Capri sun : Does the Choice of Sweetener Affect Product Sales?

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1 Capri sun : Does the Choice of Sweetener Affect Product Sales? Martin Concannon, Managing Director, Lafayette Associates Aron Levin, Ph.D., Owner, Levin & Associates Marketing Research 1

2 Executive Summary Drink manufacturers and marketers alike are concerned whether their choice of sweetener sugar or high fructose corn syrup (HFCS) affects product sales. More important, will switching from one sweetener to another have an effect on sales of an already popular drink brand? This case study explores how Kraft Foods switched from sweetening its popular Capri Sun drink pouch with HFCS to sugar and then back to HFCS over the course of three years. By analyzing the sales and other data during this period, one can determine the impact this change had on product sales. After examining sales, category share, product pricing, manufacturing costs, as well as other factors, we found the following: The type of sweetener used in Capri Sun during our reference period had no significant impact on share growth. An initial bump in sales during the transition period (from HFCS to sugar) can be attributed to the Respect the Pouch promotional campaign. Seasonality and price have the greatest effect on product sales. During the reference period, Capri Sun sold an average of 51.8 million units annually when sweetened with HFCS compared to 50.9 million units annually when sweetened with sugar. As indicated by the relative steady sales of the Capri Sun flagship brand and the growth of its HFCS-sweetened Roarin Waters brand, the total amount of added sweetener in a product matters more to consumers in this category than does the specific type of sweetener used. Based on the higher cost of sugar, Kraft spent about $18 million more a year ($1.5 million per month) to sweeten Capri Sun with sugar instead of HFCS million units sold sweetened with hfcs 50.9 million units sold sweetened with sugar BUT SPENT +$18 million on sweetening per year Source: The Nielsen Company, February Capri Sun is a registered trademark of Rudolf Wild GmbH & Co. KG.

3 it appears that manufacturers would realize a stronger sales increase by reducing overall sugar content than by reformulating without HFCS. MINTEL GROUP Source: Understanding Sweetener Usage by Category and Consumer Segment, August 2012 Background It should be no surprise that consumers want more nutritious food and beverage products. Of all the ingredients in these products, sweeteners have come under the most scrutiny. That concern raises an important question for marketers: Will a product using one sweetener sell more than a similar product using another sweetener? Kraft Foods markets fruit-drink pouches for children under the brand Capri Sun. Considering Capri Sun is a product marketed to parents but consumed primarily by children, we would expect Kraft to be sensitive to parents health concerns for their children. Kraft manufactured Capri Sun using HFCS as the sweetener. In 2008, the company switched gears and began using sugar as the sweetener. In 2011, Kraft switched back to HFCS. This change presents a unique opportunity to compare sales before, during and after the switch, to better understand how Kraft s choice of sweetener affected product sales, if at all. Capri Sun markets sweetened, fruitflavored beverages packaged in foil pouches. Most of these products are sold in cartons of 10 pouches and come in a variety of flavors. The Capri Sun umbrella brand comprises three distinct sub-brands: Capri Sun flagship brand accounts for 70 to 80 percent of the total Capri Sun sales volume in the United States. Capri Sun 100% Juice, a juice product with no added sugar, makes up roughly 8 percent of the total Capri Sun sales volume. Roarin Waters, described as a fun fruit-flavored water beverage from Capri Sun, is a reduced-calorie, reducedsugar fruit drink sweetened with HFCS. At the beginning of the reference period, this product had about 9 percent share of Capri Sun revenues, but, by the end, it accounted for nearly 20 percent of revenues. Capri Sun has two important characteristics that make it an interesting subject for analysis. 1. the product is relatively high in sweetener content. 2. the brand is marketed to parents, but consumed by children. Our reference period of March 2007 to February 2012 covers Capri Sun s two sweetener changes, providing ample data to review sales trends against those reformulations. Our analysis considered several facets of Capri Sun brand performance and the business drivers that impact them, including actual sales, baseline sales and relative pricing. Although our focus for this research is on a type of sweetener, recent opinion research from Mintel reveals that consumers are more likely to be concerned about overall levels of sugars in a product than they are a specific type of sweetener, like HFCS, for example: Based on the high [consumer] levels of total sugar avoidance, rather than specific ingredients such as HFCS, it appears that manufacturers would realize a stronger sales increase by reducing overall sugar content than [by] reformulating without HFCS. Capri Sun enables us to test this hypothesis, since it introduced an HFCS-sweetened product called Roarin Waters that has lower overall added sugars than its flagship product. More on that later. 3

