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Expansion of Peñafiel USA By: Group B12 Missy Anderson, David Byrns, Jie Lai, & Jordan Williams

Dr. Pepper Snapple, Launching Penafiel

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Expansion of Peñafiel USA By: Group B12 Missy Anderson, David Byrns, Jie Lai, & Jordan Williams

Background Marketing Distribution Promotional Strategy Finance Summary

Opportunity to Capitalize on Growing Mexican-American Population

The Mexican-American population poses a tremendous sales opportunity for DPS: 1.  The Mexican-American population is growing rapidly in the United States

2.  They spend 3% more on beverages than the general population

3.  DPS has strong brand recognition with the Mexican-American consumer

4.  They spend ~$449 (0.90%) of their annual expenditures on non-alcoholic beverages

Assessed DPS Portfolio to Determine Best Product – Market Fit

Determined that the existing Peñafiel brand was best positioned to meet the Mexican-American need in the United States. 1.  Has strong brand recognition with the targeted population

2.  Allows target audience to maintain Mexican tradition in US

3.  Is a healthy, low calorie beverage – aligns with the Hispanic lifestyle

4.  Strong equity in flavor

Background Marketing Distribution Promotional Strategy Finance Summary

Peñafiel Brand Under-Utilized in the US Marketplace

Past Launch Strategy: •  Launched in 2007

•  Distributed in six major US cities

•  Sold at major retailers

•  Introduced five flavors

•  Available in 16.9 oz and 2 liter bottles for $1.99 and $3.95 (retail)

Successes: •  Product continues to be sold in the US

Challenges: •  Lack of product visibility and awareness in the marketplace

•  Difficult to locate product to purchase in stores

•  Product often sold out

Peñafiel’s has only been limitedly launched in the US, leaving many markets under-served.

Background Marketing Distribution Promotional Strategy Finance Summary

Expand Peñafiel Presence in the USA

Implement and execute an integrated strategy to expand the presence of Peñafiel USA.

New Vision: •  Build awareness through integrated marketing approach

•  Align distribution and marketing strategy

•  Actively monitor marketing, distribution, and financial plans to meet objectives

•  Propose test deployment of strategy to four cities: Chicago, Dallas, Houston, and LA

Marketing Finance Distribution

Background Marketing Distribution Promotional Strategy Finance Summary

Unacculturated + Bi-Cultural Mexican Americans Looking for Flavored Beverage Options

Mom •  Caregiver

Host •  Community Builder

$49K •  Cost < Love •  $449 Spend

Urban •  Critical Mass

Peñafiel’s target: Lupe Gonzalez  

Key Influencers: •  Kids •  Community •  Advertising •  Quality Freshness •  Tradition

Background Marketing Distribution Promotional Strategy Finance Summary

Mapping out the competition $50.5 billion sales, Non-Alcoholic    

Trends: Sales •  Private label 21.4% of total •  Fruit juice fell 4.1% •  Juice drinks rise 6.6% •  Coke $14.4 billion

•  Pepsi & Coke decline 8% •  Carb. Bev. decline 0.5%  

Growth •  The bev. market grew 6% •  H20 volume growth, 10% •  H20+ segment to grow 39% Market Share •  99.2% sales in sports drink

segment from 2 brands

Latino Beverage  

Enhanced Water

Soda

Fruit Juice

Private Label

Sports Drinks

6 Beverage Categories Competing for Lupe’s Dinner Table

Background Marketing Distribution Promotional Strategy Finance Summary

Positioning Peñafiel for Success in a Competitive Market

Family •  Natural •  Less Sugar

Body

•  Naturally Rehydrates

•  Anti-Oxidants

Culture

•  Authentic •  Familiar

Brand •  Flavor

Peñafiel, a beverage that nurtures family, body, and culture

Background Marketing Distribution Promotional Strategy Finance Summary

Placement in Independent Grocers •  Meets service needs •  Aligns with customer characteristics •  Lower Shelving Costs *If Successful, Long Term push for Big Box Retailers

Pricing Peñafiel Pricing Jarritos Vs.  

$3.95 1.5 L

Placement in Vending Machines •  Higher profit margins •  Strategically placed, non-aisle option  

$4.99 6 pk. $1.99 12.5 oz.

$3.95 2 L. Vs.  

A familiar price and aisle Where Lupe will Find her Peñafiel

$1.99 16 oz. $2.47 13.5 oz. Vs.  

