KINGS Hot N Handy

Kings has been a household brand in the Philippines since 1969, with its broth cubes,
liquid seasonings and packed soups. In fact, it is ranked the third most popular brand
in the United States.

In 1998, Kings entered the Soupy Snack Market with its Kings Hot N Handy, starting
with the Arroz Caldo variant.

Kings Hot N Handy is an instant rice porridge snack. Its flavors are Filipino traditional
snacks, such as Arroz Caldo, Goto, Guinataang Mais, Champorado and Chicken Sopas.

The Soupy Snacks are anything instant single-serve cup noodle/ cup rice, and only
needs boiling water to be added to serve. Kings saw the potential of the growing
soupy snack market, thus introducing Kings Hot N Handy.

However, recent sales reports are not overwhelming. It seems that the market for
the cup rice is quite small compared to the cup noodle market. Also, its main
competitor, Penny which is owned by a big multinational food and beverage
company, is eating the market.

Ms. Clarisse Villa, the Product Manager, is worried if the market will still grow, and
how Kings Hot N Handy (KHH) can race with Penny. The other products she’s
handling under the Kings brand are enjoying more than 90% share of the market.
KHH, with its 22% market share in year 2000, is now a problem she can’t solve. At
the start of the year 2001, she aimed that this problem will be over before the year
ends.

COMPANY BACKGROUND

Kings has been a brand name of Goodfoods, Inc. since the 1920s. Goodfoods started
in the United States and is popular in 87 countries worldwide, especially in Europe. It
is globally known, aside from Kings products, for its mayonnaise, cooking oil and
peanut butter spread brands.

In the Philippines, Goodfoods locally produce mayonnaise, sandwich spreads, peanut

butter spreads, instant gelatin, cooking oil, and of course, Kings products. The
company has successfully maintained the good image of the brand and has earned
loyal consumers throughout the years.

The company aims to be “the best international food company in the world”.
Managers, technical professionals, sales people, office staff and production workers
are all working together to deliver growth and achieve this goal.

INDUSTRY BACKGROUND

Market Overview
The Soupy Snack market is estimated to be worth P7.4 Billion. This market includes
the pouch market and the cup market.

The pouch market refers to instant noodles (with and without soup) packed in plastic
pouches usually weighing 50-100 grams and priced from P3.50-P5.00.
The cup market refers to instant noodles/ rice porridge packed in plastic cups/ bowls
usually weighing 30-75 grams and priced from P10-P20.

The cup market accounts for 24% of total market value of the soupy snack market,
and 8% of market volume. Instant cups are priced higher than pouches, thus
increasing its market value.

The Cumulative Annual Growth Rate (CAGR) of the pouch market is 6.8% while the
cup market is 39.5%.

The Cup Market

The cup market is estimated to be worth P1.8 Billion. It is dominated by the Noodle
Segment which accounts for 83% of the Total Cup Volume, and 81% of Cup Value.
The remaining 17% is from the Rice Porridge market wherein Kings Hot N Handy is
included.

The summary of market shares of product segments are summarized in this table:

Soupy Snack Market

Pouch- 92% Cup- 8%
Cup Noodle- 83% Cup Rice- 17%

However, even with the relatively small market share of the cup market, Kings saw
that it was a growing market. The Cup Market has been growing significantly from
1994 to 1999, but decreased in 2000 [see Appendix A].

Kings’ Rationale for Entry in the Cup Market

Kings has been a market leader in packed soups since 1982, in liquid seasonings
since 1973 and in broth cubes since 1969 in the Philippines. Their main target
markets are mothers/ wives who prepare food for their family; at the least, do the
grocery for their family. The management of Kings though, are worried that their
loyal market are getting old. The new generation of mothers/ wives is faced with
more choices in the market. There can be a possibility that Kings market share will
eventually go down as new players enter the market.

Kings want to tap the younger segment, and hopefully they would become as loyal as
their mothers and grandmothers were to Kings.

Kings saw the huge and growing cup market via entering new and untapped food
segments. They can pioneer new lines of cup products that leverage the strength of
the Kings branded heritage. Of course, they would want to enter into a new food
business that has future growth potential to contribute significantly to company
profitably.

Goodfoods came up with a pasta line before but flopped in the market. The
management decided to produce pasta never again. Thus the only way to go is into
the cup rice market which they thought they would pioneer in the Philippine market.

