Kingsford Charcoal Case Presented by Team O Vladimir Paniouchkine Management Kingsford business was started in the 1920’s The plant was purchased by Clorox in 1973 Kingsford accounts for 9 present of Clorox’s revenues in 2000 Moderate growth of 1-3 percent in revenue each year until 2000 Background Events for grilling have gone up from 1.4 billion in 1987 to over 3 billion in 2000 60 percent of grilling happens on July 4th, Labor day, Memorial Day and other special occasions sales which comes out to be $129 million. ◦ 4th of July and Memorial Day account for 35% of annual charcoal category slowed from 4 % growth 1998 to 1999 to 2% growth from the first half of 1999 to the first half of 2000 Background cont. Increase trend across the whole industry with the exception of Kingsford Private labels have jumped 10 percent of what they where in 1999 Gas Grilling Fears ◦ During 2000 gas grill shipments grew 8 percent while charcoal grills dropped 3 percent. ◦ 54 percent of U.S. households owned a gas grill, and 49 percent owned a charcoal grill Problem Factors: Price Advertising decreased from$6 million in 1998 to a little over $1 million in 2000 Gas grilling expenditures have increased from $4 million in 1998 to over $10 million in 2000. No charcoal message Problem Factors: Advertising Low temperature in 2000. ◦ About 10 degrees lower than in 1999. More rainfall in October through December 2000. Plants currently running at 80% of total capacity ◦ Problem if grew by 5% for several years in a row. $30-$50 million to build a plant Problem Factors: Weather / Capacity Would this price increase drive consumers to competitors or gas grilling? How large of a price increase should it be? Raise prices for both regular and instant and for all channels? Price increase scenarios: 1. 2. 3. 4. A moderate price increase of 4% for club stores only A small 2.5 % blue bag increase across all channels A moderate 5% blue bag increase across all channels Increasing both blue bag and red bag by 5 % across all channels. Considerations: Price What amount to spend on advertising What type of message does Kingsford want to send. What can be done about something you can’t control: Weather. Considerations: Advertising / Weather Strengths Positioned as a premium quality brand In business since 1920s Burns longer than other Charcoal Innovative Weakness Business is seasonal Low advertising budget Relies on impulse buys Plant is running at approximately 80 percent capacity Market share at 59.5 Opportunities NASCA, Pepsi, and Budweiser Cross – promotion Making grilling year round Threats Gas grilling is becoming more prominent: more penetration Competitors are closing the price gap Gas grilling is spending more on Advertising Kingsford advertises for the charcoal industry as a whole Room to increase prices SWOT Analysis Increase of 5% across the whole line. ◦ No merchandise loss: profitability of $1.87 million ◦ With loss there is still a potential profit of $1.72 million. Recommendations Increase of advertising spending to at least $7 million. ◦ Off-set potential done by higher prices ◦ Recommendation of MMA firm ◦ Has worked in the past “Its not a real barbecue, without the real barbecue taste of Kingston.” ◦ 796 men and women blind taste test “Lighting speed start, and burns for ages.” Recommendations cont. Create year round grilling events ◦ Promotion with major events such as NASCAR, football, concerts, baseball, and basketball. Cross-promote with different brands ◦ Pepsi, Budweiser, and Ball Park Franks Hot Dogs Capacity issue. ◦ Wait and see what next results are ◦ $30-$50 million is too much currently Recommendations cont. Questions?