Cinnamon RollsTM
BBUS 421A
Consumer Marketing
Professor Sandeep Krishnamurthy
April 17, 1997
Analysis By:
Mark Cottrell
David Hui
Gigi Stezovsky
Gilmere Vieira
Karen Yau
This work is a synergistic product of many minds. To that end, we would like to thank the following company employees
for their time, patience, and insight in answering our questions and allowing us to survey their customers. We would also like to thank Kristen Werner, Guest and Public Relations Coordinator at Cinnabon for the material she sent us and for her feedback. (See Appendix A).
It is crucial that readers of this paper understand that all opinions expressed within come from a brief observation period. We strived to provide accurate feedback while making educated guesses in areas where sufficient knowledge had not been obtained. Cinnabon is doing quite well, and we feel some sense of regret that our focus involved searching out weaknesses to provide a basis for recommendations. Continual improvement is a must for companies in the specialty snack environment. We hope that this paper will help Cinnabon continue its success as a gourmet bakery chain.
EXECUTIVE SUMMARY
Cinnabon is an excellent consumer marketing company. Our team gathered information and performed an in-depth analysis of Cinnabon's marketing activities. We looked at Cinnabon's marketing concept, managerial techniques, customer satisfaction, value delivery programs, segmentation, targeting and positioning, integrated marketing communications, and exposure to the advertising and media business.
What is it about Cinnabon that makes it special? Cinnabon is a role model for niche companies. With a unique logo and high quality product line, Cinnabon exploits its own niche very well. However, Cinnabon is aware that a niche market can be risky, and the company is in the process of developing strategies such as product differentiation to remain in the forefront of consumers' minds.
Included in our analysis is an overview of Cinnabon's sources of success along with the techniques and strategies used to manage those sources. Further, we present a discussion of the strengths, weaknesses, and future implications behind Cinnabon's marketing activities. In conclusion, we offer five recommendations:
· Expand brand equity in the United States through advertising.
· Explore European and Asian markets through extensive market research.
· Invest in additional research and development.
· Consider going public to facilitate expansion.
· Change facility image: match appearance to high quality product line.
INTRODUCTION
Nearly twelve years ago, the company's founder, Rich Komen, heard about entrepreneurs peddling cinnamon rolls off of carts in malls back east. After investigating, he decided the idea could be done better. He brought the idea to a local Chef-consultant, Jerilyn Brusseau. Nine months of testing more than 200 recipes led to the development of the "perfect" Cinnabon recipe and the opening of the first store at Sea-Tac Mall in 1985.
As the founder, Rich Komen established "a fervor for unique" at Cinnabon. (Skagit Valley Herald). At Cinnabon, he created a company culture emphasizing the selection of and retention of a high quality staff. The company's philosophy is to provide the highest quality product all of the time.
Cinnabon's Chief Executive Officer, Dennis Waldron, has lead the company since 1987. He measures the quality of the company's cinnamon rolls by "the goo factor." "If the melted brown sugar, cinnamon and margarine doesn't ooze, it doesn't get served." Cinnabon serves a customer niche that is as much psychological as it is demographic. "Our customers are people who feel they deserve a treat once in a while," says Waldron. "We serve the kind of comfort food that grandma used to make." (R&I, 60).
Today, Cinnabon World Famous Cinnamon Rolls is the leading cinnamon roll bakery in North America with more than 350 company-owned and franchised locations in 37 states, Canada, and Mexico. From its 1985 start in Seattle, Washington, Cinnabon evolved to current production levels of over 60 million hand-made cinnamon rolls a year. The company employs approximately 5000 employees with locations in malls, airports, supermarkets, urban centers, and even the Rain Forest Café of Seattle's Woodland Park Zoo. Cinnabon's national ranking is #1 in product category.
Sales for fiscal year 1996 exceeded $135 million with individual stores averaging $250,000. Cinnabon achieved at least 20 % sales growth each of the last five years. The company anticipates thirty new bakery openings in 1997 and one hundred additional bakery openings by 1999. Cinnabon appears to have the right "recipe" for sweet success!
Cinnabon currently offers the following product mix: Cinnabons, Minibons, Mochalatta Chill, Legendary Makara Cinnamon, Rubymoon Coffee, Vareva Orange Juice, and Lemonade. We selected three products from this mix for our analysis: Cinnabon's staple item, its 9-ounce Cinnabon Classic, the Legendary Makara Cinnamon, and Cinnabon's Vareva Orange juice.
