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Arnott Marketing Plan
Arnott Marketing Plan
EXECUTIVE
EE SUMMARY
Arnott’s Biscuits Limited is the biggest biscuits company in Australia and combined
with its largest shareholder, Campbell Soup Co, makes Arnott’s the fourth largest
biscuits company in the world. Obviously, Arnott’s is the market leader in the biscuits
market as well as in chocolate-biscuits category market with shares of 64.5% and
51.5%, respectively.
Arnott’s is found to possess both brand strength and strong financial position. These
two strengths are indeed contributed a lot to the success of Arnott’s in the biscuits
industry. However, there are two other critical success factors that Arnott’s needs to
improve and are identified to be as important to Arnott’s success. These factors are
new product development/innovation and vast/solid distribution channels.
With satisfactory marketing effort, Arnott’s net profit before tax in chocolate biscuits is
projected to increase from $10.51 million in 1996 to $45.19 million in year 2000.
Marketing cost in 1996 is $24.30 million and estimates to increase by 20% each year.
Details on marketing budget and action plan for Arnott’s are included in this plan.
Steps in evaluation and control system of the marketing plan are also discussed.
1. SITUATION ANALYSIS
Arnott’s has been competing for biscuit market in the $4.9 billion snack market with
the major category of sweet, chocolate, savoury nibbles, and plain. In the snack
market’s sweet category, worth $1.1 billion, biscuit only account for 40%. In
chocolate category, worth $1.3 billion, biscuits account for only 17%, compared with
blocks (22%), bars (34%) and boxes (9%). The lion’s share of the $0.7 billion savoury
nibbles category goes to chips (51%) with biscuits and nuts only accounting for 13%,
while the $1.8 billion plain category is dominated by breads (92%) with crackers and
crackers breads only accounting for 8%.
Arnott’s has also penetrated the Asian market, such as Taiwan (with a range of 10 of
its products), Hongkong (with 30% of its target market), Singapore, Malaysia,
Indonesia, South Korea and Papua New Guinea as well as New Zealand.
Together with the broader opportunities in the snack market, Arnott’s has identified
“indulgence” consumption as being the key consumer opportunities in the 1990s.
Since 1965, the company, in conjunction with the C.S.I.R.O, have developed a high
protein biscuit. Therefore, the product was created based on milk protein co-
precipitate with the world wide need for protein and nutrition in mind.
Arnott’s has penetrated all product market segments with full range of products as
shown in table below.
The analysis will cover two areas : the macro environment analysis and the industrial
level analysis. Summary analysis in term of opportunities and threats to Arnott’s with
ranking system will also be concluded.
The food CPI inflation rate was 3.3% last year and drop further to 2.9% in the last
quarter of 1995. While average individual earning increased by 1.7%, private final
consumption expenditures have slowed down from 6.7% to only 4.3% between 1994
and 1995. Most analysts expect that business investment to be lower over 1996-97,
with the AFR poll showing a fall to 5%. However, the trend estimate of expected
expenditure for 1996-1997 is $37,458 million, and even better for 1997-1998 which
increased by 27% (ABS, 1996).
The average unemployment rate has fallen from 8.9% in the third quarter of 1995 to
8.25% at the end of June 1996. The employment figures have also risen by 0.1% since
the last quarter of 1995. Estimate of male full-time employment continues to rise and
have reached 4,224,300. On the other hand, estimate of female full-time employment,
which has been generally rising since August 1992, fell for the fifth consecutive month
and now stand at 2,054,400. Apart from this fall in mid 1995, trend estimates of male
and female part time employment have risen since April 1993, and in June 1996 stood
at 518,500 and 1,542,000, respectively.
Various range of measures designed to encourage both local and foreign business
investment in Australia has been introduced by the government. These includes a
reduction in the company tax rate; a temporary development allowance of 10% for
certain large-scale projects; a concessional tax rate of 15% on the income of Pooled
Development Funds and the establishment of National Investment Council.
Over the past two years, both short-term and long-term interest rates ended their five-
year fall at 7.5%. Most commentators expect rates to remain basically steady over
1996, or fall slightly.
The above analysis can be interpreted as having the following impact on Arnott’s :
1. Increased in employment level, higher wages and lower interest rate will
increase purchasing power and consumer spending which then will lead to
higher sales revenue.
2. Relatively low interest rate on business loans means an opportunity to reduce
business cost from borrowings and/or to get favourable financial fund.
3. Slow economic growth may restrict business expansion and business growth.
4. Rising prices and wages may lead to higher operational costs. Since inflation is
coming mainly from the cost-push factors such as wages, Arnott’s should
concentrate on it’s pricing strategy.
5. Much better estimation on the expected expenditure for 1996-1997 will give
Arnott’s the opportunity to expand its market share and increase sales
6. Government policies regarding the encouragement of foreign business
investments and small businesses have elevated the threat of competition in the
market for Arnott’s.
The total population in Australia has increased by 5.7% between the year of 1990 to
1995. It recorded at 18 million in June 1995, and based on the forecast it will reached
18.21 million by end of 1996 (ABS, 1996).
STATE POPULATION
(in million)
NSW 6,115.1
VIC 4,502.0
QLD 3,277.0
SA 1,474.0
WA 1,732.0
TAS 473.0
NT 173.9
ACT 304.1
Figure 1.2
8000
6000
people(000) 4000
1995
2000 2007
0 2007
NSW
VIC
1995
QLD
SA
WA
TAS
NT
ACT
STATE
Current population by age group and its projection are illustrated in Figure1.4 below.
