Heart to Heart Cereal by Kashi “The first functionally enhanced cereal specifically designed for heart health! ” MARKETING PLAN PATRICK GARBIN MKTG 6010 – Marketing Management Professor William All Fall 2003 HEART TO HEART CEREAL 2 TABLE OF CONTENTS I. Introduction Page 3 II. Executive Summary Page 3 – 4 III. Positioning Page 4 IV. Target Market Page 4 V. SWOT Analysis Page 4 – 5 VI. Competition Page 5 – 6 VII. Packaging Page 6 VIII. Marketing Tactics Page 6 – 7 IX. Advertising and Promotions Page 7 X. Distribution Page 7 – 8 XI. Pricing and Budget Page 8 – 10 XII.
Evaluation of Results Page 10 HEART TO HEART CEREAL 3 I. INTRODUCTION In October of 1983, Kashi, Seven Whole Grains and Sesame Breakfast Pilaf was introduced to breakfast consumers all over the world. To the dismay of the Kashi corporation, the reception of its pilaf was disheartening as it was discovered that people were somewhat reluctant to cook whole grains for over 25 minutes, and really did not know how to use the grains to benefit their health. Around that time period, the national news started to report the importance of fiber in nutrition, especially to people in the United States.
With this in mind and using Kashi Pilaf’s Seven Whole Grain and Sesame formula as a base, the Kashi corporation invented Puffed Kashi in 1987, a pure, ready-toeat cold cereal. Since then, Kashi has introduced several other cereals including Good Friends, GoLean, and soon will release Heart to Heart. As the Marketing Manager for the Kashi organization, it is my responsibility to develop a marketing plan for the newly developed Heart to Heart cereal. The following report is an attempt to accomplish this goal. II. EXECUTIVE SUMMARY
Heart to Heart is a healthy and good-tasting breakfast cereal containing whole oats and oat bran. While most health conscious cereals are beneficial to breakfast-eaters by being, for example, just nutritious, low in cholesterol, or helping weight loss, consuming Heart to Heart is valuable for these and a number of other reasons. Heart to Heart is beneficial to individuals watching their weight in that one serving contains just 110 calories and 1. 5 grams of fat. Also, each serving includes five grams of fiber, which should keep most breakfast-eaters feeling full for several hours after consumption.
Most importantly, Heart to Heart is the first cereal designed to promote and enhance heart health. The fiber in the cereal can reduce the risk of heart disease by lowering cholesterol levels while its Bvitamins regulates homocysteine, an amino acid implicated in heart disease. Also, the oats are loaded with 100% of the daily value for the antioxidants vitamin E and C, both having been shown to lower the risk of heart disease by protecting cells in the heart from damage. Finally, grape seed and green tea extracts are included to prevent cholesterol build-up on blood vessels walls.
While other cereals may also promote heart health, Heart to Heart is currently the only one that has earned the American Heart Association’s heart-check approval mark. Similarly to our other products, Kashi has targeted one main customer group to which to sell Heart to Heart – grocery stores. The grocery stores will then sell directly to the end consumer. Also, Heart to Heart will be available to be purchased online in bulk via ecommerce on our company’s web site. Internet surfers will be able to buy the cereal directly from www. kashi. com under “Cereals” at the “Kashi Store”.
Using an online shopping cart and checkout system, consumers will be able to purchase 12 boxes of Heart to Heart at a time and have them shipped directly to their home via UPS. This ecommerce system is currently in place for most of our other Kashi cereals. Promotion of Heart to Heart will be done through advertising on the radio and in health magazines, and further samples of the cereal will be placed into small plastic packets and inserted into other Kashi cereals for a three-month period (January 2004 – March 2004). HEART TO HEART CEREAL 4
With each introduction of Kashi cereals in the past, samples of any new cereals were first distributed to the public in small packets in existing Kashi cereals. We at Kashi found this method and promotional strategy very useful in getting breakfast-eaters to try and eventually buy new Kashi cereals. By the end of the product’s first year of distribution, we expect our projected sales of the cereal to be at least $10 million, have a gross margin of at least 50%, and exceed a net profit of $2. 5 million. Beyond that, we have big plans for the future of Heart to Heart.
As we have done with other Kashi cereals, we plan to expand Heart to Heart to include other products besides just the cereal, i. e. , Heart to Heart crackers, snack bars, nutritious shakes, etc. Also in the near future, Kashi plans to dispense Heart to Heart cereal through more online distribution channels besides our own company’s web site. III. POSITIONING “The first functionally enhanced cereal specifically designed for heart health! ” Kashi’s Heart to Heart cereal stands over and above all other breakfast cereals, because it is the first of its kind.