The Cinnabon Classic is a cinnamon roll that is 4 inches wide, 4 inches high, and slathered with a frosting made of cream cheese, lemon, vanilla, and sugar. Cinnabon uses the same recipe in all of its stores. The stores guarantee customers that the product is no more than 30 minutes from the oven. With true freshness, the company recreates a traditional home-baked appeal. Cinnabon also offers express packs, or pre-packed boxes, to go. The pre-pack boxes keep the rolls fresh and delicious until the customer is ready to serve them. At the store, Cinnabon disposes of unsold express packs after 24 hours.
To attain its goal of providing the highest quality product, Cinnabon exceeds customer's expectations by using only the world's finest ingredients. Cinnabon starts with the world's best cinnamon. Company buyers travel the spice-growing regions of the globe to find the smoothest, most flavorful cinnamon, which is found at the bottoms of the trees. There is a 52-step process, with multiple quality checks, just to get the cinnamon! To keep the cinnamon oil at its peak flavor, a special grinding process is used.
Cinnabon's own brand of orange juice is Vareva. The oranges for the juice come from orchards in Arizona and California. To make the best orange juice, Cinnabon requires the best oranges. The orange juice is pure - no added water or sugar. Cinnabon disposes of orange juice after three days to ensure freshness.
The biggest differences between Cinnabon's products and grocery store, coffee shop, or bakery products, lie in the superior attributes of quality, freshness, and taste. (See Appendix B). This reasoning makes Cinnabon's self-proclaimed "gourmet bakery" status plausible.
Cinnabon's competitive strategy is designed to expand and reinforce product equity. For example, the company decided to produce smaller cinnamon rolls to increase variety and fill a niche. While watching out for cannibalism, Cinnabon hopes to increase sales by luring in customers who think the Cinnabon Classic too big.
Cinnabon determines its product mix by selecting items that compliment the Cinnabon Classic roll. For example, juice and coffee typically go well with cinnamon rolls. According to Randy Robichaud of the Alderwood store, sales can be broken down by percentage in the following product categories: hot rolls 50% , express rolls 20%, and complimenting products, such as juice and coffee, provide the remaining 30% of sales.
Considering the recent health trends, how is Cinnabon so successful? There are plenty of people in the industry who criticize Cinnabon. According to Jayne Hurley, a senior nutritionist who conducts studies for the Washington, D.C. Center for Science, "the Cinnabon is a perfect symbol of everything that's wrong with the way Americans eat....It has all the fat and calories of a full meal with almost none of the nutrients that you would want." (Boren). Due to sales of over sixty million rolls a year, Cinnabon is not exactly terrified by the recent reports of exorbitant calorie content. While many people still think of the cinnamon roll as a breakfast item, Cinnabon sells rolls throughout the day as customers indulge themselves in a not-so-small reward.
To satisfy the increasingly health conscious population, a Reduced Fat Minibon enters the market on May 1, 1997. As it sounds, the new product is simply a Minibon with low fat margarine inside and nonfat cream-cheese icing on top. This new product will be
30-50 % lower in fat compared to the classic Minibon.
Cinnabon, though store managers disagree, utilizes a "7-11" pricing strategy. Evidence of this is found by simply looking at the menu: 9oz Cinnabon = $1.99, while 4oz Cinnabon = $1.49. In most cases, the consumer sees that there is more "bang for the buck" in purchasing the larger roll. Perhaps the only true form of discounting used by Cinnabon is seen in the retail packs where a customer purchases four or six rolls for a smaller per unit cost. In sticking with the "our product stands on its own" philosophy, Cinnabon managers do not even utilize punch cards (buy ten, get one free).
Perhaps the largest mistake in the pricing strategy exhibits itself in the absence of benchmarking. Cinnabon managers truly do not care about the pricing structures of competitors. With basically one product line for the past ten years, Cinnabon cannot afford to overlook any element of its business environment.
PLACE (DISTRIBUTION)
Cinnabon places its stores in high traffic locations such as malls, airports, and grocery stores (oasis locations). Some of Cinnabon's newer locations include rest areas near toll ways - the New Jersey turnpike is currently a test site. The busiest Cinnabon store is located in the Las Vegas Airport. Only recently has the company started to use freestanding locations (not part of another structure). Cinnabon implemented a freestanding bakery at the World Trade Center, which reports that 80% of sales come prior to 10 a.m.
Cinnabon has discovered how to make its product more convenient by utilizing the grocery store. "For grocery stores, prepackaged foods are a quick and easy way to increase profits because people are willing to pay more for convenience." (Seattle Times). One of the biggest complaints from Cinnabon's customers is the inaccessibility of the product/store locations. The grocery store provides Cinnabon with a channel for reaching potential customers who do not partake in the "mall" experience.
Locally, delighted customers now find Cinnabon shops in select Quality Food Center (QFC) grocery stores. At first, QFC dismissed the Cinnabon idea. However, when QFC acquired the Olson chain, Cinnabon shops came along with the deal. Now, QFC sets up Cinnabon shops whenever a store is built or remodeled (size permitting). Typical leases call for rent equal to five percent of sales.