It can be seen that in 1995 the largest population group is the 30-39 yrs old age group,
followed by the 20-29 and 0-9 age group. However, in 2002 the largest population
will be the 40-49 age group, followed by the 20-29 age group. Further observation of
the graph clearly indicates a declining in ‘youth’ population in Australia between the
year of 1995 to 2007 ; the 0-9, 10-19, 20-29 and 30-39 age group. The older
population particularly in the 50-59 and 70+ age groups, are increasing over these
years, as a result of decreasing mortality rates. In addition to this, the trend of median
age since June 1990 has changed from 32.1 years old to 33.4 years old (ABS, 1995)
and overall, baby boomers still represent the majority of population.
16
14
12
10
Percentage 8 1995
6
2002
4
2 2007
0
70+
0-9
20-29
30-39
40-49
60-69
10-19
50-59
Age Group
2. With regard of market expansion and sales growth, Arnott’s has to put more
effort for the market segment of 30-39, 20-29 and 10-19 age group since they
represent the largest population group.
3. In the future, older population who are more healthy conscious can be a
potential market for Arnott’s. However, in the same token it could become a
threat to Arnott’s since biscuits, chocolates and most of snack food products
has been perceived as ‘junk’ food.
82 1780
Health Expenditure
80 1760
Male
78 1740
Age
76 1720
Female
74 1700
72 1680
Total Health
70 1660 Expenditure
1990 1991 1992 1993 Per person
Year
Since 1990, the average amount of fats consumed per person decreased by 4.4% in
1993. This may cause a threat to Arnott’s chocolate products since they content
certain percentage of fats.
Another very important issue on consumer behaviour is the so called trend of a “new”
breed known as the ‘Street Mart’. This type of consumers are more discerning,
demanding, price sensitive and well informed about quality and retail prices. They
prefer to argue on price and delay major purchases until goods go on sales. In
addition, this type of consumers are not overly impressed with the corporate image-
based campaigns. They want facts and savings (R/W April 1995). This phenomena
would have an implication to Arnott’s on advertising, visual merchandising, pricing,
point-of-sale promotions and the standards of service provided to customers.
Natural Environment
The Climate
The continuos decline of worldwide wheat production (including Australia) from 561
million tonnes in 1993 to 559 million tones for 1994-1995 and estimated 540 million
tonnes for 1996-1997, due to the uncertain climate conditions, will increase the market
price for wheat.
Ecological factors
The consumer attitudes towards environmental issues have substantially improved.
Since 1986, public focus has shifted to issues such as depletion of the ozone layer and
‘the green house effect’ (BRW, August 1993). This trend has impacted on the
consumer buying preferences. Consumers are more inclined to purchase the
environmentally sound product. As a result, recycling and environmentally safe
packaging are adopted by increasing number of marketers (Assael et. al., 1995).
Technological trends
Customers can now scan their own groceries, accelerating the checkout process with
the innovation of PPS (Portabel Personal Scanning) from Symbol Technology. The
PPS speeds up the process by removing the necessity of unloading and loading
groceries .(R/W February,1996)
Legal factors
Australian government regulation to disclose the information of all food products
concerning their performance, composition, contents, packaging and labeling has
affected marketing activities in many ways.
A new Voluntary Codes of Conduct practices have been applied under TPC (Trade
Practice Commission) in response to the lack of food labeling guidelines in the existing
Food Standards Code. It is essential to redress the “truth” in labeling issue (R/W
April, 1995).
In the biscuit market Arnott’s competes in sub category: chocolate, plain, crackers,
creams, flavoured snack, crispbread, cookies, shortbread, fruit, tapped and wafer.
Market Trends
The domestic biscuit market is in its mature stage of product life cycle (see Figure1.6).
Per capita consumption of biscuits has declined over the past decade eventhough
Australia’s per capita consumption of biscuits which is 7kg (in 1996) is relatively high
compared to other western country. The decline in per capita biscuit consumption
reflected a failure to respond to change in eating habits which took place in the 1970s
and 1980s.
40 Arnott’s
30
20
10
0
Introduction S1
Growth
C.Turbulence
Maturity
Decline
Figure. 1.6
The key factors that determine the decline in per capita biscuit consumption are:
changing eating habits of Australians. Australian now spend an estimated 34% of
their food budget eating outside the home compared to 10% in the late 1970.
increased competition from other categories of snack foods.
declining in consumption of hot beverages that traditionally associated with eating
biscuit.
conscious of healthy foods.
In 1995, however, the value of biscuit sales increased by 3.1% (from $754.50 to
$778.20) from the previous year, with imports and generic products accounting for
around 16.8% (R/W, Nielson Report, Nov 1995)
Improving operating performance such as cost saving and new products innovations
are very important in order to re-shape the product life cycle and hence widen the
prospects for sales growth. In addition, there is a bigger opportunity for Arnott’s in the
$4.9 billion snack market. Moreover, the product category in the biscuit market and
the macro segment market are almost similar, so, it substitutable from one another as it
perceived by the customers.
Market Attractiveness
As mentioned earlier, the biscuit market is in its mature stage of product life cycle with
a moderate growth labels for most products. However, in 1995, the sales value in retail
grocery of $778.2 million or an increase of 3.1% from previous year shows that there
is an opportunity to grow.
1000
900
800
Million
700 732
754.5 Value
600 778.2
Value
500
1993
1994
1995
year
Competition in the market has been intense with more attention given on consumer
health conscious issue. For example, Arnott’s Savory biscuit is facing a threat from
Manassen Foods’ Rice Snack which fat content is only 5.6% compared to the average
fat content of 28% of Savory biscuits (R/W, March 1996).
Cost of production is very much affected by the increase in the market price of raw
materials. With the shortage of supply of wheat, an important raw material for biscuit
production, cost of production would definitely be affected which in return would
affect the profitability of the company.
