Kingsford Charcoal Marketing Analysis

Subject: Softening of the charcoal market and Kingsford’s 2001 plan.

Kingsford is facing increased pressure to meet financial targets in an environment where the grilling market segment consumers are gradually shifting from charcoal to gas and the ongoing competition from private label charcoal competition. The Kingsford brand management team must devise a 2001 plan that addresses pricing, advertising, promotion, and capacity that will respond to these challenges and the Clorox Company’s overall success.

Recommendation

It is recommended that Kingsford raise prices 5% across all channels for both regular (“blue bag”) and Match Light (“red bag”) charcoal products. Further, Kingsford should shift its promotional spending back from temporary price reductions to media advertising to combat the market shift to gas grilling. In the short-term, Clorox senior leadership should reevaluate the job sharing arrangement for the Kingsford senior brand manager role. To enable strategic growth and success Kingsford should invest in R&D for future gas grilling products that integrate charcoal benefits with the convenience of gas grilling as well as develop strong partnerships with grill makers to enrich charcoal grill product offerings.

Conclusion

  • Strategic Focus – It is an unrealistic goal to reverse a significant market shift, such as the shift from charcoal to gas grilling. For long-term success, Kingsford must initiate two different strategies in concern. The first is to slow the shift to gas grilling through increase media advertising and a consistent message across all charcoal products. However, Kingsford should also focus on research and development to create new products that bring the benefits of charcoal product to gas grilling. Fighting to maintain share of share of an eroding may be futile in the long-run. The market shift to gas grilling, driven largely by psychographic trends, may continue and be irreversible. A contingency effort that will enable Kingsford’s success in spite of this uncertainty should be undertaken.
  • Alignment – Kingsford is a premium brand and enjoys dominant market share in the charcoal category. The brand management team has invested more in temporary price reductions in 2000, while reducing its media advertising budget by 83% since 1998. With a limited total advertising budget, these changes have been ineffective primarily for two reasons: First, frequent temporary price reductions do not align with Kingsford’s perceived strategy of differentiation; Second, in trading off the media advertising budget for increased promotional spending, Kingsford has diverted funds away from the effort to defend against the threat of increase gas grilling. Kingsford would benefit from a single marketing message that applies to all charcoal products and supports the position of a quality, differentiated product in the charcoal category. A price increase, particularly considering recent category pricing trends, and a shift of advertising spending back toward media advertising will support the Kingsford brand strategy and enable continued growth.

Situation and Evaluation

Critical Issues

  • Pricing Strategy – With recent price increases on private label charcoal brands and the importance of Kingsford’s profitability in 2001 to support Clorox financial goals, pricing strategy for the upcoming season is a key issue.
  • Brand Positioning – Kingsford regular (“blue bag”) and Match Light charcoal varieties have used different advertising messages. Brand positioning, in advertising and beyond, will continue to play an important role in Kingsford’s success.
  • Political/Legal – Many cities have restrictions against charcoal grills due to both fire safety and environmental concerns. Legislation and municipal codes are one of the primary factors in the market shift toward gas grilling and create a significant long-term threat to Kingsford.

External Environment

  • Industry – Barbecuing is part of the fabric of American culture and by the late 1990s, 3 in 4 U.S. homes had a barbecue. The number of barbeque events had grown 114%, to 3 billion, between 1987 and 2000. Approximately half of grill owners were heavy to medium users by the late 1990s and charcoal was preferred by die hard grillers, primarily for the flavor imparted in food. The grilling industry is mature and Kingsford is well positioned through its perceived quality to continue its dominance in the charcoal category.
  • Competition – In most channels, Kingsford competes with Royal Oak and private label brands. The charcoal market is dominated by Kingsford (57% market share), Royal Oak (7%), and the remainder is captured by private label brands (34%). Royal Oak manufactures virtually all private label charcoal brands. Private label brands are a more significant threat than Royal Oak as Royal Oak’s market share has eroded in recent years and Royal Oak’s manufacturing of virtually all private label brands. It appears that Royal Oak’s primary focus is to further develop its private label charcoal business.
  • Buyer Behavior – A personal interview with Brian Pederson (May 23rd, 2007), of Denver, Colorado, was conducted to gain valuable insight into the perceptions of Kingsford products and the charcoal market from a Regular Exclusive user. We considered this data based on the assumption that buyer behavior of Regular Exclusive users does not vary significantly from year-to-year. Brian is a loyal Kingsford consumer and a committed charcoal user. Brian feels that Kingsford burns hotter and slower and provides superior flavor to private label charcoal brands. Brian indicated that the higher price of Kingsford was negligible relative to the benefits the brand provided over competitors. However, he pointed out the challenge of finding charcoal grills in today’s market and attributed this to the market shift toward gas grilling. Consistent with Brian’s views, 60% of consumers perceive Kingsford ad a quality product. Additionally, one-third of charcoal purchases are impulse buys. The loyalty of many charcoal users is a strength for Kingsford and an important factor in their 2001 plan.
  • Job Sharing – The Fair Labor Standards Act does not address job sharing, leaving the arrangement to agreement between the employee and employer. According to the U.S. Department of Labor, “[t]he benefits of job sharing are said to include increased morale and productivity.” Job sharing can be an effective tool for recruiting new and retaining existing employees. Further, job sharing is known to be one strategy used by employers to avoid involuntary reductions in workforce.

