii These elements, in addition to the premium nature of the brand, combine to form additional factors

which influence brand interaction.

What are the consumer’s problems or opportunities that could be solved or exploited?

At present there is not a high degree of loyalty in the category, with 47% of users in the category participating in a

high degree of brand switching, which is detracting from Classico sales. There is an opportunity to emphasize the

satisfaction, security and high-quality time you can have with your family while using the Classico sauce brand, which

provides a similar quality to homemade and dine out meals at a fraction of the cost and effort, to increase the

potential loyalty of consumers and decrease the degree of brand switching in the category.

Competition Analysis

Classico face a great deal of competition in the pasta sauces category, both directly and indirectly. Indirect

competitors are substitutes for pasta sauce to accompany pasta such as olive oil seasoning and pre-packaged pasta

and sauce combinations. The closest direct competitors in the pasta sauces category are Ragu, Prego, Hunt‟s, and

Newman‟s Own. Mintel research in 2007 stated that Ragu was present in 49% of households, followed by Prego

(42%), Hunt‟s (20%) and Classico (13%), with Newman‟s own 10th with 7% penetration. From my store check

analysis I found that Ragu are the market leaders with a 22.76% market share, followed by Classico (13.56%), Prego

(12.87%), Bertolli (8.26%) and Newman‟s Own (5.98%). These brands act as the main competition in the market due

to their shelf presence and commitment to their brands through constant innovation (increase of varieties and sizes

available). In addition to this, own label brands are becoming increasingly competitive due to their low-cost in relation

to the premium Classico brand as mentioned previously.

CMO of Heinz, Brian Hansberry states that “in recessionary times, the No. 1 competition is private label”. He believes

that due to the growth in private label it is essential to be No. 1 or 2 or your “distribution is going to be threatened”.xix

My store check stated that private label brands had a 6.9% market share, ranking No. 5 in total shelf space/market

share. This demonstrates the growing impact of private label brands, which Mintel (2007) state grew by 28% from

2004-2006. This growth has continued with national private label pasta sauce sales increasing by 14.2% from 2009-

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2010.xx This growth acts as a major threat to Classico as private labels are seen as a cost effective solution to a

pasta sauce meal.

The strengths of the competition in the category are their cost. Each of the competitor‟s are priced lower than

Classico in the market. However, Classico have avoided permanent price cuts which premium brands in other

categories have undertaken to counteract their low-cost competitors during the poor economic climate. The

weakness of the competition in the category is their perceived quality, with Classico perceived as the highest quality

brand on the market due to their premium positioning.

What are the competitive problems or opportunities that can be addressed or exploited?

The increase in private label sales has seen the brand come under unprecedented pressure on the cost of the

products. Therefore Classico must demonstrate their brand as premium, focusing on the functionality and added

values of the sauce, emphasizing that Classico provides consumers with restaurant/ traditional homemade quality at

a cost-effective price, modify the positive brand attitude towards the brand to encourage an increased sense of

loyalty.

Strategy

Key Fact: From compiling the brand audit I have identified several key opportunities and threats that face the

Classico brand. However, in order to increase the possibility of my message resonating with the target group, I will

focus on one key fact. Therefore I have developed the following statement that my advertising strategy will aim to

solve:

To increase the purchase frequency of existing consumers of the Classico pasta sauce brand.

Target Group: Increase purchase frequency of existing users

The target group for the advertising campaign will be existing users of the Classico brand. These consumers have

been chosen as the brand currently has a high market share of 13.56% as accessed from my store check analysis.

However, I have also highlighted that there is currently brand loyalty among 22% of consumers in the category, with

47% of consumers choosing between 2/3 brands when making a purchase decision. Therefore, increasing the

purchase frequency of existing users can be viewed as a more realistic and cost effective way of increasing the

brands market share in comparison to obtaining new consumers.

Proposition: Product Differentiation and Added Values

The proposition of the advertising will be to differentiate the Classico brand from the competition by emphasizing the

premium offering provided by Classico pasta sauce. This differentiation tactic will also emphasize the consumer

orientated heritage of the brand which is not offered by the competitors. This will in turn have a double impact as this

message will also demonstrate the added values of the brand in addition to the desired differentiation effect.

Role of Advertising: Modify Attitudes

As only 22% of consumers are brand loyal in the category, the role of advertising will be used to compliment the

target and proposition elements of the strategy by modifying the attitude current consumers have towards the brand.

This will be used to highlight the functionality (quality ingredients) and added values (premium brand, consumer

orientation) associated with the brand in a new perspective which will be used to increase loyalty towards the brand

which does not currently exist to a high degree in the category, as highlighted in my brand audit.

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Appendix 1: Store Check Analysis – Representative Market Share Statistics Used

Source: Schnucks Grocery Store, Urbana IL.

