The Opportunity Richard Larson was excited about the challenge of improving PFVC’s profitability.  He just completed the difficult task reorganizing and consolidating PFVC’s office in Sturgeon Bay with several long-term, highly-valued employees from the individually acquired vegetable companies no longer being severed.  His assembled team in Sturgeon Bay was ready to tackle the task at hand.  Several months ago, Carlos Rico, a marketing manager approached him with an innovative new convenience food product idea combining frozen vegetables, spaetzels (a coated seasoned pasta), and chicken in the same bag. It was designed to compete against other convenience foods such a frozen pizza.  Based on preliminary analysis, the new product represented a potential homerun for PFVC with company sales expected to increase by 20 percent and predicted gross margins nearly double the current vegetable offerings.  While the potential for this new product was palpable, Richard was a realist given PFVC’s history of new product introductions. The latest was  Soup-in-a-Flash —a microwaveable soup starter kit introduced by PFVC’s predecessor Anchor Vegetables that failed miserably.  It ended with the write-off of $10 million of unsold finished goods, packaging and manufacturing lines during the company reorganization. This represented half of the company’s profits from the prior year and served as a painful reminder to Richard of the team’s challenge.  As a result, Parson Company executives were cautious and not enthusiastic about investing in another PFVC new product even though the management team associated with  Soup-in-a-Flash  was no longer with the company.  Richard mused, “If this new product fails, my tenure as the CEO of the largest vegetable company in the United States may be short-lived.”  Failure was not an option.  The Team Richard decided to assemble a cross functional team of PFVC’s best sales, production and financial professionals to pursue this apparent golden opportunity of a new, healthy frozen convenience meal.  Richard addressed the team, “Congratulations and welcome.  You have been selected to participate in potentially the most important new product initiative in PFVC’s history.  As you might recall, our last new product initiative  Soup-in-a-Flash was not a rousing success.  The new product you will be working on has the potential to create a whole new category of higher-margin convenience foods for PFVC. Initial projections look promising.  This is Carlos’ idea, so I will let him explain.”  As Richard gestured, Carlos stood and moved to the front of the conference room. “Thanks, Richard. Good afternoon.  As many of you aware, we currently produce  Pasta Done,  a microwaveable product consisting of vegetables and spaetzels.  But this innovative new product idea is going to take that concept one step further and is unlike anything on the market.  We are going to add protein—in this case cooked chicken—to the vegetables and spaetzels  .

1. The Opportunity
Richard Larson was excited about the challenge of improving
PFVC’s profitability. He just completed the difficult task
reorganizing and consolidating PFVC’s office in Sturgeon Bay
with several long-term, highly-valued employees from the
individually acquired vegetable companies no longer being
severed. His assembled team in Sturgeon Bay was ready to
tackle the task at hand. Several months ago, Carlos Rico, a
marketing manager approached him with an innovative new
convenience food product idea combining frozen vegetables,
spaetzels (a coated seasoned pasta), and chicken in the same
bag. It was designed to compete against other convenience
foods such a frozen pizza. Based on preliminary analysis, the
new product represented a potential homerun for PFVC with
company sales expected to increase by 20 percent and predicted
gross margins nearly double the current vegetable offerings.
While the potential for this new product was palpable, Richard
was a realist given PFVC’s history of new product
introductions. The latest was
Soup-in-a-Flash
—a microwaveable soup starter kit introduced by PFVC’s
predecessor Anchor Vegetables that failed miserably. It ended
with the write-off of $10 million of unsold finished goods,
packaging and manufacturing lines during the company
reorganization. This represented half of the company’s profits
from the prior year and served as a painful reminder to Richard
of the team’s challenge. As a result, Parson Company
executives were cautious and not enthusiastic about investing in
another PFVC new product even though the management team
associated with
Soup-in-a-Flash
was no longer with the company. Richard mused, “If this new
product fails, my tenure as the CEO of the largest vegetable
company in the United States may be short-lived.” Failure was

2. not an option.
The Team
Richard decided to assemble a cross functional team of PFVC’s
best sales, production and financial professionals to pursue this
apparent golden opportunity of a new, healthy frozen
convenience meal. Richard addressed the team,
“Congratulations and welcome. You have been selected to
participate in potentially the most important new product
initiative in PFVC’s history. As you might recall, our last new
product initiative
Soup-in-a-Flash
was not a rousing success. The new product you will be
working on has the potential to create a whole new category of
higher-margin convenience foods for PFVC. Initial projections
look promising. This is Carlos’ idea, so I will let him explain.”
As Richard gestured, Carlos stood and moved to the front of the
conference room. “Thanks, Richard. Good afternoon. As many
of you aware, we currently produce
Pasta Done,
a microwaveable product consisting of vegetables and
spaetzels. But this innovative new product idea is going to take
that concept one step further and is unlike anything on the
market. We are going to add protein—in this case cooked
chicken—to the vegetables and spaetzels
in the same bag
. In the past, similar products separated chicken from
vegetables using multiple pouches. Combining all ingredients
in a single bag simplifies the process for consumers offering
them improved, value-added convenience. It takes only six
minutes to cook in the microwave, and is a nutritious alternative
to traditional convenience foods such as frozen dinners or
pizza. I have been calling it
Chicken Sensations