Internal Environment & Analysis

  • The Clorox Company – Founded in 1913, Clorox has grown from selling only liquid bleach in the San Francisco Bay area to selling 50 products world-wide in 2000. The company was acquired by Procter & Gamble in 1957, but divested in 1969 after more than ten years of litigation whereby the U.S. Federal Trade Commission challenged the acquisition on the grounds that it would create a monopoly in the household liquid bleach market. After divestiture, Clorox pursued a growth strategy that has led to a portfolio of 50 products sold globally.
  • Brand Management – Each Clorox product group is managed by a brand team, composed of a brand manager and several associate brand managers. The brand team is responsible for setting business strategy, understanding the consumer, developing advertising, creating short-term forecasts, and helping with sales promotion. Marcilie Smith Boyle and Allison Warren share the responsibilities of the Kingsford brand manager role, each working three days per week and overlapping on Wednesdays. Job sharing gained popularity in the 1990s as a method to provide highly talented employees flexibility and potentially create synergies through co-leadership. However, the current environment for Kingsford requires swift planning and action, in order to return sales growth and profitability. Collaboration of these co-leaders in this critical position once per week is interfering in the efficiency of progress and could ultimately interfere with the effectiveness of the 2001 Kingsford strategy.
  • Kingsford Charcoal – Kingsford represented one of the largest product groups among the entire Clorox portfolio and generated 9% of Clorox revenues in 2000. The original Kingsford plant was built in the 1920s when the process of turning wood scraps into charcoal briquettes was commercialized by Henry Ford and E.G. Kingsford and the plant was purchased by Clorox in 1973. Kingsford offers a variety of charcoal products, including their “regular” charcoal and Match Light, which are distributed through food stores (66% of total sales), mass merchandisers and Wal-Mart (15%), drug stores (2%), and club stores and other non-traditional outlets (16%). Regular charcoal accounts for 75% of Kingsford’s total shipments. Presumably due to Kingsford’s proportion of Clorox revenue, there is a high correlation between Kingsford and Clorox making their financial targets.
  • Threats – While competing charcoal products do provide a threat to Kingsford’s success, the most significant threat is gas grilling as an alternative to charcoal. Appendix A shows a product attribute matrix comparing charcoal and gas grilling. Gas grilling is superior to charcoal grilling in four of the six key product attributes. Appendix C illustrates that Kingsford is not only protecting its market share in the charcoal category, but increasing it. This increase category market share has come primarily from the loss of private label charcoal sales. Together, this data supports a focus on gas grilling as the primary threat to Kingsford’s business.
  • Pricing – Kingsford pricing varies based on product type and size. The price of Kingsford regular and Match Light products ranges from $4.25 for a 10 lb. bag of regular charcoal to $8.07 for a 15 lb. bag of Match Light. While Kingsford has not raised prices in recent years, channel partners have slightly increased Kingsford prices to consumers (approximately 5%). Even with this unplanned price increase to consumers, Kingsford has increased its market share in the product category. A critical pricing issue is the narrowing of the price gap between Kingsford and private label brands. Kingsford should seek to maintain a moderate gap between its quality product and private label brands.
  • Capacity – With the high cost of expansion and lengthy runways for the permit processes involved, Kingsford must recognize that this is becoming a more pressing issue. Kingsford’s current capacity of 80% does not require immediate action, considering the slowing category growth, but Kingsford capacity should be monitored closely to avoid unattractive options to address capacity shortages.
  • Competitive Advantage – Order of market entry and superior product quality are the strengths that give Kingsford an advantage in the market and have lead to more than 50% market share.
  • Pricing Alternatives – The Kingsford brand team has considered four different pricing scenarios and reviewed sales and profit projections for each. The first and second scenarios, a 4% Club/Home Center price increase and a minor price increase of ~2.5% for blue bag charcoal across all channels, are projected to generate a net profit loss. The third scenario, a 5% blue bag increase across all channels is projected to generate a positive 950 million profit impact. The fourth and final scenario, a 5% increase of both blue bag and red bag products across all channels is projected to have a positive $2.5 billion profit impact.

