Pauline's Pierogi Pleasures This case focuses on the marketing plan and marketing issues required to expand a business from a small operation catering only to a handful of stores and restaurants to a regionally recognized food provider. Bob has just received his bank loan but is uncertain as to his next move in terms of expanding the trade area and the appropriate channel to follow in doing so. He has a desire to place his product into grocery stores and restaurants but is working with limited resources. The consumer market within which he is operating contains some major hurdles he will have to address and overcome within his marketing plan as well. Bob is at a decision point and is now looking for that 'pie in the sky' voice to tell him what his next strategic marketing move should be. Page 1 of 11 Pauline's Pierogi Pleasures1 Pauline's Pierogi Pleasures operates under the mission of preparing and offering the finest Ethnic Eastern European foods available in West Central Florida. Pauline's product offering includes Blintzes, Golabki, Kaputsa and Kielbasa but the main item in the product line is the traditional Pierogi. Since taking over the company six years ago, Bob has had the vision of expanding the company from a local distribution company to the pierogi provider for the Southeast United States. Ultimately, Bob wants to further develop an internet presence allowing the company to deliver directly to the consumer within the continental United States as well as Canada. To date, Bob's ability to achieve his dream was dependent upon two major eventsapproval of a new small business loan and a new marketing plan. With the bank approval of his new small business loan he can fund the expansion of his production facility which removes the first hurdle. However, the second hurdle still exists, the development of a marketing plan that would allow him to expand his distribution. One thing that Bob wants to keep in check is the value and perspective of the company as he expands the company to new heights. Those values began when the company originated. History of the Company: Pauline's Pierogi Pleasures was originally founded by Pauline Gajdzis. Pauline migrated to the United States from a small community outside of Krakow, Poland. Pauline started the company out of her love of a traditional food product known as a pierogi. And just like many other food 1This case is designed for classroom discussion purposes rather than to illustrate effective or ineffective handling of an administrative situation. This case is based on an actual company but the names have been changed form anonymity reasons. Page 2 of 11 based companies in the United States, Pauline built the company out of her kitchen into a very successful small business. After several years of operations Pauline decided to retire and sell the company to two sisters who had the desire to own and operate a food based business. Ellen and Rachel successfully took over the company and maintained the traditional Ethnic European Cuisine. The sisters maintained the customer base Pauline had created since they did not change the company name. Ellen and Rachel had planned to expand the clientele base from the local area to a broader target market of people familiar with pierogis; people with an Eastern European Culture. Unfortunately after only a short time of operation Ellen and Rachel had to abandon their dreams of business owners after Rachel became ill and was no longer able to work. Ellen was unable to maintain the company on her own. That is when Bob entered the pierogi industry. Bob had a strong business background. Over the years, Bob had worked in sales, quality control, and as a business account manager. Through these various career positions Bob understood the key requirements of operating a successful business. His most recent experiences included quality engineer in new product launch for a parts manufacturing facility, six sigma black belt, and a BA in accounting which he had used in various accounting positions. Bob had no working knowledge /base experience of operating a food based company but had an interest in cooking and enjoyed exploring very traditional and culturally based foods. So when the opportunity to purchase Pauline's Pierogi Pleasures arose, Bob decided to pursue his dream of owning a food based business. He actually relocated his family from the Northeast United States to Western Central Florida. Page 3 of 11 What is a Pierogi? A pierogi is best described as a piece of pastry or dough that is stuffed with various ingredients. Going back to the tradition of the product, the original pierogis were normally stuffed with mashed potatoes, spinach, sauerkraut and/or cheeses. When available, some meats would also be included in the pierogi but most did not include a meat. Another way to describe a pierogi is to compare it to a product many consumers are familiar with a ravioli. Raviolis are simply two pieces of dough normally stuffed with cheese or meat. While the ravioli is normally square in shape, the normal shape of a pierogi would remind you of a half-moon. Pierogis come in basically two sizes: large and small. The