A-1 Steak Sauce

Introduction:

A- 1 was developed in England during the 1800s and first sold in North America in the early 1900s. Its name originated from King George when he announced the steak sauce as an "A.1." A-1 Steak sauce is the king of steak sauce. It is the category leader in the market per dollar per share (1.1). A-1 is one of the premier brands in the Kraft Foods' portfolio with little competition and significant sales and margins. As the industry leader, A-1 posses 2002 annual sales of $150 million with 54% dollar share a forecast of $165 million of annual sales in 2003. (See Appendix 1.1, 1.2, 1.3)

Pricing:

A-1 retails at a price of $4.99 per 10 oz bottle, which is $0.20 higher than its primary competitor Heinz 57 and $1.50 higher than Private Labels. A-1 sells to retailers at $3.49 (30% mark up). (Appendix 1.2) Heinz 57 has 16% dollar share and the private label competitors combined have 14% dollar share. (Appendix 1.1)

Positioning:

A-1 has successfully positioned its brand as a quality leader of steak sauce with high brand equity due to the loyalty of its consumers and superior brand. A-1 positions itself as superior quality and the best of the best of steak sauces which is why they can keep their prices high and profits increasing. This is also why other brands have not positioned themselves against A-1 creating little competition.

Situation Analysis:

While A-1 dollar sales have consistently grown due to price increases, the volume demand and production are stable. As a result, A-1 Marinades were launched in 2001, but they had little success. They were re-launched in 2002 and captured 10% market share in the Marinades category. However, despite generating $15 million in annual sales, the line made a $10 million loss. (Appendix 1.2) The Kraft budget now calls for the A-1 portfolio to contribute a 10% increase in operating profit despite an estimate $7 million loss from the Marinades line for 2003. (Appendix 1.3) The Marinades category expects a 15% annual growth. The industry leader is Lawry's with a 50% market share and annual sales reaching an excess of $100 million. Lawry's is one of Unilever's global brands contributing to its $50 billion annual sales. However due to unsatisfactory financial results, the company is challenging the entire brand to reach at least $1 billion in annual sales.

Problem:

Lawry's has announced plans to launch a steak sauce that will be implemented early in 2003 around an April first ship date in order to be fully distributed before the peak of the summer season when steak sauce Lawry's steak sauce will be similar to A-1 in taste and texture and will sell for $3.99 for an 11 oz bottle. Lawry's is attempting to persuade consumers that they are introducing the A-1 type of quality but at a lower price. Lawry's is also aggressively launching a $20 million advertising campaign from May-July which includes a Memorial Day advertisement with Publix for a two for $5.00 promotional price. Since A-1 Steak Sauce achieves 10% of its annual sales during the Memorial Day holiday and even an additional 10% for the July 4th holiday, the problem is whether A-1 executives can afford to ignore or implement a strategy against Lawry's actions. The entry model for Lawry's suggests that the product will obtain a maximum of 10% market share or around $30.6 million in annual sales (Appendix 1.1). A-1 has the challenge of assessing the new competitive landscape quickly in order to prevent the potential negative impact of Lawry's product launch. If A-1 matches Lawry's offer the brand could lose substantial losses in its reputation as the premium steak sauce; however, if it does not respond it could lose the 10% yearly revenues gained during the Memorial holiday. The decision criteria for management needs to be based on strategically responding to Lawry's low-priced entry by maintaining positive consumer brand attitude and loyalty, minimizing brand switching and financial loss, and helping with reaching the target profit of A-1 and the Marinades line.

Alternative Strategies:

Strategy 1: Management does nothing about Lawry's steak sauce product launch because of A-1's strong brand equity and consumer loyalty.

If A-1 does not implement a defensive marketing strategy, Lawry's has the chance of securing 12% volume market share and 10% dollar market share. (Appendix 1.1) Even though the barriers to entry in the steak sauce industry are high due to customer loyalty, Lawry is relying on the brand equity success of their Marinades category. If Lawry's obtains the 10% dollar