1. CRACKER JACK
An analysis of potential brand acquisition by Diversified Products Corporation
John Bry
Sonja Gessling
Phil Mark
Sara Meinke
Jordan Schulz
Som Thamma
Cindy Tsai Cohort C ‐ Team 4
2. CURRENT SITUATION ANALYSIS:
Cracker Jack (CJ) is a classic American caramel-coated popcorn and peanut snack that was acquired
by Frito-Lay (FL) in 1997.1,2 Sales peaked in 1998 to $100M but soon sank back to $30M per year
and has remained at that level since.3 Several factors are attributed to this sales slump. FL
incorporated CJ into its existing distribution model that utilizes Direct Store Delivery and packaged
CJ in Mylar bags (as opposed to the classic boxes).They also shelved CJ with other Frito-Lay salty
snack products such as Lays Potato Chips, despite 98% of consumers rating CJ as a sweet snack and
not a salty one. 4 Although priced lower than the leading caramel corn brands, CJ still appears
expensive when merchandised next to inexpensive potato chips. Consequently CJ has numerous
misalignments and a comparatively low profit margin (8.2% compared to snack average of
20.5%).5,6 The low price point combined with rising commodity prices has forced FL to
substantially cut the quality of the prizes found inside each box to control costs, angering long time
consumers.7 CJ, having stagnant sales for the past ten years, has not received the support required
for brand revitalization, instead relying on steady baseball stadium sales to survive.8 Overall CJ has
become a neglected brand and is ripe for acquisition.
MARKETING RECOMMENDATIONS:
First, DPC will merchandise CJ with other caramel popcorns, which will permit a price increase of
$0.29 (19.5%). This will temporarily decrease sales by 6% but provide an increase in operating
income by $3.96M. We will also repackage CJ in the classic cardboard box at a price of 2.3 cents
per box. The new boxes will permit a price increase of $0.10 (operating income increase of $0.74M)
with no direct impact on sales volume. We will include higher quality prizes in each box of CJ at 3
cents per box, permitting a $0.09 price increase with no impact on sales volume. The cumulative
price increase will be $0.45 (average retail price from $1.49 to $1.94) for a total impact on
operating income of $1.5M.
We will develop our website to establish an online presence to listen, respond, and communicate
1 6
PepsiCo 1998 Annual Report PepsiCo 2009 Annual Report
2 7
“Cracker Jack”, Wikipedia Foundation, Inc. 8, October 2010 http://www.planetfeedback.com/frito+lay/price/value/cracker+jac
3
PepsiCo 1999 Annual Report ks+not+all+theyre+cracked+up+to+be/290600
4 8
Consumer Survey 12/2010 Interview with Don Helm, Cracker Jack Brand Manager,
11/17/2010
i
3. with our customers with a one-time cost of $200,000. Additionally we will donate a portion of sales
to Little League Baseball (capped at $50,000 in the first year) in an effort to secure a positive public
relations image. We anticipate this will increase sales by 0.5% through increase purchases from
parents who will have an emotional connection to youth sport causes.
CJ’s brand awareness is 90%, however only 33% of people report purchasing CJ in the last two
years.9 Because of this fact, an aggressive advertising campaign will focus on increasing purchase
intentions by communicating the new toys and emphasizing an association between CJ and family
events. Using 50% of manufacturer revenues after COGS and SGA we calculated our marketing
budget to be $3.9M. This will reduce operating income by $3.75M after the expected 5% sales
increase. We will utilize a mix of approximately 65% advertising and 35% sales promotions, which
will give us an expected ROI of 31%.10
ORGANIZATIONAL RECOMMENDATIONS:
Internally we will seek alignment by emphasizing family on the corporate level. We will host
family events and foster a close-knit, entrepreneurial work place while emphasizing collaborative
management. Externally we will capitalize on CJ strengths of American history and nostalgia by
focusing on family values. We will not bring staff from Frito Lay, however we will consult Don
Helm, a former CJ brand manager, as needed. We will use a combination of new and existing DPC
staff to support CJ.
FINANCIAL IMPACT:
Our initial offer for CJ will be $17.9M based on the baseline projections of CJ as it currently stands.
We project a NPV of $62.37M after all recommendations are implemented and a maximum offer
price of $48.8M from the expected cash flows and the internal rate of return required to make the
acquisition of CJ worthwhile. Based on the Monte Carlo simulation, our expected NPV range is
from $37.3M to $172.5M, and there is an 81% probability that the actual NPV of CJ will be above
the maximum acquisition price. We expect that the return on assets and return on equity will be
higher after implementation, but will continue to see a downward trend. This is consistent with CJ’s
market position as a cash cow (high market share but very low growth).