large pierogi is an entree style or size while the smaller pierogi is normally used for dessert or snack type of product. Product Offering: When Bob took over the business, the product offering was limited to just a half dozen flavors of pierogis. Since taking over the business Bob has created the following product lines/groupings: A breakfast line consisting of three different pierogis, A lunch and dinner line consisting of ten different stuffings some of which overlap with the breakfast flavors, A dessert line consisting of two fruit flavors, and A 'Create your own' line. Production Process: Page 4 of 11 Once the dough/pastry has been stuffed, the traditional approach is to boil the pierogi to make sure it is fully cooked. Then the pierogi can be sold as 'fresh' or flash frozen and packaged. The consumer then further prepares the pierogi by steaming, baking or sauting on a grill with various seasonings and spices providing additional flavoring. In the frozen state pierogis have a shelf life of 6 months. With his current production configuration he can produce 16,600 dozen pierogis a year. With the expansion he will be able to produce 950,000 to 980,000 dozen per year at full capacity. 'Create your own pierogi' option. With this option the consumer can provide fillings or like a pizza mix the standard stuffing offerings to satisfy their individual taste. If the consumer creates their own there is a longer turn-around on the order and there are also minimum quantities required. Since Bob is working with a single production line when doing the 'create your own' pierogi he must suspend his normal production operations, clean the machines, produce the product and then re-clean the machines. Because of the additional labor, the 'create your own' pierogi is priced higher than the other pierogis. Bob has developed a line of appetizer pierogis. These pierogis break away from the traditional pierogi filling and focus more on traditional appetizer flavorings. His short list of flavors includes philly cheese steak; sausage, pepper, and onions; fajita; buffalo chicken; BBQ; and cheeseburger. The appetizer pierogi is a little smaller in size than traditional pierogi but the cost per dozen would remain approximately the same. Page 5 of 11 With the current health movement Bob is also considering offering a pierogi that no other company offers: gluten free. This will require him to completely shut down production, do a complete wash down/sterilization before making the gluten free pierogis or he would have to have a production line dedicated to only making the gluten free pierogi. Either way there will be additional production costs along with higher materials costs since gluten free flours are much more expensive than traditional flour. Bob believes this move would put him in strong market leader type position. He is waiting to see how long term the organic food movement actually is before he considers creating an organic line of pierogis. Current and Future Distribution: At best the current distribution system could be described as extremely fragmented. The key point of distribution currently is the store front located in Hudson. Through this facility the general public can purchase fresh pierogis over-the-counter. Bob also has an e-commerce presence but it is receiving minimal traffic. It was through this site Bob hoped to receive B2B orders and to reach out to individual consumers but has not experienced the level of success hoped for or expected. Historically the over-the-counter sales contributed the most to sales. In addition to these sales Pauline's had minimal distribution through a few small neighborhood grocers. These outlets have maintained a consistent base line of sales but has not expanded in terms of overall sales. As a goal, Bob would like to develop the business to achive a sales breakdown close to the following: Page 6 of 11 20% of sales from 'direct' consumer purchase evenly split between over-the-counter and eCommerce 40% of sales through restaurant distribution providers, and 40% of sales through grocery retail with no one grocer maintaining more than 50% of this category. Bob has also attempted to enter the restaurant market and has experienced limited success. While the traditional pierogi line has not been successful, offering the 'create your own' option has been successful. He currently has two restaurant chains that have developed their own specialty stuffings and have required Bob to guarantee he will only produce those flavors for their restaurant. As a strategic approach Bob has decided to pursue the grocery retail channel first. Promotional Support: Much like the other strategic components of his marketing plan, his promotional strategy is extremely limited and lacking in sustenance. Currently Bob has been highly dependent upon word-of-mouth from his OTC customers, providing limited growth. Much of the word-ofmouth has been propagated through churches and schools, unfortunately, Bob has exhausted most of those venues. For his B2B customer, Bob has focused on trade show appearances and limited sales call. (Bob's staff is himself and four part-time production workers. He