Michel et Augustin Cookies:
Culinary Adventurers Competing
Against Food Industry Giants
Winner of The Case Centre case writing competition 2014
in the category “New Case Writer”
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This case was written by Hernán A. Bruno, Assistant Professor of Marketing, and Hilke Plassmann, Assistant Professor
of Marketing, both at INSEAD, based on an independent study project by Felix-Antoine Joli-Coeur. It is intended to
be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an
administrative situation.
Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at
cases.insead.edu.
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COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, REPRODUCED OR DISTRIBUTED
IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER.
For most business school students, the last section of their CV – “Personal Interests” – aims to
show that behind the highly-skilled professional is a sensitive and passionate human being.
Michel de Rovira and Augustin Paluel-Marmont wrote “Baking” in that last section. But for
them it turned out to be a different story: their personal interest became a full-time job when
they created Michel et Augustin, a cookie-making venture based in Paris.
By January 2006, Michel and Augustin were running a small production company that made
and distributed cookies mostly through sandwich shops. They were now seeking further
investment in the business to increase the size of their operation and distribution. First,
however, they required a viable business model in order to persuade potential investors.
Specifically, they needed a consistent product, higher brand awareness, and a bigger network
of channel partners. More importantly, to compete against the giants of the industry, including
Kraft and United Biscuits, they had to have a brand that would attract attention in the
marketplace.
But how could they do that with their limited resources? Like David facing the industry
Goliaths, they knew they had to do something special. Working on a PowerPoint presentation
for potential investors, they strove to map out a path to create the brand they had been
dreaming about for years, as well as to survive in one of the most competitive consumer
goods markets.
Michel et Augustin’s First Steps
Michel et Augustin was the fruit of a childhood friendship, a shared passion for food, and the
irresistible appeal of entrepreneurship. The project started in late 2003, when Michel de
Rovira and Augustin Paluel-Marmont spent six months tasting baguettes and croissants in
Paris as part of the research for their book Le Guide des Boulangeries de Paris, the first
comprehensive guide to Parisian bakeries (Exhibit 1). It was while working on this project
that they began to conceptualize a new business idea: to create their own food brand.
From then on, Augustin dedicated most of his time to defining and refining the idea and the
vision for the new brand. He had a degree from EAP, a Paris-based business school, and had
previously worked for Air France. Fascinated by marketing and branding, right from the start
he placed a strong emphasis on developing an original graphic identity for Michel et Augustin.
Michel, a former L.E.K. consultant, had just been accepted for an MBA at INSEAD, a
business school with campuses in Fontainebleau, France and Singapore. He had majored in
finance from ESCP, which made him the perfect complement to Augustin. The year at
INSEAD would be a unique opportunity to gain the skills and resources to take their project
forward.
By 2005, the two friends became founding partners in their own company. Michel de Rovira
described his initial feelings,
“I was definitely nervous, but also excited about committing to Michel et
Augustin. Most of my business school friends were going to great jobs in
consulting or industry, and here I was, considering baking. Part of me wanted to
choose a ‘safer’ path, but part of me wanted to see whether we would succeed.
That part won the argument.”
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After a few months evaluating different foods, Michel and Augustin decided that their first
product should be the sablé, a round, dry shortbread biscuit, either sweet or lightly salted, that
was deeply rooted in French culinary tradition. They would offer sablés in three varieties: two
classics (butter and chocolate chip) and, after hundreds of experiments baking cookies in their
student apartments, they decided to go with “poppy vanilla” as their third flavour (Exhibit 2).
At first, Michel and Augustin produced their sablés themselves in their home kitchen but soon
moved to making their cookies in bakeries. They had gained a deep knowledge of Parisian
bakeries while researching their book and realized that some had spare capacity. They were,
after all, knowledgeable bakers who had created their own recipes through months of
experimentation. The plan was to produce their cookies in rented bakery space one day per
week, and sell them during the rest of the week.
The next ten months were challenging and frustrating. Despite their passion and talent, baking
sablés in large batches brought lots of problems. They realized that they needed a different
manufacturing approach if they wanted to achieve a minimum sustainable and standardized
production level. Michel and Augustin invested €5,000 in a specially-designed baking mould
that would increase their rate of production, only to find that most cookies came out broken or
damaged after baking. As Michel recalled:
“It was heartbreaking to make batch after batch of broken cookies. Almost one
year after starting, we still didn´t have stable production! I felt discouraged, and
questioned our judgement: of our €15,000 in start-up capital, we had spent one
third on a mould that didn´t work!
They had to go back to batch making. The mould now sits on his desk as a reminder of all
those early days they spent baking.