9
Consumer Survey 12/2010
ii
10
findarticles.com/p/articles/mi_m3065/is_n7_v18/ai_7381940/
4. Table of Contents
Target Acquisition: Cracker Jack...................................................................................................... 1
The Snack Food Industry ................................................................................................................... 2
Frito Lay and Cracker Jack................................................................................................................ 3
Misalignments .................................................................................................................................... 4
Supply Chain & Dsitribution ................................................................................................. 5
Pricing and Profitibility.......................................................................................................... 6
Promotions ............................................................................................................................. 7
The Cracker Jack Consumer ............................................................................................................. 8
Baseline Financials and Initial Offer Price ................................................................................... 10
Cracker Jack SWOT Analysis .......................................................................................................... 11
A New Cracker Jack Generation..................................................................................................... 13
New Organizational Structure and Culture ...................................................................... 14
Bringing Back the Boxes ..................................................................................................... 17
Cracker Jack Prizes ............................................................................................................. 19
New Marketing Campaign .................................................................................................. 21
Advertising ................................................................................................................ 23
Non-Traditional Marketing ..................................................................................... 25
New Distribution Channels .................................................................................... 26
Marketing Budget.................................................................................................... 29
Cracker Jack Financial Analysis ................................................................................................. 31
WACC .................................................................................................................................... 32
Financials and Sensitivity Analysis ............................................................................................ 33
References ................................................................................................................................... 38
iii
5. Target Acquisition : Cracker Jack
Cracker Jack under Frito Lay
Cracker Jack is a renowned caramel popcorn market leader owned and operated by Frito Lay North
America with a rich brand history and deep consumer connection, and DPC recognizes that this
brand is an attractive target for acquisition:
Current market leader in caramel popcorn market1
2009 Cracker Jack sales have been steady for 5 years and estimated at $32.6M for 20091
Strong baseball stadium revenue estimated at $9M
Cracker Jack has highest brand awareness in caramel popcorn market (81%) 2
Currently sold in 3oz & 7oz Mylar bags and recently started offering 1oz box 3‐packs
Frito Lay distributes Cracker Jack using both direct store and warehouse delivery3
Steady monthly sales since 20051 High brand awareness amongst caramel corn consumers2
$32.6M
Annual Revenue
4
Other brands
Monthly Revenue M$
19%
3
Cracker
2 Jack
81%
1
0
2005 2006 2007 2008 2009 2010
DPC believes that Frito Lay has made a number of negative changes to Cracker Jack since its acquisition which have
ultimately affected Cracker Jack’s brand equities and limited its growth potential. By implementing structural and marketing
changes to Cracker Jack and striving to grow at minimum by the current pace of the snack food market, we believe this
1AC Nielsen
beloved snack food can reconnect with consumers and realize a significant increase in profits.
2Consumer Survey
3PepsiCo 1999 Annual 1
Report
6. Snack food industry shows steady growth over the past several years, yet
Cracker Jack has been unable to capitalize
Snack food market breakdown1 Overall snack food manufacturing market growth1
Revenue in the snack food industry is approximately $35
$25.8B with expected annual growth of 2.1%
$30
In 2009 the snack food industry as a whole realized profits
of $5B $25
Salty snack foods in particular were able to thrive during $20
B$
the economic downturn because consumers want foods
$15
that are cheap and satisfying
Increased on‐the‐go snacking $10
The healthy snack market between 2010 to 2013 is $5
forecasted to increase sales by 9% $0
Caramel Popcorn market leaders: 2009 sales2 2002 2003 2004 2005 2006 2007 2008 2009 2010
The caramel corn market has shown growth of 0.1%
over the past 5‐years, essentially holding steady with Caramel Popcorn market leaders 2009 sales2
annual retail sales of roughly $100 million
Cracker Jack is the caramel popcorn leader with 24% of Poppycock
the market Crunch N ($21.3M)
Munch 16%
30% of Cracker Jack’s revenue is from baseball stadium ($28.4M)
sales which have been steady over many years and is a 21%
relatively uncontested channel Cracker
Smartfood
Jack
Cracker Jack shows moderate sales increases during the ($32.6M)
($4.1M)
3%
baseball season, increasing 12.3% compared to non‐ 24% Other
baseball months ($48.6M)
Poppycock sales peak significantly during the holidays 36%
with nearly 25% of annual sales coming in
November/December
There are growth opportunities in the convenience and
food channels, particularly to gain market share in light Frito Lay has not given Cracker Jack the opportunity to
of the recent decline in sales of private label caramel grow at the same rate as the overall snack food market,
corn brands allowing Cracker Jack competitors to steal market share.
1IBISworld Snack food manufacturing 2
2AC Nielsen
7. Despite steady sales and high brand awareness, Cracker jack has glaring misalignments
due to Frito Lay ownership that has hurt brand perception, sales, and growth
Frito Lay North America1 Brand misalignments due to Frito Lay ownership
Frito Lay North America is the US leader in salty convenience Frito Lay purchased Cracker Jack in 1997 from Borden Foods,
snack foods. They have a strong brand portfolio and product mix Inc. There is currently no Cracker Jack brand manager;
with over 35 different brands. instead the brand is managed by a group of assistant brand
Subsidiary of PepsiCo mangers.
2009 Profit margin of 25% Frito Lay began manufacturing Cracker Jack in 3oz and 7oz
48,000 employees Mylar bags in order to fit their distribution system. They
All products manufactured and packaged in Plano, TX lowered the budget for the “prize inside” each box,
Top down corporate structure diminishing the prize quality and lessoning the value add for
the Cracker Jack consumer. These changes to Cracker Jack’s
Frito Lay dominates snack food industry2 key differentiators have created a consumer uproar about
the quality about the product. Cracker Jack’s history and
Kraft ‐ General connection with consumers has been weakened by the top
ConAgra
$2.1B Mills ‐ $2B
$2.3B down corporate structure and salty snack focus of Frito Lay.
