Case 1_ Kraft Foods
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Tanner Pontini
Case 1: Kraft Foods
February 11, 2022
Introduction
In 2004, Kraft Foods North America was preparing to roll out single-serve coffee pods
(SSP) in the United States. However, Kraft Food’s product manager, Geoff Herzog, was debating
whether or not Kraft Foods should launch the coffee pods in Canada simultaneously or wait until
the results from the U.S. come in to gauge the interest for the product in the North American
market. Herzog has little under a month to make his decision, and with a relatively limited
budget, he would need to find a way to develop an effective advertising and promotional strategy
to make the SSP launch a success.
Coffee Market Share
Kraft foods was the leader in coffee sales with 15 percent of the global market. They have
enjoyed plenty of success in Canada with Maxwell House and Nabob brands earning a combined
32 percent market share of the coffee industry. Nestle and Proctor and Gamble both garnered a
sizable portion of the market, with private labels also accounting for nearly 23 percent of the
coffee sales. Kraft Foods has been marketing the SSP to several European countries since 2003,
shortly after their competitor, Senseo, achieved success within the European market after
launching their coffee pods in Europe back in 2001. Coffee pod sales would continue to
significantly increase in the coming years with over $115 million worth of coffee pods sold in
Europe by 2008.
Single-Serve Pods Over Traditional
Even though the cost per cup was higher when using the SSP compared to the traditional
drip coffee machines, more often than not, people preferred the SSP. The reason being is that the
pods offered advantages over the traditional method; the pods usually would take less than a
minute to brew a coffee, while the traditional method would sometimes take upwards of ten
minutes from a brewing machine. The pods were much more simple to use as there was no need
to measure the coffee grinds or use a filter; they would make for a quick and easy cleanup with
no excess coffee to be wasted. The pods allowed customers more flexibility to make coffee in
smaller batches or catering to multiple people who may want a different kind of coffee. The SSP
offers more options with the painless process of just popping the pod out and simply inserting
another.
The Canadian Coffee Market
Canada is the world leader in coffee consumption, with nearly 3.5 million cups drank
daily; that number has seen steady growth of over 4.5 percent on average per year. According to
the ‘Canadian Beverage Consumption Data’ graph, approximately 63 percent of all Canadians
drink at least one cup of coffee per day, being slightly edged out by water as Canada’s more
preferred beverage. The Canadian coffee market is incredibly competitive with a growing variety
of different options. Coffee sales in Canada exceeded $600 million in 2003, with a majority of
that being sold within grocery and retail stores. The higher priced premium coffee was seeing
significant growth, with Herzog believing that there was an opportunity for the specialty
products to secure an even larger portion of coffee sales over time
SWOT
Kraft Foods’ strength within the coffee industry is that they hold the largest market share
of coffee sales in Canada with Maxwell House and Nabob brands earning a combined 32 percent
market share between the two. Kraft Foods’ coffee brands have already established themselves
as one of the most popular within Canada which will likely lead to success when launching the
SSP. As opposed to other methods of brewing coffee, the pods offer the advantage of flexibility
and convenience.
Kraft Foods’ weaknesses within the industry is that only a small fraction of those who
drink coffee have the machines capable of producing the SSP and may choose to stick with the
traditional method of making coffee or simply just buying a pre-brewed coffee at a local coffee
shop. Kraft would need to promote their SSP and highlight the benefits of the pods to convince
people to switch.
There is plenty of opportunity for Kraft Foods within the coffee industry in Canada. As
mentioned earlier, Canada is the global leader in coffee consumption. Kraft Foods has already
firmly established themselves in the market, but the launch of the SSP offers consumers a more
convenient and easy way to make coffee on a daily basis. As noted in the case, Herzog felt as
though there was the potential for higher-end products and specialty coffee to gain some
momentum in the market that offers a higher price point than the normal coffee pods.
Kraft Foods has several threats in the Canadian coffee market with their rivals Nestle,
Proctor and Gamble, among several others in the market that take up a large portion of coffee
sales. Herzog identified the four largest threats to Kraft Foods’ SSP in Canada, with the Melitta
One-to-One SSP machine, the Home Cafe system, Senseo, and Bunn My Cafe.
Marketing Strategy
Kraft Foods has $1 million to use for the potential launch of the SSP; Herzog is searching
for a cost-effective way to convince customers that Kraft’s pods delivered better value than their
competitors’ pods. The ultimate goal was to get 80 percent of consumers who owned a SSP
machine to try their product at least once, with aspirations of 60 percent of them purchasing the
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pods again. Herzog had planned on capturing 45 percent of the SSP market share by the end of
2006.
In the U.S., Kraft Foods was planning on selling their Maxwell House pods for a cheaper
price than Folgers was selling theirs for. Kraft Foods should implement the same strategy in
Canada by selling their more popular brand, Maxwell House, at a cheaper price point. To
generate the greatest number of loyal customers, Kraft Foods should choose to promote their
product primarily through TV sponsorships and a variety of in-store merchandising displays. The
TV sponsorship has the opportunity of reaching a larger audience than the other possible
methods and the in-store merchandising can appeal to consumers who are already in stores that
are trying to decide which coffee brand to select; displays are eye-catching and attractive to
consumers.
Conclusion
With all factors being considered, Herzog should release the coffee pods immediately as
opposed to waiting for the results of the U.S. launch. Even though Herzog was unsure of how the
pods will sell in the Canadian Market, the initial launch of the SSP in Europe was encouraging
enough to believe that the pods would continue to be successful in the North American market as
well. The benefits far outweigh the risks in this instance. If Kraft Foods decided to launch their
pods early, they would have a better opportunity to defend against their competitors and attract a
larger portion of the SSP market if they launched sooner rather than later. Kraft Foods can not
allow their competitors to gain a dominant position in the SSP market.