Original Product Positioning

Before launching Kings Hot N Handy (KHH), Kings came up with a market research to
find out people’s opinion on why they would buy an instant snack. The results were:
Taste 75%
Convenience 22%
 (speed & ease of preparation)
Economy 20% (filling)

However, even with these results, Kings’ management decided to position KHH as
“your deliciously filling snacking solution to hunger”. TV ads carried the tagline
“Bigat ng Dating Hindi Bitin” (Filling and Satisfying).

Kings launched Kings Hot N Handy Arroz Caldo in October 1998, only a month after
the unanticipated launching of Penny Arroz Caldo.

Kings launched Kings Hot N Handy Beef Goto in May 1999; Kings Hot N Handy
Champorado in September 1999; and Kings Hot N Handy Guinataang Mais and
Chicken Sopas both in June 2000. All flavors came in two sizes. The Chicken Sopas,
Arroz caldo and Goto’s small size weighs 28 grams, and the big size weighs 43
grams. The Champorado and Guinataang Mais’s small size wighs 55 grams, and the
big size weighs 80 grams.

KHH has a purple and white packaging with a photo of the arroz caldo/ champorado,
etc. “A lot of people likes the color purple, especially the young that’s why”, says Ms.
Villa.

Target Market
The cup products were intended to be for out-of-home consumption. Thus, the target
markets were office workers ages 20-30 years old. However, Ms. Villa says, recent
studies showed that 80% of instant cups were purchased for in-home consumption.
Also, high school students to office workers aged 40 years old has the same level of
usage. Aside from office consumption, cup products are consumed at home as a
merienda or midnight snack.

Competition
KHH’s number one competitor is Penny. A multinational company included in the
Philippines’ Top 10 Corporations owns Penny. It produces leading brands of milk,
breakfast cereals, coffee and confectionery products. It employs 5,000 people, has a
reputable company image and a large and stable distribution network. Penny has
been in the Philippine market since 1979, and is a direct competitor of Kings with
other product lines.

Penny did not employ another name for its cup rice products. Unlike Kings Hot N
Handy, Penny calls their products simply as Penny Chicken Arroz Caldo, Penny
Champorado, Penny Guinataang Mais and Penny Goto. It has a solid yellow
packaging. It comes in one size only. The Champorado weighs 85 grams; the
Guinataang Mais 75 grams; the Goto and Arroz Caldo 50 grams.

Market Share
Penny enjoys the highest market share in the cup rice category. In year 2000, two
other competitors, Chow Break and Quick Eat came into the market. This caused
KHH and Penny’s market share to decrease in the following year.

The following table shows the market share of KHH and its competitors for the years
1999 and 2000:

Product 1999 2000

KHH 24.4% 22%
Penny 75.6% 65.2%
Chow Break - 7.6%
Quick Eat - 5.2%
TOTAL 100% 100%

Pricing
KHH is priced the highest with a suggested retail price (SRP) of P15.00 for the big
size. Penny’s first flavor, the Arroz Caldo, has an SRP of P12.70. However, the flavors
that followed have an SRP of P15.00. Ms. Villa thinks that the discrepancy in prices of
Penny’s variants may be because Penny imitated KHH’s price for the last three
variants. It did not realize that it can come out with a ceiling price of P15.00. Now
since Penny Arroz Caldo’s introductory price is P12.70, it cannot increase the price for
it might displease the consumers.

Chow Break’s SRP is P10.20, while Quick Eat’s is P12.00.

Advertising
The same time KHH came out with its first TV ads with a tagline of “Bigat ng Dating
Hindi Bitin”, Maggi was airing their “Duyan” TV ad. It was talking to the same target
market. However, Penny’s ad was focused on taste, with its tagline “Iduduyan Ka Sa
Sarap” (You are cradled with deliciousness).

In February 2000, KHH came out with “Grumpy” ad which focused again on the filling
benefit of the product for Champorado. The tagline evolved to include taste to
“Busog Ka Sa Sarap” (Filled with deliciousness). Again, at the same time, Penny
came out with an ad for Champorado and Guinataang Mais, consistent with their
original campaign, but now addressing a younger market (16-20 years old).