4 Why the Switch? In 2008, when Kraft switched from HFCS to sugar, the company didn t explain why it made the move. However, when Kraft switched from sugar back to HFCS in 2011, the company posted a statement on its website, explaining, We made this change to help better manage costs for consumers in today s difficult economic environment while preserving the good taste families expect. If Kraft intended a sweetener change to improve Capri Sun s economic performance, then success could reasonably be measured in any of several ways: Consumers would pay a higher price for Capri Sun. Consumer households would buy more often. Consumer households would buy larger quantities. More households would purchase Capri Sun than did before the sweetener change. We made this change to help better manage costs for consumers in today s difficult economic environment while preserving the good taste families expect. capri sun Source: Kraft Foods CAPRI SUN website 2011 Respect the Pouch Promotional Campaign Boosts Sales Around the time that Kraft switched from HFCS to sugar as the sweetener in Capri Sun (spring 2008), 1 the company launched an award-winning promotional campaign called Respect the Pouch. This campaign presents a challenge in distinguishing between an impact on sales generated by advertising and promotional activities and any impact attributable to other factors such as changes in sweeteners, price or retail distribution. 2 Nonetheless, extensive media coverage of the Respect the Pouch campaign and the awards it received, together with the lengthy deployment of the campaign itself, provide compelling evidence that Respect the Pouch was a significant force behind the performance gains that Capri Sun realized during the reference period. 4

5 The sweetener type has little or no effect on the purchase decision for the vast majority of Capri Sun customers. key findings To understand the true impact Kraft s choice of sweetener had on Capri Sun sales, we examined sales/category share, relative pricing, unit shares, total price unit, commodity volume and cost per pound of ingredient of the product containing sugar and HFCS. Here s what we found: Sales & Category Share If the type of sweetener used in Capri Sun were a significant factor in consumers purchase decision, we would expect to see a distinct change in sales volume after any change in sweeteners. After examining product sales, we found year-over-year sales did increase in each 52-week period following the switch from HFCS to sugar in Capri Sun category share increased by 0.5 percent in the first year after the switch to sugar. The brand s share increased an additional 0.9 percent in the subsequent 52 weeks. Overall, when sweetened with HFCS, Capri Sun sold an average of 51.8 million units annually, and when sweetened with sugar, 50.9 million units annually, during the reference period. The span of available data illustrates nearly four full years of performance; annualized sales growth was the highest during the two years between changes in sweetener. YEAR-OVER-YEAR SALES COMPARISONS 52 weeks Ending Change in Sweetener from Prior 52 weeks Annualized Sales Growth Category Share 6/14/ % Change in Category Share 6/13/2009 YES 1.3% 10.3% 0.5% 6/12/2010 NO 10.7% 11.2% 0.9% 6/11/2011 NO 6.5% 11.0% -0.2% 2/18/2012 YES 5.5% 11.3% Between June 2008 and February 2012, when HFCS was back in its formulation, Capri Sun realized a net gain in market share of 1.5%. Source: The Nielsen Company, February 2012 CATEGORY SHARE: APRIL 2007 FEB Annualized sales growth was highest during the two years between changes in sweetener. Source: The Nielsen Company, February

6 key findings Relative Pricing Historically, Capri Sun s retail price has been at a premium to its category; as measured by Nielsen, the brand s baseline price per unit 3 has ranged from 120 to 125 percent of the category average. This level has been consistent over time, with one notable exception. At about the same time that Capri Sun switched to sugar and launched its Respect the Pouch promotional campaign (June 2008 to June 2009), the relative price of the brand began to rise. Within six months, Capri Sun had pushed the price to a peak of nearly 150 percent of the category average. It s important to note that even though the relative price increased, sales and share growth remained flat. The relative price differential subsequently trended down to its RELATIVE PRICE: APRIL 2007 FEB historical average of about 125 percent against the category, where it remained through early Annualized sales growth increased significantly, although share of category moved little. These figures indicate Capri Sun s promotional campaign and its switch to sugar weren t compelling enough to support a higher price premium. In fact, it wasn t until the prices returned to the average of 125 percent of the category in mid-2009 that Capri Sun saw a meaningful increase in category share. Finally, when Capri Sun switched sweeteners back to HFCS, it left relative pricing constant. Figures indicate Respect the Pouch and the switch to sugar wasn t enough to support a higher price premium. Independent Variables of Note There were several independent variables that affected Capri Sun product sales during the reference period. Our evaluation of these independent variables led to these four findings: Capri Sun total price per unit (TPPU) ranged from $2.05 to $2.49 during the reference period, with an average of $2.30. During the time Kraft used HFCS as a sweetener, the average TPPU was significantly lower than when Kraft used sugar ($2.25 vs. $2.33, respectively). Capri Sun s shelf footprint did not increase or decrease significantly during the reference period. We observed no significant difference in Capri Sun Total Percent All Commodity Volume (ACV) the total annual dollar sales of all items sold. Seasonality plays a significant role in product sales sales of Capri Sun peak in May/June and September/October and fall in November/December yet does not differ significantly between HFCS periods and sugar periods. Eighty-four percent of the variation in Capri Sun sales was a result of seasonality and price per unit. ACV or sweetener choice had no significant impact on product sales. Source: The Nielsen Company, February