Not only is it nutritious and beneficial for individuals monitoring their weight, but it is also the only cereal that promotes heart health and has earned the American Heart Association’s heart-check approval mark. Unlike many other healthy cereals, it also tastes delicious, as it is a combination of tasty whole oats and oat bran. IV. TARGET MARKET After months of trying to determine Heart to Heart’s “target market”, the marketing department at Kashi concluded that it is very similar to, if not exactly, the same market our other cereals have.
We plan to target both males and females at the ages of 25 years and older. These individuals will have at least a high school education, will work in all types of occupations, and earn salaries at or above the nation’s national average. Most people, who begin to eat healthier and exercise with regularity, do so by the time they’re in their mid-20’s. Furthermore, the target individuals will have a higher educational level and make more money than our nation’s average adult. Our target market described is the one intended by most all nutritious and healthy breakfast cereals.
As with the case of these cereals, Heart to Heart will target those individuals who are, above all, conscious about their health. We are fortunate that we have found a niche in the market by developing the first cereal that is not only nutritious and healthy but also promotes heart health. This should expand our target market to include those who are especially mindful of having a healthy heart. V. SWOT ANALYSIS The following section will describe Heart to Heart’s main strengths, weaknesses, threats, and opportunities. HEART TO HEART CEREAL The principal strength of our new product is that it enters the marketplace belonging to a company with a fantastic reputation. The Kashi company is a leader in the natural products industry. We are a market leader in all natural food products including a variety of cereals, shakes, crackers, and snack bars. The company is known within the industry to empower people to achieve health and well being by offering all natural foods that are minimally processed and free of highly refined sugars, unnecessary additives, and preservatives.
Kashi is a highly distinguished company and any new product released by the organization is in good standing at inception based on reputation alone. Other notable strengths in Heart to Heart include: • We will use excellent grocers as global channels of distribution (i. e. , Kroger, Publix, Food Lion, etc. ) • Our pricing strategy is below most of our competition, giving Kashi a competitive edge with consumers looking for value for their money.
A major foreseeable weakness Heart to Heart may encounter is that the cereal could be perceived by the public as just another “healthy and nutritious cereal”. There are many kinds of health conscious cereals in today’s market produced by several different companies. Each year, a few more of these cereals are created and placed on each and every grocer’s shelves. The number of healthy cereals has grown so large in the last 10 to 15 years that it is nearly impossible for the average consumer to keep up with and know the important facts on each and every one of them.
A weakness for our newly released cereal could be that breakfast-eating consumers will group Heart to Heart along with the average run-of-the-mill nourishing cereals before eating or becoming cognizant of our cereal’s fantastic features. Compared to the rest of the market, Heart to Heart’s most notable opportunity is that it is the first cereal to promote heart health and currently the only cereal that has earned the American Heart Association’s heart-check approval.
Interestingly, we have yet to begin distribution of the new cereal while still being a month away from placing samples into our existing cereals, and the competition has already begun to entrench on our niche. Cheerios recently announced and printed on their cereal boxes that their cereal is “…part of a healthy-heart diet…” Heart to Heart’s most noteworthy threat is that soon, many cereal companies will also release a breakfast product that promotes heart health. VI. COMPETITION As mentioned, there are many companies that produce health conscious cereals.
However, there is certainly room for a new cereal, especially one from a reputable company. By positioning Heart to Heart in the portion of the market where most other healthy cereals are fixed, we expose our cereal to consumers trying to get out of the rut, who continue to use a product that they have long forgotten why they buy. By meeting our competition head on, we succeed in being compared with some of the current leaders in nutritious cereals. Kellogg’s, Kraft/Post, Quaker, and General Mills are the main participants in this segment. They produce some breakfast cereals that have been on the HEART TO HEART CEREAL shelf for so long that they are taken for granted by many consumers. Heart to Heart’s new approach to being both nutritious and heart healthy makes it distinctive. VII. PACKAGING Similarly to all other Kashi cereals, Heart to Heart is packaged in an attractive and informative box. On the left-side panel of the box is a description of Heart to Heart and a explanation of how to “develop heart healthy habits”. The back of the product’s box reveals a first in the breakfast cereal industry. The entire side is filled with only descriptions of each of the important components (e. . , antioxidants, vitamin E and C, soluble fiber, etc. ), which makes our cereal heart healthy. Our packaging strategy is to not only indicate and convey to consumers what they are eating but to break down and describe the components in the cereal that makes it nutritious while also promoting heart health. VIII. MARKETING TACTICS Kashi will focus on the consumer first through grocery exposure along with a limited amount of online shopping, and then will expand the online shopping realm to include selling Heart to Heart on web sites other than just the company’s.