In 1999, Penny outdid KHH in TV spending at 2:1; in 2000, at 3:1. For total media
spending in 1999, Penny still outdid KHH at 1.25:1; in 2000, at 4:1. Chow Break and
Quick Eat did not go into media advertising. They ventured into various sales
promotions in the provinces to gain sales. It can be noted however that for the past
month, Quick Eat is getting into newspaper advertising.

Ms. Villa says that KHH has a limited advertising budget. That’s why it could not
compete with Penny in terms of TV ads even though they believe that it is a powerful
tool to promote the product.

Distribution
One of Penny’s strength is that a large multinational company with a wide distribution
network owns it. Penny has a 50% larger distribution level than KHH.

Cup rice products are distributed largely in supermarkets (77%); followed by

groceries and convenience stores (15%); then sari-sari stores (5%), and lastly at
market stalls (3%).

Ms. Villa notes that there is a small difference in sales performance between Penny
and KHH in supermarkets. There is a large difference in sales volume in groceries
and convenience stores, and at sari-sari stores. [See Appendix B].

Ms. Villa assumes it is because Penny products can easily be placed in small
groceries, convenience stores and sari-sari stores because the company that owns it
also carries products (e.g. milk, coffee, chocolate bars) that are normally seen and
bought in these kinds of distribution channels. The other products of Kings, on the
other hand, are seldom purchased in these channels. That’s why it is an extra effort
for Kings to place KHH in sari-sari stores and convenience stores, says Ms. Villa.
Taste
In 1998, an unbranded test showed that KHH is significantly preferred than Penny in
terms of taste. In a few months, Penny reformulated its products, then capitalized on
its good taste in its advertising campaign.

Consumer Trends/ Preferences

Filipinos are slowly getting into the “instant” lifestyle. To save time, workers and
even students prefer eating in fastfoods or to consume foods that are easy to
prepare. That’s why, Ms. Villa says, a number of products have an instant version
(e.g. instant coffee, soups, brownies, etc.).

Brought about by the SURF “Wais” series of commercials which promotes that to be
wise is to buy the lower-priced products, Ms. Villa says, consumers are getting even
more particular with prices. Buyers prefer a low cash outlay per single purchase. Not
to mention the poor economy, price of commodities is becoming a significant factor.
When times are getting hard, one can always cook arroz caldo or champorado at
home, rather than buy P15 snack only for one person.

Ms. Villa also notes that consumers nowadays like many choices. One can notice that
one shampoo brand will have not only two variants, but 4-6 variants. Even instant
noodles have three or more flavors. Consumers easily get tired of one variant/ flavor.
There should be variety.

KHH’s Sales Performance

KHH’s sales performance was increasing during its introductory stage, from
September 1998 to February 1999. It slowly decreased in the following months. It
then went up when the KHH Champorado was introduced, then slowly decreased
again. Introduction of other flavors did not help. [See Appendix C]

Ms. Villa feels that initial growth is expected because consumers are trying it out for
the first time. The Champorado flavor did not sustain the sales growth, and other
flavors did not help increase sales. They just ate the market of the first three flavors.

New Findings and Developments

Kings came up with a research team last September 2000 to find out again the
factors which affects consumers’ purchase of instant food products. After two
months, they came up with these results:
Taste 61%
Price 39%
Known Brand 27%
Filling 2%

Knowing this disheartened Ms. Villa. The management knew from the start that
consumers did not put great importance on the “filling’ advantage of an instant
snack, yet they capitalized on this. The new results only validated their initial results
that they did not take into heart. She realized too that KHH need not be filling
because it is a snack and not a main course meal.

What gives Ms. Villa hope is that a large multinational company bought Goodfoods,
Inc. last January 2001 globally. This purchase will make Kings the largest brand of
that company since Kings uses the same brand name all over the world. Other
brands only exist in one or a few countries. In the Philippines, the multinational
company owns leading brands of personal care products. It is known for its
aggressive advertising thrust. In fact, it is the #1 TV advertiser in the Philippines at
present. It also has a stable and large distribution network, at par as the company
that owns Penny.

The company’s aim is for its “brands to be the first choice for consumers everywhere.
Quality is a priority, not just functional quality, but food taste, nutrition and ease of
use should increase enjoyment.” They call themselves truly “a multi-local
multinational” because their “local companies are predominantly run by local people
in tune with their communities and who understand their needs and values.”

The transition caused by the acquisition will happen smoothly in two to three years.

