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Aero Chocolate Bars Case Study

The Chocolate Bar Market in Canada


In Canada, there are approximately 106 plants in the combined sugar, chocolate and chewing gum industry. Production is mainly located in Ontario and the facilities range in size from small, 1-2 person, seasonal operations to large plants employing 1,000 people. Production is highly concentrated the leading 8 firms produce close to 87% of shipments; 60% of shipments are from multi-national enterprises. Canadian companies are recognizable subsidiaries of these multi-national enterprises, including Cadbury, Effem Foods (parent is Mars Inc.), Hershey, Nestle, and Wrigley. The confectionary market has basically three parts sugar, chocolate, and chewing gum. Most sugar confectionary companies are small to medium in size and produce a wide variety of products such as hard candy, gummy bears, licorice, jujubes and toffee, as well as an assortment of hard and soft candies for specialty and novelty markets. Within the chocolate segment, operations tend to be larger and dedicated to three product categories: boxed chocolates, chocolate bars and/or seasonal novelties. Boxed or novelty chocolates are sold mainly as gifts for birthdays or anniversaries, or as seasonal items at Christmas, Valentines Day and Easter. Sales in the confectionary market break down as follows: 1. 55% chocolate bars/boxed chocolates (34% chocolate bars/21% boxed) 2. 25% hard, medium and soft sugar candies; 3. 20% chewing gum. Exhibit 1 Chocolate Segmentation
Canadian Chocolate Segmentation Map

Gifting
Formal Guesture Easter Christmas Informal Halloween

Kids Treats
Reward/Treat Pester Shut Up Permissible Spoiling Kinder Surprise Smarties Astros M&M Minis

Adult Treats (12+)


Personal Spoiling Me Time Relaxation Personal Reward

Refuel
Gut Fill Meal Replacement Hungry

Boxed Chocolate Laura Secord Seasonal

Seasonal

Caramilk/Rolo/Dove Crme Eggs Bounty Ceries/Pep Indulgence Pleasure Feel Good

Mr. Big Mars/Snickers Oh Henry Butterfinger Gap Fill/Snacking In between meals Peckish Small Snack Crispy Crunch Wunderbar/Crunchie Kit Kat/Coffee Crisp Twix

CMC Aero/Mirage Flake HMC

The chocolate bar market tends to be steady year-round but is highly fragmented. A bar that can capture 4-5% of the market is considered successful and gaps between the top brands are slight, measured in tenths of a share point. Sales for seasonal items have fallen slightly over the past few years and manufacturers are moving from holiday (i.e. Santa in Nov/Dec) to seasonal (i.e. snowflakes in Nov-Feb) to extend the sales period for these items. The average Canadian spends about $68 on confectionary items, purchasing about 10.3kg or 22lbs of products (6.7kg of chocolate, 2.9kg of candy, and .68kg of other confectionary products such as chewing gum). The chocolate category is by far the largest category, over three times larger than the sugar confectionary, and nearly four times that of the gum category. Perhaps surprisingly, Canada is the most competitive chocolate bar market in the world with more than 60 brands available. However, the top 10 brands in the last several decades have basically stayed the same although certainly changing positions but no newcomers have been able to break into the top 10 because the market is so competitive and brands so well established. Canada is the only country in which the four major multi-nations chocolate bar companies coexist in the same market. The intensely competitive market conditions caused by this unique situation tend to keep profits low. In Canada, Cadbury Trebor Allan Inc (CTAI) controls approximately 28% of the market (Caramilk, Cadbury Milk Chocolate, Crispy Crunch, Mr. Big), Hershey, 26.8% (Oh Henry, Reese Peanut Butter Cups, Hershey Milk Chocolate), Nestle, 24.7% (Kit Kat, Coffee Crisp, Aero, Smarties), and Effem, 15.9% (Mars, M&Ms, Snickers, Twix). Firms in the confectionary industry compete on the basis of brand name, advertising and promotion, specialty products, quality and cost. Promotion plays a significant role in this discretionary and high impulse marketplace. The chocolate bar component of the confectionary market tends to be more highly brand sensitive and advertising oriented than the sugar component. In 1998, the Confectionary Manufacturers Association of Canada (CMAC) estimated that advertising and trade promotion costs totaled $55.0MM, or 2.6% of total sales. That increases, of course, when there are new product launches. Exhibit 2: Chocolate Bar Brand Rankings (tonnage consumption)
1993 Reese Oh Henry Kit Kat M&M Caramilk Coffee Crisp Snickers AERO Smarties Hershey Crispy Crunch Mars 7 2 4 3 4 4 10 9 6 10 8 1 1994 10 3 5 2 3 9 10 8 7 10 7 1 1995 8 1 5 4 3 6 10 10 7 10 9 2 5 7 7 7 8 1996 4 1 6 2 3 8 7 9 3 9 4 9 6 9 6 9 9 8 1997 5 1 4 2 8 6 1998 8 2 5 1 6 3 1999 3 1 8 2 4 5 2000 1 2 5 3 4 7 2001 1 2 3 4 5 6