Background Marketing Distribution Promotional Strategy Finance Summary

Transporting Peñafiel to Lupe

1. Manufacture 5. Purchased by Customer

3. Sell to Wholesalers

4. Sell to Retailer 2. Import to US & Transport to DC

Distribution Centers: 35% Victorville,CA 65% Plano, TX  

Manufacturing: San Nicholas, Mexico  

Target Markets: Chicago Houston Dallas LA  

35¢   38¢  

+3¢  

$1.49

+$1.11

$1.86

+37¢   +62¢  

$2.33

$0.00  

$0.50  

$1.00  

$1.50  

$2.00  

$2.50  

Margin  Break  Down  

$2.33

Background Marketing Distribution Promotional Strategy Finance Summary

Year One +1 ($459,069)

Incentives & Equity ($2,300,000)

Product Integration($100,000)

Promoting Peñafiel Over 5 Years

Y5: 1.75% Of Wallet on NAB

3.5 u Units per Household Per Year.

Integrated Marketing ($721,920.59)

Launch Sales Team ($406,666)

Digital Campaign (250 hours)

Y1. Raise Brand Awareness, Ease Discovery

Y2-5. Drive Sales, Build the Brand Equity

$7.86 Annual Spending

Background Marketing Distribution Promotional Strategy Finance Summary

Peñafiel, Good for Lupe and Good for Dr. Pepper

   

   

Key Takeaways: •  Conservative market share assumptions

•  Impressive Revenue Growth

•  Strong operating margins

•  Low capital intensity drives strong cash flows and solid returns

Year 1

Market Share 0.75%

Year 3

1.25%

Year 5

1.75%

Net Revenues $2,461,880 $4,268,901 $6,217,910

NOPAT -$359,233 $504,190 $729,862

Cum Capital Investment $660,000

Free Cash Flow -$953,758

$1,160,000

$117,724

$1,160,000

$895,232

Background Marketing Distribution Promotional Strategy Finance Summary

Expanding Peñafiel to the US, Increases Shareholder Value

Worst Case Base Case Best Case

Year 1 Market Share 0.25% 0.75% 1.25%

Year 5 Market Share 1.25% 1.75% 2.25%

Net Present Value (NPV) ($123,940) $929,990 $1,983,920

Internal Rate of Return (IRR) 2% 38% 90%

Average Project ROIC 18% 39% 60%

Final Project ROIC 55% 77% 99%

DPS WACC 5.45%

DPS ROIC 12.50%

Background Marketing Distribution Promotional Strategy Finance Summary

Evaluating Risks and Evaluating Success

Risks: •  Marketing message fails to resonate with our target audience

•  Competitors enter the marketplace and target the Mexican-American population

•  Strength in the Mexican peso relative to the US dollar

‒ 1% increase in the peso decreases base case NOPAT by 2.3%

•  Relationships with distributors weaken

Key Metrics to Monitor: •  Market share

•  Brand awareness

•  Customer satisfaction and loyalty

Background Marketing Distribution Promotional Strategy Finance Summary

Peñafiel Expansion Tastes Like Success

The Peñafiel expansion project should be undertaken for the key reasons: •  Fulfills opportunity in the marketplace with a rapidly growing consumer base

•  Leverages the brand equity of a well-established brand

•  Benefits the greater DPS portfolio

•  Creates shareholder value and results an NPV for DPS

•  Reallocates open Mexican capacity to the US market

Background Marketing Distribution Promotional Strategy Finance Summary

Appendix

Marketing

Marketing Cost vs. Spend •  $3,360,610  in  our  marke:ng  budget  to    generate  $21,521,983  in  sales.    

•  $1 cost generates $6.4 spent Year 1 Marketing Spend+Plan SEO &Adwords (28) Aggregate Content (12) Google Maps (40) Mobile Friendly (160) Build relationships with ind. grocers Ensure Stocking ($6,666) Targeted Giveaways ($634,000) Hispanic News ($48,000) Text Messaging Ads ($111,000) Year 2-5 Marketing Spend+Plan Maintain Portion of Digital Initiatives Reduce Newspaper Ads Maintain Sales Team Get Out of Home ($20,000) In-Store Coupons Cross Promotions with Barcel Chips (2,300,000) Product Integration in Spanish Television (100,000)

Mintel Hispanic Shopping and spending patterns –US Feb 2008 With the exception of expensive items, 65% Hispanics shop at favorite stores and 67% said the store’s environment makes a difference whether they shop 57% of base said they only shop at favorite stores which have brands I like. Mintel concluded Hispanics enjoy shopping together and browsing as a means of acculturating “Groups of shoppers learn together and make collective decisions about where to shop and what to buy” – Mintel concluded that Foreign born Hispanics are more likely to have a greater affinity for marketing, and they rely on iconography when navigating the grocery store. Mintel found Quality or taste and Freshness were the two attributes that influenced Hispanic shopping purchases (4.76, 4.74). Qualitative MillerCoors research, “Jewel-Osco feels too white” Mintel Non-Alcoholic Beverages The Market US April 2011 •  67%  drink  some  kind  of  water  •  84%  drink  some  kind  of  soda.  •  92%  drink  some  kind  of  juice  (81%  Hispanics  compared  to  74%  non-­‐hispanics  to  drink  orange  juice)  