Frito‐Lay DPC recognizes that concerns over Cracker Jack’s brand
Other $18.9B
perception and current misalignments are currently
$11.7B
neglected by Frito Lay. We believe that reestablishing the
connection with target Cracker Jack consumers is paramount
to the growth of the brand. On the following slides we go
into further detail regarding the following misalignments:
Distribution misalignment
Highest selling Frito Lay brands $B3 Competitive misalignments
$1.6 Pricing misalignments
$1.4 Promotional inconsistencies
Total retail sales ($B)
$1.2 Loss of consumer confidence due to changes of
$1.0 Cracker Jack’s primary differentiators:
$0.8 Packaging: Boxes to Bags
$0.6
Prizes: Actual toys to pieces of paper
$0.4
$0.2
$0.0
Lay's Potato Doritos Cheetos Tostitos Fritos
3 1PepsiCo
Chips 2IBIS Snack Food Production
3AC Nielsen
9. Frito Lay’s distribution channels: competitive misalignment for
Cracker Jack
Cracker jack has been priced to
Convenience Frito Lay
FL compete with other Frito Lay salty
Direct Stores Salty Snacks
Store Route
Service
+ • Doritos
snacks whose COGS are much less
than Cracker Jack’s
Drug • Fritos
Deliveries Reps
Stores • Cheetos
• Smartfood
+
Competition Misalignment in different channels
Pricing misalignments due to competition
Sports &
Frito Lay Distribution Channels1
Hot Dogs Traditionally sports venues charge
Vending Entertainment Baseball Cotton Candy much higher prices for Cracker Jack.
Distribution Venue Stadiums Peanuts
Distributors
+
Mass
Merchants Caramel
Popped Corn Cracker Jack is the lowest priced
• Crunch n’ caramel popcorn in the food and
Munch mass merchant channels, but
Warehouse
Distribution
Wholesale
Distributors
+ • Poppycock sales are not increasing. There is
• Private a lot of room for price increases
Labels which we will see on the next
slide.
Grocery
Stores
5
1PepsiCo 1999 Annual Report
10. Cracker Jack has not raised MSP to account for rising commodity
prices or to compete with caramel corn competitors
CJ price in DSD channels vs FL snacks1 CJ price in food channels vs caramel corns1
Lays
*Price scale highlights the Smartfood
Fritos
difference in FL snacks vs
Poppycock
Doritos caramel corn brands
Crunch n’ Munch
Cheetos
Cracker Jack Cracker Jack
$0 $1 $2 $3 $4 $0 $1 $2 $3 $4
Operating profits2 Caramel Corn MSP compared to materials costs1
Other Operating
COGS Expenses Profit $4.00
Cracker Jack
Snack Foods 51.0% 28.5% 20.5% $3.50
$3.00 Caramel Corn Competitors
$2.50
Cracker Jack 72.6% 19.1% 8.3%
$2.00
$1.50
All Industries 70.0% 22.6% 7.4% $1.00
2004 2005 2006 2007 2008 2009 2010
The main drivers of profits in the snack food industry is the Cracker Jack has not been increasing retail prices to match the rise
cost of commodities for manufacturing the snack foods in commodity prices to compete with all other channels
Cracker Jack and other caramel corns have much more expensive materials (corn, peanuts, and
sugar) than most snack foods which typically only have one main commodity (such as potatoes or
corn). By not increasing prices, Cracker Jack is leaving a significant amount of profit on the table.
Maintaining the low price point has had a negative effect on promotional allowances as well.
1AC Nielsen
6
2IBIS Snack Food Production
11. Cracker Jack promotional misalignments hurt the bottom line
across all retail channels
Promotional ACV1 Promotional misalignments hurt profits
30
Cracker Jack’s promotional mix of features and displays
is misaligned compared to the major competitors
25
20 Feature Cracker Jack generates a higher proportion of its sales
from promotions than the two main caramel corn
15 Display
competitors
10
Relative volume between Warehouse and DSD is
5
fairly consistent between all three caramel
0
corns, with DSD channels generating 65% higher
Crunch N Munch Poppycock Cracker Jack
sales from promotion than Warehouse channels
Percent of sales coming from promotions1 on average1
In order to achieve higher sales from promotions and
60%
Warehouse to achieve the mix of volume within each channel,
50%
Cracker Jack has been offering much higher price
40% DSD
reductions on average during promotions
30%
This results in a much lower promotional
20% efficiency because Cracker Jack has to discount
10% more than its competitors to generate similar
0% sales volumes
Crunch N Munch Poppycock Cracker Jack
The higher price reductions result in less revenue
Avg % price cut during promotion w/ results1 for Cracker Jack
Bringing Cracker Jack into alignment with competition
30
% Price Cut would mean that discounts could be reduced while
25
Promotional Efficiency maintaining sales volume which will generate more
20
revenue
15
10
5 There is promotional misalignment across all
0 channels and this is an area that needs considerable
Crunch N Munch Poppycock Cracker Jack attention moving forward. Next we will examine
the target consumers and how to best reach them. 7
1AC Nielsen
12. Cracker Jack consumers are typically lower income families who
enjoyed the snack as children
Target consumers are 35‐44 y/o1
The primary buyers of Cracker Jack:
(thousands of units sold)
745 Women (6x more likely than men to purchase)
800
572 Aged 35‐44
600 423 Parents of children ages 6‐17
400 303 291
White
122
200 Less educated
0 Living in the southern region (48%)
18‐24 25‐34 35‐44 45‐54 55‐64 65+ Living in smaller cities, populations < 20,000
Years Old
Lower income HH buy more Cracker Jack1,2
1.8 These consumers are price sensitive:
1.6
1.4 Cracker Jack Households with lower incomes tend to buy more.
1.2 70% of parents look for snacks that are inexpensive
1 29% of parents are willing to sacrifice
0.8 Snack Foods
0.6 nutrition in order to save money
0.4
0.2
0
Consumers buy Cracker Jack primarily at grocery stores
(36%) followed by baseball parks (32%).
Cracker Jack consumers are price sensitive3
15000 y = ‐3760.2x + 25913
10000 Cracker Jack has been unable to fully capture its
Volume
target consumer base because Frito Lay has
5000 failed to listen to the consumer voice.
