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Company Acquisition Proposal          December 16, 2011
AgendaAcquisition                    Context                                Organization         RecommendationsResponsibi...
Acquisition Proposal                      Why	  DPC	  Should	  Buy                                                Why	  Co...
Context                    Frozen Prepared Dinners                            Market	  Sta8s8cs                           ...
Consumers’             Needs & Decisions                           Decision	  Making	  Unit                               ...
Market PotentialKids between 6-11: 24 million59% of children between 6-11 eat frozen meals: 14 millionAverage consumption:...
Competitive Analysis                 Single-­‐Serve	  Meals                                                    Mul8-­‐Serv...
Brand PositioningCompetitive Positioning  Organic  Healthy Alternative  Filling  SatisfyingKid Cuisine Positioning to Kids...
Production             and Distribution  Supplier        Manufacturer       Distributor         RetailerContracted Farmers...
Retail Channels             Average ACV of 71%                                                                            ...
Understanding ConAgraStrategy: Focused, socially responsible andenvironmentally friendly “food company”Structure: Organiza...
Transition to DPCMaintain current 141 ConAgra employeesProvide attractive compensation packages for top managersLease new ...
Recommendation #1           Healthier Ingredients  Goal: Drive consumers to eat twice as many Kid Cuisines per month  and ...
A Need for Healthier FoodChildhood Obesity is on therise   More than 12% of adolescents   are overweight or obese.   46% o...
Relationships:     Price, Product & PromotionGoal: Improve the image of Kid Cuisine by focusing on the healthy ingredients...
Healthy           Advertising CampaignPositioning Statement: Kid Cuisine is made with ingredients that are good forkids, a...
Recommendation #2                BreakfastGoal: Drive consumers to eat twice as many Kid Cuisines per month          Break...
Why Breakfast?Market potential:  Kids between 6-11: 24 million  48% eat frozen breakfasts: 12 million children  Average co...
Breakfast Launch     Positioning statement    Quick, guilt-free, and easyalternative for your kid’s breakfast      or brea...
Corporate Social                  ResponsibilityAn Active and Healthy FutureGoals  1. Increase brand awareness  2. Change ...
Non-Profit SponsorshipFive-year, strategic alliance with Boys and Girls Club of America     44% (1.85 million) of BCGA mem...
Sales and Margins                                                AC Nielsen             Walmart                 Total     ...
DCF Valuation                                        & Industry Ratios                                                    ...
Monte Carlo SimulationOverall:   Growth (taken directly from a Mintel report)   Unit price variation (+/- 2%) historically...
Free Proposed Changes Estimation           Cash Flow            in 000’s            Increase NPV from:                $71 ...
Summary  Kid Cuisine is a relatively neglected brand, and  ConAgra may be interested in selling  We believe that with a fe...
Acquire Kid Cuisine                a proud brand of                                   27
ReferencesAC	  Nielsen	  Database.	  www.nielsen.com“ANtudes	  Toward	  Food:	  Weight	  and	  Diet,”	  May,	  2009.	  Min...
References“Frozen	  Foods	  -­‐	  US	  -­‐	  September,	  2010”	  Mintel	  Database.	  www.mintel.com.“Frozen	  Snacks,”	 ...