Since the growth of biscuit market is moderate, developing new products is very
important to reshape the product life cycle. As such, product innovation, improved
distribution channel and cost control would be the main factors to increase company’s
competitive advantage in the market. The biscuit market is still attractive since Arnott’s
is the market leader that has many leading brands. Further support by its cost-effective
production technology and strong channel of distribution as well as its research and
development for product innovation. These competitive advantages will equip Arnott’s
for the intense competition in the broad snack market. Moreover, 83.5% of the market
share belong to three major players; Arnott’s (64.5%), George Weston Foods (12%)
and Lanes Biscuits (7%), and this will provide a barrier for new entrants to enter into
the market.
The above market review could be interpreted as having the following impact in term
of opportunities and threat to Arnott’s as follows :
1. The decreasing trends of per capita consumption of biscuit becomes a threat to
Arnott’s
2. The growing consumer trends of eating healthy foods and eating out, would
open new opportunity for Arnott’s to develop new products to meet those
trends.
3. Cost of production is high due to drop of wheat and orchards production. It
means a threat for company to increase profit.
4. The mature stage of the biscuit market in product life cycle has become a threat
to Arnott’s. Thus, it is important for Arnott’s to control the production,
marketing cost and distributions as efficient as possible. Concerning the need
for efficient marketing distributions, Arnott’s has a significant bargaining power
regarding shelf position and in-store promotions for its products since it is the
market leader. New product innovations by Arnott’s also benefit from the
existing distribution networks, hence new items can be introduced more quickly
and cheaply.
5. As market growth is only moderate and competition for the market share
intense, sales growth for individual companies tends to be at the expense of
competitors’ market shares or through new products. Effective advertising and
strong merchandising are required to launch new products and maintain market
share of existing brands.
Arnott’s is the market leader in the biscuit market with a share of 64.5%. The major
competitors are George Weston Food with 12% of market share, Lanes Biscuit with
7% shares, Players biscuit captures 1.9%, Housebrand/Generic with 5% share and
others 9.6% ( Australia Grocery Industry Marketing Guide 1996).
10%
5%
1.9% Arnott's
7% Westons
Lanes
Players
12% Generics
64% All others
The Australian Biscuit Market Share by Manufacturers for 1994 & 1995:
Competitors Strategy
In 1994, the company profit fall by 0.1% that is from $52.4 million to $52.3 million.
This was due to the increase in upgrading costs and major costs associated with
reorganisation of the group's distribution system. As the result of the improvement
programs, its market share has increased from 11.1% to 12% in 1995.
Westons also put its effort in product innovation as can be seen from the launching of
Oskar and Charleston biscuits and the new range of Weston’s Internationals chocolate
biscuits with variants including French Praline, Aussie Macademia, Turkish Delight and
English Toffe. Since Internationals was introduced last year, Weston’s total share of the
chocolate biscuits catetofy has inched up from 19% to 20.1%. Internationals is the first
successful new product from Weston in several years.
To achieve maximum effectiveness for its new operations, Westons has installed new
technologies in New South Wales warehousing. It has also substantially upgraded its
Ernington site to provide a modern and efficient warehouse and distribution center.
2. Lanes Biscuit
Lane’s Biscuit Pty. Ltd is owned by Brompton Group Limited (NZ). Their share in the
market is 7% that is an increase of 0.45% from last year. Lanes’ range of production is
not as many as Weston and their production is only focus on biscuit. Lanes' brands are
Chocolate Mousse, hey Day, and Stripes Ahoy. In 1994, Lanes released children
categories such as Spookies, Traffic Lights, Rascals & Koala cookies. Lanes expect
their market to grow around 20-25% this year.
Last year, Lanes introduced its 97% fat-free premium Crackers & Chockles Chocolate
biscuit in order to meet the trend of healthy & non fat foods (R/W, March,1995).
Together with Clarke’s company, Lanes are continuing to develop new products using
autobake division’s special cooking technology. Lane’s will launch a $3 million dollar
budget for campaign in 1996 to become a bigger contender in Australia. They are
aiming their products at people who feel young and have a younger outlook on life
(AFR, June1996).
Lanes’ strategy at the moment is to be number two in the market. Hence, Lanes
strategy is that of a follower.
3. Players
Players parent company is Jack Chia-MPH Ltd, Singapore. It is holding 1.9% of the
biscuit market share, a decrease of 0.8% from previous year. Their brands are Fiesta,
Home brand, Twin Tattles, Choc Bi Keie, Choc Wheat, Mini Mates, Switsh, Wafers,
Scotch finger and Kavli.
In 1994, they have lost around $ 5.78 million and this year they expect to gain profit
with better distribution system and product range revised. However, since Arnott’s
took over the company, it is no longer a threat to Arnott’s market share.
product. However, another study revealed that consumer intention and action is
different. A survey conducted by James Cook University researchers showed that price,
quality and value for money were the “overriding” factors in buying decisions. The
result showed that 70% of consumers believe Australian made goods are overpriced
compared with imported goods. While 92.8% of those surveyed believe buying
Australian products benefited the economy, only 47.2% choose an Australian product
in a sample buying exercise. This highlights a contrast between consumers’ intention
and their actions.
In terms of opportunities and threat to Arnott’s, the above competitive review means :
1. Arnott’s is a market leader in biscuit market. This is an opportunity to develop
Arnott’s image as Australia’s top selling brand of biscuit.
2. Arnott’s biscuits is number thirty two on the Top 100 best selling grocery brands
(R/W Nielson Report, Nov 1995). This is a good opportunity to increase sales.
3. Weston will become a bigger threat to Arnott’s. They have improved their
production efficiency using new technology. In addition, they have also improved
their man power through empowerment programs, and also they have intensified
their product innovation program.
