Disney Case Study

Disney
Consumer
Products:
Marketing
Nutrition to
Children
Disney Consumer Products: Marketing
Nutrition to Children

What is the
situation?
Disney Consumer Products: Marketing Nutrition to Children

• Dramatic increase in childhood obesity forced the
companies to reconsider the nutritional value of their
own products.
• Advertising Standards Code of the Communications Act
of 2003 ensured that broadcasters followed a tough set
of rules regarding advertising food to children.

• Children’s Advertising Unit of the Council of Better
Business Bureaus asked its members to adhere to
voluntary guidelines to stave off government action.
• Nevertheless, packaged goods companies increased
their advertising spending on children’s cable television
stations such as Nickelodeon, Cartoon Network and
Toon Disney.

• Managers at Disney Consumer Products (DCP),
the division responsible for product development
and marketing of Disney-branded merchandise,
including more than 2,100 packaged food and
beverage products, saw the controversy as an
opportunity to reconsider its entire range of food
products.

Who are the players?
• Harry Dolman – Executive Vice President,
Disney’s Food, health and beauty group.
• Andy Mooney – DCP President
• Reid Leslie - Director of food and beverage
• Lance Gatewood - Vice president, North
America, Food, Health & Beauty for DCP
• Embola Ndi - vice president for product
development for DCP
• Matthew Caito and Don Goodwin - Marketing
consultants

History of Disney

History
• Established by Walter Elias Disney and his brother Roy
in 1923.
• Won academy award for best cartoon in 1932.
• Debuted its first television program in 1954.
• Established 28,000 acre theme park in Florida.

History
• Walt Disney Company was comprised of four major
business segments: Media Networks, Parks and
Resorts, Studio Entertainment, and DCP.
• Media Networks managed Disney’s media properties,
including 10 television stations, 72 radio stations, cable
television stations (including ESPN, Disney Channel and
ABC Family), and Internet holdings.

Walt Disney Company was a $32 billion company, reporting
net income of $2.5 billion
Exhibit 1

Around the world, families spent an annual average of 9.16 billion
hours immersed in Disney-branded experiences and products.

Disney held the top spots for the world’s most valuable franchise
characters with Mickey Mouse & friends valued at over $5.8 billion,
Winnie the Pooh & friends at $5.6 billion, and Disney Princesses at $3
billion

Children consistently reported high familiarity with Disney
characters

Merchandise Licensing
and DCP
• Disney Consumer Products was responsible for
extending the Disney brand to merchandise ranging from
apparel, toys, home decor and books to interactive
games, food and beverages, electronics and animation
art.
• The Disney Store, a chain of retail stores wholly owned
in Europe and owned and operated by third parties
through licensing agreements in North America and
Japan, carried a wide assortment of DCP products.

DCP’s Disney-branded merchandise accounted for retail
sales of $23 billion in 90 countries in 2006.

• By the late 1940’s, Disney licensed more than
2,000 products and the list of licensees included
blue-chip companies such as Standard Oil,
DuPont, General Mills, Armour Meats and Life
Savers. In 1948, the company reported licensing
income of over $1 million and retail sales of
$100 million.
• In 1996, DCP signed an exclusive, 10-year, $2
billion licensing deal with McDonald’s that gave
the fast food giant the right to feature Disney
characters in its promotions

Licensing and
Distribution Models
• After enjoying decades of 25% annual growth, in
1998 and 1999, DCP experienced 10-15%
declines in sales in the U.S. and Japanese
markets. Management attributed this drop to
increasing royalty rates, and an over-reliance on
character licensing from new films.
• Disney had three licensing models.

First Model
• DCP’s traditional licensing model is (licensees handled
product innovation, manufacturing, sales, and marketing)
when it was satisfied that licensees could provide
distribution strength, superior product differentiation and
innovation and category leadership.

Second Model
• A sourcing model was essentially contract
manufacturing, where products were created and
designed by Disney and featured the Disney brand, but
the licensee would handle manufacturing, sales and
marketing. DCP planned to use this model when
managers were confident that DCP could drive the
product development and the scale of the business
would meet DCP’s profitability targets.

Third Model
• The third model, DTR, entailed partnering directly with
retailers who were, in DCP’s estimation, “winners in their
channel/marketplace.” The DTR distribution model
meant selling brand and character rights directly to
retailers, bypassing wholesale licensees. Retailers would
then source the manufacturing themselves and manage
sales and marketing.

Licensing Models
• In 2004, DCP used all three models with its food and
beverage products, but Dolman noted that in the future,
the food, beverage and beauty segment would rely
heavily on a “Disney-branded, value priced, active
licensing model.”

Disney at the
Supermarket
• DCP had been a long-time licensor of packaged foods,
though the portfolio had consisted largely of candy and
ice cream—products such as Buzz Lightyear Galactic
Sherbet and Mickey Mouse fudge bars, co-branded with
Blue Bunny, a national ice cream brand.

Contd..
• DCP managers decided that to be successful, a new line
would need to be moderately priced and be positioned
as a fun line of products developed specifically for
children.
• “The products need to make them feel special and must
be non-patronizing and Mom-approved.” As a result,
DCP determined that key product categories were water,
fresh food, frozen foods, juice, pasta, soup, cereal,
baked goods and dairy/milk.