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Kid Cuisine Brand Acquisition

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Transcript of "Kid Cuisine Brand Acquisition"

  1. 1. Company Acquisition Proposal December 16, 2011
  2. 2. AgendaAcquisition Context Organization RecommendationsResponsibility Financials Conclusion 2
  3. 3. Acquisition Proposal Why  DPC  Should  Buy Why  ConAgra  Will  Sell Kid Cuisine is the dominant player in Smallest of ConAgra’s four frozen children’s frozen foods prepared food brands Kid Cuisine has more potential than Sales have declined by 4% (CAGR) current value of $71 million over the past three years DPC can increase the NPV of Kid Accounts for 0.58% of ConAgra’s Cuisine to over $120 million overall business Free Cash Flows in Millions Retail Sales in Millions (excluding Walmart) $9 $120 $7 $115 $5 $110 $2 $105 Current Estimated FCF’s Acquisition with Proposed Changes $100 $0 2010 2011 2012 2013 2014 2015 2008 2009 2010* Data for this page was taken from the AC Nielsen Database - Sales exclude Walmart**http://thomson.mobular.net/thomson/7/3004/4313/ 3
  4. 4. Context Frozen Prepared Dinners Market  Sta8s8cs Sales Volume - Top 10 Overall sales are over $1 billion Overall Volume (Dollars) % Frozen Six brands account for 91% of the 52 Weeks Ending Dinner 06/12/10 market share Market *BANQUET $201,237,060 22% Overall market shrank by over 5% *MARIE CALLENDERS $171,419,784 18% (CAGR) from 2006-2010 *HEALTHY CHOICE $164,614,390 18% ConAgra owns four primary brands, HUNGRY-MAN $132,488,544 14% accounting for 69% market share *KID CUISINE $103,313,725 11% *Banquet 9% *Marie Callender’s LEAN CUISINE $66,728,644 7% 7% 22% *Healthy Choice AMYS $17,057,759 2% 14% *Kid Cuisine Hungry-Man (Pinnacle) BOSTON MARKET $13,718,543 1% 18% 11% Lean Cuisine (Nestle) SWANSON $13,576,044 1% 18% Others CLAIM JUMPER $13,007,980 1% *ConAgra Brands OTHERS $32,875,821 4%* Data for this page was taken from the AC Nielsen Database - Sales exclude Walmart 4
  5. 5. Consumers’ Needs & Decisions Decision  Making  Unit Parent Child Motivations Saving Time & Money Tasty & Fun Meal Role Gatekeeper/Buyer Influencer Criteria Nutrition, Good Value Flavor, Packaging Power Very High Medium Attitude Negative PositiveEmerging Consumption Patterns: serving size, ingredients,ethnic varietyThreats: portion size, cooking is relaxingOpportunities: open to new brands, useful under time constraint 5
  6. 6. Market PotentialKids between 6-11: 24 million59% of children between 6-11 eat frozen meals: 14 millionAverage consumption: 4 meals per monthAverage MSRP: $2.17 Total  Poten8al  Market  Size  for  Kid  Cuisine $1.5 Billion 6
  7. 7. Competitive Analysis Single-­‐Serve  Meals Mul8-­‐Serve  Meals Variety Convenience Price Price Quality Quality Nutritional Value “The competitive landscape includes the multi-serve world. Frozen pizzas and Yes lasagnas also compete for a share of the Kid Friendly [kid’s] stomach.” David Cox - Senior Director of Consumer Insights. ConAgra, Inc.100% No75%50% Hot25% Kid Cuisine Lunchables Pockets Low High 0% Price Brand Awareness in Northeast** 7
  8. 8. Brand PositioningCompetitive Positioning Organic Healthy Alternative Filling SatisfyingKid Cuisine Positioning to Kids Focused on fun and creativityKid Cuisine Positioning to Parents Reward your kids Be a “YES-Mom” 8
  9. 9. Production and Distribution Supplier Manufacturer Distributor RetailerContracted Farmers Supermarket Hypermarket Local / Regional Food Distributor Farmers Processor Open Other Market Retailer Excellent relationship with supplier network Manufacturer margin of an estimated 25% Key functions such as packaging and transportation outsourced Core competency in food processing 9
