03. Kings Hot N' Handy

KINGS Hot N Handy Kings has been a household brand in the Philippines since 1969, with its broth cubes, liquid seasonings and packed soups. In fact, it is ranked the third most popular brand in the United States. In 1998, Kings entered the Soupy Snack Market with its Kings Hot N Handy, starting with the Arroz Caldo variant. Kings Hot N Handy is an instant rice porridge snack. Its flavors are Filipino traditional snacks, such as Arroz Caldo, Goto, Guinataang Mais, Champorado and Chicken Sopas. The Soupy Snacks are anything instant single-serve cup noodle/ cup rice, and only needs boiling water to be added to serve. Kings saw the potential of the growing soupy snack market, thus introducing Kings Hot N Handy. However, recent sales reports are not overwhelming. It seems that the market for the cup rice is quite small compared to the cup noodle market. Also, its main competitor, Penny which is owned by a big multinational food and beverage company, is eating the market. Ms. Clarisse Villa, the Product Manager, is worried if the market will still grow, and how Kings Hot N Handy (KHH) can race with Penny. The other products she’s handling under the Kings brand are enjoying more than 90% share of the market. KHH, with its 22% market share in year 2000, is now a problem she can’t solve. At the start of the year 2001, she aimed that this problem will be over before the year ends. COMPANY BACKGROUND Kings has been a brand name of Goodfoods, Inc. since the 1920s. Goodfoods started in the United States and is popular in 87 countries worldwide, especially in Europe. It is globally known, aside from Kings products, for its mayonnaise, cooking oil and peanut butter spread brands. In the Philippines, Goodfoods locally produce mayonnaise, sandwich spreads, peanut butter spreads, instant gelatin, cooking oil, and of course, Kings products. The company has successfully maintained the good image of the brand and has earned loyal consumers throughout the years. The company aims to be “the best international food company in the world”. Managers, technical professionals, sales people, office staff and production workers are all working together to deliver growth and achieve this goal. INDUSTRY BACKGROUND Market Overview The Soupy Snack market is estimated to be worth P7.4 Billion. This market includes the pouch market and the cup market. The pouch market refers to instant noodles (with and without soup) packed in plastic pouches usually weighing 50-100 grams and priced from P3.50-P5.00.

The cup market refers to instant noodles/ rice porridge packed in plastic cups/ bowls usually weighing 30-75 grams and priced from P10-P20. The cup market accounts for 24% of total market value of the soupy snack market, and 8% of market volume. Instant cups are priced higher than pouches, thus increasing its market value. The Cumulative Annual Growth Rate (CAGR) of the pouch market is 6.8% while the cup market is 39.5%. The Cup Market The cup market is estimated to be worth P1.8 Billion. It is dominated by the Noodle Segment which accounts for 83% of the Total Cup Volume, and 81% of Cup Value. The remaining 17% is from the Rice Porridge market wherein Kings Hot N Handy is included. The summary of market shares of product segments are summarized in this table: Soupy Snack Market Pouch- 92%

Cup- 8% Cup Noodle- 83% Cup Rice- 17%

However, even with the relatively small market share of the cup market, Kings saw that it was a growing market. The Cup Market has been growing significantly from 1994 to 1999, but decreased in 2000 [see Appendix A]. Kings’ Rationale for Entry in the Cup Market Kings has been a market leader in packed soups since 1982, in liquid seasonings since 1973 and in broth cubes since 1969 in the Philippines. Their main target markets are mothers/ wives who prepare food for their family; at the least, do the grocery for their family. The management of Kings though, are worried that their loyal market are getting old. The new generation of mothers/ wives is faced with more choices in the market. There can be a possibility that Kings market share will eventually go down as new players enter the market. Kings want to tap the younger segment, and hopefully they would become as loyal as their mothers and grandmothers were to Kings. Kings saw the huge and growing cup market via entering new and untapped food segments. They can pioneer new lines of cup products that leverage the strength of the Kings branded heritage. Of course, they would want to enter into a new food business that has future growth potential to contribute significantly to company profitably. Goodfoods came up with a pasta line before but flopped in the market. The management decided to produce pasta never again. Thus the only way to go is into the cup rice market which they thought they would pioneer in the Philippine market. Original Product Positioning Before launching Kings Hot N Handy (KHH), Kings came up with a market research to find out people’s opinion on why they would buy an instant snack. The results were: Taste 75% Convenience 22%