0
3.5 4 4.5 5 5.5
1MRI Cracker Jack Data Price ($)
22009 US Community Census
8
3AC Nielsen
13. The current packaging, shelf location and low prize quality
decrease the perceived value of Cracker Jack to consumers*
Consumers prefer Cracker Jack in traditional boxes1 Consumers buy Cracker Jack for taste and “Prize Inside” 1
I prefer 50%
bags, 40%
28%
I prefer 30%
boxes,
20%
72%
10%
0%
Taste Prize Convenience Nostalgia Baseball
Frito Lay abandoned the classic Cracker Jack boxes in order to
30% of those surveyed said that they purchase Cracker Jack for the
integrate the brand in to existing production processes despite strong
“Prize Inside”.
nostalgic appeal of the box. This move upset many Cracker Jack
Cracker Jack traditionally offered an actual toy inside the box, but in
consumers.
an effort to cut costs Frito Lay abandoned the prize for paper pencil
Consumer perception Cracker Jack as sweet snack1 toppers and bad jokes.
The decision to decrease prize quality is viewed by consumers as a
cost cutting move that undermines the brand’s tradition.
Below are examples of consumer’s feelings of prizes on Twitter2:
Sweet
snack, Salty
98% snack,
2%
Frito Lay has placed Cracker Jack with its salty snacks in the DSD
channels, while Cracker Jack consumers view it as a sweet snack.
This misalignment causes Cracker Jack to lose potential consumers
who choose a different snack because of this placement.
The changes made by Frito Lay to Cracker Jack’s core brand characteristics have done little to
increase overall profitability and will be primary starting points for future efforts to revitalize the
brand.
1Consumer Survey
*One online survey was conducted to gather primary consumer data. There are inherent limitations in this 9
2Twitter biased selection of the population and adjustments were made as needed.
14. Cracker Jack is seeing a very slow increase in cash flow under
current operating conditions
Definitions:
Input percentages and inputs based on percentages were calculated by averaging PepsiCo and ConAgra industry averages1
Revenues, variable COGS, and variable SG&A follow Cracker Jack’s growth over the past 5 years
Assumptions:
Percentage of fixed costs in COGS
base year: 10%
Percentage of fixed costs in SG&A BRAND Projections (in millions)
base year: 70%
2010 2010 2011 2012 2013 2014 2015
% $ Brand Sales Growth Assumption (from Mintel):
*Assumptions were made due to the 0.14% 0.14% 0.14% 0.14% 0.14%
high variability of costs as sales
increase in the snacks industry
Sales 35.00 35.05 35.10 35.15 35.20 35.25
Retail Margin @ 30% 10.50 10.51 10.53 10.54 10.56 10.57
Comparable P/E ratios with an
expected offer price of $17,9M Revenues 100% 24.50 24.53 24.57 24.60 24.64 24.67
Expenses
COGS Expense 72.6% 17.79 17.81 17.83 17.85 17.88 17.90
Offer Price $17.90M Selling and Admin Exp 19.1% 4.68 4.68 4.68 4.69 4.69 4.69
Operating Income 8.3% 2.03 2.04 2.05 2.06 2.07 2.08
Cracker Jack P/E 8.76
PepsiCo P/E 16.4 Interest Expense (@ 7.13%) 0.84 0.87 0.91 0.95 0.98
ConAgra P/E 14.54 Earnings before Tax 1.20 1.18 1.15 1.13 1.10
*Golden Enterprises P/E 9.36 Tax Expense (@ 38%) 0.42 0.41 0.40 0.39 0.39
Net Income 0.78 0.77 0.75 0.73 0.72
* Golden Enterprises is regional 2011 2012 2013 2014 2015 Future
snack food manufacturer with annual Discounted Free Cash Flow 1.17 1.17 1.18 1.19 1.19 18.03
sales of $120M as being used as a Current Valuation $23.9M
comparison for Cracker Jack as
extracted from Frito Lay.
10
1FirstResearch
15. Understanding Cracker Jack market strengths and weaknesses will
help DPC rebuild the brand
S •
Strengths
Historically rich brand heritage and consumer connection
W
• Weaknesses
Initially strong consumer connection has diminished
Strong consumer voice since 1999
81% brand awareness among target consumers1 Brand heritage might be perceived as dated by new
consumers
Current market share leader amongst caramel popcorn
Strong link to baseball might hurt retail potential
brands2
Consumers view prizes as substandard6
High potential to reconnect with consumers FL uses push marketing strategies rather than pull
Ball park sales are strong and with increasing stadium Retail placement in DSD channel creates competition
attendance, Cracker Jack sales will look to remain steady with salty snacks
at around $9M annually3 Cannot compete on shelves with lower cost
Healthier ingredients compared to most current sweet salty snacks
and salty snacks4 Cracker Jack is currently a low priced caramel
“Prize Inside” is historically a huge brand differentiator in popcorn product2
saturated marketplace Poor shelf appearance compared to other caramel
corn brands7
Anticipated increase in snack food and popcorn product
Consumer perceive Cracker Jack as a sweet snack1
sales5
Cracker Jack has to discount more than its
Potential to demand a higher price competitors to receive similar sales volume2
Frito Lay offers Cracker Jack across a vast distribution No devoted Cracker Jack staff under Frito Lay8
network
The acquisition group of DPC believes that Cracker Jack’s current weaknesses can be remedied by
listening to the consumer voice. Changing the location of the product in DSD locations, reinstating the
traditional box, and adding actual toy prizes will help Cracker Jack deliver more value to the consumer.
Although we believe that Cracker Jack is a strong caramel corn snack, its true value lies in these key
brand differentiators that Frito Lay has neglected.