7 WHAT DID THE SWEETENER SWITCH COST CAPRI SUN? If the benefits of switching from HFCS never materialized for Capri Sun, what can be said about the costs? A complete economic analysis would include estimating both probable costs for equipment changeovers and additional labor for material handling and processing. 4 Given the proprietary nature of this information, and the inherent difficulty in estimating such costs with accuracy, we elected not to include them. Instead, this evaluation focuses on ingredient costs, which we are able to estimate with credible third-party data. When Kraft determined that the type of sweetener used in its Capri Sun flagship brand had no significant impact on sales, the company decided to switch back to HFCS because the sweetener was more cost-effective than using sugar. When Kraft switched the Capri Sun formulation back to HFCS, it posted on its website: Sugar prices have risen at unprecedented rates in the last 12 months and are at a 30-year high. We made this change to help better manage costs for consumers in today s difficult economic environment while preserving the good taste families expect. Traditionally, HFCS has been a much less expensive sweetener. Yet, when Kraft switched to sugar in Capri Sun in 2008, the cost of sugar was at a 20-year low. Then, the cost difference between sugar and HFCS increased substantially. Between 2009 and 2011, sugar prices increased $.18 (from $.38 to $.56), whereas HFCS prices fell $.04 ($.28 to $.24). Based on the higher cost of sugar, we can estimate that it cost Kraft about $18 million more a year ($1.5 million a month) to sweeten Capri Sun with sugar instead of HFCS. SUGAR AND HFCS PRICING Sweetener pricing plays a role in helping manufacturers manage cost for consumers. Source: U.S. Department of Agriculture, Economic Research Service,

8 ROARIN SALES WITH HFCS Perhaps the most compelling evidence that sweetener type has no significant impact on sales comes from the Capri Sun Roarin Waters sub-brand. Because Roarin Waters has not changed sweeteners, it was not a primary focus of our research. However, during the same period that Capri Sun s flagship brand changed sweeteners twice (from HFCS to sugar and then back to HFCS), sales of Roarin Waters grew by more than 23 percent annually in a category with an annual growth rate typically in the single digits. Nielsen classifies Roarin Waters as a flavored-water product, and not a fruit drink like the Capri Sun flagship brand, thereby warranting care in making comparisons. Nonetheless, we can note that while Roarin Waters has always been sweetened with HFCS, it is promoted as a product with lower added sugars further evidence that the total amount of added sugar in a product matters more to shoppers in this category than does the specific type of sweetener used, as the Mintel research supports. SALES: August 2009-may 2012 Source: The Nielsen Company, May

9 The type of sweetener had no significant impact on sales volume or share growth. conclusion Capri Sun s sales and category share and its relative pricing suggest that the type of sweetener used during our reference period had no significant impact on sales volume or share growth. At the same time, an increase in relative pricing coincided with a drag on sales volume just as the sweetener change and a promotional campaign took effect. It wasn t until Capri Sun s relative price level returned to its historical average against the category that the brand saw an increase in share, notably while the Respect the Pouch campaign continued. the total amount of added sugar in a product matters more to shoppers in this category than does the specific type of sweetener used. We found no bump or slump in sales or market share when Kraft switched from sugar to HFCS in This finding suggests that the market-share movement observed after the 2008 switch to sugar was driven by a new and exciting promotional campaign, not by a change in sweetener. Sweetener supply for U.S. Consumers Source: U.S. Department of Agriculture, Economic Research Service,

10 methodology Case study content was not part of any informal or proprietary discussions at Kraft. The comments and conclusions in this case study reflect the views of the authors and do not necessarily express the views of Kraft. The authors examined sales data compiled from U.S. supermarket shelves and consumers homes for the purpose of understanding what impact, if any, the change in sweetener type had on Capri Sun sales. Our data-driven analysis is based on data we commissioned from Nielsen. Point-of-sale (POS) scan data was used as a foundation to understand overall sales in aggregate. This data includes measures of sales, price and distribution. 5 Nielsen aggregated data into 64 four-week increments that ran from March 25, 2007, through February 18, This reference period data begins more than one year before Capri Sun switched from HFCS to sugar as its sweetener, and extends to almost one year after the switch back to HFCS, providing a complete view of sales performance throughout the two transitions. 6 Nielsen scan data is a powerful tool for looking at product category sales trends, and the sales performance of specific brands and SKUs by value and volume. The data also provides insights into category share, the breadth of retail distribution, pricing (both shelf price and deal price) and promotional activities. Nielsen scan data is a powerful tool for looking at product category sales trends, and the sales performance of specific brands and SKUs by value and volume. 10