3. . Some of the big hurdles with this new innovation: USDA
approval for both our processing facility and the insertion of
chicken combined with other ingredients into one bag are
significant challenges to getting
Chicken Sensations
to market. The last time we sought USDA approval was more
than 30 years ago when we began processing canned meat for
the government. Since then, everyone associated with that
process retired or was not retained in the reorganization.
Therefore, we have no in-house institutional knowledge of the
USDA approval process. But enough about the operational
challenges of the product, that delicious aroma you smell from
the test kitchen is a sample of the product that our research and
development team prepared for us. Let’s eat!”
With that, staff emerged from the test kitchen and served the
team sample meals of
Chicken Sensations.
While the team was enjoying their meal, Richard continued,
“Thanks Carlos. I think this could be a winner, but we need to
make certain everything’s right since we will be creating a new
category of convenience foods. Execution is key to turn this
potential idea into a successful reality; everyone on this team
must execute. If we elect to pursue
Chicken Sensations
, we need to insure we are price competitive with current
convenience food offerings, have the ability to produce a high
quality product at a reasonable cost, and most importantly make
a profit. Before our next meeting, I would like to address the
feasibility of us pursuing
Chicken Sensations
. Carlos, I would like for you to evaluate the price per ounce of
alternative convenience foods as well as configurations varying
the mix of chicken, vegetables, and spaetzels. In addition,
provide a sales forecast with recommended pricing.”
Addressing Gary Smits, the production manager, Richard said,

4. “Gary would you please provide the expected packaging, labor,
and variable overhead costs, any additional capital investments,
anticipated costs to get USDA approval and inventory needed to
produce and support
Chicken Sensations
.” Finally, Richard directed his comments towards, Vicki
Hoerning, the sole financial analyst on the team saying, “Vicki
would you please take the inputs from Carlos, and Gary to
determine the financial feasibility of
Chicken Sensations
. Include sales forecasts, contribution margin income
statements, and profitability analyses.”
Vicki said, “Richard you can count on me. I think I speak for
the entire team; we are excited to be included on this team and
will do everything possible not to repeat the
Soup-in-a-Flash
debacle. I will get everything put together as soon as possible.
Carlos and Gary, let’s get together when you have your
information ready.”
Addressing the entire team, Richard reminded, “I do not think I
need to remind you the importance of this project. Because of
our failure with
Soup-in-a-Flash
and limited financial resources, Parson corporate is
increasingly reluctant to authorize the pursuit of any new
products. We need to insure our analysis is rock solid. Our
goal for Chicken Sensations is to breakeven in less than one
year.”
The Meeting
“Good afternoon gentlemen,” Vicki began addressing Carlos
and Gary. “Thanks for meeting with me so quickly I know you
have very busy schedules. My goal for the meeting today is to

5. gather information necessary to generate Richard’s financial
analysis. When we are finished, I anticipate providing an in-
depth evaluation of the feasibility of
Chicken Sensations
. Carlos, what did you find out about anticipated pricing and
size of
Chicken Sensations
relative to other convenience foods?”
“Well Vicki, based on my market analysis the retail price per
ounce of other convenience foods ranges from 16 to 20 cents
with package sizes ranging from 20 to 30 ounces. As a result,
individual item prices range from $3.20 to $6.00 at retail.
Based on my analysis and the greater perceived nutritional
value of the
Chicken Sensations
relative to other convenience products, I suggest we target a
retail sales price $3.75 per 20-ounce bag. With retailers
requiring a minimum 20 percent gross margin for new products,
we need to sell
Chicken Sensations
for around $3.00 per bag or $36.00 per case of 12 20-ounce
bags.” Vicki recorded this information on sales prices and
revenue projections.
Carlos continued to explain some of the sales expenses and
other costs, “To gain consumer trial in the first year only, we
will have to offer coupons of $0.20 per bag or $2.40 per case
for all cases sold. To gain access to convenience food
distribution channels, we will have to pay 6 percent commission
on the sales price for the life of the
Chicken Sensations
. In addition, retailers (in total) require a one-time slotting
allowance of $6,000,000 to purchase shelf space for
Chicken Sensations
.” Vicki noted that the slotting allowance costs would be

6. expensed in the first years.
Carlos continued to explain estimates for other
Chicken Sensations
costs, “Package design costs of $2,000,000 will be paid and
expensed in the first year. To support
Chicken Sensations
, three additional sales people will need to be hired with annual
salaries totaling $400,000.” “Carlos, that sounds terrific. The
last thing I need from you is forecasted case sales.”
Carlos continued, “Sure Vicki. I anticipate first month sales to
be 65,000 cases in January and increase by 15,000 cases each
month for the first year to a maximum of 230,000 cases per
month by December with a potential forecast error of 25
percent. For the subsequent years 2 through 8, I forecast sales
to be 2,760,000 cases per year.”
“Wow those numbers are much higher than I would have
expected,” Vicki exclaimed. “One more thing Carlos, how much
do you think accounts receivables will change to support the
new product?” “Well, Vicki, based on our credit terms of net
30 days, I expect the accounts receivables required to support
Chicken Sensatio
ns to be 100% of the prior month’s sales dollars.” “Thanks
Carlos. Please review my summary of our discussion to insure I
accurately captured your sales and marketing assumptions. I do
not want to misinterpret you.”