The beginning was hard, both physically and emotionally. They worked long hours and the
future of the venture was still highly uncertain. During the year 2005, Michel and Augustin
sold about 70,000 packets of cookies, with continuous growth over the year. In November and
December 2005 they sold an average of 500 packs a day. They also launched a website that
gained a small but loyal following, and 3,500 people subscribed to their online newsletter.
The results were promising but they were still far from achieving adequate scale.
The French Sweet Biscuit Industry
Overview
The sweet cookie market included biscuits based on butter, chocolate or eggs, cream-filled
biscuits, plain biscuits and wafer biscuits (Exhibit 3). These were often mass produced in
factories but also baked in-store or produced by small operators and artisans.1
The French cookie market had not followed the general trends observed globally. While the
global biscuit market grew on average around 3.2% annually during 1995-2004, the more
mature French cookie market grew at only 1.7% in 2004. Worldwide, growth was driven
1
Datamonitor Global Biscuits report p 7
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mostly by volume of cookies purchased, whereas growth in the French market was driven by
a rising interest in quality and a shift to higher price points (volume growth in France for 2004
was just 1.1%).
There are high returns to scale in cookie production given the large investments required in
equipment and supplies such as flour and sugar. This incentivizes players to increase volume
and compete on price. The considerable investment in capacity needed to achieve a
competitive cost structure makes it difficult for undifferentiated small players to gain scale
and grow. The result is a market where a few big players have relatively large market shares
and market power, while thousands of small producers compete in local markets. This
excessive product proliferation and a large number of brands leads to a cluttered marketplace
where brands fight to gain and maintain consumer interest. The task is made even harder by
the fact that biscuits compete for consumer attention with other snacks and artisanal
confectionery such as pastries, or traditional treats such as the macaron, made with egg white,
sugar and ground almonds.
Most cookies were sold through supermarkets and hypermarkets, particularly in France,
where major retailers accounted for 75.1% of all cookies sold (compared with a global
average of 58%, see Exhibit 3). As a result, power in the distribution channel remained on the
side of the retailers. This asymmetry allowed big retailers to dominate the negotiating process,
particularly when dealing with smaller manufacturers. Moreover, since brands were fairly
similar, retailers could replace them without incurring heavy costs. Beyond a few popular
products (e.g., Petit Écolier, Oreos), brands had little power in the retail channel, with the big
chains driving the stocking and pricing decisions.2 A typical retail margin for selling products
from a small producer was 40%. Smaller shops sometimes charged higher prices, with gross
margins of between 60% and 80%.
In France, sales were dominated by a few international players that competed for retail shelf
space and consumer attention (Exhibit 4). Kraft Foods was present via LU, famous for its
Petit Écolier (Exhibit 5), Mikado and PiM’s brands. Other competitors included United
Biscuits and the German Bahlsen GmbH & Co., which produced a wide variety of Germanstyle cookies under different names. Of these competitors, LU was the clear leader: in 2008 it
owned seven of the top ten cookie brands and accounted for 41% of cookies sales in France3
(Exhibit 3)
In addition to national or international brands, supermarkets and hypermarket chains
increasingly sold private label cookies (Exhibit 6). Sales of private label cookies grew more
rapidly than overall cookie sales (by 3.8% annually), accounting for more than a quarter of all
cookies sold in France in 2008. Although private label products tended to be significantly
cheaper than branded products, they could be positioned as premium or standard as well as
discount products.
Consumption Patterns
Traditionally, the French ate regular meals with little snacking in between, but this was
changing. Snacks now accounted for almost 10% of calorie intake – far higher than in the
2
3
Datamonitor Global Biscuits report p 15
Euromonitor Biscuits in France p2
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past, though still lower than in the US (where the figure was over 20%). Less time was being
spent on cooking and preparing food. The traditional long Sunday lunch was becoming a
thing of the past, with average Sunday food preparation time estimated at only 20 minutes.
The French tended to eat cookies either as a snack or for breakfast. Surveys conducted by the
French research company CREDOC found that one in five French people ate cookies every
day,4 with 9 out of 10 cookies eaten either at breakfast or as part of a meal or snack that also
included dairy products or fruit.
Consumers in France were lovers of chocolate and plain cookies, and these comprised over
half of all cookie sales, well above the global average (Exhibit 3). Children and teenagers in
France were by far the greatest “cookie lovers”. Average consumption among children under
15 and those aged 15 to 24 was 17g-18g per day (equivalent to two butter cookies). Those in
the 24 to 49 age range ate 9g per day, while the over-50s ate only 8g per day. Adults ate more
biscuits for breakfast than as snacks (41% of biscuit consumption at breakfast and 32% as
snacks), while children ate more for snacks than breakfast (61% and 21% respectively).5
Unfortunately for the industry, cookies were generally not perceived as healthy. They had
high levels of sugar and fat, could contain additives, and tended to have low fibre and nutrient
levels. As a result, eating cookies was not always perceived as pure enjoyment.