1Consumer Survey 4PepsiCo Nutrition Website 7Retail Observations
2AC Nielsen 5Mintel Salty Snacks 8PepsiCo Phone Interview 11
3ESPN Attendance Report 6Storyify Twitter Feeds
16. Understanding the opportunities and threats will enable DSP to find
success as we move forward with Cracker Jack acquisition
O• Opportunities T Threats
Continued growth of snack food and popcorn markets1 Increasing commodity prices may continue to erode
Increased opportunities for snacking in the current profit margin
weak economy Push towards healthy eating may push people away
Distribution channels and promotional activities can be from traditional snack foods
aligned to maximize brand’s market potential Saturated sweet snack market
Relocating Cracker Jack within retailers will allow Without attracting younger consumers, existing
consumers to better access Cracker Jack to satisfy their consumer base will age out of being able to consuming
sweet craving Cracker Jack
New technologies and a flexible management style can Ball Parks are increasingly shifting towards gourmet
allow for innovation and different packaging and foods, and away from traditional favorites
distribution options
Opportunity to portray Cracker Jack as a family snack
could increase market perception
Potential for new product launches and seasonal
offerings
On the following pages the acquisition group of DPC has laid out short term and long term
recommendations for the future of the Cracker Jack brand. We believe that there are areas of the snack
food market where Cracker Jack can thrive and we have tailored our recommendations to account for
the market opportunities and threats that Cracker Jack currently faces.
We realize the snack food market is highly saturated and differentiation is difficult to achieve, however
Cracker Jack’s brand heritage and American roots will spark the older generation of Cracker Jack
enthusiasts to share the snack with the younger generation and help DPC to create
A New Cracker Jack Generation.
12
18. How DPC plans to create a New Cracker Jack Generation
1 2 3
Month 10
Month 11
Month 12
Month 13
Month 14
Month 15
Month 16
Month 17
Month 18
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Step 1: Organizational restructuring and institution of new corporate culture
Our first step in revitalizing the Cracker Jack brand will start at the organizational level.
Within DPC we will emphasize a collaborative environment and promote a family‐centric
culture. Externally we will capitalize on CJ’s strength of American pastime and nostalgia to
communicate our internal and external alignment.
Step 2: A New Cracker Jack Generation
Our strategies to revitalize the Cracker Jack brand center on returning Cracker Jack to its
previous aligned state. We will merchandise Cracker Jack with other caramel corn
products, institute a competitive price increase of 30%, repackage Cracker Jack into the
original style of cardboard boxes, and reinstate higher quality toys.
Step 3: Communicating the new message
DPC Acquisitions Department believes that marketing Cracker Jack with the recommended
changes is critical to the success of brand revitalization. CJ’s brand awareness is above
90%, however only 33% of people report purchasing CJ within the last two years. Cracker
Jack will rely heavily on proposed marketing and advertising campaigns to increase
purchases by communicating the message and increased value of our product.
14
19. Creating a corporate culture that emphasizes the importance of
family is paramount to Cracker Jack’s success
“To provide a superior snack that connects families young and old through shared traditions, old and new”
Our first step in revitalizing the Cracker Jack brand for our customers is to build an internal corporate
culture that is aligned with the brand’s core values of family and fun. Creating an environment that
fosters communication, collaboration, and togetherness will ultimately shape a productive workplace.
The first step in cultivating the Cracker Jack family will be to share the company’s mission statement
and values. Cracker Jack’s mission is “to provide a superior snack that connects families young and
old through shared traditions, old and new.” Employees will truly understand what the Cracker Jack
brand was built on and connect a bridge between the brand and their daily work.
But it takes more than communicating the message. Cracker Jack will implement the following
initiatives at the corporate level to support its employees:
Quarterly family picnics ‐ a way for employees to bring their families together
Bring your children to work day ‐ twice a year
Day care partnership ‐ discounts for all employees
Employees on the Cracker Jack team will not just be workers; rather they will be part of the “Cracker
Jack Family”. We will ensure all‐member involvement by:
Hiring a staff that is committed to adopting the mission of the brand
Focusing on collaborative rather than top‐down management
Collaborating with all members when decisions are being considered
Encouraging accountability by holding bi‐weekly meetings to address current state of the
brand, and by educating employees by presenting facts, figures, and future goals
The combination of these initiatives and employee involvement will build a strong
advantage over our competitors. We will see in the following pages how these internal
communications align with the external recommendations.
15
20. Finding personnel that will fit new culture of Cracker Jack will be
important to future success
Staff
No carry over from Frito Lay
Need based consulting with Don Helm (former Cracker Jack brand manager under Frito Lay)
Contacts with MLB, Players Association, Champs, etc)
Input on marketing, consumer, and distribution
Initial hiring after DPC acquisition
Roster of potential hires has been created and readied for a fast start for the 2011 season
The appropriate range of salaries has been taken into best and worst‐case budget projections
Target personnel would ideally come from top family‐friendly companies such as General Mills and Astra‐
Zeneca Pharmaceuticals. A preliminary roster of potential candidates has been generated.
