Case Study of Sottilette Kraft

Introduction

Krafts General Foods was founded in the U.S.A in 1908 and its presence was established in Europe in 1927. The company entered Italy in 1964 with its best known products at the time-Sottilette and Mayonnaise. It grew steadily and its growth was significantly influenced by mergers and acquisitions. Philip Moris after taking over General Foods one of the World’s and region’s leading companies in the food sector acquired Kraft in 1990. Jacobs Suchard – a top sweats company created by the partnership between Suchard, Tobler and Jacobs in 1993 merged with Kraft General Foods Europe. Hard work, imagination and a commitment to bringing the world its favorite foods have helped it grow into a company that touches more than a billion people in more than 150 countries. The most common brands of the company include: Beverages such as coffee and refreshment beverages Cheese and Dairy Snacks which include confectionery, salty snacks and biscuits Convenient meals Grocery including deserts, enhancers (dressing and spreads), cereals. This case study is aimed at investigating one of its cheese brands the “Sottilette Kraft” in Italy. The sottilette Kraft is processed cheese in the form of slices that is used as a culinary ingredient in preparing both hot and cold dishes of different varieties. Kraft is easy to use as the slices have already been cut up and well packed singly. It can also be stored for longer periods of time. Consumers recognize that it has a good taste and is adaptable for every type of dish. It is seen as the best guarantee for success in the kitchen and its superior quality is vouched for by the image of Kraft Foods. It is described by loyal customers as “a reliable friend” that encourages creativity in the kitchen. The main function of Sottilette Kraft is that it serves as an ingredient in hot dishes to enhance their taste and to add a touch and imagination. The brand has gone through four major phases including introduction, development, crises and reaction. Having identified the different product phases, the study will now discuss each of the phases in turn.

Introduction of Sottilette

The product was introduced in 1961 and between 1961 to 1978 sottilette had to create its own market. In less than 15 years the product had recorded sales of approximately 8,000 tonnes. It initially served as a sandwitch filling and was therefore presented as a tasty and very practical cheese. The message distributed by successive advertising campaigns centered around the functionality of the product as well as its role as a food to be combined with bread. The most relevant advertisements were broadcast as follows: The product was launched in 1964 with the help of a well known Italian comedian Gino Brameri; in 190, when its first positioning was defined in terms of a “robust sandwich”; and in 1974, when the new singly wraped slice packaging was introduced. As time went on, the product was later differentiated and the range of the product was extended into three distinct flavours. The price remained relatively high since it was a new product and because there were limited or no competitors.

Development of Sottilette

Kraft maintained its leadership position between 1979 to 1993 following a fast growing market for sottilette. During this period the product reached a volume of sales in Italy that matched all the other European countries taken as a whole. The market growth for the product came as a result of continuous innovation and development of the product which witnessed the addition of new versions the product range enabling manufacturers and distributors to make a more extended use of the product and reposition the basic version (Sottillete Emmental) as a fully-fledged culinary ingredient for all recipes and not just as something to be eaten with bread. Another version referred to as Fila e Fondi (stretch and melt), which was particulary well suited for all over-cooked dishes was added in 1979. It was later followed by Piccadolce in 1982. happy snacks was added in 1989 and in 1992 following consumer’s growing interest in low-fa products, Light was introduced. In the marketing campaign for Emmental (that remains the basic product), the key benefits for consumers were shown to be versality (in terms of its good hot and cold performance), taste and the guarantee represented by the Kraft trade mark. A megabrand campaign based upon a young boy was carried out as from 1993. This was to enable Kraft capitalize on the advertising campaign carried out for the single type brands. In addition to the basic message that reflected the superior quality of the product, guaranteed by the experience of Kraft, different messages where added on a case-by-case basis such as Emmental (“superior taste”), Fila e Fondi (“suitable for hot dishes”), and Light (“only 16% fat content”). Advertising investments were supplemented by promotion-type initiatives based on the collection of points designed to increase customer loyalty and favour heavy users and the price remained 30-35% relatively higher than competitive brands. Figure 1: Sottillete’s Market Share in 1992. Source: Pratesi[1]

Crises for sottilette

Sottilette witnessed tremendous crises in 1994 as a result of a number of factors which include the following:

• A period of economic recession;
• Consumers developed an approach to food consumption where quality and price relationships where properly evaluated;
• There was an introduction of hard discount into the market and low-price competition (modern distribution’s reaction to the challenge of hard discount) doubled the sales of unbranded products;
• The devaluation of the Italian lira resulting into an increase in prices of foreign-sourced inputs;

The foregoing resulted in the collapse of the existing market (taking into consideration the fact that hard discount was a closed market for branded products). In addition other adverse conditions included the following:

• A fall in the market share of sottilette Kraft by 4%;
• Decrease in sales volume;
• Decrease in profit owing to low-price competition and high import cost following local currency depreciation.