Source: A.C. Nielsen Marketrack Data National All Channels, 52 weeks

As you can imagine, brand loyalty also plays a big role in how consumers feel about products and, although competitors introduce similar products, those products are unlikely to be a big success. Many companies, therefore, have introduced line extensions, specialty products, and different flavours to capitalize on their brand names Kit Kat Chunky, Aero Dark, Aero Mint, Cadbury Mini Eggs, Caramilk Eggs, etc. Although Canada is the most competitive market in the world, Canadians eat less chocolate than people in other developed nations. For instance, the average Canadian eats 4.4 kilograms of chocolate a year compared to the Irish (8.5), the British (7.8) or the Swiss (9.7). Not surprisingly, young Canadians 8-24 tend to eat the most chocolate per person but, since they are a relatively small group compared to the remainder, they tend to be less significant. (See Exhibit 3). They are also more prone to brand switching with a menu of about 3-4 brands per month compared to their older counterparts who, on average, switch between 2 favourite brands. Exhibit 3 Canadian Chocolate Bar Consumption by Age Category
30

25

20

15

10

0 12-17 18-24 25-34 35-44 45-54 55+

Age Category
% of Choc. Bar Consumption Source: Tandemar IPSOS 2000 % of Population

Recently, Candy Industrys sister publication, Confectioner conducted its first Annual Chocolate/Candy Purchasing Survey in the US to determine the current mood of the candybuying public, as well as capture any nuances or trends emerging among candy lovers. Consumer preferences are changing. Children nowadays have more disposable income. They like licensed products and interactive toys that are sold together with confectionery. Consumers are more indulgent and are willing to pay more. Baby boomers in particular want quality over quantity, which may be contributing to the growth chocolate products from companies such as Lindt. The top three reasons for choosing a particular piece of chocolate should sound familiar to most manufacturers: 57.1%, brand name; 43.8%, impulse purchase and 32%, price. Another 18.6% revealed the decision to buy chocolate stemmed from an in-store display, which could easily be lumped together with impulse purchases. On average, more than half of consumers polled purchase chocolate once a week (52.9%) while another 14.7% do so twice a week.

Distribution
Exhibit 4 - Channel Trends 2000 % Dollars Spent by Channel More than 60,000 outlets (grocery, drug, mass, warehouse, department, gas/mini mart and convenience stores) across Canada sell chocolate bars and many merchandising tools are used to suit different store layouts and space requirements. In larger retail chains, these are the key to success as many consumers avoid the confectionery aisle altogether. A variety of display stands allow manufacturers to place their bars in other areas of the stores.

Warehouse 7% Mass 6%

Other 6%

Drug 6%

Grocery 75%

% of People Buying by Channel


Convenience Gas/Mini Mart Department Warehouse Mass Drug Grocery
0 20 40 60 80 100 120

% of People Buying in

Source: CTAI Case Study

Promotions
Given that many chocolate bar purchases are impulse, creating and maintaining brand awareness is important. Between 1998 and 2000, CTAI more than doubled its spending from $3.3MM to $6.8MM. Hershey, however, dropped its advertising budget from $7.1MM in 1998 to $5.0MM in early 2000. But, as CTAIs spending reached its peak in 2000, Hershey put an additional $1.4MM toward support of their Reese brand, which lifted their total advertising budget to $6.1MM. At the same time, Effem cut its advertising spending from $5.1MM to $2.6MM, shifting from supporting three brands to two. Nestle, although increasing their budget, never exceeded $2.0MM until 2002 when they lent increased support to the Aero brand. Media used to build brand awareness has included: TV, cinema, posters near cash registers and in store windows, transit, shopping carts, and outdoor. Exhibit 5 Media Spending for Chocolate Brands 1998 Cadbury
Cadbury Milk Chocolate Wunderbar Caramilk Fushion Astros Mr. Big 1,044 424 615 705 1,911 1,397 950 556 2,390 1,769 1,059 230 1,128 1,681 2,263 371 1,120 381 857 449 2 855 648 177 24 13 1,716 1,303 1,440 10 1,471 1,020 334 1,199 1,647 2,088 689 473 2 455 1,339 454 632 3,096 2,195 726 17