Organizational Restructuring
LEADERSHIP BRAND VP
COLLABORATION BRAND PRODUCTION
MANAGER CFO MANAGER
LEVEL I
COLLABORATION ROAD PLANT &
MARKETING INTERNS SALES PURCHASING
CREW PRODUCTION
LEVEL II - GROUND CREW
16
21. Bringing back the boxes…
Bringing back boxes will help reconnect with consumers New packaging machine
81% of survey respondents indicated preferring boxes to bags for Bosch Module++ packaging equipment capacity with 2‐head model
Cracker Jack 80 boxes per minute x 60 minutes = 4800 boxes per hour
Box brings back nostalgic appeal 4800 boxes per hour x 24 hours = 115,200 boxes a day
Frito‐Lay switched from the boxes because of existing infrastructure 115,200 boxes per day x 22 days per month = 2,534,400
necessitated bags (the packing type of all other products boxes per month
manufactured) and concern that Cracker Jack would go stale in a 2,534,400 boxes per month x 12 months = 30,412,800
non‐sealing box boxes per year at 100 % utilization
New technologies have made creating sealing boxes more easily Real world manufacturing at 80 % uptime delivery =
produced 24,330,240 boxes per year
Boxes will differentiate Cracker Jack from other salty snacks Estimated capital cost of new equipment: $1 million
Materials are estimated to cost an additional 2.3 cents per Three employees required to run assembly
equivalent unit to use paperboard rather than Mylar bags
24 hr shift needed to fulfill current volume capacity
Switch will not initially grow sales volume, but instead adds
nostalgic value to the product to allow for the initially price increase $15/hr + 25% benefits expenses
$39,000 per employee
$351,000 direct labor for assembly line
Depreciating the equipment over 5 years plus
the cost of employees to operate machinery is an
additional $530,000 per year (2.3 cents per unit
sold)
17
22. Estimated $600K growth in annual operating income from
switching to boxes
Breakdown of new packaging Financial projections with box implementation
70% of surveyed consumers said they would prefer 2010 Before After
Cracker Jack in a box +7 cents +10 cents +0 cents
With added value from boxes the unit price of %
Cracker Jack can be increased approximately 10 Brand Sales Growth Assumption: 0.1% ‐0.6% 1.7%
cents Units Sold 23.20 23.22 23.06 23.59
30% of consumers who do no prefer boxes Avg. Eq. Price($) 1.49 1.56 1.59 1.49
would not be willing to pay a higher price Retail Sales($M) 34.57 36.23 36.67 35.16
Sales volume growth assumptions is a weighted Retail Margin @ 30% 10.37 10.87 11.00 10.55
average based on Cracker Jack consumer price Revenues 100% 24.20 25.36 25.67 24.61
sensitivity Expenses
Fixed COGS 1.78 1.78 1.78 1.78
Best and worst financial cases
Variable COGS 16.01 16.03 15.91 16.28
Best case scenario would be that all consumers Added cost of Boxes/ Eq Unit $0.023 0.00 0.53 0.53 0.54
would be willing to pay 10 cents more per unit Added cost of Prizes/ Eq Unit $0.00 0.00 0.00 0.00 0.00
Increase in operating income of $1.04M COGS Expense 73.5% 17.79 18.34 18.22 18.60
Worst case scenario is no price increase is possible Fixed SG&A 3.28 3.28 3.28 3.28
Decreases operating income $430k Added Marketing Expenses 0.00 0.00 0.00 0.00
One‐time Web Upgrade 0.00 0.00 0.00 0.00
Variable SG&A 1.40 1.40 1.39 1.42
Net effect of switching to boxes Selling and Admin Exp 19.3% 4.68 4.68 4.67 4.70
Operating Income 7.1% 1.73 2.34 2.77 1.30
Net effect of switching to boxes is expected to be a 7 Difference 0.61 1.04 (0.43)
cent increase in retail price, assuming no change in
volume growth
Increases operating income by $610k
18
23. Bringing back actual toys to Cracker Jack boxes will satisfy
unhappy consumers and add value to the brand
Increase price per prize
•Current prize budget under Frito Lay is 1 cent per unit
•By increasing Cracker Jack MSRP, DPC can add prizes at
roughly 3 cents per unit
•New prizes will cost a total of $650,000
•Procure various toys through wholesale channels
Adding value with new prizes
• The goal of this recommendation is to rekindle the nostalgic
appeal of having a small toy to play with while eating Cracker
Jack
• Bringing back a real toy has a dual purpose:
1. Give parents what they remember from their
childhood
• This adds to the family appeal of Cracker Jack New “Surprise Inside”
where parents have the shared experience of
playing with their kids and sharing something
from their childhood
2. Give kids something to want to play with, encouraging
repeat parental purchase
Potential drawbacks of actual prizes
• Although there are cost concerns with adding an actual prize, the Who doesn’t love a bouncy Shaped rubber bands have
benefits outweigh the risk, and add value that can allow for the ball? These balls would only become extremely popular
initial price increase cost 1.5 cents per unit with kids and at 2‐3 cents
• Small prizes would cost less than the price increase, per unit, this is a cheap
meaning a net gain in operating income despite increased way to generate value to
cost consumers and their
children.
