Our client is RefreshNow! Soda. RefreshNow! is a top 3 beverage producer in the U.S. and has approached McKinsey for help in designing a product launch strategy.
Description of RefreshNow! Soda
As an integrated beverage company, RefreshNow! leads its own brand design, marketing and sales efforts. In addition, the company owns the entire beverage supply chain, including production of concentrates, bottling and packaging, and distribution to retail outlets. RefreshNow! has a considerable number of brands across carbonated and non-carbonated drinks, 5 large bottling plants throughout the country and distribution agreements with most major retailers.
RefreshNow! is evaluating the launch of a new product, a flavored non-sparkling bottled water called O-Natura. The company expects this new beverage to capitalize on the recent trend towards health-conscious alternatives in the packaged goods market. RefreshNow!’s Vice President of Marketing has asked McKinsey to help analyze the major factors surrounding the launch of O-Natura and its own internal capabilities to support the effort.
QUESTION 1: What key factors should RefreshNow! consider in deciding whether or not to launch O-Natura?
A good answer would include the following:
Consumers. Who drinks flavored water? Are there specific market segments to address? Cost/Price. Is the flavored bottled water market more profitable than those markets for RefreshNow!’s current products? Is it possible to profitably sell (price set by the market, internal production costs) O-Natura? Given fixed costs involved, what would be the break-even point for O-Natura? Competitors. Which products is O-Natura going to compete with? Which companies are key players and how will they react? A very good answer might also include multiple additional key factors RefreshNow! should consider. For example: Capabilities and Capacity. Are the required marketing and sales capabilities available within RefreshNow!? Does the product require specialized production, packaging, or distribution? Is it possible to accommodate O-Natura in the current production and distribution facilities? What impact does geography have on the plant selection? Channels. What is the ideal distribution channel for this product? Are current retail outlets willing to add O-Natura to their product catalogue?
QUESTION 2: After reviewing the key factors RefreshNow! should consider in deciding whether to launch O-Natura, your team wants to understand the beverage market and consumer preferences to gauge potential success of O-Natura.
The bottled market splits into non-sparkling, sparkling, and imports. Flavored water falls within non-sparkling. Your team has gathered the following information on the U.S. bottled water market. The information shows an estimate for the share of flavored water, as well as the current share for the two main products: Cool and O2Flavor.
Based on the target price and upfront fixed costs, what share of the flavored non-sparkling bottled water would O-Natura need to capture in order to break even? Here is some additional information for you to consider as you form your response:
O-Natura would launch in a 16 oz. presentation (1/8 of a gallon) with a price of $2.00 to retailers.
In order to launch O-Natura, RefreshNow! would need to incur $40 million as total fixed costs, including marketing expenses as well as increased costs across the production and distribution network.
The VP of Operations estimates that each bottle would cost $1.90 to produce and deliver in the newly established process.
A very good answer would include the following:
O-Natura would need to capture a 12.5% market share of flavored non-sparkling bottled water in order to break even. Therefore, O-Natura would need to be the Number 2 product in the market: 1. O-Natura would need to sell 400 million units in order to break even:...
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