Approximately 40% of adults were reported to feel guilty when they ate sweet foods such as
cookies.
In essence, eating cookies is an act of indulgence. So despite the popularity of some brands,
cookies are not considered a basic necessity and demand is easily influenced by shifting needs
and tastes. Busier lifestyles, increasingly health-conscious consumers, a proliferation of
products of indulgence, and the growing popularity of organic products all affected the
demand for cookies. (Exhibit 7 shows the most popular tags on new bakery product packages
from 2004 through 2008).
Industry Trends
One effect of the strong competition was that cookie producers constantly launched new
products as a way of keeping consumers interested. The majority of these product launches
were not truly innovative. Occasionally, the boundaries were pushed (such as in 2006, when
Bahlsen marketed a limited edition of tequila flavoured cookies to adults), but more often new
products were variations on existing products, changing the proportions of ingredients such as
butter or eggs, adding complementary flavours to a product line, or re-shaping a cookie or its
packaging6 (Exhibit 8).
Bahlsen was quick to pick up on this trend, releasing PickUp!, a chocolate wafer cookie in
France in 1999, which soon became a hit, selling €9.1 million ($11.9m) by 2000.7 Michael
Liardet, Bahlsen’s Director of Operations at the time, stated that it “filled a void in the
4
5
6
7
Baromètre santé nutrition 2008 p137
Les biscuitiers se défendent de contribuer à l'obésité en France, Rapport du groupe de travail PNNS sur les
glucides, Etapes 1 et 2 du mandat, Mars 2007, p118 to 120
Growth_Strategies_in_Bakery_and_Cereals pp64 and 65
Converting 60M francs to Euros and dollars at the “obsolete” Exchange rate
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market” by focusing on young people aged 15-34, an age group that was often neglected by
marketers despite its high cookie consumption.8
The trend for indulgence led cookie producers to release products that were richer in
ingredients such as butter, eggs and chocolate, often exotically flavoured, and in smaller
packs. In one example, LU joined forces with Côte d´Or, a chocolate brand also owned by
Kraft Foods, to produce Biscuit Intense, a butter biscuit covered in rich chocolate containing
pure cocoa butter. A grown-up version of the Petit Écolier, its website featured enthusiastic
comments from French people in their late 30s. Bonne Maman, a French brand that produced
jams and fruit desserts as well as cookies, with a presentation designed to evoke authentic
home-made treats, launched the Petit Cerisier, intensely cherry-flavoured tartlets sold in
boxes containing eight individual packs.
The range of health-related cookies was broad, encompassing both health-focused brands and
reformulations of existing cookies. In an example of the former, United Brands produced
Verkade Fruit&Form, a range of fruity, high-fibre or gourmet cookies, with packaging that
emphasized the fruit and wholegrain ingredients, as well as nutritional and calorie content. In
a similar fashion, Leibniz, a Bahlsen brand, reformulated its traditional butter cookies into a
variety that contained 30% less sugar, two varieties (plain and chocolate-coated) suitable for
diabetics, and a wholegrain variety. Some products focused on the health attributes without
obviously having changed the recipe. For example, LU emphasized the calcium content of its
Lulu L´Ourson (Lulu the Bear) cookies for children and the fact that they contained no colour
additives or preservatives, but made no mention of a change in ingredients.
In parallel to the growth of health and indulgence cookies there was increasing demand for
organic or ethical products. In the cookie aisles of French supermarkets, AB (organic)
certified products were popular and could be found both in the branded and private label
ranges. For example, the supermarket chain Monoprix had its own Bio range of cookies
alongside La Clé des Champs and Verkade Bio, the organic ranges from LU and United
Biscuits respectively. To be certified as organic, products were formally assessed by Agence
Bio (AB), the central agency for the development and promotion of organic agriculture.
Michel et Augustin’s Next Steps: The Marketing Plan
Brand Positioning
Since mid-2005, Michel and Augustin had been using their own names as part of the brand.