Based on this strategy, our company has assembled three major marketing tactics for Heart to Heart. • In January of 2004, 10 million small sample packets of Heart to Heart will be distributed in five of our current existing cereals: Good Friends, GoLean, GOLEAN Crunch! , Puffed Kashi, and Honey Puffed Kashi. Three months before we plan the official release of Heart to Heart (April 2004), the 10 million sample boxes will be discharged evenly to our online consumers and all of the current grocery stores that currently are distribution channels. An attractive and informative product package in the form of a cereal box will contain our cereal. • Advertising on the radio and in health magazines will occur shortly after the distribution of Heart to Heart’s sample boxes. Currently, Kashi does not advertise on television. HEART TO HEART CEREAL 7 IX. ADVERTISING AND PROMOTIONS We are fortunate at Kashi in that we already have many successful and reputable products available to consumers. We plan to use the exact same advertising approach and channels that our other products use.
As mentioned previously, advertising will be done through radio and health magazine announcements. Although somewhat limited, our cereals are currently advertised on the radio all over the world. Kashi currently advertises with 1,482 total radio stations. Currently, we have an agreement with each and every one of them that two 30-second announcements are made daily between the hours of 10:00 AM and 3:00 PM about any of our five leading cereals. In advertising Heart to Heart, we will pay each of the radio stations for an additional 30- second daily advertisement between the same hours.
This added daily radio announcement will apply only for our Heart to Heart cereal and none of our other products. Kashi currently advertises its five main cereals in the following health magazines: Energy for Women, Natural Beauty and Health, Vitality, Natural Health, Total Health, Fitness, and Prevention. During the first 15 months of production of Heart to Heart (January 2004 – December 2004) and including the time our product is only distributed in sample boxes, we will carry a one-half page advertisement monthly in each of seven health magazines noted above. X. DISTRIBUTION
At this point in time, we plan to distribute Heart to Heart to all of the grocery stores that currently sell our other products and our company’s online store. Kashi cereals are currently being sold in 6,273 grocery stores located in all 50 states and in 43 countries besides the United States. During the last 12 months, all of the grocery stores we distribute through bought more than 8 million boxes of Good Friends, our highest selling cereal, directly from our company. These same stores purchased 23. 2 million boxes of our five main cereals (i. e. , Good Friends, GoLean, GOLEAN Crunch! Puffed Kashi, and Honey Puffed Kashi) directly from our company during the same time period. We will distribute Heart to Heart directly to those same grocery stores and expect to sell at least 5 million boxes of the new cereal during its first year (April 2004 – March 2005). We also sell most of our products, and all of our cereals, online at our company’s web site. Our five main cereals can be purchased in bulk (12 boxes) online for $34 before shipping. Our best online cereal seller, Good Friends, has generated over $2. 1 million in online sales for the past 12 months while our five leading cereals have totaled nearly $5. million in online sales during the same time period. We will sell Heart to Heart in lots of 12 boxes for $34 also and expect it to produce around $1. 6 to $1. 7 million in online sales during its first year of being sold from the Kashi web site (April 2004 – March 2005). HEART TO HEART CEREAL 8 Heart to Heart will be distributed in sample packets inside our current cereals during the next three months (January 2004 – March 2004). After that (April 2004), the product will be in full production as boxes will be distributed to grocery stores and will be available to be purchased online in bulk.
During our first year of distribution, we plan to sell 5 million boxes of Heart to Heart to grocery stores and generate around $1. 6 to $1. 7 million in online sales. $1. 65 million in online Heart to Heart sales translates to selling roughly 48,500 lots of 12 boxes, or 582,000 total boxes. The chart below depicts our estimated first year of distribution when 5 million boxes (89. 6% of distribution) are sold at grocery stores and roughly 582,000 boxes (10. 4% of distribution) are sold online. 0. 00% 20. 00% 40. 00% 60. 00% 80. 00% 100. 00% First Year (April 2004 – March 2005) Grocery Stores Online from
Company’s site XI. PRICING AND BUDGET When distribution of Heart to Heart begins in grocery stores, we will be selling lots of thirty-two 12. 4-ounce boxes for $64 each (shipping and handling included in pricing). In other words, we are charging the stores an average of $2. 00 per box while our suggested retail price for grocers is $3. 19 per box. Grocery stores will make a net profit of $1. 19 per box of Heart to Heart that is sold. Compared to the rest of the marketplace, the $3. 19 cost is extremely reasonable for the end consumer as they pay an average of 26 cents per ounce of Heart to Heart cereal.