Nutrition, Obesity and American
Diet
• From 1975 to 2005, the rates of overweight and obesity
in children had skyrocketed: from 5% to 14% among 2-5
year olds, from 4%-19% for 6-11 year olds and from 5%-
17% for 12-19 year olds.16 More than 65% of the U.S.
adult population was classified as overweight or obese,
and experts feared that overweight children—who had a
70% chance of becoming overweight or obese as adults

IOM recommended that food and beverage companies:
I. Actively promote healthful diets for children.
II. Create or reformulate children’s products to reduce calories,
fat, salt and added sugar while improving nutrient content.
III. Develop an “empirically validated industry-wide rating
system” for labeling and advertising that appealed to
children and conveyed nutritional information.
IV. Enforce strict marketing standards and adhere to self-
regulatory guidelines for traditional advertising as well as
“evolving vehicles” such as the Internet and
“advergames.”27
V. Avoid linking “nutritionally questionable” products to admired
celebrities, sports figures, or cartoon characters

Questions
• What should Disney do to improvise its sales?
• Should it reconsider nutritional value of all its products
and verify them with the standards?
• How should Disney increase the outreach of its
products?
• How should it tackle competition with other strong
contenders?
• How should the pricing be done?
• Should it reconsider its’ licensing models?

Disney Nutritional
Guidelines
“First, we knew we needed a framework for how children
eat. Food is nutrition but it is also lifestyle. We had to figure
out how to integrate this concept into our portfolio”
• DCP derived many of its recommendations from the
FDA’s dietary guidelines.
• DCP audited 2,100 of its food products.

“If the food is nutritious,
Moms like it too. Then it is a
win for everyone.”

Imagination Farms
• Disney began licensing its characters to Imagination
Farms, a national fresh produce marketing company
founded specifically to serve as a licensee to DCP, in
March 2006.
• Imagination Farms contracted with 15 large U.S. growers
to provide both organic and conventionally grown
produce to supermarkets under the Disney Garden
brand.

Contd..
“Whatever promotions we develop must fit our
mission of increasing consumption of fruits and
vegetables among children,”
• DCP and Imagination Farms used a three-
pronged product development strategy:
differentiate commodity produce through
promotion, create value-added products through
product preparation or packaging, and develop
exclusive produce varieties that would yield
more child-friendly foods.

Bagged fruits and vegetables featured a back panel that
provided nutritional facts, jokes and other child-engaging
information.

The Competition
Disney and Imagination Farms faced competition from
many sources, including commodity produce products,
major brands such as Dole, Green Giant and Fresh
Express and, within the children’s segment, other
entertainment brands such as Nickelodeon, Sesame
Workshop, and Warner Bros.

Nickelodeon
• The company, a division of Viacom International
Inc., launched its network in 1980 with largely live-
action programming, but by the mid-1990s, found
large children’s audiences for animated series such
as SpongeBob Squarepants and The FairlyOdd
Parents.
• “Our goal is to have every fruit a kid would want to
eat with a Nickelodeon character,”

Sesame Workshop
Sesame Workshop had long licensed packaged foods
(juice and pasta, for example), the Del Monte deal lent
support to Sesame Workshop’s “Healthy Habits for Life”
initiative, a content- based program launched in 2005 to
“help young children and their families lead healthier lives
through improved nutrition, physical activity, and hygiene.”

Warner Bros
Ready Pac promoted as lunchbox alternatives to cookies,
potato chips or candy. The company also marketed carrots
and celery served with ranch dip or peanut butter, which it
described as a “healthier snack alternative” and “the
original kid- pleasin’, mom-lovin’ dippity delicious snack!”

Disney and Kroger
• Cincinnati-based Kroger Supermarkets, the largest pure
grocery retailer in the United States with fiscal year 2005
sales of $60.6 billion.
• The retailer operated 3,700 stores in 30 states under 30
banners including the Ralph’s, Dillon’s and Pay Less
supermarket chains.

• Kroger had a 12% share of the U.S. grocery market,
which fit with Dolman’s global food distribution strategy.
• “We want to have one major DTR relationship in a
country where the retailer has a 10-20% share of the
market and the rest of the market will be served using
the source and traditional licensing models,” explained
Dolman.
• Disney planned to establish sourcing relationships with
the Safeway and Albertson’s supermarket chains to build
market share.

Launching Disney Magic
Selections
• Together, Disney and Kroger sized the opportunity at
$250 million in annual revenue and used focus groups
and Nielsen data to validate the categories and products
they had selected.

Conclusion
• The Walt Disney Company announced that in
addition to DCP’s nutritional efforts, the company
would make “nutritionally-beneficial changes” to the
meals served to children at all Disney-operated
restaurants in its parks and resorts.
• “We’ve said publicly that we’ll take a multi-million
dollar hit because of the products we clip off; it will
take a couple of years to recoup the downside of
this short-term decision. The true impact will be
determined by how quickly the market adopts our re-
positioning,” said Mooney.

• Developing healthier food and beverage products or
serving smaller portion sizes may be viewed by
some private sector businesses as risks rather than
as opportunities; making changes in the absence of
broad-based consumer demand, whatever the
market, conceivably can be seen as a risk to the
private sector. The food and beverage industries’
decisions are guided by key factors—including taste,
palatability, cost, convenience, value, variety,
availability, ethnic preferences, and safety—that
drive consumer demand. For example, product and
meal size are significant drivers of consumers’
perceived value of the foods and beverages they
purchase.

More than 14,000 new food and beverage
products entered the U.S. marketplace each year
but less than 6% were successful; the remaining
94% failed due to one or more factors, including
lack of consumer demand, ineffective marketing,
lack of support from the public health sector or
cost. DCP faced all of these risks:
1. Pricing and Value
2. Legacy
3. Differentiation and Competition
4. Growth and Distribution

Future
DCP managers were excited about their entry into the
food and beverage market and planned to capitalizing
on the vast resources of the Walt Disney Company to
gain market share and acceptance for its new
undertaking. Managers envisioned publishing
cookbooks, televising cooking shows for children, and
linking its nutritional efforts with exercise programs.
Extending its offerings from retail supermarket
products to food service (school lunch programs) and
out-of-home consumption in restaurants was also
under consideration.

References

Disney Case Study

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