(speed & ease of preparation) Economy 20%

(filling)

However, even with these results, Kings’ management decided to position KHH as “your deliciously filling snacking solution to hunger”. TV ads carried the tagline “Bigat ng Dating Hindi Bitin” (Filling and Satisfying). Kings launched Kings Hot N Handy Arroz Caldo in October 1998, only a month after the unanticipated launching of Penny Arroz Caldo. Kings launched Kings Hot N Handy Beef Goto in May 1999; Kings Hot N Handy Champorado in September 1999; and Kings Hot N Handy Guinataang Mais and Chicken Sopas both in June 2000. All flavors came in two sizes. The Chicken Sopas, Arroz caldo and Goto’s small size weighs 28 grams, and the big size weighs 43 grams. The Champorado and Guinataang Mais’s small size wighs 55 grams, and the big size weighs 80 grams. KHH has a purple and white packaging with a photo of the arroz caldo/ champorado, etc. “A lot of people likes the color purple, especially the young that’s why”, says Ms. Villa. Target Market The cup products were intended to be for out-of-home consumption. Thus, the target markets were office workers ages 20-30 years old. However, Ms. Villa says, recent studies showed that 80% of instant cups were purchased for in-home consumption. Also, high school students to office workers aged 40 years old has the same level of usage. Aside from office consumption, cup products are consumed at home as a merienda or midnight snack. Competition KHH’s number one competitor is Penny. A multinational company included in the Philippines’ Top 10 Corporations owns Penny. It produces leading brands of milk, breakfast cereals, coffee and confectionery products. It employs 5,000 people, has a reputable company image and a large and stable distribution network. Penny has been in the Philippine market since 1979, and is a direct competitor of Kings with other product lines. Penny did not employ another name for its cup rice products. Unlike Kings Hot N Handy, Penny calls their products simply as Penny Chicken Arroz Caldo, Penny Champorado, Penny Guinataang Mais and Penny Goto. It has a solid yellow packaging. It comes in one size only. The Champorado weighs 85 grams; the Guinataang Mais 75 grams; the Goto and Arroz Caldo 50 grams. Market Share Penny enjoys the highest market share in the cup rice category. In year 2000, two other competitors, Chow Break and Quick Eat came into the market. This caused KHH and Penny’s market share to decrease in the following year. The following table shows the market share of KHH and its competitors for the years 1999 and 2000: Product KHH Penny Chow Break

1999 24.4% 75.6% -

2000 22% 65.2% 7.6%

Quick Eat TOTAL

100%

5.2% 100%

Pricing KHH is priced the highest with a suggested retail price (SRP) of P15.00 for the big size. Penny’s first flavor, the Arroz Caldo, has an SRP of P12.70. However, the flavors that followed have an SRP of P15.00. Ms. Villa thinks that the discrepancy in prices of Penny’s variants may be because Penny imitated KHH’s price for the last three variants. It did not realize that it can come out with a ceiling price of P15.00. Now since Penny Arroz Caldo’s introductory price is P12.70, it cannot increase the price for it might displease the consumers. Chow Break’s SRP is P10.20, while Quick Eat’s is P12.00. Advertising The same time KHH came out with its first TV ads with a tagline of “Bigat ng Dating Hindi Bitin”, Maggi was airing their “Duyan” TV ad. It was talking to the same target market. However, Penny’s ad was focused on taste, with its tagline “Iduduyan Ka Sa Sarap” (You are cradled with deliciousness). In February 2000, KHH came out with “Grumpy” ad which focused again on the filling benefit of the product for Champorado. The tagline evolved to include taste to “Busog Ka Sa Sarap” (Filled with deliciousness). Again, at the same time, Penny came out with an ad for Champorado and Guinataang Mais, consistent with their original campaign, but now addressing a younger market (16-20 years old). In 1999, Penny outdid KHH in TV spending at 2:1; in 2000, at 3:1. For total media spending in 1999, Penny still outdid KHH at 1.25:1; in 2000, at 4:1. Chow Break and Quick Eat did not go into media advertising. They ventured into various sales promotions in the provinces to gain sales. It can be noted however that for the past month, Quick Eat is getting into newspaper advertising. Ms. Villa says that KHH has a limited advertising budget. That’s why it could not compete with Penny in terms of TV ads even though they believe that it is a powerful tool to promote the product. Distribution One of Penny’s strength is that a large multinational company with a wide distribution network owns it. Penny has a 50% larger distribution level than KHH. Cup rice products are distributed largely in supermarkets (77%); followed by groceries and convenience stores (15%); then sari-sari stores (5%), and lastly at market stalls (3%). Ms. Villa notes that there is a small difference in sales performance between Penny and KHH in supermarkets. There is a large difference in sales volume in groceries and convenience stores, and at sari-sari stores. [See Appendix B]. Ms. Villa assumes it is because Penny products can easily be placed in small groceries, convenience stores and sari-sari stores because the company that owns it also carries products (e.g. milk, coffee, chocolate bars) that are normally seen and bought in these kinds of distribution channels. The other products of Kings, on the other hand, are seldom purchased in these channels. That’s why it is an extra effort for Kings to place KHH in sari-sari stores and convenience stores, says Ms. Villa.