Figure 1 above show the development of the sottilette market and its direct competitors in 1992. One can observe that the market share of the sottilette brand was very high in 1992 while it witnessed a fall in 1995. Sottilette’s market share in 1992 was 55.8% and that of competitor brands was 44.2% as shown in figure 1. Following the crises period, sottillette’s market share fell from 55.8% in 1992 to 51.9% in 1995. It should also be noted that low price products had a market share of 7.5%, hard discount products a market share of 9.6%, private labels 8.9% and other brands a market share of 22.1%. Figure 3 below shows the sales trend of the sottillette brand. One can observe that the brand has gone through 4 phases: introduction; development; crises; and reaction. From 1961 and 1969 the brand witnessed a constant growth in sales volume from 0 to about 8,000 tonnes. The sales volume remained constant at 8,000 tonnes between the period1969 and 1977. During the development phase that began in 1969, the sales at first remained constant at 8,000 tonnes. Following the megabrand communication campaign, the sales began rising again and by 1983 the sales figure had reached 15,000 tonnes. Between 1983 and 1993, the sale volume continued rising despite slight fluctuations and by 1993 the volume stood at about 18,000 tonnes. The crises period witnessed a drop in the sales volume from about 18,000 tonnes in 1993 to about 16,000 tonnes in 1994 representing an 11% drop in the volume during this period. Figure 2: Sottillette Trend of Sales (Tonnes) Source: Pratesi[2]

Reaction to Crises

Kraft Food’s reaction to the crises was the adoption of a strategy that concentrated upon a more aggressive marketing mix along side low price products and hard discounts in an attempt to win back customers and consolidate the loyalty of existing customers. Prices which were 50% above other brands were reduced by 20% and a new advertising message that explained in a rational manner the superior quality of Sottilette Emmental was launched. The new advertising campaign took the form of two commercials in which one was aimed at addressing brand products and the other aimed at hard discount and low-price products. The aim was to consolidate the loyalty of existing customers and eliminate the shift towards competitive brands that provided cheaper products. The commercials were aimed at providing a rational justification for the premium price of the Sottilette brand in terms of its superior taste and better culinary properties. This was justified by the product’s ingredients (100% Emmental Bavaria). Following the aggressive strategy, the Sottilette brand witnessed positive results as its sales volume which had exhibited a dramatic decline during the 1994 crises immediately increased by 10%. Profitability also witnessed a significant increase and sustained increase. Since the campaign focused much attention on the basic version of the Sottilette brand Emmental, the other versions of the brand including: Flia e Fondi; and Light were penalised because they were not sustained by the campaign. This resulted in decrease in their sales volumes. In a nutshell, Sottilette’s overall market share increased by 2% in 1995 and the increase continued in 1996 following increased investments in communication for the entire product range. From figure 3 above one can observe that following the reaction phase, the sottillete brand witnessed an increase in sales volume from about 16,000 tonnes in 1994 to 17,000 tonnes in 1996.

Current Situation

Direct Competition. The main competitors in the cheese slice market constitute five main groups including:

1. Sottilette: this is the market leader with a market share of above 50 per cent.
2. other branded products including Tostine by Invernizza (which is also part of the Kraft Jacobs Suchard Group), Bel Paese and Grill by Galbani, Miette by Locatelli and Tigre. This group accounts for 18% of the cheese market share.
3. Private Labels: These include products of large retail chains. For example, Coop. This group maintains a 20-30% lower prices than branded products. Together, they constitute a market share of 10% and have been witnessing a sustainable growth rate.
4. Low price products: they include unbranded low-price products sold in modern distribution chains. Their market share following a strong growth in the period 1994-1995 has witnessed a considerable drop by 50% and now levels at 4%.
5. Hard Discount Products: Hard discount products refer to unbranded cheese slices sold at very advantageous prices in eponymous chains (for example, Lidl). Their development moves in perfect lock-step with the spread of hard discount stores, while their market share has stabilized at 12%.