  10. 10. Retail Channels Average ACV of 71% ConAgra Distribution 18% 6% 41% of sales in south 4% 5% 15% of sales through non- supermarket channels vs. Super/Hypermarkets industry average of 5% Walmart 67% Drug stores and others Alternative channel retailing Specialized retailers growing faster than supermarkets Convenience stores Kid Cuisine should keep the production and distribution processes similar to those currently used by ConAgraFrozen Food Industry Profile: United States; Nov20092010 STATE OF THE INDUSTRY REPORT. (cover story), refrigerated & Frozen Foods Retailer; September 2010, Vol. 8 Issue 8Mintel Frozen Meals - US - September 2010 10
  11. 11. Understanding ConAgraStrategy: Focused, socially responsible andenvironmentally friendly “food company”Structure: Organization structure shows focus on quality,innovation and consumer experienceSystems: Emphasis on accountability, simplification andcollaborationShared Values: One Company. One Goal. Making foodsyou love.Style: Strong and focused - Gary Rodkin, CEO, ConAgraStaff: Currently 24,400 employeesSkills: High investment in employee development 11
  12. 12. Transition to DPCMaintain current 141 ConAgra employeesProvide attractive compensation packages for top managersLease new plant in the proximity of existingConAgra plantRecruit employees based on expertise from: PepsiCo Jimmy Dean Dave Cox Whole Foods Kid Cuisine Brand Manager IT Director Marketing Director Finance Director Operations Director HR Director Kid Cuisine Kid Cuisine Kid Cuisine Kid Cuisine Kid Cuisine Pepsi Breakfast Brand Healthy Brand Dinner Brand Distribution Manufacturing Manager Manager Manager Kid Cusine Kid Cuisine Jimmy Dean Whole Foods Kid Cuisine Pepsi 12
  13. 13. Recommendation #1 Healthier Ingredients Goal: Drive consumers to eat twice as many Kid Cuisines per month and expand current customer baseProduct: Improved image; targetedchanges to select dinners Survey  Results:  “How  much  more  Pricing strategy: Increase MSRP by would  you  be  willing  to  pay  for  a  $1 in the Northeast and West regions healthier  frozen  dinner?” 40% Distribution: Grocery stores and Peapod 30% Promotion: Online and television 20% Economic Analysis (est.) 10% NPV= $14 million 0% Incremental yearly sales= i ng 0. 5 0 .00 .50 .00 ce 3.4 million (4% CAGR over 4 years) oth +$ $1 +$ 1 +$ 2 ren N + D iffe No 13
  14. 14. A Need for Healthier FoodChildhood Obesity is on therise More than 12% of adolescents are overweight or obese. 46% of parents are concerned Yes that their children may become obese. Kid FriendlyThe United StatesGovernment is more focusedon children’s health NoCompetitors are introducinghealthier options Lunchables Low High Lean Pockets Other organic options more Healthy prevalent 14
  15. 15. Relationships: Price, Product & PromotionGoal: Improve the image of Kid Cuisine by focusing on the healthy ingredientsTest: Determine if healthier ingredients or healthier positioning increase salesPlan: Launch nationaladvertising campaign focused onthe idea that Kid Cuisine is madefrom ingredients that are better Northeast: Modified Productfor children. Modified Price Central and South: Original Product “Our experience shows that there is a fine Original Price balance between Mom’s stated desire to give her kids healthy food and her actual desire to get the kids to eat something.” West: - David Cox, ConAgra Director of Consumer Insight Original Product Modified Price 15
  16. 16. Healthy Advertising CampaignPositioning Statement: Kid Cuisine is made with ingredients that are good forkids, allowing busy moms to spend less time preparing food and more quality timewith their kids.Budget: $4.3 million annuallyMedia: Television advertisements and onlineinitiatives: New website focused on nutrition facts Facebook integration Continue current promotions with Krazy Kombos and Kidz Bop Music Mania New promotion: Kid Cuisine Quest Redesigned box NPV(est.) = $14 million 16
  17. 17. Recommendation #2 BreakfastGoal: Drive consumers to eat twice as many Kid Cuisines per month Breakfast Lunch DinnerProduct Expansion in the breakfast category with three new productsPrice and Distribution Remain consistentPromotion 8-week launch campaign Total cost: $3.75 million 17
