Southern Rice

ISSUE: Advertising Spending

The Southern Rice Company is one of the countrys leading rice brands. The Southern Rice Companys distribution area is generally equivalent to the territory south of the Mason-Dixon Line with some distribution into western states. The Southern Rice brand is the leading seller among premium-priced brands of rice. The brand costs the consumer approximately 10 cents per pound more than the other leading brands in the market and 20 cents per pound more than private label or store brands.

For more than fifty years, the Southern Rice brand has based its entire marketing and advertising strategy on the sale of a quality brand, which management states costs more due to the natural harvesting technique that they use to cull their rice from the fields. The Southern Rice approach has been a hit with consumers, since a large segment of the population in the southern states indicated that they were willing to pay a bit more to get the type of quality that they enjoy in a rice brand commodity. Price increases for rice in recent times have begun to impact Southern Rices ability to continue to price its brand at a premium. Consumers have been less willing to pay more for rice as overall food prices continue to increase.

The initial distribution for Southern Rice began in Atlanta where the company was able to obtain a good distribution and acceptance within a short period of time. Management believed that this success was largely due to the association that the brand had with white-tablecloth restaurants that served the product. In fact, Southern Rice was seen as a part of the old southern gentile restaurant scene in Atlanta. Southern Rice used its Atlanta strength to expand to other markets in the south.

Southern Rice was natural long grain rice and was slow-cooked. However, the overall market for slow-cooking rice was dwindling as convenience products entered the picture. Southern Rice saw that its next logical next step was to enter the instant rice market.

At the present time, instant rice is available in a wide variety of physical forms and compositions. The most successful instant rice is made by National Rice, which has national distribution and a strong advertising budget. Instant in a Second by Genfoods is also a strong competitor. Tennessee Toms rice is another regional competitor and a family operated business just like Southern Rice. Tennessee Toms is owned by a colorful character, Tom Thibidoux, who is featured in their commercials.

Exhibit 14.1

Southern Rice Marketing Formula

2 SOV =1 SOM

Note: SOV = Share of Voice; SOM = Share of Market. Spend at least 2 times the category advertising spending to achieve one share point by the second year.

Exhibit 14.2

Rice Consumption Trends (lbs. per HH per month) Year Regular Rice Instant Rice YTDCurrent Year 2.70 2.39 Past Year 2.75 2.34 2 Years Ago 2.85 2.30 3 Years Ago 2.90 2.25 4 Years Ago 3.00 2.20

Note: Regular Rice equals 80 per lb. while Instant Rice equals $1.50 per lb.

Total: 110 million HH

Exhibit 14.3

Geographic Analysis Area Natural Rice CDI Instant Rice CDI New England 40 50 Metro New York 75 95 Middle Atlantic 110 120 East Central 65 70 West Central 90 85 Southeast 185 120 Southwest 125 135 Pacific 115 140

Note: CDI = Category Development Index.

Instant rice household consumption varies from region to region. A recent article stated that instant rice represented 46 percent of K-Store overall rice sales, in contrast to its overall 30 percent share of the rice category. Another trade release stated that nearly 40 percent of rice sales in the Publixs grocery chain was now instant rice. This was a big trend for Southern Rice since Publixs was the leading grocery chain in the South. K-Store was also important since it was the leading national grocery chain.

Although there are some areas that are strong natural rice areas and weak instant rice areas, the South is strong in all forms of rice consumption. This was a concern for Southern Rice since they did not want to introduce an instant rice that might hurt their own natural rice brand.

Exhibit 14.4

Instant Rice Goal Year % Instant Rice Share First Year 5 Second Year 10 Third Year 13

Exhibit 14.5

National Market Share (in %) Brand Regular Rice Instant Rice Southern Rice* 20 National Rice 30 25 Instant in a Second 30 Tennessee Toms* 5 5 Private Label 45 40

* Southern Rice has 35 percent share in the Southeast while Tennessee Toms has a 15 percent share in the Southeast.

There were significant differences in who purchased natural rice and instant rice. Natural rice was purchased by large families and it had a distinctive ethnic bias. On the other hand, instant rice attracted singles and small families, and had a more upscale consumer base than natural rice.

The bulk of instant rice advertising funds for the leading brands was used for television. The two national brands, National Rice and Instant in a Second, used national television and some magazines. Tennessee Toms used only spot television in the key southern markets. However, both the national brands also used spot television in the South to add incremental advertising support in this key region.

The Southern Rice Company is planning on entering the instant rice market in a big way. The markets that they plan on expanding into include Tampa/St. Petersburg, Charlotte, and Washington, D.C. The plan is to obtain a 10 percent market share in sales in these markets within the next two years.

To realize these objectives, Southern Rice management recognizes that it is necessary to spend a substantial amount of advertising. But, they are unclear on how to determine what the appropriate spending level should be.

As a guide to its first efforts in these markets, the company plans a test market program. Results from this test are expected to be in by the end of next year. Southern Rice management expects to launch their marketing program right after the test market results.

The key question for Southern Rice management continued to be the level of spending required to make their market share goals. They turned to their advertising firm, Barkley and Peachtree, to help them determine the number of markets and the level of spending that would be required.

Exhibit 14.6

Advertising Media Expenditures (past year current dollars, in millions)

Your challenge at the Barkley and Peachtree advertising agency is to determine the advertising spending for each of the two-year periods in the plan and to justify that spending level.

QUESTIONS

1) In the case of Southern Rice, what particular type(s) of budgeting method would you consider? Why?

2) How would you go about with the empirical research method approach in determining Southern Rice's advertising budget?