1999

2000

Hershey
Reese Oh Henry Hershey Milk Chocolate Sweet Escapes Skor Cookies & Creme Eatmore

Nestle
Kit Kat Coffee Crisp Smarties Rolo Butterfinger Aero Crunch

133

Effem
M7M Mars Snickers Twix Toblerone Source: CTAI Case Study

Aero Situation Analysis


Aero, a unique chocolate bar with bubbles was established over 50 years ago. Historically, it had been a top five brand but lack of advertising support and focused message had caused it to fade from consumers minds. In 2002, Aero was 9th in the chocolate bar market, a position it had maintained for the past decade. It had not had any significant advertising or communication support during that time and share was suffering. Brand health was declining. Brand awareness was half that of the top five supported brands. Tonnage share was in decline, with minimal share of voice. Exhibit 6: Historical Share of Market and Share of Voice Aero's Declining Share of Market
5 4 3 2 1 0 1993 1994 1995 1996 1997 1998 1999 2000 2001
1993 SOM SOV 4.2 1 1994 4.6 0 1995 4.2 0 1996 3.6 1 1997 3.7 0 1998 3.7 0 1999 3.6 1 2000 3.3 0 2001 3.5 0

Meanwhile, AEROs competitors (Caramilk and Dairy Milk) were spending aggressively as outlined in Exhibit 5 and as shown below.

Source: ACNielsen, Marketrack, 52 weeks, National All Channels (tonnage), Nielsen Media Research

As mentioned, Aero was losing awareness unaided brand awareness had fallen from 18% to 15% between 1999 to 2001. Just as damaging was the question of relevance Aero was viewed as a classic bar, with bubbles. But, did the bubbles affect the enjoyment of the bar or the purchase decision for Aeros loyal user base of chocoholics who:

Are mainly women with a strong skew to 18-34 year olds, Eat a LOT more chocolate than the average consumer, Whose resistance is weakest in the afternoon, And who, though chocoholics, are otherwise careful snackers.

The challenge for Aero at this point was to find a way to make the bubbles relevant and motivating to women. Early in 2002, Nestle ran innovative qualitative research among Aero users. Not only did researchers talk to Aero enthusiasts, they watched the way women eat the bars. They found that most didnt bite into the bar they broke it into smaller pieces and let it melt slowly on their tongues. Letting the bubbles melt seems to enhance and prolong the pleasure of pure chocolate. Solid chocolate without the bubbles just wasnt the same. The indulgent sensation was missing. This was the aha moment. The sweet spot if you will.

New Advertising Campaign


The new Aero advertising campaign was based on the selling idea that There is a right way and a wrong way to eat an Aero bar. The secret to Aeros chocolate pleasure is in how it is eaten. So, in a :30 spot called Vending Machine, a women introduced her friend to the pleasures of eating an Aero the experience of the melting bubbles. As the bubbles melt, the women express their pleasure in Aerospeak the way you speak when chocolate bubbles are melting on your tongue. Pre- testing showed that the commercial scored highly on building awareness, was credible and persuasive. The call to action was Have you felt the bubbles melt? Exhibit 7 Vending Machine Link Test Results

Vending Machine
Persuasion Credibility Distinctive Branding Relevance Offers bubbles Offers pure melting pleasure Melts effortlessly Tastes great Source: Millward Brown Goldfarb 46 57 84 50 97 87 81 77

Category Average
30 25 41 31 NA NA NA NA

The launch was divided into two waves, the first starting in May 2002, at relatively low GRP levels, in high-profile season finales like Friends, Will and Grace, and Survivor. This 7week flight included an Ontario heavy up, as well as targeted specialty buys aimed at reaching women 25+. The second wave started on September 9th with a specialty buy on women oriented networks like W, Life and Much More Music. Interestingly, although this was a strong media plan, Aero was still outspent significantly by their competitors and had only a 4% SOV compared to Caramilk at 12% and Dairy Milk at 8%. In the two months following the first flight (July & August), Aero tonnage grew 48% and boosted Aero from #9 to #5 among chocolate bars. As of December 2002, after two media flights, Aero maintained its #5 ranking and successfully defendED a 3.8 SOM for 4 weeks ending December 28, 2002 (plus 18% VYA). A third flight launched in January 2003 and ran until March 16th. Aero jumped to the #3 ranking. Volume grew 32% versus year ago, and share hit 5%, the highest level in more than 10 years. According to the CASSIES Case Study, advertising clearly helped reinvigorate the Aero brand. Brand tracking clearly showed that the new message was getting through. Unaided brand awareness increased from a baseline 14% pre launch to a high of 30% by the end of 2002. Unaided brand awareness continued to be increase into 2003 and hit 37% in the first half. Brand health, the composite of unaided awareness and brand bought most often, increased from 11% to 18% during the same time period, driven by advertising. Perhaps the most striking, leapfrogging up the Top 10 rankings is extremely rare, and could only be attributed to the new news in the marketing mix namely the way the bubbles were turned into the benefit of indulgence. Exhibit 8: Aero SOM and Media Weight, January 26, 2002 January 25, 2003