4. Even though Lanes is a follower, it can be a threat for Arnott’s because of its
collusion with Clarke’s company in using autobake division’s special cooking
technology. This will enable them to be well represented in all categories of the
market.
To compete in biscuit market, Arnott’s and its competitors need to expand their
distribution channels. According to Food Week Industry Tearbook 1996, 90.6% of
biscuit passed through grocery, 0.6% through route trade, 1.5% through food service
and 7.3% through cash and carry and distributors.
100
80
60
40
20
0 S1
Grocery
Route trade
Food Service
SIGNIFICANCE
THREATS RATING OF
SIGNIFICANCE
1.3.1 Management
In October 1992 Campbell Investment (Australia) Pty Ltd made a takeover offer for
the company and since then it has gained a 70 % interest in Arnotts. Campbell Soup
Co chief executive David Johnson, an Australian-born said the US-based company had
no plans to buy the remaining 30% of Arnotts that it does not own (Reuter, 16/6/96).
He stressed that Campbell is committed to Australia and this combination with Arnotts
will derive long-term export earnings for Australia. Campbell Soup’s early history
parallels the history of many of today’s great companies include Arnotts. Campbell
Group, the 82nd largest company in the USA (Fortune 500 Survey of 20/4/92), is a
global manufacturer and marketer of branded consumer food products. Its financial
record for the fiscal year ended up July 30, 1995 shows that its net sales climbed 9% to
$7.278 million while net income rose 11% to $698 million. Arnotts alliance with
Campbells will be a boost to the company’s operations. Bill Purdy, Arnotts chairman,
has stated that the management of both Arnotts and Campbells are committed to work
harmoniously together towards to promote the growth of Arnotts into a ‘major
succcesful global biscuits company’.
Concern with quality has always been a priority at Arnott’s. Quality has been so much
part of the Arnott’s culture and is the driver behind Arnott’s staff and management
initiatives. Quality in relations with customers is another priority. Arnott’s is one of a
few major food companies that does direct store delivery. The ownership of the supply
chain from the point of manufacture to point of sale is a major strength. Arnott’s
quality customer service was also enhanced by the installation of radio frequency
technology into its warehouses. The quality of the Arnott’s fleet is also well recognised
and has always been a source of much company pride.
In its 1996 Annual Report, the management emphasizes few key strategies to achieve
its long term objective, which are:
continue revitalisation of domestic businesses;
continue to introduce snacking formats of successful products;
further increase advertising spend;
progressively increase the number of products packed in cartons and continue
packaging upgrade; and
development of Asian market
Arnotts is set up operationally with businesses focusing regional groups within five
business units:
ARNOTTS LIMITED
MANAGING DIRECTOR
MAC FARMS
CONTROLLER ENGINERING
HUMAN
SECRETARY RESOURCES PRODUCT
TREASURER DEVELOPMENT
INFORMATION
SERVICES
INSURANCE TECHNICAL
& SUPER. SUPPLY SERVICES
COMPANIES
INTERNAL
AUDIT ILLAWARRA JAMS LOGISTIC
W&B ENGIN.
Balance sheet of 1995 shows that Arnott’s total assets increased by 3.5% to $567
million while the total shareholders equity was up by 2.8%, showing the shareholders’
commitment and confidence in investing their money in Arnott’s. From these figures,
we can say that Arnott’s has a strong and solid financial position in term of its asset
and capital structure. Arnott’s 1995 cash flow indicates that Arnott’s net cash flow
from operating activities was up by 2.5% despite the fact that cost of upgrading plants
and facilities increased by nearly 100%, from $22.8 million to $45.4 million.
Arnott’s production facilities have undergone a number of changes in the last four
years under its restructuring program to reduce costs and improve productivity.
Arnott’s has reallocated the production of many products to increase specialisation of
its factories in producing particular products. Cost improvement programs have been
established and action taken to reduce layers of management. In its Adelaide factory,
Arnott’s has established a short run speciality plan, doubled the floor space for
production, installed new handling and packaging systems, and upgraded its processing
facilities and other equipment. This upgrading that cost $30 million has dramatically
improved its performance. Besides cost reduction program, Arnott’s also ensures tthat
quality does not suffer. It has supplemented the quality audit conducted by its technical
services group with a monthly consumer communication review.
On January 15, 1996, Arnotts has announced its plan to proceed with a $190 million
investment in a world-class biscuit factory at Huntingwood in Sydney’s west. The
Huntingwood factory will replace the Homebush site which was built in 1908 and will
have the capacity to produce 45,000 tonnes of biscuits per annum. The construction of
the new factory with robotics equipment will be completed early to mid-1997. When
operational, it will provide cost savings of between $18 and $20 million dollars per
year. With capital expenditure of $25 million, Arnotts is continuing upgrade its
Burwood factory in Victoria which is expected to be completed by mid/end of 1996.
Over 200 Arnott’s employees from Australia, New Zealand and PNG participated in an
in-house team leadership development program. The essence of the program is to
develop better leadership skills and a greater understanding of the leadership process.
This was just one of the many training activities during a year in which Arnott
continued to increase its investment in training. There were numerous other internal
and external programs, designed to further enhance and upgrade our employees’
capabilities.
existing management. The changes may in short period affect the morale of employees
and perhaps may provoke management and union unrest.
The present Research Centre, located at Homebush, and still a leader in flour research,
was opened in 1977 and incorporated Arnott’s first microbiology laboratory. In1995,
the Research Center made substantial progress on a number of technical projects,
including investigation into low-fat/no fat-products, as well as innovative dough
handling techniques. On average, Arnott’s new product sales acount for about 3.5% of
its total sales volume. The product development section is responsible for developing
new product lines, improving existing product, keeping up with overseas trends, and
maintaining contact with suppliers of new raw material and flavours. At this Homebush
research centre, a group of over 40 staff try out new formulations, ingredients and
taste combinations and convert product ideas into reality. Arnott’s reinvest about 50%
of its after tax profits back into business each year and this is used to upgrade
production facilities and on research and development.
