Reference no: EM131039758

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SHORT CASE #1 Can Stay Crisp Go National? The Company: Stay Crisp of Maplewood, N.J., a maker of freeze­dried fruit snacks sold in silver packages that has seven employees and had 2008 revenue of $2.2 million. The snacks are a gluten­, dairy­ and nut­free alternative to chips. The Challenge: To increase sales aggressively. Stay Crisp wanted to get its snacks on the shelves of major national food chains. But it didn't want to sacrifice profitability by doing what chains generally require: discounting products steeply and paying expensive fees in exchange for shelf space. The company lacked the cash to "pay for play" the way Kraft or General Mills might. And it feared that discounting its product would undercut its premium image and hurt relationships with its existing customers. The Background: Since 2005, when Stay Crisp introduced its freeze­dried slices of apples and pears, the company has stuck to a "transparent" pricing policy, giving wholesale customers, large or small, the same rates. Among other things, Daisy Chen, the company's chief executive and founder, feared that choosing to discount or to pay fees might represent a slippery slope that would undermine the company's long­term prospects. A first­time entrepreneur who had left a chemical engineering career in pharmaceuticals to start Stay Crisp, Ms. Chen knew she was going against the grain. Early buyers included mom­and­pop stores and gourmet grocers like Central Market in Houston and Balducci's in New York. By the start of 2008, having built relationships with some 200 independent groceries and small chains across the United States, Stay Crisp was growing at a year­over­year clip of 80 percent. But as Ms. Chen prepared to approach buyers and distributors at bigger chains, a Stay Crisp consultant, Alan Levitan, a 30­year veteran of the grocery industry, warned that her pricing policy could become an impediment. She remained optimistic - until a meeting in late October 2008 between her sales staff and UNFI , a specialty foods distributor that works with Hannaford Supermarkets, a grocery chain with more than 150 stores in the northeastern United States. UNFI seemed to view Stay Crisp favorably but said Hannaford's corporate policy required discount terms - 10 to 15 percent lower prices than the Stay Crisp would offer other wholesale customers - to fuel special sales throughout the year. UNFI wouldn't even show Stay Crisp products to Hannaford buyers unless Ms. Chen agreed to the discounts. Ms. Chen responded that selling Stay Crisp at 15 percent off one week and at the suggested retail price the rest of the season could actually drive shoppers to buy less often, encouraging them to wait for specials and thereby hurting sales volume for Stay Crisp as well as for Hannaford. She concluded that offering "high­low" pricing to please a distributor was too much of a sacrifice - no matter how desirable the relationship. As it happened, however, sales at Stay Crisp's largest retail partner to date, the Northeast division of 7­Eleven, were slowing. Ms. Chen's buyer contact there suggested the fruit snacks were getting lost among a huge variety of items. He believed that, after a great debut, the snacks needed to be "refreshed." Maybe special sales could do that. Ms. Chen began to wonder: Was it time for a new pricing strategy? Or was it time to abandon the hope of growing through major chains? The Options: Ms. Chen and Mr. Levitan deliberated over the pricing strategy for weeks, but she continued to follow her instincts. "I think like a shopper," she said. "What I don't want in the middle of a recession is for prices to go up on a favorite snack." Whatever she did, she didn't want to give major chains a huge advantage over the smaller outlets whose loyalty had helped her establish the business. They settled on two options: One was to cut operating expenses enough to create a new layer of lower, bulk wholesale prices that could be extended across the board. This would be intended to satisfy the major national groceries - but not to favor any one chain. To cut expenses, Mr. Levitan suggested scaling back plans to refresh the brand's packaging and Web site.

The second option was to forget the big chains entirely and try to expand within existing channels. To sell a higher volume of Stay Crisp where it was already known, Ms. Chen thought, she'd probably have to introduce and market new flavors and pack sizes to stimulate shopper interest. This could get expensive, she feared. Or worse, it could tax Stay Crisp's fruit supply chain