does not have a formal sales staff.) When possible, Bob has provided product at other business focused functions (e.g. Chamber of Commerce events, fundraiser events, etc.) which have produced some one-time sales Page 7 of 11 customers/orders. He has not realized any large gains from these business based activities. As the case with many small businesses, a major limitation is the lack of funds to create and support a salesforce. After reading a few articles in the local paper and business journal, Bob began to dabble in the social media arena. As the basis of this move, Bob established a website with a twofold purpose. First he wanted to provide an informational point for people who were interested in learning more about pierogis and possibly ordering his product from the website. Bob had hopes and expectations that the creation of a website would be a catalyst to sales, not only in the southeast area of the United States but throughout the country. The second purpose was to provide a link source to his social media sites. He had created a Facebook, Twitter and Pintrest presence. However, the frustrations of trying to maintain the social media sites far outweighed the results. First, Bob found that there was an existing Facebook page associated with the company. After several attempts to contact the former owners, to no avail, and attempts to get Facebook to deactivate the page, Bob had to abandon his desired page and develop a new name for his site. The last time he checked his Facebook link was not functioning and he could not figure out why. His Twitter link was functioning but only had 428 tweets, 298 followings, 75 followers and 11 favorites. Bob had not kept up the tweets as he should. It had been over six months since he took time to Tweet. And his Pintrest site had no participants or pins. Page 8 of 11 Internally, his website was also replete with link issues. He had established the site so people could choose the type of pierogi they wanted to investigate. Two of the links from the homepage to the subpages were not functioning. Much of the information provided was dated and vary rarely updated. He had actually received some posts in his blog area inquiring if the company was still open. Since Bob had not responded to the posts it was likely the customers assumed the company was no longer in operation but had not taken down the website. Pricing Strategy: Bob's pricing strategy is quality/value-priced based. Bob is trying to develop a reputation and perspective of a high quality item. His standard price for one dozen pierogis ranges between $5 and $7, most at $6 per dozen. The 'create your own' pierogi starts at $10 per dozen. Depending on the ingredients used in the pierogi the price may be as much as $12 per dozen. These prices are a little higher than the prices of the main competitors. Depending upon the ingredients the competitors' prices range from $2.79 to $5.39 per dozen in most grocery stores. Based on his current production costs and overheads, he does have some room to manipulate price but he also wants to make sure that his pricing strategy reflects the quality of the product. While he has completed no in-depth research or analysis, he personally believes he offers the highest quality pierogi on the market and believes his price should reflect as much. A breakdown of his cost structure revealed total variable costs of $1.87/dozen and total fixed costs of $0.20/dozen. Bob has a desired gross margin of 45 to 55 percent. His current annual marketing budget allotted for: Advertising $20,000 Merchant Service Fees $2,600.00 Page 9 of 11 Sales Promotions (Samples) $850.00 Sales Staff $35,000 Competitive Environment: Pauline's Pierogi Pleasures is the only manufacturer of fresh pierogis in the West Central Florida area. There are several fresh pierogi manufacturers in the Northeast United States that operate within a local market and most do not have the capacity or capability to expand beyond their current market area. Pauline's main direct competition is from two national distributors of pierogis. From a product offering, the fillings are basically the same and the size is comparable to Pauline's large pierogi. The largest competitor is Mrs. T's Pierogis. On the company website Mrs. T's shows 12 different varieties but normally only three or four are actually available in the grocery frozen food section. Pauline's variety matches closely with Mrs. T's. Another major competitor is Riseman Pierogi. One of the differentiating factors with Riseman is the organic feature of their product over the other products. This product is closest in price to Pauline's since it is a more expensive organic product. In the local market, most retailers only carry one flavor of the Riseman pierogi. A differentiation strategy Bob has considered following is to offer his product in the grocery store as both fresh and frozen. Following the guidelines established by the USDA2, he could prepare and sell his product if he does not flash freeze it. In other words, once he makes the 2 www.fsif.usda.gov web site, \"Fresh, \"Not Frozen\" and Similar Terms when Labeling Meat and Poultry Products\