Taste In 1998, an unbranded test showed that KHH is significantly preferred than Penny in terms of taste. In a few months, Penny reformulated its products, then capitalized on its good taste in its advertising campaign. Consumer Trends/ Preferences Filipinos are slowly getting into the “instant” lifestyle. To save time, workers and even students prefer eating in fastfoods or to consume foods that are easy to prepare. That’s why, Ms. Villa says, a number of products have an instant version (e.g. instant coffee, soups, brownies, etc.). Brought about by the SURF “Wais” series of commercials which promotes that to be wise is to buy the lower-priced products, Ms. Villa says, consumers are getting even more particular with prices. Buyers prefer a low cash outlay per single purchase. Not to mention the poor economy, price of commodities is becoming a significant factor. When times are getting hard, one can always cook arroz caldo or champorado at home, rather than buy P15 snack only for one person. Ms. Villa also notes that consumers nowadays like many choices. One can notice that one shampoo brand will have not only two variants, but 4-6 variants. Even instant noodles have three or more flavors. Consumers easily get tired of one variant/ flavor. There should be variety. KHH’s Sales Performance KHH’s sales performance was increasing during its introductory stage, from September 1998 to February 1999. It slowly decreased in the following months. It then went up when the KHH Champorado was introduced, then slowly decreased again. Introduction of other flavors did not help. [See Appendix C] Ms. Villa feels that initial growth is expected because consumers are trying it out for the first time. The Champorado flavor did not sustain the sales growth, and other flavors did not help increase sales. They just ate the market of the first three flavors. New Findings and Developments Kings came up with a research team last September 2000 to find out again the factors which affects consumers’ purchase of instant food products. After two months, they came up with these results: Taste 61% Price 39% Known Brand 27% Filling 2% Knowing this disheartened Ms. Villa. The management knew from the start that consumers did not put great importance on the “filling’ advantage of an instant snack, yet they capitalized on this. The new results only validated their initial results that they did not take into heart. She realized too that KHH need not be filling because it is a snack and not a main course meal. What gives Ms. Villa hope is that a large multinational company bought Goodfoods, Inc. last January 2001 globally. This purchase will make Kings the largest brand of that company since Kings uses the same brand name all over the world. Other brands only exist in one or a few countries. In the Philippines, the multinational company owns leading brands of personal care products. It is known for its aggressive advertising thrust. In fact, it is the #1 TV advertiser in the Philippines at