The speed at which the Cinnabon chain wanted to expand called for the kind of rapid development only a franchise network could deliver. Unfortunately, franchises have considerable control over product quality and consistency. Therefore, the company steadily bought back franchises until only the most successful franchise locations remain - such as the bakery in Minneapolis' Mall of America. Ultimately, the franchising arrangement failed to contribute to the corporate objective of building brand equity.
The strategic reason for the layout of Cinnabon stores lies in maintaining visibility of the high quality products. The bakery itself is in open view and products are displayed under glass. In our interviews, managers and customers alike thought that the design and layout of the stores could be a little more inviting as opposed to "sterile." (See Appendix E).
For such a large company, the most striking observation in reference to the promotion mix is the absence of one. The most popular form of promotion, advertising, rears its expensive head for only two print advertisements in all of 1996. Product sampling is primarily done on a customer request basis only.
With the exception of Point-of-Sale (POS) materials, most promotion falls under the discretion of the individual store manager. The typical Cinnabon store routinely carries product brochures, but this offers no diversification from competitors as virtually any store carries this type of brochure. (See Appendix D). Many Cinnabon outlets partake in local event sponsoring such as the University of Washington's Husky Breakfast that takes place before each football game.
Cinnabon's customers tend to be middle age Caucasian females age 30-35, who require high quality, home made gourmet specialty bakery items. In the mind of the consumer, three particular attributes entice customers to the store, taste, freshness, and smell. The product is sometimes bought on impulse but the motivating factors for consumers are the taste, smell, and craving. (See Appendix C).
Cinnabon mainly focuses on bringing in new customers to the stores. The company conducts customer research through focus groups, interviews, comment cards, guest interceptions, and mystery shoppers. Guest interceptions are types of feedback that the company elicits through methods previously mentioned.
Cinnabon is a gourmet specialty bakery that fills a niche market. There is no direct competition at this point. T.J. Cinnamon, another national chain, is probably the only thing close to pure competition. On the other hand, T.J. charges extra for icing and does not heat its cinnamon rolls prior to purchase without a customer's request.
Cinnabon does not feel that it is in competition with grocery store bakeries. Rather, Cinnabon believes that the two (Cinnabon and the in-store bakery) are complementary to one another. "They're selling different products and satisfying different customer needs." A spokeswomen for Cinnabon indicated that Cinnabon prefers to occupy the first spot in a supermarket's traffic pattern, "because we see ourselves as greeters of the customers…the aromas of the baking rolls and of the rich icing entice customers." (Harper, 52).
The company has no special strategies to deal with competition. Cinnabon stays ahead of the competition because of its high quality and fresh product. The company's profit margin is not typical (neither skimming nor penetration). Cinnabon spends a lot of money to make its products. Expansion and growth is the company's competitive advantage.
Consumers perceive the product to be different than competitors' products. Our perception is that Cinnabon advertises, but it does not. Through our surveys, we found that Auntie Anne's pretzels are quickly becoming a source of competition for Cinnabon. Auntie Anne's has over 300 franchises located in close proximity to Cinnabon Stores. Its main products are pretzels with a choice of various toppings. In a taste sampling, we tasted a pretzel that is similar to Cinnabon's cinnamon roll.
In conclusion, we offer five recommendations to Cinnabon. First, expand brand equity in the United States through advertising. This would include utilizing methods such as television, magazine ads, coupons, and punch cards. Essentially, building up its marketing strategy. Second, explore European and Asian markets through extensive market research. Then if appropriate, expand internationally. Third, develop a new product line through increased spending on research and development. Conducting research could generate another idea similar to the unique concept that founded Cinnabon. Fourth, after developing a new product line to push sales growth, Cinnabon can issue stock to generate funds necessary for a massive international expansion. Finally, the atmosphere must be updated from the current "fast food" look to a more upscale "coffee house" image. Changing Cinnabon's image could involve providing comfortable seating and a warmer, less-sterile appearance.
When a company becomes successful, it tends to become less objective. Companies will often substitute their own judgment for what the market wants. Cinnabon is behind in trends and product orientation. Cinnabon was the first in this niche market, and now is in danger of falling behind. Competitors like Auntie Anne's are steadily catching up to Cinnabon. The law of success as addressed in The 22 Immutable Laws of Marketing, reads that success often leads to arrogance, and arrogance to failure. Cinnabon must remain competitive by keeping the product line exciting and fresh. The company needs to develop strategies to stay foremost in the consumer's minds. If Cinnabon can address these issues, the future looks very bright indeed.