  18. 18. Why Breakfast?Market potential: Kids between 6-11: 24 million 48% eat frozen breakfasts: 12 million children Average consumption: 4.6 frozen breakfasts per month Average consumption: 643,004,928 units per year64% of kids think “breakfast is the most Frozen Breakfast Category -important meal of the day”* Forecasted Sales (in millions) $1,100 $825Primary competitor: Jimmy Dean 6.1% growth $550 Reduced SKU’s by 30% while increasing sales year $275 Recently launched Jimmy D’s $0 05 07 09 e .) e .) e .) 20 20 20 ( for ( for ( for 11 13 15 20 20 20 * Mintel “Breakfast Entrees and Sandwiches” November, 2010 18
  19. 19. Breakfast Launch Positioning statement Quick, guilt-free, and easyalternative for your kid’s breakfast or breakfast for dinner. Total cost: $3.75 million Total reach: (over 8 weeks) Greater than 60% of target Media: Economic analysis (est.) Television NPV = $28 million Online Market share = 5% Point of purchase Incremental sales= 13.7 million units Movie integration (25% CAGR over 2 years) 19
  20. 20. Corporate Social ResponsibilityAn Active and Healthy FutureGoals 1. Increase brand awareness 2. Change brand perception to ‘a nutritious, energy-packed meal’ 3. Create a sense of loyalty Sustainable packaging Four-sided packaging, $0.02 saving per box 100% recycled materials Stewards of growth program Employee development and safety BPA-free packaging More vegetables and whole wheat 20
  21. 21. Non-Profit SponsorshipFive-year, strategic alliance with Boys and Girls Club of America 44% (1.85 million) of BCGA members 6-10 years old 65% (2.73 million) of BCGA members minoritiesWhat $5 million Donate meals Eating healthy educational series Kid Cuisine Learn to Swim ProgramBenefits Enhance brand image Increase brand awareness Yearly $380,000 tax shield Five-year increase in sales of 17 million units, resulting in net revenues of $5 million 21
  22. 22. Sales and Margins AC Nielsen Walmart Total (18%) Kid Cuisine Sales (FY2010) in 000’s $103,314 $22,679 $125,992 Margin % Margin $ Sale Price COGS $0.90 Manufacturer 25% $0.30 $1.20 Distributor 15% $0.21 $1.41 Retailer 35% $0.76 $2.17 Est. Units Revenue ($) in EBIT ($) in Sold in 000’s 000’s 000’s Kid Cuisine Sales (FY2010) 58,061 69,673 6,914* ConAgra 2010 10K - Page 80** Beaman, J.A., Johnson, A.J., A Guide for New Manufacturers Food Distribution Channel Overview, Oregon State University, 2006.*** Broker fee of 3-5% buried in SG&A 22
  23. 23. DCF Valuation & Industry Ratios Kid Cuisine DCF Valuation* Present Value of Cash Flows (in 000’s) $18,258 Present Value of Terminal Value (in 000’s) $53,272 Estimated Firm Value (in 000’s) $71,530 Assumptions Five-year growth rates were taken directly from Mintel reports** 9% depreciation charge based off current parent company*** Financing mix of 2:1 debt to equity Tax rate: 38% WACC: 6.02%* Please refer to Appendix I & II for Income Statement and Balance Sheet** http://academic.mintel.com.ezproxy.bu.edu/sinatra/oxygen_academic/search_results/show&/display/id=482903/display/id=548674?select_section=548675*** ConAgra 10-K 2010 23
  24. 24. Monte Carlo SimulationOverall: Growth (taken directly from a Mintel report) Unit price variation (+/- 2%) historically stable Unit cost variation (+/- 5%) based on corn, plastic, cardboard, and lean manufacturing initiativesHealthy line inputs: Growth (twice the current rate) as compared to comparable products Variation (+/- 10%) as compared to comparable $ in 000’s products NPV Mean 124,838Breakfast line inputs: Growth (five times the current rate) new product introduction in a healthy market growing at 6.1% 25th Percentile 82,801 vs -5% frozen dinner Variation (+/- 25%) new contender in a growing 50th Percentile 118,561 market, with some proven success, but strong competition 75th Percentile 159,903 24
  25. 25. Free Proposed Changes Estimation Cash Flow in 000’s Increase NPV from: $71 million$9,000 to } $120 million$6,750$4,500 Current Status Healthy Line$2,250 Breakfast Line All Changes $0 2010 2011 2012 2013 2014 2015 25
  26. 26. Summary Kid Cuisine is a relatively neglected brand, and ConAgra may be interested in selling We believe that with a few changes: We can increase the current market share We can enter a similar, but growing market ROI of 76% over life of project“Don’t leave money on the table” 26