present. It also has a stable and large distribution network, at par as the company that owns Penny. The company’s aim is for its “brands to be the first choice for consumers everywhere. Quality is a priority, not just functional quality, but food taste, nutrition and ease of use should increase enjoyment.” They call themselves truly “a multi-local multinational” because their “local companies are predominantly run by local people in tune with their communities and who understand their needs and values.” The transition caused by the acquisition will happen smoothly in two to three years. The multinational company acquired Goodfoods, Inc. because it wanted to grow even more. It believes that the only way to grow continually and significantly in the market is through food. They also acquired the #1 selling ice cream brand in the Philippines from a Filipino family-owned company. The ice cream brand is now also competing head-on with the company owning Penny. ALTERNATIVES TO CONSIDER KHH has been a headache to Ms. Villa. She even hired a Product Assistant solely for KHH, Ms. Diane Go, to help her plan and implement marketing strategies for KHH. It has even crossed Ms. Villa’s mind to propose killing the product. With its low market share and low profitability. It may not be worth it to struggle in the market. In fact, she is also worried that the market for cup rice altogether will soon die. Kings’ new owner, wealthy and large as it is, may not save KHH if there is really no market big enough to serve. Ms. Villa is also considering that KHH was positioned wrongly that’s why it has poor sales. She can propose to reformulate the product with a better taste. Then it can be repackaged, but this time highlighting the Kings brand. Media ads will also highlight the taste, and not the “filling” advantage. Since their new owner is a large advertiser in the country, KHH can have a higher advertising budget, and can get lower rates in media placements. Ms. Villa is also considering the option of promoting KHH as a breakfast food, instead of a snack. If it will be positioned as a breakfast food, the “filling” advantage of KHH will soon make sense. A new set of market studies will then have to be conducted. If KHH will be continued in the market, Ms. Villa is also considering if all flavors will remain in the market. Ms. Go proposed to stay with the Arroz Caldo and Champorado flavor only. The other two flavors did not help in increasing the sales of KHH anyway, she reasoned out. She also added to position the two flavors differently: promote the Arroz Caldo flavor as a merienda snack, and the Champorado as a breakfast meal. Ms. Villa is also thinking if KHH will stick to its original target market, or focus on a new segment. It can be students or working mothers. If studies showed that 80% of the cup market products are consumed at home, this will make sense. Ms. Go said, if this is the case, better to focus advertising efforts to the mothers because they are the purchasers. The children are influencers too, but as children, they will always just tell their mothers to buy chocolate snacks and sweets. Mothers will most likely realize the nutritional value of KHH. Ms. Go observed that Penny has very popular noodle pouch products which caters to children. In this case, it shows that Penny already has a brand recall advantage to a

person because he/she is familiarized with it at an early age. This can be a liability for KHH because Kings is not familiar to the young market. However, Ms. Villa thought that this could be seen not as a weakness, but an opportunity. If KHH will be positioned to target the young, it can create a new generation of King loyal customers. Ms Villa also like to cut down costs by removing the free spoon that comes with KHH. If 80% of the cup market products are consumed at home, there is no need for a plastic spoon then. However, Ms. Go reasons out that there is a psychological effect to consumers when they see an added item in a product. They think it is a value added to their money. Ms. Villa also likes to increase the inventory on smaller sizes of KHH. Though Ms. Go reminds her that if they are to position the Champorado flavor as a breakfast meal, a small size is not filling. She can also propose to the new company to produce the rice used in KHH, instead of importing them. Penny hired a local supplier to solely produce rice for them. Ms. Villa also assumes that Penny has higher gross profits due to their bulk purchases of raw materials as a result of their company’s ice cream, milk and confectionery businesses. She’d like to analyze all issues first and prepare a more specific strategy before she submits a report to Ms. Lyn De Guzman, her Assistant Vice-President. APPENDIX A- Cup Market Growth

140

+12%

120

+14%

+28% +17%

100

-10% Nonnoodle cont’n to total cups= 17%

80 60 40 20

Cup/ Bowl Noodles

Cup Bowl Non-Noodles

'0 0

99

98

97

96

95

0 94

In Mio Pcs

-3%

APPENDIX B- Distribution per Trade Channel

KHH Penny 3-D Column 3

Mkt Stalls

Sari Sari

Groc/Conv

+2231%

Smkts

100 90 80 70 60 50 40 30 20 10 0

APPENDIX C

1000000

750000

Chicken Sopas Guinataang Mais Champorado Goto Arroz Caldo

500000

SO 00

MJ 00

JF 00

SO 99

MJ 99

JF 99

0

SO98

250000

Source: AC Nielsen- October 2000