Case study: Disappointment for Disney's extensions

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Building a package-food brand in the U.S. is clearly harder than Walt Disney Co. had expected.

When the company signed Coca-Cola Co. in February 2001 as its partner to build a family of Disney character-branded kids' beverages, research showed the products would be a huge success. Soon after, as part of its initiative to make its brand ubiquitous in grocery stores, it forged a deal with Kellogg Co. for breakfast foods and then cookies and crackers.

Now, Disney has discovered its projections were overly ambitious. Its partners, locked into 15-plus-year deals, are finding it tough to charge a premium and leverage the Disney-themed brands profitably in the long term. Almost a year after Minute Maid's launch of a line of 18 products playing off Mickey Mouse, Winnie the Pooh and others, retailers are pulling varieties instead of feeling the magic. And Kellogg-on the eve of launching the Disney brand into the highly competitive cookie and cracker category-is seeing modest sales for the trio of Disney cereals it launched less than six months ago decline.

"Initial numbers [on what the products would do] were staggering and had we followed through with those, it would have been a phenomenon," said Andy Mooney, president of Disney Consumer Products Worldwide. As it is, though, "the numbers are settling in to a more reasonable realm of reality," he said, adding, "we're perfectly happy with the share."

Mike Keown, VP-general manager of shelf-stable beverages at Minute Maid, said its Disney juices are on track to reach a quite respectable $400 million business globally in year one, $175 million of that in the U.S. (Information Resources Inc. figures show the brand garnered $99 million in sales in outlets excluding Wal-Mart as of July 14.) That said, however, Mr. Keown acknowledged that "we had very, very high expectations for the product" and noted that competitive pricing in the U.S., namely from well-entrenched kids' beverages such as Nestle's Juicy Juice and Kraft Foods' Kool-Aid, has "limited consumer trial."

Turn of events

One Northeast retail executive put it more bluntly: "Juicy Juice is killing them," he said. "We had a mutually agreed-upon [sales] commitment and [Minute Maid] is delivering roughly 50% of that." The retail executive said he planned to cut the number of Minute Maid's Hundred Acre Wood and Mickey Xtreme! Coolers varieties to 12 from the original 18, and added that Minute Maid has in some markets been forced to drop its price from the regular $2.99 for its multi-serve bottle to 99 cents.

The turn of events is disheartening because of the initial enthusiasm of retailers, which allowed Minute Maid to get nearly full distribution in less than 12 weeks vs. the more standard 16. As a result, however, the brands went unsupported in the market for nearly three months before advertising began. Now, though, Mr. Keown points to the "home run" testing levels of its advertising, from Bcom3 Group's Leo Burnett USA, Chicago, which he said continues to increase trial curves, and to the planned launch in test markets of new Disney beverages in areas including dairy, waters and drinkable yogurts (AdAge.com QwikFIND aan86f).

As for Kellogg, global sales of the Disney lines are projected to be a more modest $150 million for cereal in its first year. IRI figures show that sales of the Disney entries actually declined roughly 20% in volume for the 16 weeks ended July 14 vs. the previous 16 weeks. Total sales so far have reached $49 million, according to IRI.

Kellogg embarked on the 15-to-20-year deal with Disney in large part to "break out of" deep-discount pricing that has defined the cereal category, especially in the hugely competitive kid-focused segment. But "we're not picking up extra volume because of the fact that our competitors' [products] are inevitably on sale for $1.99," said Graham Petersen, VP-new brands at Kellogg. "The plan was to get at the consumer a different way-with ads and promotions vs. trade discounts," he said. But the reaction of the trade to that strategy has been less than stellar.

One Midwest retail executive cited Kellogg's desire to promote the Disney cereals at a premium price as the reason for their failure to thrive. "Because [marketers] pay so much [for the license], they can't promote the products heavily," he said. Disney's Mr. Mooney countered that there is no correlation between licensing fees and promotional activity.

Mr. Petersen said, "We priced these cereals in a premium fashion because we believe in the equity of the [Disney] characters," but added that Kellogg must better engage moms if it hopes to command such a premium. "That is the critical piece [of the Disney partnership] that no other licensing agreement could offer because mom didn't grow up with [Nickelodeon's] SpongeBob [Square Pants]," he said.

more extensions

Advertising for the cereals, also from Burnett, has until now been directed solely at kids. Kellogg put $5.5 million in spending toward the cereals from January through May, according to Taylor Nelson Sofres' CMR.

Kellogg, meanwhile, is on track to extend the Disney brand soon to new Keebler cookies and crackers as well as to Eggo waffles in 2003. Part of the learning from the cereal launches, Mr. Petersen said, is managing expectations of the grocery retail trade. "The sell-in was so enormous and the off-take was very good, but the difference between enormous and very good is [excess] shelf inventory."

Disney's Mr. Mooney acknowledged that the extension of the Disney brand has been far more successful in international markets than in the U.S. Mr. Keown predicted that over time, the U.S. market for the Disney/Minute Maid beverages is likely "to become a fairly small percentage of the total sales, especially as Disney expands with Euro Disney."

Disney plans to continue its extensions with the launch of a line of confections next summer with a yet-to-be named partner, as well as extensions into ice cream and salty snacks. An executive close to the situation said previously that Wm. Wrigley Jr. Co. is in talks with Disney. But Kathryn Olson, VP-U.S. consumer marketing at Wrigley, said that while the company is open to licensing and is having talks with "various groups," nothing is confirmed.

Not everyone is optimistic. Don Pettit, president-CEO of brand identity firm, Sterling Group, said that by extending the characters into so many channels, Disney may be "taking these American icons and devaluing them by their omnipresence."

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