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Competitive Threat

Medium
Manufacturing
Market Sizing
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This case is an assessment of the threat posed by private labels. The candidate will be required to deeply explore all internal and external issues impacting the client and will be asked to justify his/her recommendation.

Your client is a U.S.-based manufacturer of branded cookies (cookies that carry the name of the manufacturer.)

Recently private label cookies (those carrying the name of the retailer) have emerged and threatened branded cookies. Private label cookies are made by the same manufacturers who make branded cookies; they are just sold under the name of the retailer.

Question 1
How large would you estimate the overall U.S. cookie market to be in $ terms?
Question 2
How large of a threat do you believe the trend in private label cookie sales to be to your client?
Private Label Information
• Private label cookies emerged five years ago
• Two and one-half years ago they made up 10% of the overall cookie market (brand being the other 90%)
• Today they make up 20% of the overall cookie market (i.e., there has been a steady, linear increase of the private label portion of the overall cookie market during the past five years)
• The overall cookie market has been relatively flat over the past five years
Competitive Landscape
• Your client, who makes only branded cookies
• A second major player, that makes both branded cookies and supplies cookies for private labelers
• A collection of small outfits, that make both branded cookies and supply private labelers
Distribution Strategy
Distribution occurs primarily through one of two types of outlets:
• Grocery outlets: all grocers sell branded cookies, most also carry their own private label cookies which represents 90% of total cookie sales
• Mass merchandisers (e.g., Wal-Mart, Sam’s): sell only branded cookies
What are the sales trends for the client over the past five years?
Your client’s sales have been flat at $600M for the time frame of five to two and one-half years ago. Over the past two and one-half years, sales have decreased steadily down to a present level of $560M.
How has market share of the private label segment been split over the past five years between your client’s main competitor and the other smaller players?
The smaller players combined had 100% of the private label sub-segment five years ago. Two and one-half years ago your client’s main competitor began supplying private labelers. Today, this main competitor owns 40% of the private label sub-segment; the smaller players own the remaining 60%.
How has market share of the branded segment been split over the past five years?
Your client held 60% of this segment five years ago, 67% two and one-half years ago and 70% today. Its main competitor held 30% five years ago, 25% two and one-half years ago and 23% today. The combined smaller players owned 10% five years ago, 8% two and one-half years ago and 7% today.
How does the quality of a private label cookie compare to that of a branded cookie?
Consumer studies have shown that there is a noticeable difference in taste, texture and quality in favor of the branded cookies.
At the manufacturing level, what is the difference in cost of production and price between branded and private label products?
It costs approximately $1.50 to manufacture a bag of private label cookies which will sell for $2.00 to retailers. It costs approximately $2.00 to manufacture a bag of branded cookies which will sell for $2.75.
How do the same numbers translate at the retail level?
A retailer, paying $2.00 for private label cookies, can sell that product for $2.50. The $2.75 bag of branded cookies can be sold for $3.50.
The key finding is that from a cost-price-margin perspective it is advantageous forboth the manufacturers and the retailers, with all else equal, to sell a bag of branded cookies. Other factors must be contributing to the demand for private label cookies. Think about the incentives at each level in the chain (manufacturer, retailer and consumer). The following questions can help fill details:
Has there been excess capacity at your client, its main competitor or the smaller competitors that has been used up via manufacturing of private label products?
There was some excess capacity at the smaller competitors and your client’s main competitor (your client is unsure as to how much). There is little excess capacity anywhere in the industry today.
Are grocery stores using private labels in other food categories?
Yes, there has been a major push by grocery stores to populate shelves.
Is competition increasing or decreasing among grocers?
Generally increasing. Grocer chains are expanding and the number of grocers to be found serving a given area has increased over the past five years.
What general macroeconomic trends have occurred over the past five years?
The economy has been slowing. There is concern about recession.
Question 3
Upon assessment, what is an appropriate strategy for your client to follow?

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Published July 17, 2025 • 40 views
Firm/University: Kearney
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