Arnott’s has also formed a joint research project with Macquarie University and this
research project aims at eliminating inconsistencies in the manufacturing of biscuits.
The main subject of the research is to ensure consistent colour in biscuits by using
artificial neural networks and digital images (the Australian, 24/5/1994 pg 34). Besides
that, Arnott’s is one of the participants to assist the Australian wheat industry develop
high-quality wheats.
Arnott’s is Australia’s largest biscuits manufacturer and at the moment has a share of
64.5% of the biscuits market. Indeed, Arnott’s is detemined to retain its position as a
market leader in this market. However, over the past ten years, per capita consumption
of biscuits has declined. ‘Away from home’ snack market has become the fastest
growing segment in Australia food market due to changing lifestyles. Arnott’s major
competitors in salty snacks, confectionery and muesli bars have been growing quite
strongly through the 1980s because they have capitalised on the trends towards
convenience and snacking, whereas biscuits have traditionally remained an in-home
product. Arnott’s is determined to capture this ‘away from home’ snack market. It sees
its competitive framework not just the biscuit market but rather the broader macro
snack market, which in Australia today is worth around $4.9 billion, compared to $800
million for biscuits.
The product introduced during the year not only positioned Arnott’s in the broader
snack market but also responded to both of these consumer trends. During 1991/1992,
it introduced multipacks varieties to cater for the growing consumer trend of ‘eating
out’. At the same time, Arnott’s launched its Nik Nax range, which targeted against
salty snacks on the premise that they are ‘less bad for you’ because they are baked not
fried. Its sales after 20 weeks showed that there were increasing in volume. Retail sale
for Nik Nax during 1992/93 was around $20 million. In June 1993, Arnott’s launched a
range of 12 new products into small snack outlets in New South Wales and Victoria.
This move is a great strategic significance for Arnott’s future in the macro snack
market.
Cadbury, Nestle and Smith Snack Food Co. Ltd are the three biggest competitors in
the snack market. These companies are expected to launch new product and to extend
existing lines in the year and to increase their marketing and advertising budgets
accordingly. With the failure of its Scout snack bar which was released in 1993,
Arnott’s immediate concern is to review its marketing and distribution strategies in its
bid for the snack market.
1.3.7 Marketing
In 1990, Arnott’s sales and marketing department were split and this was to enable the
company to focus better on account and category management. Arnott’s marketing
strategy for the 1990s is to put ‘an Arnott’s within reach’ of every Australian. For the
launching of Nik Nax in 1992, Arnotts spend $2 million on television campaign and the
result was one of the food industry’s most successful launch during the year. In 1993,
Arnott’s launched a range of 12 away-from-home snacking products in Australia,
introduced a number of new products such as Scotch Finger, Blackberry Monte Carlo
and Sao with wholemeal and repackaged its chocolate range.
In dealing with the retailers, Arnott’s has changed its approach to a ‘how we can both
win’ mentality. This approach is working with the retailers as a team to improve its
leverage in negotiating shelf space, layout and promotion.
In seeing itself in the context of the broader snack market rather than the biscuit
market, Arnott's has implemented a number of strategies which among them are
increased its advertising spend by 40%, introduced new products and line expensions,
and improved its packaging, redesigning the graphics to give its products a
contemporary look, without losing its sense of heritage.
Sales growth of Arnott’s total chocolate biscuits category is 22.5%. This high
increased in sales of chocolate category was due to the success of Arnott's chocolate
summer promotion as well as the launch of its four new chocolate biscuit products in
March 1995.
One of Arnott's fundamental strategies is to have a snacking version of all its major
lines so that consumers are able to buy products at any time of the day. The snacking
range, which accounts for approximately 6% of its domestic sales, now represents a
very good cross-section of convenient formats of Arnott's major selling lines.
This summary will provide a ranked listing of the strengths and weakness diagnosed
within Arnott’s with a ranking between 1 and 5, 1 means not significant, 3 means
moderately significant, 4 means quite significant and 5 means highly significant.
Strengths Rating of
Significance
Weaknesses Rating of
Significance
Small player in snack & confectionery market 5
Relatively new and little experience in macro snack market 4
Management and employees unrest (short term) 2
70% of the share belongs to Campbells 2
Financial Strength
Arnott’s has a strong financial position and this position is strengthen with its
collaboration with Campbell’s. The scale in financial strength is essential to support
R&D and for funding a high advertising that is needed to support a low involvement
product and to regularly launch new product.
Distribution
A vast and solid distribution through all channels is one of the important element in
determining the success or failure of a product and in gaining competitive advantage
over the rivals
The most significant threats for Arnott’s are the strong competitors in the broad snack
market as well as being a small player in snack and confectionery market with
relatively new and little experience.
2. MARKETING OBJECTIVES
The main objectives of Arnott’s limited is to concentrate in the existing product lines
and to maintain its leadership position in the chocolate biscuits market. These
objectives can be achieved by continually producing high quality and innovative
products and by maintaining strong relationship with retailers, vendors, suppliers and
customers.
Arnott’s Biscuits Limited is committed to satisfy and serve every consumer’s need
ranging from children to adults, to provide a superior growth and return to its
shareholders, to establish and maintain good relationship with its network, to provide a
stimulating and satisfying environment for its employees, and finally, to be the leader in
every segment of biscuits market through its high quality and innovative products.
Maintain strong alliance with retailers and vendors at a lower cost, with suppliers
at a better deal.