Consumption. There are over 16million consumers of cheese slices representing over 80% of all Italian Families. 20% of all families acquire about 50% of the Sottilatte brand. Among the sottilatte customers representing 75% of all consumers of cheese slices one can further break them down as follows: 25% who consume exclusively Sottilatte; 44% who alternate between Sottilatte and low-priced products; and 31% who alternate between Sottilatte and other branded products. In general among the consumers of cheese slices there are those who never use any other type pf cheese in cooking (about 20% of the total) and those who alternate between these and other products that are regarded as being capable of performing the same culinary functions including: 8% that also make use of Emmental; 27% that use mozzarella; and 63% that use not only slices but also Emmental and Mozzarella. According to a 1996 market survey on cheese slice purchasers (over 90% women) using cluster analysis techniques four different groups of consumers were identified including:

1. Critics – 26%;
2. Ambivalent – 19%;
3. The Serene – 32%; and
4. The Disenchanted – 23%.

Critics represent consumers who generally have a negative perception towards the entire category of cheese slices. They have the belief that the product is wholly artificial and thus tend to use them as sparingly as possible. They are young, of high school age and generally do not live in the south. The ambivalent are women who are not completely convinced that branded products have a better quality than unbranded products but however appreciate the practicality of sliced cheeses. They belong to a medium-to-low social class, live in the northeast with large families. They are light users of the category of cheese slices and adopt a relatively positive attitude towards the uncooked uses of the product. The serene represent brand loyal consumers who are convinced that high priced products represent the inherent quality of the products. They mainly like the use of the slices for cold dishes and for certain special recipes. They include middle-class women who often live in the south with part-time jobs and they are heavy users of the category of cheese slices. The disenchanted alternate between different brands and choose the brands in accordance to how each brand suits their particular needs. They adopt a positive attitude towards private labels and greatly appreciate the functionality of the product. They are young, resident in the northeast with small families but without children. They have full-time jobs and are medium users of the cheese slice category. They have no negative attitude towards using the product for uncooked dishes.

Appendix

The perspective that can be identified from the above case study is centred on two strategic perspectives, which include the resource-based view and the innovation strategy. According to the resource based view, valuable, rare, inimitable, and non-substitutable resources make it possible for a firm to develop and maintain competitive advantage and also to use this competitive advantage and resources to achieve superior performance by generating superior profits which in turn create superior shareholder value for the shareholders[3].

Application of the resource based view to marketing can be achieved with the help of identifying resources that are both marketing specific (that is, generated and leveraged in part through marketing activities) and potentially manifest at least some of the desired attributes of the resource-based view (i.e., appear to be difficult to imitate, are rare, non-substitutable, etc)[4].

One can see from the case that Kraft Foods had such resources in its Sottilatte brand given that it could maintain competitive advantage for a very long time and even during the crises period it was still possible for the company to adjust to the situation and continue as the market leader. The ability of Kraft to define the rational quality of the Emmental brand following low price competition reflects Kraft Foods possession of resources that are difficult to imitate by competitors. Given that the Sottilatte brand still has a market share above 50% in the market for cheese slices is also a reflection of the company’s possession of resources that are difficult to imitate by competitors. The resources have also been leveraged through its aggressive marketing campaign and its continued investments in advertising and brand communication. This has enabled the company to consolidate its existing customers while trying to attract and maintain new customers. Innovation refers to a situation whereby a company tries to differentiate its products in such a way as to provide value to customers that cannot be matched by competitors to enable it to maintain competitive advantage[5].

Kraft has been trying to innovate as can been seen from the introduction of different versions of the Sottilatte brand such as the Fila e Fondi, which was well suited for over-cooked dishes, and Light with low fat contents. Providing different versions of the brand enabled different customer segments (for example, those who did not love too much fat) to at least find a product that could suit their particular needs at any given point in time. This strategy paid off given that it further widened the customer base, sales volume and thus profit during the development phase of the brand. However, the company failed to properly communicate the additional versions of the brand during the crises period and thus witnessed falling sales volumes. This was later corrected as it increased investments in marketing and communication of all the brand versions as well as their different attributes to consumers in a bit to consolidate existing customers and enroll new ones. The number of words used in the case study amount to a total of 2203 words while the total number of words used in the appendix amount to 488 words.

BIBLIOGRAPHY

Blocker E., Chen K., Cokins G., Lin T. (2005). Cost Management. A Strategic Emphasis. 3rd International Edition. McGraw-Hill. Pratesi C. A. (2002: p. 426). The case of Sottilette Kraft. Consolidating the Business through innovation – 1998. Marketing Food Brands in Italy. British Food Journal, vol. 104, No. 5. pp 425-434 Srivastava R. K., Fahey L., Christensen H.K. (2001). The resource-based view and marketing. The role of market-based assets in gaining competitive advantage. Journal of Management, vol. 27, pp 777-802. 1

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Footnotes

[1] Pratesi C. A. (2002: p. 428). The case of Sottilette Kraft. Consolidating the Business through innovation – 1998. Marketing Food Brands in Italy. British Food Journal, vol. 104, No. 5.
[2] Pratesi C. A. (2002: p. 426). The case of Sottilette Kraft. Consolidating the Business through innovation – 1998. Marketing Food Brands in Italy. British Food Journal, vol. 104, No. 5.
[3] Srivatal et al (2001: p. 779).
[4] Ibid.
[5] Blocker et al (2005).

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