A fake mustache makes every day a
party. For 3 cents per unit this
would help make Cracker Jack fun
again. 19
24. Bringing back the “Prize Inside” generates a $740K increase in
net operating income for Cracker Jack
Cost breakdown for adding actual prizes Financial projections with expected prize addition cost
44% of surveyed consumers said they would prefer 2010 Before After
more relevant prizes +8.8 cents +20 cents +0 cents
With added value from new prizes, unit price of Cracker %
Jack can increase approximately 20 cents without Brand Sales Growth Assumption: 0.1% -2.5% 2.0%
changing purchase intention Units Sold 23.20 23.22 22.61 23.66
56% of consumers who do not feel the prize influenced Avg. Eq. Price ($) 1.49 1.58 1.69 1.49
them to purchase Cracker Jack would see no added Retail Sales ($M) 34.57 36.65 38.21 35.26
value from new prizes and would not pay more or Retail Margin @ 30% 10.37 10.99 11.46 10.58
increase purchases of Cracker Jack beyond normal Revenues ($M) 100% 24.20 25.65 26.75 24.68
levels Expenses ($M)
Fixed COGS 1.78 1.78 1.78 1.78
Sales volume growth assumptions is a weighted Variable COGS 16.01 16.03 15.60 16.33
average based on Cracker Jack consumer price Added cost of Boxes/ Eq Unit $0.000 0.00 0.00 0.00 0.00
sensitivity Added cost of Prizes/ Eq Unit $0.03 0.00 0.70 0.68 0.69
Best and Worst Cases COGS Expense 73.5% 17.79 18.50 18.06 18.80
Fixed SG&A 3.28 3.28 3.28 3.28
Best case scenario is that all consumers will be willing to Added Mark eting Expenses 0.00 0.00 0.00 0.00
One-time Web Upgrade 0.00 0.00 0.00 0.00
pay 20 cents more per unit
Variable SG&A 1.40 1.40 1.36 1.43
Increase in operating income of $2.31M Selling and Admin Exp 19.3% 4.68 4.68 4.64 4.71
Worst case scenario is no price increase is possible Operating Income 7.1% 1.73 2.47 4.04 1.17
Decrease in operating income of $560K Difference 0.74 2.31 (0.56)
Net Financial effect of adding actual prizes
Net effect of adding prizes is expected to be an 8.8 cent
increase in retail price, assuming no change in sales volume
growth
Increases operating income by $740k
Cracker Jack’s current customer base have reported that poor prizes are a major reason for the lack of recent purchases and the
expectation is that better prizes will result in improved sales. Cracker Jack is currently the most recognized caramel corn brand,
and with the added value of prizes and the proposed focus on family Cracker Jack aims to create “The Next Cracker Jack
Generation”.
20
25. Cracker Jack’s marketing will target current consumers best
positioned for sustaining our legacy
Creating the “Next Cracker Jack Generation” will depend on Projected Demographic Growth by Age (in millions) 1
targeting not only kids who enjoy the “prize inside,” but to
families as a whole. By focusing on families we will be able to
bring back the nostalgic feeling of what Cracker Jack was to
parents when they were young and compel them to pass on 12% increase in
growth
the tradition to their children.
The Cracker Jack target market is defined as families with
children under age 18, in which the parents are between the
ages of 25 to 44. Just over 30% of U.S. households are families
with children. The younger adults in this segment, ages 25 to
34, are projected to increase at a rate faster than any other
segment under the age of 55.
“Kidfluence”: The influence that children and teens exert over parents and family purchases is clearly an important driver of
sales in a variety of categories including snack purchases. However, regulatory agencies such as the FTC are now making greater
efforts to monitor food advertising directed at children. This fact is important to our marketing efforts and is another reason
why we must not focus our targeting only to kids, but to the family as a whole.
In order to target the family demographic, Cracker Jack will implement a marketing
strategy utilizing a variety of mediums positioned to spread Cracker Jack’s marketing
message. Cracker Jack marketing message is twofold and will focus on brand revitalization
through neglected brand equities while also promoting Cracker Jack as a family snack.
Initial advertising will focus on current markets where Cracker Jack has traditionally strong
sales to capture lapsed buyers.
1 Mintel 21
2 MRI
26. Family, fun, and low calorie snacking are key to Cracker Jack’s
new marketing message
Two‐fold marketing message
Our primary message to consumers is that Cracker Jack is a brand that is central to the family. For any occasion that brings
families together, be it a sporting event or game night at home, Cracker Jack is the snack of choice. Having a variety of fun new
prizes for kids coupled with Cracker Jack’s rich brand heritage will send the message that this tradition is one worth passing on.
In tandem with targeting families, Cracker Jack will also address the growing concerns of parents trying to find healthier snacking
options. Parents at all income levels report paying increased attention to the nutritional value of the food they serve their
families. Parents’ closer scrutiny of nutritional labels is motivated at least in part by rising childhood obesity rates and the news
coverage that this has received. In addition, the USDA has reinforced the need for easy‐to‐understand nutritional information.
To address this, DPC will highlight the fact that Cracker Jack,
although a sweet popcorn snack, is low in calories compared
to many other alternatives such as other caramel popcorn brands
and even baked potato chips. Our unique “Low Calorie” label will be
placed on all packaging and in select communications to consumers.
Marketing Mix
Targeted placement based on demographics: outdoor,
Advertising
magazine, and internet
Electronic Communications Website offering an interactive platform for communication
among consumers and for DPC to monitor consumer voice
Public Relations Corporate allegiance initiative with Little League of America
With the aforementioned price increases, DPC will look to
Sales Promotions better align Cracker Jack’s promotional mix in all channels
22
27. Aggressive advertising campaigns are needed to both
reconnect with lost consumers and help generate new ones
Cracker Jack currently has very high brand awareness: 91% of responders have eaten Cracker Jack, and 80% report it’s the most
recognizable caramel popcorn brand. However, 57% of people who buy Cracker Jack have not done so in the last 2 years. Because of
the lack of purchase follow through we have developed two primary advertising campaigns that communicate Cracker Jack’s core
competencies:
“The Prizes are Back.” “The Next Cracker Jack Generation.”
Cracker Jack will launch a fun campaign based on the slogan “The Next Cracker Jack Generation” campaign will target parents and
“The Prizes Are Back”. The images will showcase the prizes and will create a link between the Cracker Jack brand and the shared
start the conversation among the younger parents and kids. The experiences between family members. The slogan “The Next Cracker
purpose behind this campaign is to remind consumers how fun Jack Generation” will reinforce the message that Cracker Jack is a
the small prizes can be and to gain buzz around the Cracker Jack tradition that should be passed on to children. These images will also
brand. feature our unique “Low Calorie” label to remind parents that Cracker
Jack is a low calorie snack suitable for the entire family.