Develop the effective and attractive advertisement to attract and communicate with
the right target audience and build good product image in customer’s mind.
Quickly response to the competitive situation.
Arnott’s expects to increase its chocolate biscuits market share from 51.5% to 65.5%
by the year 2000. To achieve this, company annual sales should increase by 20.5%
each year. This is calculated, assuming that the market size of chocolate biscuits grows
by 9.5% per year during the year of 1996-2000.
PRODUCTS
Existing New
M
Existing
A 1. Market Penetration 2. New Product Development
R
K
New
E 3. Market Development 4. Diversification
T
S
With its 51.5% share in a chocolate biscuits market, Arnott’s acts as a market leader.
In order to maintain or grasp more market shares and stimulating the existing
consumers to increase their consumption, an aggresive and attractive Television
commercials and promotion programs had been introduced. For example, the thirty
second TV commercials about the ‘3 wishes’ of Tim Tam had enhanced the image of
the popular Tim Tam chocolate biscuits. This is followed by the ‘on-pack’ chocolate
biscuits promotion where consumers must mail on-pack ‘Wish’ tokens from Tim Tam
chocolate, caramel and hazelnut plus Mint slice, accompanied by bar codes from other
Arnott’s chocolate biscuits in order to win the $10,000 cash, a $7500 diamond setting
ring and a Royal Albert dinner set. Another type of ‘an on-pack’ promotion program
such as a free Choco-Saur tattoo in each pack of the new Choco-Saurs chocolate
biscuits, and giving 600 children the chance to win Choco-Saur pyjamas have also been
introduced.
Product Extensions - This include product revision such as adding little touches to
existing lines and pack size analysis. For example, Peanut Gaiety is an extension of
the Gaiety chocolate biscuits. By adding peanuts on the Gaiety chocolate, it will
gives the enjoyment and variety to the existing Gaiety chocolate biscuits line.
While Choco-Saurs is introducing honey flavour to its existing brand, the
introduction of the 45 gram Tim Tam chocolate biscuits bar and Tim Tam caramel
add more size and taste variety to the existing Tim Tam product line.
3. MARKETING STRATEGIES
4. Types of Choc -Tim Tam Hazelnut - Tiny Teddy Half - Obsession Choc
-Tim Tam Caramel Coated Assortment
Biscuits -Tim Tam Dark Chocolate - Tiny Teddy
- Mint Slice, Fruit&Nut Flavoured
- Peanut Gaiety Choc - Choco- Saurs
Arnott’s adopts a low relative cost and high degree of differentiation strategies. With
these strategies, Arnott’s can achieve high margins by pricing either at or just above its
competitors. Furthermore, high degree of differentiation of its products from
competitors would help Arnott’s to retain and increase its market share. However, the
danger of this strategy is that as the industry matures, the products tend to be
increasingly regarded by the market to be generics or commodities (Reed, 1992).
Consequently, there are no added value for consumer to buy the products.
As the market leader, Arnott’s competitive position strategies are market share
protection and market expansion. Arnott’s would react to competitive challenge by
launching a new product to offset the attacker, bettering the price offer and/or by using
advertising or sales promotion.
Figure3.1 Product Life Cycle Pattern for Arnott’s Chocolate Biscuits Category
Product
category
sales Arnott’s Choc Biscuits
(in real $)
HIGH LOW
M
A Star Wildcats
R H Tiny Teddy
K I Tim Tam Obsession
E G Mint Slice Gaiety
T H Fruit and Nut
G
R Cash Cow Dogs
O L - -
W O
T W
H
Figure3.2 BCG Product Portfolio Model
Both Tim Tam and Mint Slice have a high market share and growth. TimTam is the
most successful chocolate biscuit product in the biscuit market. Sales growth of
Arnott’s total chocolate biscuit category is 22.5% in value, with Tim Tam up 28.5%
and Mint Slice sales up by 19.4% (R/W March 1995). Specifically, Tim Tam will seek
to maintain its leadership in the chocolate biscuit market and also attract some sales
away from traditional confectionery bar and muesli bar products on the basis of:
In maintaining consumer interest, Arnott’s has and will carry on introducing new
innovations and expansion of Tim Tam with different flavour. TimTam has been
aggressively advertised.
Tiny Teddy and others such as Choco-Saurs that are under children segment have a
low market share in a high market growth. This segment is highly market attractive but
it is still at a very early stage in its development. Arnott’s is investing heavily in this
segment by spending on product promotion.
Gaiety, Obsession and Fruit & Nuts have relatively low market share but there is great
potential for growth. Aggressive advertising campaigns, aiming to create high brand
awareness have been prepared to support these products.
From the information gathered, to date, none of the brands under chocolate category is
identified to be under these two cells. This perhaps due to the facts that chocolate is
the fastest growing category in biscuits (R/W March 1996). However, most of Arnott’s
other brand names such as Family Assorted and Milk Arrowroot which are under plain
category are considered as cash cows. They have high market share and low market
growth. These brands are the cash generators.
Discussion on product strategy decisions will include Product item decisions and New
product development.
2. Portability, convenience and portion control are the major factors that will drive
Arnott’s packaging formats. Packaging size are differ with distribution. In the
convenience route, they are packed as bar format with about the same
dimensions as a confectionery bar product to appeal to the impulsive buyers. In
groceries and supermarkets, the twin packs are available, and also value packs
of 200g of twin packs loose packaged in a larger bag. This is important because
grocery shoppers are provisioning (buying for a family, a party or otherwise
stocking up a cupboard) and looking for bulk value.
4.1.2 Positioning
Positioning relates to the way customers categorise products and rank various brands
in their minds (Reed, 1992). Arnott’s positioning strategy is to make consumers
perceived its products as the ‘famous brand’ product of high quality, nutritious and
excellent taste.
