First in Show Pet Foods

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First in Show Pet Foods, Inc.
I.Situation Analysis
A.Dog Food Industry
1.Dog food sales will total ≈ $10 billion
2.There are 50 dog food manufacturers and 350 dog food brands in the U.S.
3.Top five companies – Nestlé Purina PetCare, Iams, Hill’s Pet Nutrition, MasterFoods USA, and Del Monte – accounted for ≈ 75% of dog food sales in 2008.
4.Breakdown of dog food sales distribution: Supermarkets = 36% ($3.6 billion); mass merchandisers = 25%; pet superstores = 20%; farm /feed stores = 7%; veterinarians = 6%; Internet retailers and independent pet stores = 6%
5.The industry is yet to reach its full potential, since less than half of U.S. dogs are regularly fed prepared dog foods.
B.First in Show Pet foods, Inc.
1.Major producer of
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save $200,000 in advertising expenditures
2.Cons
a)Risk of failure: 85% failure rate of new products introduced to supermarkets annually
b)No guarantee that the product will sell
c)Increased Costs: Fixed Costs = $530,000; Variable Costs = $7.87/case
d)May reach a smaller audience than a $700,000 advertising budget
e)May have achieve lower revenues (and profits)
III.Recommendation
A.Enter the Show Circuit Market with $500,000 Ad Expenditure
1.Opportunity to be the first to tap into the potentially vast market of frozen dog food in the Boston area
2.Opportunity to capitalize on the growing popularity of the organic dog food market
3.Opportunity to lay the groundwork for Show Circuit’s national market roll-out
4.Large potential market of dog owners who are willing to pay premium prices
5.Can turn the obstacle of lack of appeal of frozen dog food into an asset in advertising
6.Opportunity to make profit: $196,000 (200,000 units), $659,000 (300,000 units), $1,122,000 (400,000 units)
7.Would save $200,000 in advertising expenditures

Appendix A
Calculations for Entering Show Circuit Market with $700,000 Advertising Expenditure
Fixed Costs: $30,000 slotting fees + $700,000 advertising expenditures = $730,000
Variable Costs: $7.87/case
Unit Variable Costs: $7.87/case / 12 tubs/case = $0.66/tub
Proposed Selling Price = $5.29
Unit Contribution = $5.29 - $0.66 = $4.63
Contribution Margin = $4.63 / $5.29 = .875 x 100 = 87.5%
Unit Break-Even Volume:

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