J02 F

J03

Source: AC Neilsen Market Track, National All Channels (Tonnage Share)

Exhibit 9: Recent Brand Rankings by Tonnage


2001 1 2 3 4 5 6 7 8 9 10 Reese Oh Henry Kit Kat M&Ms Caramilk Coffee Crisp Snickers Aero Smarties Hershey 6.2 5.0 4.6 4.1 4.0 3.6 3.5 3.5 3.4 3.3 2002 Reese Kit Kat Oh Henry Caramilk Aero Coffee Crisp Smarties M&Ms Mars Hershey 5.1 4.9 4.6 4.4 3.8 3.6 3.6 3.5 2.7 2.7 2003 (YTD June) Kit Kat Reese Aero M&Ms Coffee Crisp Smarties Caramilk Oh Henry Mars Hershey 6.2 5.7 5.0 4.7 4.5 4.2 4.2 3.9 3.4 2.9

Source: AC Neilsen Marketrack, National All Channels (Tonnage Share)

Finally, an analysis of PMB 2002 2004 shows that the number of people who eat Aero Most Often or Sometimes has grown by 16%, from 4,612.0M (18% of A12+) to 5,161.0M (20% of A12+) thats an increase of 549.0M users - 200.0M (just over 1/3) of whom started eating Aero during 2003. Growth that, once again, is directly attributable to new advertising campaign. Exhibit 10: Recent Brand Rankings by 12+ Users
PMB 2002 (2000-2001) # of 12+ Users Coffee Crisp Kit Kat Oh Henry Caramilk M&Ms (Plain & Peanut) Aero Reese Mars Smarties Crispy Crunch Cadbury Dairy Milk 6834 6204 6080 5349 5066 4612 4511 4417 4222 3811 3232 % of 12+ Pop 26 24 23 20 19 18 17 17 16 14 12 Coffee Crisp Kit Kat Oh Henry Caramilk M&Ms (Plain & Peanut) Aero Mars Reese Smarties Crispy Crunch Cadbury Dairy Milk PMB 2003 (2001-2002) # of 12+ Users 7409 7148 5826 5301 4992 4743 4710 4576 4391 3694 3288 % of 12+ Pop 28 27 22 20 19 18 18 17 16 14 12 Kit Kat Coffee Crisp Oh Henry Aero Caramilk M&Ms (Plain & Peanut) Reese Mars Smarties Crispy Crunch Cadbury Dairy Milk PMB 2004 (2002-2003) # of 12+ Users 7247 6745 5860 5161 4788 4794 4542 4739 4161 3832 3187 % of 12+ Pop 27 25 22 19 18 18 17 18 15 14 12 PMB 2004 (2003 Only) # of 12+ Users 7205 6791 5601 5359 5060 4770 4759 4618 3965 3894 3074 % of 12+ Pop 27 25 21 20 19 18 18 17 15 14 11 116 99 92 116 95 94 105 105 94 102 95 Index Vs PMB 2002

Source: PMB 2002, 2003, 2004

The Current Challenge


During 2004, Aero seems to be holding its 3rd place position and maintaining its 5.0% SOM. However, given the competitive marketplace in Canada, its a given that the competition is not going to ignore Aeros continued success and let it go unchallenged.

2005 Marketing Objective


To maintain a 5% SOM in a growing market, while increasing sales by 2% (in line with the market) during 2005.

2005 Communication Objective/Strategy


Consumer: Using a combination of advertising and sales promotion, to continue to focus on the selling idea that There is a right way and a wrong way to eat an Aero bar. The secret to Aeros chocolate pleasure is in how it is eaten. Trade: Using a combination of advertising, sales promotion, and personal selling, to convince the trade that there will be continued growth in consumer demand for the profitable Aero family of chocolate bars. Budget: $2.0MM

Case Sources: Cadbury Trebor Allan Inc. Case Study Queens University School of Business Cassies 2003 Case Studies http://www.candyindustry.com/ http://www.agr.gc.ca/misb/fb/food/profiles/confectionery/confectionery_e.html PMB 2002, 2003, 2004

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