To achieve this, Arnott’s emphasizes the high quality and great taste of its chocolate
biscuits. Its motto of “There is no Substitute for Quality” is printed on each of its
products packages. When consumers think of Arnott’s brands, they visualize the image
of quality, good taste and convenience. In addition, Arnott’s produces a wide range of
products that satisfies and serves every consumer’s need ranging from children,
teenagers, adults, older population, ‘eating-out’ habit and so forth.
One of the main strategic options for Arnott’s is to differentiate itself from its
competitors. Arnott’s product differentiation is effectively achieved through:
Aesthetics
Arnott’s chocolate biscuits are of great taste and high quality. They also satisfy
consumer the need for convenience and portability. Concern with quality, Arnott’s has
supplemented the quality audit conducted by its technical services group with a
Servicibility
Arnott’s focuses on customer satisfaction by working closely with consumers and by
conducting periodic market research surveys. It also responds to customer complaints
better and faster than competitors.
Perceive Quality
In many cases a customer makes jugdement based on perception rather than reality
about a product’s quality (Reed, 1992). Arnott’s has an advantage in building the
perception because of its strong brand names and image, further, strengthen with its
intense advertising campaign. Moreover, Arnott’s history in biscuit market goes way
back to late 1800s. Most Australians grew-up knowing Arnott’s biscuits and it have
been part of their life. The well-established brand name ensures customer awareness
and loyalty.
In order to maintain its position as market leader in chocolate biscuit market as well as
to have a balanced portfolio of products, Arnott’s employs the new product
development strategies.
In March 1996, Arnott’s has launched new variant of Tim Tam called Dark Chocolate
Tim Tam. The release of Dark Chocolate Tim Tam responded to research showing
20% of Australians “love their chocolate to be dark”(R/W March 1996) Other variants
of Tim Tam include Tim Tam Hazelnut and Tim Tam Caramel.
In aiming to meet consumers need for more varied assortments, Arnott’s introduced
Obsession Chocolate Assortment which contains six chocolate varieties: Tim Tams,
Mint Slice, Monte, Gaiety, Cavetto and Fruit and Nut. With almost 60 per cent of
consumers choosing peanut confectionery/biscuit product frequently (R/W March
1995), Arnott’s has released Peanut Gaiety, an extension of Choc Gaiety. After being
released as a single serve ‘Away from Home’ bar, Peanut Gaiety is being released in a
grocery pack. Peanut Gaiety contains of a delicious wafer and peanut cream, covered
with peanuts and smothered in mild chocolate.
The children segment product line has been expanded by adding the new chocolate
half-coat Tiny Teddy and new Choco-Saurs, a choc version of the successful honey
variant. This release is to capitalise on the growth of children’s biscuits as well as the
half-coat segment.
Therefore, in this segment it is proposed that Arnott’s should either maintain its price
to maintain its market share or increases its price to increase sales revenue and still
maintain its existing market share.
However for the regular and children market segments, the demand for chocolate
biscuits product are price elastic. It means that demand is very sensitive to changes in
the product’s price. There exists many competitors which offer variety of substitution
for consumers.
Competitive Factors
Based on the observation in the supermarkets, the price of Arnott’s chocolate biscuits
for the standard and premium market segments are mostly higher than it’s competitors.
However, for the children segment, the price of Arnott’s Tiny Teddy and Choco-Saurs
chocolate biscuits are lower compared to both Lanes (Spookies, Bumble Bee, Traffic
Lights) and Weston (Wagon Wheel) products.
Figures 4.1 and 4.2 below illustrate a competitive positioning map based on price and
quality.
High price
Arnott’s
Westons
Others Player
Housebrands
Low price
Figure 4.1: Price and Quality product positioning for premium and regular segment
High price
Lanes
Westons Arnott’s
Others
Housebrands
Low price
Figure 4.2: Price and Quality product positioning for children segment
Because of the strong competition in the chocolate biscuits market particularly in both
the standard and children segment, the penetration pricing strategy should be used. In
the market segment where the demand of the product is very price sensitive, this
strategy can push the sales. However the prices will not be set as low as those of
housebrands since Arnott’s will not compete in the low-end market. In addition,
break-even analysis should be performed to find break even point where the average
revenue is equal to the average cost of production. This is to ensure that Arnott’s can
still at least cover its average fixed cost and earn a normal profit during the
implementation of its penetration pricing strategy.
Majority of Arnott’s products is distributed through first distribution channel. Here, the
retailers are particularly big supermarkets such as Coles, Safeway and Franklin.
In the second distribution channel, Arnott’s use the wholesaler to serve the other
retailers which are the route trade and the other smaller supermarkets. With the
development of its ‘Away from home’ products, Arnott’s needs to extend its sales
based beyond supermarket distribution channels. Arnott’s is less well established in the
route trade distribution, this is proven by the failure of its two brands: Scout and
Fruitables.
ARNOTT’S BISCUITS
LIMITED
In July 1993, Arnott’s launched its new range of snackfood products exclusively for
the route trade. Knowing that it did not have a sales force calling on the route trade,
Arnott’s used Spring Valley Fruit Juices (owned by Campbells) to act its selling and
distribution arm (Assael et. al 1995)
Arnott’s will base on the hierarchy of effect concept to develop its marketing
communication strategy. According to this concepts, Arnott’s products fit into the Law
Involvement Hierarchy ( Learn-Do-Feet) model. The communication stages of this
model are as follows:
Awareness-Comprehension
Action
Conviction
The marketing communication budget is set by using the percentage of sales method. It
is assumed that Arnott’s allows a fixed percentage of 12% each year. In 1994-1995,
the total sales of Arnott’s chocolate biscuit in Australia was $187.97 million. As the
marketing objectives is to increase the sales by 20.5% per year, the expected retail
sales in 1996 is $ 219.42 million. Assuming the mark up within distribution channel is
35%, the marketing communication budget of Arnott’s is calculated as follows:
So, the marketing communication budget for Arnott’s in 1996 is $19.5 million. For the
following years, it will be set based on use the same method.