  27. 27. Acquire Kid Cuisine a proud brand of 27
  28. 28. ReferencesAC  Nielsen  Database.  www.nielsen.com“ANtudes  Toward  Food:  Weight  and  Diet,”  May,  2009.  Mintel  Database.  www.mintel.com.  Beaman,  J.A.  and  A.J.  Johnson.  “A  Guide  for  New  Manufacturers:  Food  Distribu8on  Channel  Overview.”  Oregon  State  University  Food  Innova8on  Center.Boys  and  Girls  Club  of  America  Na8onal  Headquarters.  Phone  call.  December  8,  2010.Boys  and  Girls  Club  of  America  Website,  Facts  and  Figures.    h[p://www.bgca.org/whoweare/Pages/FactsFigures.aspx“Breakfast  Sandwiches  and  Entrees  -­‐  US  -­‐  November,  2010”  Mintel  Database.  www.mintel.com.Business  Wire.    “Strategy  Engages  Kids  by  Building  Story  Arc  for  KC  Character”.    November  19,  2009.    h[p://www.istockanalyst.com/ar8cle/viewiStockNews/ar8cleid/3650619“ConAgra  Foods  2010  Annual  Report.”  Mobular  Technologies,  2010.h[p://thomson.mobular.net/thomson/7/3004/4313/.“ConAgra  Foods  2009  Annual  Report.”  Mobular  Technologies,  2010.h[p://thomson.mobular.net/thomson/7/3004/4313/.“ConAgra  Foods  2008  Annual  Report.”  Mobular  Technologies,  2010.h[p://thomson.mobular.net/thomson/7/3004/4313/.ConAgra  Food  Inc.  “ConAgra  Foods  to  Reduce  Sodium  in  Products  by  20  Percent  by  2015”.  October  15,  2009.  h[p://media.conagrafoods.com/phoenix.zhtml?c=202310&p=irol-­‐newsAr8cle&ID=1342465&highlight.ConAgra  Foods,  Inc.  ADVFN  website.  h[p://www.advfn.com/p.php?pid=financials&symbol=NYSE%3ACAG.ConAgra  Foods  corporate  website.  h[p://company.conagrafoods.comConAgra  Foods  financial  repor8ng.    Morningstar.com.  h[p://morningstar.gravitystream.com/quick-­‐stocknet-­‐bonds-­‐12/USA/CAG.shtml?p=0“ConAgra  Foods,  Inc.”  Cogmap.  h[p://www.cogmap.com/chart/conagra-­‐foods,-­‐inc.Cox,  David,  Senior  Director,  Consumer  Insights  at  ConAgra.  Inc.  Personal  interview.  Conducted  October  20,  2010. 28
  29. 29. References“Frozen  Foods  -­‐  US  -­‐  September,  2010”  Mintel  Database.  www.mintel.com.“Frozen  Snacks,”  October,  2010.  Mintel  Database.  www.mintel.com.  Iden8ty  Works.  “ConAgra  Foods”.  h[p://www.iden8tyworks.com/reviews/2009/ConAgra.htmInterview  with  Michael  Steinberg,  Food  Produc8on  Manager  at  Boston  University  -­‐  GSU.  December  10,  2010.Johnson,  Leonard.  "A  Note  on  the  7-­‐S  Model."  OB  713:  Managing  Organiza8ons  and  People.  Page  67.1997“Kids  Market  Promises  Phenomenal  Poten8al  Growth.”  Food  Market,  October  24,  2006.  h[p://www.allbusiness.com/agriculture-­‐forestry-­‐fishing/4437631-­‐1.htmlLi[le  League  Baseball  and  Solball  Organiza8on’s  Website:  About  Our  Organiza8on.  h[p://www.li[leleague.org/learn/about.htmLowe,  Lexie,  Media  Supervisor,  AKQA  Adver8sing  and  Media.    Personal  Interview.    Conducted  December  10,  2010.Nielsen  Ad  Relevance.    Current  Kid  Cuisine  Online  Media  Spend.  “Shelf  Stable  Meals  and  Meal  Kits  -­‐  US  -­‐  September  2010”  Mintel  Database.  www.mintel.com.Staff  of  the  Mayo  Clinic.  “Children’s  Health:  Nutri8on  for  Kids.    Guidelines  for  a  Healthy  Diet”  h[p://www.mayoclinic.com/health/nutri8on-­‐for-­‐kids/NU00606Transcript.  “ConAgra  CEO  Discusses  F1Q11  Results  -­‐  Earnings  call  transcript”  September  21,  2010.  h[p://seekingalpha.com/ar8cle/226343-­‐conagra-­‐ceo-­‐discusses-­‐f1q11-­‐results-­‐earnings-­‐call-­‐transcriptMuller,  Tom.  “Dollar  Dinners  From  ConAgra  Threatened  by  Costs”.    August  19,  2010.  h[p://www.bloomberg.com/news/2010-­‐08-­‐19/conagra-­‐s-­‐recession-­‐proof-­‐1-­‐meals-­‐threatened-­‐by-­‐rising-­‐commodity-­‐costs.htmlWong,  Elaine.    “How  Sara  Lee  Beefed  Up  Jimmy  Dean  Brand.”    AdWeek,  March  24,  2010  h[p://www.adweek.com/aw/content_display/news/strategy/e3id51767e5e16b097944d2403df25385c5 29
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