11 references Bray, George A., Nielsen, Samara Joy, and Popkin, Barry M. Consumption of High-Fructose Corn Syrup in Beverages May Play a Role in the Epidemic of Obesity. American Journal of Clinical Nutrition 2004; 79: Drichoutis, A. C., Lazaridis, P., and Nayga, R. M., Jr. Nutrition Knowledge and Consumer Use of Nutritional Food Labels. European Review of Agricultural Economics, 32(1), (2005). Drichoutis, A. C., Lazaridis, P., and Nayga, R. M., Jr. Consumers use of nutritional labels: A review of research studies and issues. Academy of Marketing Science Review, 10.9 (2006). Eye Tracking Study Observes How Shoppers Use Food Labels. Found at com/2010/01/07/eye-tracking-study-observes-how-shoppers-use-food-labels/, accessed on June 1, FDA rejects industry bid to change name of high fructose corn syrup to corn sugar. CBS News Health Pop. Found at accessed on June 1, Govindasamy, R., and Italia, J. The Influence of Consumer Demographic Characteristics on Nutritional Label Usage. Journal of Food Products Marketing, 5(4), (1999). Guthrie, J. F., Fox, J. J., Cleveland, L. E., and Welsh, S. Who Uses Nutritional Labeling, and What Effects Does Label Use Have on Diet Quality? Journal of Nutrition Education, 27(4), (1995). Melnick, Meredith, Study: Why People Don t Read Nutrition Labels. Time Online, found at accessed on June 1, Nayga, R. M., Jr., Lipinski, D., and Savur, N. Consumers Use of Nutritional Labels While Food Shopping and at Home. The Journal of Consumer Affairs, 32(1), (1998). Nierenberg, Cari. Picking Healthy Meals Harder Than Doing Taxes? WebMD Health News, found at www. webmd.com/diet/news/ /picking-healthy-meals-harder-than-doing-taxes, accessed on June 1, Oneal, Michael. FDA rejects renaming of high-fructose corn syrup. Chicago Tribune Online, found at accessed on June 1, Tappy, Luc and Le, Kim-Anne. Metabolic Effects of Fructose and the Worldwide Increase in Obesity. Physiological Review 90: 23-46, Understanding High Fructose Corn Syrup. The Coca-Cola Company Beverage Institute for Health & Wellness, found at accessed on June 1, Footnotes Kraft won several award with the Respect the Pouch campaign. The particulars can be found on the Web, including from agency partner Razorfish. and at 3 Baseline price equates to a list price, and not the average price that all product is sold for, which will be lower than baseline due to the impact of promotional and temporary price-cutting activity. 4 As HFCS is transported and used in liquid form, it fits into a manufacturing process quite differently than sugar, which is most often (but not always) shipped in granular form. The fact that HFCS has different process qualities suggests that in many (but not all) manufacturing settings a switch from HFCS will necessitate changes in the manufacturing process and potentially changes in operating costs. 5 One characteristic of using Nielsen scanner data is that it is focused on important distribution channels, but does not cover every grocery distribution point. Two important distinctions: (1) Wal-Mart, the nation s largest retailer of groceries, with about 25 percent share has not traditionally provided shopper data to Nielsen, and (2) some smaller grocery outlets, particularly those with less than $2 million sales per year. 6 Note that with packaging and flavor variations, Capri Sun s volume was distributed over slightly more than 100 stock-keeping units (SKU). 11

12 About the authors Martin Concannon, managing director, Lafayette & Associates, has more than 20 years of experience advising senior executives of leading multinationals on business strategy, corporate finance, performance measurement and process improvement. He has served clients around the world in industries including consumer goods, manufacturing, chemicals and financial services. Dr. Aron Levin, owner of Levin & Associates Marketing Research, and associate professor of marketing, has been a faculty member at Northern Kentucky University since 2000 and is director of NKU s Marketing Research Partnership Program (MRP2), a unique collaboration of faculty, students and marketing research professionals. Dr. Levin received his Ph.D. in marketing from the University of Kentucky, his M.B.A. from Northern Illinois University, and a B.A. in communications from the University of Iowa. He has published numerous articles in academic and trade publications, such as the Journal of Consumer Psychology, Journal of International Consumer Behavior, and Quirk s Marketing Research Review. Case study was sponsored by the Corn Refiners Association. For more information, visit CornNaturally.com.

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