Whiskey and Cheddar: A Case Study Analysis

Theo Johnson

August 8^th, 2020

Marketing 3052

Case Analysis: Whiskey and Cheddar

 

            Caesan Cheese Cooperative is relatively small, family owned, Wisconsin based Cheese producer generating $50 million in revenues almost entirely through retail channels where their award winning Irish influenced American cheeses are available.  Their results in taste tests and competitions leave no doubt about the quality of their product but the company faces a serious business problem.  Succinctly put, Caesan faces low return on share holder equity because of low gross margins.  Caesan’s cheese is well received by “Foodies” and “Socially Conscious” Consumers but brand awareness is low.  With pressure from their retail channel partners to further lower prices and frequent retail discounting, this small player in a fragmented industry with low margins and little bargaining power has to find a way to create more value for their customers that they can capture with a higher price point and larger volume.  The growing popularity and higher MSRP of artisan cheddars offers hope, but the cost of goods sold are also higher. Adding flavoring could help justify a higher MSRP and help to widen gross margins.  While their Irish Whiskey Cheddar has won awards and taste tests, Caesan lacks the brand awareness of its key competitors.  When PR-U approached Caesan about the possibility of using Jameson Whiskey as branded ingredient in partnership the alliance was immediately appealing as unlike Caesan, Jameson is well known by consumers, dominating the Irish Whiskey market while inducing significant brand loyalty.  

            Caesan’s VP of Marketing and Product Development has several options: 1. Deciding not to launch a new product and instead focusing on selling more direct to consumers 2. Launching an artisan whiskey cheddar without any ingredient branding or 3. Entering into an Ingredient Branding agreement with PR-U to launch Artisan Jameson Whiskey Cheddar.  Selling to direct to consumers widened margins but was not supported by the board due to the limits of online cheese sales.  Caesan’s success in competitions proved they could produce a high-quality artisan cheddar cheese and the taste tests showed that it was favored 2-1 over their primary competitors.  Their primary competitors producing Irish Cheddar did not use branded whiskey as an ingredient and launching a Cheddar Whiskey without PR-U would save Caesan the $.25 royalty they would need to pay per Unit as a term of the agreement.  Caesan; however, lacked the brand awareness of Kerri Gold or Cahill and so the cost of marketing to launch without the Jameson branded ingredient would be higher. 

Using Jameson Whiskey as a Branded Ingredient offered an opportunity to benefit from  the popularity of the Jameson Brand and gain consumers without spending as much on marketing the product’s launch.  As Dawn Iacobucci explains in Marketing Management, “Ingredient Branding is the primary form of cobranding in which one of the companies and its product is the primary host, and the other company and its product add value to the host product (Iaocobucci, p. 102).” The Jameson branded Ingredient would clearly add value to Caesan’s Whiskey Cheddar (host product) as shown in the A/B tests where the Jameson branded version was put in the cart 170% as frequently as Caesan’s unbranded Whiskey Cheddar.  Both Caesan and Jamison were known for producing high quality Irish heritage products. Caesan made excellent Artisan Cheddar and Whiskey was a logical added ingredient that fit with the company’s heritage and legacy, important to their socially conscious consumers. The high quality of the end product as shown by their success in taste competitions is important to Foodies and drew the attention of PR-U to offer the deal.  The product fits a growing part of the cheese market (artisan cheddar) with the potential for a higher MSRP and margin that Caesan is well positioned to serve (high quality).  

As detailed break even analysis shows, the VP should recommend Caesan enter into an alliance with PR-U to launch Jameson Irish Whiskey Cheddar because the marketing benefits (in the form of promotion savings) outweigh the cost of paying PR-U the $.25 per unit.  By deducting the combined COGS -raw (.56), prod (1.06) and distribution (.95)-, coupon rate (.09) and trade allowance (.15) from the wholesale price of 4.75 the unit contribution for unbranded Whiskey Cheddar is $1.979.  By dividing the projected total investment 1.8 million by the unit contribution of $1.94 we learn that the break-even point without PR-U is 928,314 units.  The unit contribution from the Jameson branding is .21 less ( - .25 to PR-U, + .02 for lower coupon and + .02 lower trade allowance) but the total investment is only $1.4 million.  Dividing $1.4 million by 1.729 we find the break-even point is lower at only 809,716 units and therefore, partnering with PR-U entails less risk than launching independently. While using unbranded whiskey may offer a slightly higher profit at 2 million units, the higher sales potential of partnering with PR-U means that the Jameson Whiskey Cheddar product launch offers both lower risk (reached Break even sooner) and higher overall revenue and profit potential.