Summary and Conclusions

  • Kingsford has been producing a product that is better than its competition for more than 75 years. The challenge for the Kingsford brand team is that the benefits and quality of the product are not readily recognizable when comparing the products on the shelf. The team must always be reinforcing the benefits of the product through well-aligned and creative marketing strategies. Additional media advertising will be effective in this effort, as well as the ongoing feature promotions, while a price increase will support the product position as one of quality and differentiation. The grilling market is undergoing a gradual market redefinition where consumer demand is shifting to gas grilling. This strategic change could be considered a threat or opportunity depending on how Kingsford reacts. Kingsford’s media advertising will help address the market shift to gas grilling and the firm should look to benefit from the shift through product development that brings the benefits of gas and charcoal grilling together.
  • Charcoal is generally sold through a modified push strategy. Charcoal is often an impulse purchase and visibility in retail outlets is critical. Consumers do not necessarily seek out charcoal when they shop, but the product does not necessitate personal selling. While media advertising may not appear to directly play into the impulse nature of charcoal purchases, we contend that it could do just that by generating an impulse in consumers to have a barbecue. This will translate into sales growth because consumers will seek out the product even though they are not usually located at the point of purchase when the media advertising reaches them.
  • Marcilie Smith Boyle and Allison Warren share the duties of senior brand manager for Kingsford. While we recognize the benefits this arrangement can provide to the employees and the company, there is significant risk that the arrangement could inhibit efficient progress on Kingsford’s 2001 plan. During this critical planning period for Kingsford, Smith Boyle and Warren should re-arrange their normal schedule to create more overlap where they can ensure they are in sync and developing an effective plan for Kingsford’s continued success.
  • Kingsford has slightly raised its promotional activity in 2000 (+ 1.8%) while Royal Oak reduced its promotional activity by more than half. However, the incremental volume from Kingsford promotional activity remained virtually unchanged. When analyzing the types of promotions undertaken by Kingsford in 2000 and comparing this with 1999 promotional activities, it appears the Kingsford has increased their use of temporary price reductions and features while reducing their display promotions. Kingsford products do not compete on price and this data shows the conflict of discount pricing, even temporarily, a differentiated product.
  • Kingsford should invest in research & development to develop new products for the gas grilling segment of the market. Self-contained charcoal packs that could be placed in gas grills or a new super-compressed charcoal briquette made of pumice and hickory are potential ideas for new product development that would transfer the strength of the Kingsford name to the strongest growth sector of the segment. In concert with this effort to generate sales by offering complementary products to a new category in the market, Kingsford must develop alliances with leading grill manufacturers. The primary objective should be to increase the breadth of charcoal grill product offerings but this effort could also result bundled products that would inspire more loyal Kingsford users.
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2 Responses to “Kingsford Charcoal Marketing Analysis”

  1. Don Says:

    Why hasn’t Kingsford made any improvements in their charcoal lighter over the years?

  2. Allison W Says:

    Your analysis is 2×4 and misses important nuances in consumer emotional connection to the brand and category, as well as emotional/ non rational internal management factors.

    Regarding your analysis of job share, you again need to look more deeply. The “risk” you allude to is steeped in fear of the unknown vs reality. Warren and Smith Boyle took a declining brand in a declining category and turned both around for unprecedented growth in under 1 year. Clorox literally coolant make enough Kingsford the following year. Why– two heads are better than one.