Distribution: Transportation Expenses

Main Assumptions of Transportation •  Volume:

Year 1: 2.79 million bottles Year 2: 3.80 million bottles Year 3: 4.84 million bottles Year 4: 5.92 million bottles Year 5: 7.05 million bottles

•  35%à Victorville, CA •  65%à Plano, TX

•  Flatbed truck load (45,000lbs): *$1.65/mile •  Flatbed truck diesel mileage: 5miles/gallon •  Flatbed truck drivers’ salary in CA: $71,000/year •  Flatbed truck drivers’ salary in TX: $65,000/year •  Number of working hours per year: 2000

* From Flatbed truck load market price index: http://www.flatbedsource.com/truckload-market-price-index

Distribution: Peñafiel Supply Chain Channel

Manufacturing (Bottling): Penafiel was bottled at San Nicholas, Mexico, 1 mile from the town of Tehuacan, the source of Penafiel water. Import to U.S: •  Under NAFTA, bottled water was transported

to 2 biggest DCs in Victorville, CA and Plano, TX by truck load.

•  It was then distributed to more than 200 DCs across the state. •  Penafiel was sold to various retail channels. Transportation Cost (Mexicoà U.S): •  35%à Victorville, CA •  65%à Plano, TX

Transportation Cost per bottle:

3PL: Pepsi, Coca-cola, etc.

Main DCs: Victorville, CA; Plano, TX

Yr 1/2/3/4: $0.027 Yr 5: $0.028  

Distribution: DPS Retail Channel

DPS serves consumers through various dealers •  Wholesalers: Costco

•  Supper Market: Wal-Mart, Kroger, Safeway, AHOLD NV, Publix ,etc.

•  Retailer: Target, Walgreen, SuperValu, Seven & I Holding, etc.

•  Fast Food: McDonalds, Wendy’s, Burger King, Yum! Brands, etc.

•  Drugstore: Rite Aid, CVS, etc.

•  3PL: Coco-cola, Pepsi, etc.

Financials

Financials

Financials

Work Citied 1.) Mintel Hispanic Shopping and spending patterns –US Feb 2008 2.) Mintel Non-Alcoholic Beverages The Market US April 2011 3.) http://www.nytimes.com/2011/08/29/business/media/product-placements-find-fresh-territory-in-telenovelas.html 4.) http://www.pewhispanic.org/2011/02/09/latinos-and-digital-technology-2010/ 5.) http://articles.cnn.com/2011-05-20/tech/hispanic.mobile.engagement.gahran_1_cell-phones-mobile-technology-text-messaging?_s=PM:TECH 6.) http://www.nytimes.com/2011/09/20/business/media/jarritos-the-mexican-soda-tries-to-move-beyond-its-base-advertising.html 7.) http://www.drpeppersnapplegroup.com/ 8.) http://grupopenafiel.com.mx/ 9.) Bloomberg Research 10.) Factset Research 11.) Bernstein Research 12.) BBH Research 13.) hNp://www.youtube.com/watch?v=-­‐hpy8UCeN_Y    14.) hNp://www.youtube.com/watch?v=LA_Q_ZHfOw0    15.) hNp://www.youtube.com/watch?v=6Wbp4-­‐ZhNAE    16.) hNp://www.youtube.com/watch?v=BH3rRj1YB8U  17.) hNp://www.youtube.com/watch?v=nMidgWu0ebQ    18.) hNp://www.deguate.com/ges:on/ar:cle_6695.shtml    19.) hNp://sobdrinks.drinks-­‐business-­‐review.com/news/pepsiamericas_forms_jv_with_cabcorp_200509    20.) hNp://www.alegrofoods.com/mexicansobdrinksandsodas.aspx    21.) hNp://www.terra.com.mx/revistaneo/ar:culo/460257/Aguas+con+Cadbury.htm    22.) hNp://www.echo-­‐media.com/targetList.php?targetID=89  23.) hNp://www.buenasuerte.com/  24.) US Bureau of Labor Statistics 25.) hNp://mejoresmarcas.hsmglobal.com.mx/categorias.php?id=cat_refrescos  26.) hNp://impreso.milenio.com/node/7111215  27.) 2010 US Census Data