Below is a chart of several leading nutritious cereals. Next to each cereal, you will find the weight of the cereal in ounces, how much grocers on average charge consumers per box, and how much consumers are paying per ounce of that particular cereal. COMPANY CEREAL WGT (ounces) Avg. Price Price per Ounce KASHI Heart to Heart 12. 4 $ 3. 19 $0. 26 TOTAL Corn Flakes 10 $ 3. 69 $0. 37 GENERAL MILLS Fiber One 16 $ 3. 89 $0. 24 Kellogg’s Special K 12 $ 3. 59 $0. 30 Kellogg’s Smart Start 17. 5 $ 3. 69 $0. 21 As far as selling online, the pricing of our new product is much simpler to understand since no distribution channel (i. . , grocery store) is involved. We plan to start selling HEART TO HEART CEREAL 9 Heart to Heart online in April of 2004. One online lot (12 boxes) can be purchased for $34 before any shipping charges. This translates to buying Heart to Heart online for $2. 83 per box compared to the average grocery store’s price of $3. 19 per box. Kashi has projected Heart to Heart’s cash flows for its first year of distribution after the three-month (January 2004 – March 2004) sample period. The $1. 65 million in “Online Sales” is based on the estimation that roughly 48,500 lots of 12 boxes will be sold online to consumers.
The $10 million in “Grocery Sales” is based on the estimation that the 6,273 grocery stores that we use as distribution channels will purchase 156,250 lots of 32 boxes of Heart to Heart cereal during its first year. Projected Cash Flow Year One (April 2004 – March 2005) Online Sales $ 1,650,000. 00 Grocery Sales $10,000,000. 00 TOTAL SALES $11,650,000. 00 Direct Costs of Goods $ 2,500,000. 00 Production Payroll $ 2,250,000. 00 Other $ 1,000,000. 00 COST OF GOODS SOLD $ 5,750,000. 00 Gross Margin $ 5,900,000. 00 GROSS MARGIN % 50. 64% EXPENSES Additional Payroll $ 500,000. 00
Marketing Expenses $ 75,000. 00 Travel $ 100,000. 00 Radio Advertising $ 1,600,000. 00 Magazine Advertising $ 750,000. 00 TOTAL OPERATING EXPENSES $ 3,025,000. 00 PROFIT BEFORE INTEREST AND TAXES $ 2,875,000. 00 Interest and Taxes $ 8,000. 00 NET PROFIT $ 2,867,000. 00 NET PROFIT / SALES 24. 61% Include Negative Taxes TRUE HEART TO HEART CEREAL 10 Based on these projected numbers, Heart to Heart figures to accomplish its goals of reaching at least $10 million in sales, a gross margin of at least 50%, and a net profit of at least $2. 5 million during its first year of distribution. XII.
EVALUATION OF RESULTS Based on Heart to Heart’s projected figures for year one, Kashi will have accomplished its three cash flows goals during the first year of the cereal’s distribution. As indicated in the “Pricing and Budget” section of this plan, it is projected that Heart to Heart will surpass $10 million in sales, exceed a gross margin of at least 50%, and go beyond a net profit of at least $2. 5 million during its first year of distribution. However, this being said, Kashi will have additional and more challenging goals to accomplish in its second year of distribution (April 2005 – March 2006).
As far as cash flows, Heart to Heart is expected to exceed $15 million in sales, a gross margin of at least 55%, and have a net profit of at least $3. 5 million. Also in its second year, we plan to expand Heart to Heart to include other products besides just the cereal, i. e. , Heart to Heart crackers, snack bars, nutritious shakes, etc. We will also be looking to expand in online shopping, selling Heart to Heart over the Internet besides from just our company’s web site. Many shopping web sites exist that act as distribution channels, or middlemen, for companies selling breakfast cereals.
These sites include AdvantageNutrition. com, ShopNatural. com, HealthyDietPlans. com, and HerbalAdvisor. com. These online health companies buy products, including cereals, from Kashi and other breakfast cereal producers, and in turn, sell the cereals over the Internet to the end consumers. Currently, three of our five main cereals are being sold through these online channels with great success. We plan to make Heart to Heart Kashi’s fourth cereal being sold in this manner at the start of its second year. .