These campaigns will undergo both quantitative and qualitative market research before implementation. One online survey (sample size of 400),
and 2 focus groups of 15 located in primary target areas (west/south). This will allow Cracker Jack to make any needed changes to the campaigns
in advance of a nationwide rollout. For the “Prizes are Back” campaign, Cracker Jack will utilize social networking platforms, snack food blogs,
message boards, RSS Feeds, and other online outlets to spread the word of the new Cracker Jack brand. The cost will be minimal and will include
the salary of one employee to implement this strategy and periodic studies to track performance. Cracker Jack will be able to measure the strength
of these tactics using online analytical company Radian6. With traceable data, Cracker Jack will gain insights into how the brand is performing on
various social media channels.
23
1 Consumer survey
2 “10 Social Media Monitoring Tools for Measuring Social Media Analytics ”
28. Out-of-home advertising is a low cost way to communicate Cracker
Jack message with broad, continuous coverage
Location and Reach: LA (82,000) , San Diego (89,500), San Francisco Bay Area (80,000), Atlanta (75,000), Houston (11,500)
Price: $1,500 per month on average
Billboards
Quantity: 5 in each market
The vast majority of adults use automobiles as their primary method of transportation in these markets, allowing for the high number of impressions
per billboard. Tracking the effectiveness of these advertisements will be conducted by Nielsen using their GPS tracking methodology.
Location and Reach: Los Angeles (1,171,400), Seattle (361,400), Houston (229,200), Miami (224,500), Orange County (165,700), Dallas (130,400)
Price: $250 average per month per bench (minimum 10 locations per city). $500 average per month per bus wrap
Bus Bench
Quantity: 15 benches per location, 10 bus wraps per location
& Banner
These specific locations have some of the highest average daily bus ridership in the nation. With a 97% recall rate and 96% of respondents saying
mobile advertising are more effective than billboards, this method of advertising will bring significant attention to the newly revitalized Cracker Jack
brand. DPC will use periodic market research to continually measure effectiveness of bus and bench advertisements.
Magazine and Reach: Better Homes and Garden (7.6 million readers), People Magazine (3.8 million readers)
Advertising
Price: $150,000 on average, half page
Print
Quantity: 4 publications per magazine
According to MRI data, Cracker Jack consumers read a variety of magazines, most notably female oriented and entertainment publications. Better
Homes and Garden and People Magazine are two of the most popular magazines with our customers.
Timeline for Marketing Mix Implementation
3 months 6 months 8 months 1 year
Market tests of proposed Start creating the buzz with Rollout outdoor campaigns Rollout print
advertising campaigns “The Prizes Are Back” incurrent markets where CJ advertisements in
and production of final campaign online, focusing is strong (western and magazines targeted to
advertising materials. on social media platforms. southern regions). our market.
1 Rates and Markets, http://lamaroutdoor.com/index.html2 “10 Social Media Monitoring Tools for Measuring
Social Media Analytics”
2Wrap advertising http://en.wikipedia.org/wiki/Wrap_advertising
In addition to these traditional forms of outdoor marketing, DPC
3List of United States local bus agencies by ridership,
will use non‐traditional marketing mediums to communicate the
http://en.wikipedia.org/wiki/List_of_United_States_local_bus_agencies_by_ridership
4http://www.techdirt.com/articles/20030528/0118259.shtml
5Magazine Rate Cards
message that Cracker Jack is a fun snack for the whole family. 24
6Costs of Billboard Advertising, http://www.gaebler.com/Billboard‐Advertising‐Costs.htm
7 MRI
29. Non-traditional marketing is key to communicating Cracker
Jack’s message
CrackerJack.com redesign
Cracker Jack’s new web site will be a platform for communication from Cracker Jack to consumer, and between
consumers themselves. The site will essentially be an open forum where visitors can:
• Use an on‐site message board platform for open discussions, enabling them to provide
suggestions, feedback, and comments.
• See live Twitter feeds and Facebook updates
• Create personal/family accounts where consumers can post photos of themselves with Cracker
Jack and their prizes.
The new crackerjack.com will provide a place to promote new prize releases, news on sponsorships, upcoming
events, baseball scores, and any other future communications the brand will need to forward to consumers.
The fact that consumers will potentially create accounts online will allow Cracker Jack to capture valuable
customer data. This website redesign will be low‐cost, consisting of one initial design investment plus the salary
of one employee to monitor and maintain the site.
Potential risks of having an open‐forum style website will be the threat of negative comments exposed to
customers. While we will avoid overtly censoring of our customers, it will be imperative to monitor the site
and respond to criticism in an efficient and professional manner.
Little League Baseball Sponsorship
To show our commitment to families and support for the “Next Cracker Jack Generation,” we will form
an allegiance with Little League Baseball and Softball. This sponsorship will leverage the baseball
heritage that the Cracker Jack brand is known for in a way that will increase our relevance to American CrackerJack.com homepage with
youth. Cracker Jack will pledge to donate 10 cents for every box purchased (up to $50,000) to Little integrated Facebook and Twitter feeds
League camps per year.
Benefits:
Cracker Jack Little League Baseball
• Association created between • A proportion of
fun and healthy wholesome underprivileged youth will be After aligning Cracker Jack’s marketing message, the
activities able to attend camps at no last piece of the marketing strategy will focus on the
• Connect families over a charge
shared experience • Increased visibility and promotional mix and realigning current Cracker Jack
• Remind parents of the registration from kids shelf placement in DSD channels.
tradition of the Cracker Jack • Potential for a long term
brand relationship with Cracker Jack
• Increase sales among our and increased donations for
target market the future
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