Case Discussion 5: A1 Steak Sauce

For Individual Preparation

Team Assignment is due.    

Team:

Members:

1. How would you characterize the A1 Steak Sauce business?

A1 is a dominant force in the steak sauce business. They hold a 54% dollar share of the
market and a 46% volume share of the market. A1 has virtually no competition within its
market. It nearest competitor, Heinz 57, holds only 16% and 13% in dollar and volume shares
of the steak sauce market. A1 boasts that “9 out of 10 steak houses serve A1.” Its customers
are also very loyal to the A1 brand. Even with private label alternatives available in almost
every store at a substantial price gap the private labels hold less than 20% of the market share.

2. Why do you think Lawry’s is launching a steak sauce product?

Lawry’s most likely feels it can get into the steak sauce market because they have a relatively
well known brand and have seen success with its marinade line (Lawry’s holds a 50% share of
the marinade market.) Their new steak sauce product which looks and tastes very similar to
A1 will also be sold at a lower price. They feel that they can steal away some of A1’s market
share just by undercutting them on price alone. In addition, Lawry’s believes that if they can
launch on April 1 in a national chain like Publix, at a lower price than A1, then consumers
will remember the product for their grilling needs. This can propel them into the early summer
grilling months, and grab up to a 10% share in the steak sauce market. This could be a great
opportunity for Lawry’s to get their foot in the door of the steak sauce market.

3. Should A1 Steak Sauce defend itself against Lawry’s launch? If not, why
not? If yes, why and how?

A1 absolutely needs to defend itself against Lawry’s attack. If A1 does nothing they stand to
lose an estimated 10% share of the market to Lawry’s. A1 will still dominate the market for
the most part, but by letting Lawry’s win this battle and get their foot in the door of the steak
sauce market they stand to lose even more market share as Lawry’s has a hefty advertising
budget ($20 million) for the early summer grilling months.
4. What are the competitive and financial implications of not defending or
defending against Lawry’s launch?

Not Defending

If A1 chooses not to defend against Lawry’s new steak sauce the results could be detrimental
to A1’s market share and thus to the overall profitability of the company. Lawry’s is owned by
Uniliever which is a very powerful company financially. They are prepared to spend
$20,000,000 on advertising in the months May June and July this is almost 90% of the budget
that A1 has for the entire year. The launch could potentially give Lawry’s a 10% market share.
With such a big company backing Lawry’s they will easily have the financial power to gain a
larger foothold in the steak sauce market.

Defending

If A1 decides to combat Lawry’s 2 for $5 one time launch event with the same pricing they
stand to initially lose only a 5% market share versus the 10% market share that they will lose
if they stand back and do nothing. It will actually cost A1 $243,000 more to stand back and do
nothing than to give the 2 for $5 discount. So in essence, A1 needs to defend itself now or lose
10% market share and $243,000 and possibly even more in the long run.