Carried Out: April 20th 2010

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Appendix 2: Pasta sauce ingredients/flavors purchased by age, Source: Mintel (2007)

MeatMushroom

Marinara

A garlic-heavy versio

n

Cheddar,

mozzarella

or parme

san cheese

Alfredo

Sausage and peppe

rs

A version with lots of vegeta

bles

A basil-heavy versio

n

Pesto VodkaArrabb

iataPuttan

escaOther

All 66 59 50 47 34 32 31 30 29 20 9 4 4 4

18-24 65 44 57 38 45 41 27 25 24 29 10 2 5 4

25-34 70 58 57 46 39 42 33 38 31 25 14 6 4 3

35-44 66 63 51 48 34 31 32 32 31 21 9 5 7 3

45-54 67 58 44 49 31 29 32 31 28 18 9 4 3 3

55-64 64 70 46 52 34 27 31 28 31 19 7 2 1 3

65+ 60 61 43 48 23 20 27 25 23 11 6 1 2 6

0

10

20

30

40

50

60

70

80

% o

f co

nsu

me

rs in

de

mo

grap

hic

Pasta Sauce Flavor Age Demographic Analysis

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Appendix 3.1: Household usage of pasta sauce by brand, by number of people in

household

Source: Mintel (2007)

Appendix 3.2: Household usage of Pasta Sauce Per Brand Overview Source: Mintel (2007)

Ragú Prego Hunt’s ClassicoProgres

soBarilla

Del Monte

Bertolli

All 49 42 20 13 12 11 11 8

One Person 47 40 18 15 11 10 9 8

Two People 45 41 16 13 10 9 10 8

Three People 48 42 24 13 10 13 13 10

Four People 54 44 22 12 14 12 11 8

Five People or More 54 44 27 10 15 10 16 6

0102030405060

Pe

ne

trat

ion

Le

vel

Pasta Sauce Household Penetration Per Household Size/ Per Brand

0 10 20 30 40 50

Ragú

Prego

Hunt’s

Classico

Progresso

Barilla

Del Monte

Bertolli

Heinz

Newman’s Own

Contadina

Household Penetration 2007 (Mintel)

Ragú

Prego

Hunt’s

Classico

Progresso

Barilla

Del Monte

Bertolli

Heinz

Newman’s Own

Contadina

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Appendix 4: Evidence of Classico Store Promotions

Appendix 5: Classico Print Ad

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Appendix 6: Coupon Example

Appendix 7.1: Overall Summary

Where are we now? - No. 2 in the market place; 13.76% market share

Why are we there? – Premium brand in the market; dedicated parent company (Heinz)

Where could we be? – Increase current market share with a long term goal to become market

leader

How can we get there? – Increase the purchase frequency of current consumers initially

Appendix 7.2: Strategy Summary

Who do you want to talk to? Existing users of the brand

What do you want to tell them? That Classico pasta sauce is the premium brand in the pasta

sauce category, which is consumer focused unlike their competitors

How do you want them to feel? That Classico can cater for all their pasta sauce needs, both now

and in the future

What do you want them to do? To purchase Classico pasta sauce the next time they purchase in

the category

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Works Cited

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ANNUAL-VW.pdf [Accessed 01 April 2010]. v H.J. Heinz. (Press Release). [Online]. Available from http://www.heinz.com/our-company/press-room/press-

releases/press-release.aspx?ndmConfigId=1012072&newsId=20100225005756 [Accessed 01 April 2010]. vi http://pittsburgh.bizjournals.com/pittsburgh/stories/2010/03/22/story5.html?b=1269230400%5E3057541

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[Accessed 12 April 2010]. viii

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Mintel. (Pasta Sauce). [Online]. Available from: http://academic.mintel.com/sinatra/oxygen_academic/search_results/show&/display/id=226449 [Accessed 25 March2010]. xv

Mintel. (Pasta Sauce). [Online]. Available from: http://academic.mintel.com/sinatra/oxygen_academic/search_results/show&/display/id=226449 [Accessed 25 March2010]. xvi

Grocery Headquarters. (Meat). [Online]. Available from: http://groceryheadquarters.com/articles/2010-03-01/Meating-Place [Accessed 01 April 2010]. xvii

Ad Age. (Classico). [Online]. Available from: http://adage.com/cmostrategy/article?article_id=138800 [Accessed 12 April 2010]. xviii

Ad Age. (Classico). [Online]. Available from: http://adage.com/cmostrategy/article?article_id=138800 [Accessed 12 April 2010]. xix

Ad Age. (Classico). [Online]. Available from: http://adage.com/cmostrategy/article?article_id=138800 [Accessed 12 April 2010]. xx

Private Label. (Sauce). [Online]. Available from: http://www.privatelabelmag.com/issues/pl-jan-2010/sauce.cfm [Accessed 19 April 2010].