Regular Segment
Products : Tim Tams - Hazelnut, Caramel, Dark Chocolate,
Mint Slice,Chocolate/ Peanut Gaiety,Fruit & Nut.
Target Audience : Male/Female all ages.
Objective : Strengthen brand awareness and increase consumption.
Positioning : Can be eaten anywhere and anytime.
Highlighted benefit: High quality, delicious taste (rich, smooth & irresitable)
Execution : Happy, fun and energetic situation.
Media : Television, radio, magazine and cinema
Children Segment
Product : Tiny Teddy Half Coated, Tiny Teddy Chocolate
Flavoured Biscuit, Choco-Saurs half coated.
Target Audience : Children
Objective : Increase awareness of brands, benefits and increase
consumption.
Positioning : Children delicious chocolate biscuits with fun image.
Highlighted benefit: Nutritious and delicious chocolate biscuits that suitable
for snacks or part of main meal.
Execution : Cheerful situation, children creativity, fun and exciting
Media : Television, Family/children magazine, in-store tasting.
Premium Segment
Product : Obsession
Target Audience : Adults
Objective : To strengthen brand recall and increase consumption.
Positioning : High quality and up market image chocolate biscuit.
Highlighted benefit: Exotic, excellent taste, variety assortments and good as
gift.
Execution : Luxurious lifestyle with emotional theme and classical
theme.
Media : Television and magazine.
The sales promotion strategy will help Arnott’s in increasing and maintaining its market
share in the three chocolate biscuit segments. Arnott’s can employ the following types
of sales promotion:
These objectives can be achieved through the following sales promotional tools:
Reducing Price:
1. Discount coupon : given by retailer which is valid for Arnott’s products. This
can be done by manufacturer by inserting coupon in food magazine, newspaper
or distributing directly to supermarket, cinema, schools and other channel of
distribution.
2. Price off deals: A certain amount of money off the regular price. This is only
applied for Arnott’s products which are slow in sales. For example, Fruit & Nut
will be offered $0.10 off each bar in order to push sales.
3. Bonus pack: offering the extra amount at the same pack. This is applied for
regular segment such as Tim Tams, Mint Slice to encourage the heavy users to
buy more of the products.
Rewards:
1. Recently, Arnott’s is offering “Bingo $200,000” and 20 prizes of $ 10,000 cash
to be won. It can be done by finding two bingo numbers and one bonus symbol
in specially marked packs of Arnott’s biscuit. Over 25 different Arnott’s biscuit
packs will be carrying this special design (New Idea Magazine, August 1996).
2. Arnott’s can offer gimmicks such as scratch and win prizes for a purchase of
multi-pack bags and free give away printed at the back of the single bar
wrapper. This prizes perhaps include family dinner at five stars hotel, home
entertainment units, tv- set, kitchen set and so forth.
Trade Promotion
Arnott’s need to use trade promotion to:
1. Encourage retailer and wholesales to stock its products,
2. Maintain and build customer loyalty,
3. Reimburse retailers for in-store support of Arnott’s products such as window
displays,
4. Push current sales volume,
5. Gain access of the distribution channels, and
6. Gain more space in supermarkets.
2. Free gift. For instance, Arnott’s can offer free trips such as 10 days tour to
Europe or Asia to the retailer or wholesalers if they can sell any kind of
Arnott’s chocolate products at the total amount of 1 million within six months.
4.4.5 PUBLICITY
Arnott’s can use publicity in the mass media as one of its promotional tool. The main
publicity tools that are recommended are as follows:
1. Editorial information in the media: Example is press release of Arnott’s social
activity.
5. BUDGET
The Arnott’s budget for 1996-2000 has been calculated. The calculations are based on
the actual and assumed figures (where not available). The assumptions are as follows:
Growth of market size is 9.5% p.a.
Growth of Arnott’s market share is 6.2% p.a
Raw material and labour cost is 69% of sales value
Maintain Fixed cost
Advertising cost is 6.7% of sales value
Sales Promotion is 1% of sales value
Retail Support is 2.5% of sales value
Sponsor Event is 1% of sales value
Marketing Research is 0.7% of sales value
Entertainment & Travel is 0.5% of sales value
6. MARKETING PROGRAM
Action Plan below listed all the steps necessary to implement the marketing program
with timing and responsibilities clearly stated.
Arnott’s need to have an evaluation and control system to make sure that it will
achieve the objectives of this marketing plan. Control will direct or redirect Arnott’s
actions to ensure that they meet objectives and evaluation will determine whether
results are on target. Evaluation is a necessary adjunct of control because any time
Arnott’s actions are controlled, they must first be evaluated (Assael et. al 1995).
Steps in evaluation and control model are as follows:
The primary criteria to evaluate marketing performance are sales value, market share,
profits before tax and return on revenue. These criteria will be useful in identifying
deviations and as such ensuring remedial action will be taken.
With the identification of problems and their causes, Arnott’s will make some
modifications to performance and objectives:
Performance modifications refers as steering control system. This is a reactive
system that detects problems and implements corrective action during the planning
period under review. As such, corrective action can be taken before condition is
getting worst.
Objective modifications refers as adaptive control system. This is a proactive
system that applied if the problem occurred as a result of changes in the
environment. In this case the objectives and strategies should be modified to suit
the new situation.