Harvard Business Case: Cepuros food Malaysia: Finding the secret sauce for growth.

Cepuros Foods Malaysia: Finding the Secret Sauce for Growth After ending her weekly conference call with executives from the corporate headquarters of Cepuros Foods International (CFI) in Singapore, Shelby Diaz looked out the window of her office in Kuala Lumpur hoping for inspiration. As the country manager for Cepuros Foods International- Malaysia (CFI-M), Diaz was responsible for developing and marketing CFI-M's products. She needed to increase the sales of CFI-M's Baik Sos Salsa line of shelf-stable salsas by the end of 2019. Diaz had begun the call by explaining her plan to target new products to CFI's existing salsa customers with small increases to the marketing and communications budget. She had planned to target customers who purchased the original salsa to try the new flavors. Her proposal was to increase salsa sales 15% by increasing selling expenses by 7%. CF's CEO, Bia Aati, interrupted her. He said, "The proposal lacks a long-term vision. The success of the salsa line is essential to our revenue growth in Malaysia. We need an aggressive, mass-market strategy with major investments in marketing and an ambitious sales goal." CF's executive vice president of marketing, Chen Lee, disagreed. She said, "Growing revenue through salsa sales is important, but a mass-market approach is too risky. Targeting our marketing mainly to our current cooking sauce and salsa customers is more reasonable." Before next week's call, Diaz had to decide how to revise her proposal. She remembered the Ansoff's matrix used in her MBA program and decided to use it to frame her recommendations. Should she change the proposal to develop consumer demand in the mass market, increase consumer demand among existing buyers, or convince them to follow her original plan?\f\f\f\f\f\fTarget Market CF-M's primary target market was upper-income, urban households living in the Klang Valley region of Malaysia. These households typically were dual-income and relatively price insensitive. They preferred premium products that were halal certified and made with high-quality, natural ingredients. Due to their busy lifestyles, CFI-M's customers relied on the convenience of preparing meals using packaged products rather than making meals from scratch. They typically had global travel experience and often sought innovative, unique, or international flavor profiles. Brands and Product Lines CFI-M sold three lines of products marketed under the name Baik Sos, which translates as "good sauce." The brand was known for being healthy; it did not use monosodium glutamate (MSG), artificial coloring, or artificial preservatives; was halal certified; and had a reputation for using only high-quality ingredients. CFI-M offered two brands of cooking sauces. The Baik Sos Sihat line was positioned as super- premium. Its packaging used a high-gloss design with a black background; bright yellow, red, and white text; and a picture of a finished dish spanning the upper-right hand side. Available sauces included Malaysian Masak Merah, Malaysian Nyonya, Malaysian Hoi Sin, Indonesian Rendang, and Thai Green Curry. The manufacturer's suggested retail price (MSRP) was RM8.29. 16 The Baik Sos Kiang line was positioned as premium. Its packaging used a more traditional design with a blue-and-white pattern background, yellow and white text, and a picture of a finished dish in the middle. Sauces available were marketed as classic Malaysian, including Rendang, Satay, Pajeri, Chicken Curry, Meat Curry, and Spicy Tomato. The MSRP was RM4.99. In 2016, CFI-M introduced a single, shelf-stable salsa under a new brand: Baik Sos Salsa. Inspired by Mexican-style salsas common in the United States, the salsa blended chunks of tomatoes and onions with lemongrass, ginger, chilies, and garlic. It was marketed as a healthy, mildly spicy topping to flavor chips, papadum (ie., a thin, crisp, disc-shaped dough), vegetables, and rice. Packaging promoted it as "the first and only Malay-fusion salsa." It accounted for 6% of CFI-M's total sales revenue. Baik Sos Salsa was priced as a premium product with an MSRP of RM6.99 and had the highest gross profit margin of any of CHI-M's products. Although there was no other packaged salsa sold in Malaysia in 2017, salsa was known there before CF-M sold it. In 2014, Mission Chips debuted its tortilla chips and engaged a popular chef to demonstrate how to make five salsa-like dips at home." By 2018, there were more than a dozen Mexican restaurants serving chips and salsa in Kuala Lumpur. Malaysian cuisine also had several popular dipping sauces, including hoisin, plum sauce, chili sauce, sambal, and peanut sauce. CFI-M believed that salsa was most like sambal, a hot sauce or paste made from chili peppers and other ingredients. A wide variety of packaged sambal pastes were available across Malaysia and were often used as a dipping sauce or topping. Traditionally, sambals were used as an all-purpose condiment. Baik Sos products were packaged using vacuum-sealed, plastic pouches with zip closures. Recipes and nutrition labeling were provided on the back. In Malaysia, this packaging signified productquality and offered storage space savings." Common packaging allowed UF-M to standardize production and distribution variable costs across product lines. Among premium cooking sauces, Baik Sos was the top seller in two of the largest premium supermarkets in the Klang Valley. For 2018 and 2019, CFI-M forecasted 3% annual growth in its annual revenue, with the same variable cost percentage and annual 3% growth in fixed cost projections for its cooking sauces and salsa if it did not introduce a new line of salsas. Exhibit 3 provides CHI-M's income statement for 2017 and forecasts for 2018 and 2019. Variable costs provided include raw materials, production, packaging, and distribution. Production and Distribution Bina Food Industries produced CFI-M's foods. It transformed raw ingredients into ready-to-sell products for CHI using CFI's food quality standards and