The multinational company acquired Goodfoods, Inc. because it wanted to grow even
more. It believes that the only way to grow continually and significantly in the
market is through food. They also acquired the #1 selling ice cream brand in the
Philippines from a Filipino family-owned company. The ice cream brand is now also
competing head-on with the company owning Penny.

ALTERNATIVES TO CONSIDER
KHH has been a headache to Ms. Villa. She even hired a Product Assistant solely for
KHH, Ms. Diane Go, to help her plan and implement marketing strategies for KHH.

It has even crossed Ms. Villa’s mind to propose killing the product. With its low
market share and low profitability. It may not be worth it to struggle in the market. In
fact, she is also worried that the market for cup rice altogether will soon die. Kings’
new owner, wealthy and large as it is, may not save KHH if there is really no market
big enough to serve.

Ms. Villa is also considering that KHH was positioned wrongly that’s why it has poor
sales. She can propose to reformulate the product with a better taste. Then it can be
repackaged, but this time highlighting the Kings brand. Media ads will also highlight
the taste, and not the “filling” advantage. Since their new owner is a large advertiser
in the country, KHH can have a higher advertising budget, and can get lower rates in
media placements.

Ms. Villa is also considering the option of promoting KHH as a breakfast food, instead
of a snack. If it will be positioned as a breakfast food, the “filling” advantage of KHH
will soon make sense. A new set of market studies will then have to be conducted.

If KHH will be continued in the market, Ms. Villa is also considering if all flavors will
remain in the market. Ms. Go proposed to stay with the Arroz Caldo and Champorado
flavor only. The other two flavors did not help in increasing the sales of KHH anyway,
she reasoned out. She also added to position the two flavors differently: promote the
Arroz Caldo flavor as a merienda snack, and the Champorado as a breakfast meal.

Ms. Villa is also thinking if KHH will stick to its original target market, or focus on a
new segment. It can be students or working mothers. If studies showed that 80% of
the cup market products are consumed at home, this will make sense. Ms. Go said, if
this is the case, better to focus advertising efforts to the mothers because they are
the purchasers. The children are influencers too, but as children, they will always just
tell their mothers to buy chocolate snacks and sweets. Mothers will most likely
realize the nutritional value of KHH.

Ms. Go observed that Penny has very popular noodle pouch products which caters to
children. In this case, it shows that Penny already has a brand recall advantage to a
 person because he/she is familiarized with it at an early age. This can be a liability
for KHH because Kings is not familiar to the young market. However, Ms. Villa
thought that this could be seen not as a weakness, but an opportunity. If KHH will be
positioned to target the young, it can create a new generation of King loyal
customers.

Ms Villa also like to cut down costs by removing the free spoon that comes with KHH.
If 80% of the cup market products are consumed at home, there is no need for a
plastic spoon then. However, Ms. Go reasons out that there is a psychological effect
to consumers when they see an added item in a product. They think it is a value
added to their money.

Ms. Villa also likes to increase the inventory on smaller sizes of KHH. Though Ms. Go
reminds her that if they are to position the Champorado flavor as a breakfast meal, a
small size is not filling.

She can also propose to the new company to produce the rice used in KHH, instead of
importing them. Penny hired a local supplier to solely produce rice for them. Ms.
Villa also assumes that Penny has higher gross profits due to their bulk purchases of
raw materials as a result of their company’s ice cream, milk and confectionery
businesses.

She’d like to analyze all issues first and prepare a more specific strategy before she
submits a report to Ms. Lyn De Guzman, her Assistant Vice-President.

APPENDIX A- Cup Market Growth

140 -3%
+14% +28%
120 +12%
+17%
100 -10%
In Mio Pcs Non-
80
noodle
60 cont’n
to total
40 cups=
20 17%

0
0
94

96

99
95

97

98

'0

Cup/ Bowl Noodles Cup Bowl Non-Noodles

 APPENDIX B- Distribution per Trade Channel

100
90
80 KHH
70
60
50 Penny
40 +2231%
30
20 3-D
10 Column
0 3
Smkts

Mkt Stalls
Groc/Conv
Sari Sari

APPENDIX C

1000000

750000

Chicken Sopas
500000 Guinataang Mais
Champorado
Goto
250000
Arroz Caldo

0
MJ 99

MJ 00
SO98

JF 00
JF 99

SO 99

SO 00
Source: AC Nielsen- October 2000