recipes. Because CHI-M's products used halal certification standards, its average costs were slightly higher than CH's corporate average. Bina also warehoused and distributed products for CFI-M through its food distribution division. Offering more than 50 brands across 100 product categories, Bina specialized in domestic food products and had strong relationships with food retailers. Because CFI-M produced all products through Bina, CFI-M enjoyed discounted rates for food distribution. Baik Sos products were sold primarily through two chains of upscale supermarkets: Jaya Grocer and Village Grocer. Both were family-owned and sourced products directly from local and overseas food distributors. These chains included 35 supermarkets located close to higher-income consumers living in the Klang Valley. Bina worked directly with each supermarket chain to maintain inventory levels and stock products on shelves. CFI-M worked directly with both to market and promote its products. On average, CF-M's revenue per unit was 70% of the MSKI after retailer markups. Communications and Promotions CFI-M's marketing and communications strategy used advertisements across a variety of media that were designed to encourage trial among new customers and brand preference among existing customers. Messages focused on quality, freshness, and purity with a brand-focused approach. Its tagline was Kualiti restoran, dimasak di rumah, which translated in English as "Restaurant quality, home-cooked." In 2017, CFI-M spent approximately 10% of its selling expenses producing videos and blog postings offering recipes made by local chefs using Biak Sos products. Chefs from popular local restaurants were recruited as spokespersons to describe ingredients, flavors, and pairings. CFI-M's director of marketing communications, Zara binti Rifat, noted, "Each video has more than 500,000 views and hundreds of positive comments, our chefs' cooking tips and personalities connect with customers seeking advice for healthy snacks, family meals, and party planning. We should develop stronger partnerships with the chefs and their restaurants. We could have the chefs introduce salsa and raw vegetables as a healthy snack or side dish in a quick food tip video." In 2017, approximately 20% of CFI-M's selling expenses were spent on paid advertisements on the radio. Nationwide, 96% of Malaysians listened to the radio for an average of 14.5 hours per week. A survey of 1,000 consumers in Peninsular Malaysia revealed that consumers believed advertisements on the radio were memorable (67%), made brands advertised more appealing (81%), increased trustin brands advertised (73%), made a brand seem more authentic (70%), and made them feel more loyal to the brands (68%). After hearing an advertisement on the radio, 33% of respondents indicated doing research about the advertised product or brand, while 25% considered buying." CFI-M also relied on digital advertising through banner, video, search, mobile, and social media advertising. In 2017, a survey of Malaysians suggested that 70% of Malaysians were active on Facebook, followed by YouTube (69%), Instagram (49%), Twitter (30%), and Pinterest (17%)." Accordingly, CF-M spent approximately 10% of its selling expenses in 2017 on paid advertisements on Facebook, Instagram, YouTube, and Pinterest and 5% on banner and search ads. CFI-M offered modest price discounts six times per year around the major holidays. It often coupled them with in-store samples of products cooked using Baik Sos Sihat sauces. Combined, price discounts and sampling represented 30% of CHI-M's selling expenses in 2017. In 2017, CFI-M also spent 25% of its selling expenses on trade promotions directly to supermarkets for better shelf positions and seasonal displays. These included slotting allowances (for shelf space), display allowances (for point-of-purchase space), temporary price discounts, and free products. Both Jaya Grocer and Village Grocer occasionally offered price discounts on select cuts of meat with a purchase of a Baik Sos Riang cooking sauce. CHI-M maintained positive relationships with its retail partners through its salespeople. Setting the Course CFI-M planed to expand its Baik Sos Salsa item into a full line of five salsas. Each salsa's flavor profile would be internationally branded to reflect vegetables, fruits, herbs, and spices common to one of five countries: the United States, Mexico, Thailand, Indonesia, and Malaysia. Recipes used for each of the new flavors were already used in one or more of the CHI-M's sauces, so there were no changes in the suppliers of raw ingredients. CFI-M was scheduled to ship these products in early and planned to sell each for an MSKI of KM6.99. Although customers could purchase similar fresh salsas from the menu at the few Mexican restaurants in Malaysia or buy ingredients to make similar salsas at home using a recipe, no one sold packaged salsa to customers in the retail food setting- Shelby Diaz commissioned a marketing research firm to conduct a consumer survey in late 2017. CFI-M collected data from 2,000 shoppers at select Jaya Grocer and Village Grocer locations. For comparison, the firm used the Maggi brand as a moderately priced cooking sauce and Adabi as a premium cooking sauce. Both Sihat and Kiang had very high brand awareness (97%), which was similar to Maggi (97%) and Adabi (95%). As expected, Sihat had significantly higher quality perceptions (95%) than Kiang (75%), Adabi (73%), and Maggi (50%). Purchase behaviors for Riang and Maggi were similar; both were purchased at least once by 74% of shoppers. By comparison, less than half had purchased Sihat and Maggi (49% and 44%, respectively). Of those who had made a purchase, shoppers purchased an average of six pouches of Sihat and 12 pouches of Kiang annually. Baik Sos Salsa did not perform as well for brand awareness: Only 19% of shoppers knew the product was available for purchase. However, among those who were aware, 95% perceived it as high quality. Only 10% of the shoppers surveyed had purchased Baik Sos Salsa at least once in the\f