But the name was only the beginning and they had to develop a strong brand position – in the
crowded cookie market it was difficult to achieve meaningful differentiation through physical
attributes alone. They had pitched the idea to potential investors in the past and it had been
received with moderate enthusiasm, but it was difficult to convince people that a new
company could break into this market with a traditional product. Michel and Augustin were
well aware that a unique brand positioning was the key that could mean the difference
between being a success and just another failed business venture. Not only did they have to
understand the key trends in the market, they also had to link the brand to a unique set of
associations, as Augustin noted:
8
Oscars LSA : Pick Up!, de Bahlsen
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“What do we want people to think of when they think of Michel et Augustin? What
associations should we bring to mind, especially given our brand is our very own
names? What should be their points of differentiation with the competition? What
should be their points of parity?”
Product
Michel and Augustin wondered how the product should look. They felt they had already
found a winning formula with their sablés. These were wrapped in small sachets so that they
kept fresh for longer. Each sachet contained three sables and weighed 20g. They estimated
that each sachet cost about €0.22 to produce, which was significantly higher than the average
cost of the big cookie producers. Individual sachets were packaged in cardboard boxes of
about 120g, equivalent to six sachets per box. They were also contemplating a “snack”
version of the product with two sachets per box. Larger packets that held six sachets cost
around €0.25, and smaller ones that help held two sachets were only slightly cheaper, at
€0.21.
Distribution
Michel and Augustin were faced with a plethora of possible distribution points: supermarkets,
hypermarkets, corner stores, internet sales, direct sales, cafes, restaurants, cinemas, museums,
delicatessens, sandwich shops, hotels, and gas stations. So far they had focused on small and
“unusual” sales points such as hairdressers and independent sandwich shops. Although this
was labour intensive, the number of outlets had steadily grown, reaching over 100 different
locations.
In order to increase financial viability, Michel and Augustin needed to increase their
distribution coverage. One option was to keep expanding their network of sandwich shops,
cafes and delis. Although they saw major advantages to using a network of small stores, they
had to consider distributing through bigger partners such as a large supermarket chain (e.g.,
Carrefour), a convenience store chain (e.g., Monoprix), a specialist retailer (e.g., La Grande
Epicerie de Paris, Bon Marche), or a combination of all these.
Pricing
The original idea was to price their sablés higher than standard cookies but lower than the
most expensive brands such as Fauchon or Hédiard (Exhibit 9). But the ideal price was not
clear, given their cost structure and distribution model.
Advertising
Looking at how other food businesses promoted their products, Michel and Augustin noted
that many used all available media (TV, radio and magazine spots, social media etc.), as well
as coupons, discounts and other tools. They also saw the large amount of money being spent
on launching new food products. French food company Danone spent around €10 million
launching Essensis, a new yoghurt brand; Yoplait, a French yoghurt company, spent a similar
amount on the launch of Dizzy, a fizzy drinking yoghurt.
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As a start-up, Michel and Augustin didn’t have the means to run large-scale advertising
campaigns. The challenge, therefore, was to attract attention and build sales in a cost-effective
manner. Augustin insisted that their advertising choices should not only be decided by their
budget but also by their brand positioning: “We need to know who we want to sell to, and
what value our sablés bring to them before we can decide how we can attract them.”
Decisions
Michel and Augustin were faced with a difficult challenge. They needed to convince a group
of investors that they had a sound marketing plan that would enable them to compete and
succeed in the tough cookie market. The heart of the marketing plan was to find answers to
the following questions:
1. How should they position the brand? What were the key brand associations that
could serve as points of difference?
2. What should the product look like? Should they focus on a small pack of 6 cookies
or should they shift to the family pack with 15 cookies? At what price?
3. How would their sablés reach the consumer? Should they try to keep pushing the
distribution through small shops, or try to gain access to big chains of convenience
stores and supermarkets?
4. How could consumers learn about the product when they didn’t have a big
advertising budget? The website was growing, but would it be enough?
The only thing they knew for sure was that in order to compete against the giants in the
industry consumers had to fall in love with their sablés – but would they?
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Exhibit 1
“Guide to the Bakeries of Paris: The 180 Best Addresses for Learning to Enjoy Bread”
by Michel de Rovira and Augustin Paluel-Marmont
Published in 2004, the book was described by one reviewer as “a comprehensive guide and very useful
for lovers of the baguette and croissant… Contains a wealth of practical information, and
mouthwatering photos! …In short, a great success.”
Source: Amazon.fr. Author´s own translation of title and review comment.
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Exhibit 2
The Three Original Sablé Flavours in an Early Packaging Prototype
Poppy Seed and Vanilla
Chocolate Chip
Butter
Source: Michel and Augustin company documents.
Exhibit 3
Key Statistics on Sweet Biscuit Sales (in value terms) in 2008
Percentage
of sales by
cookie
type
Globally
In France
17
25.8
Chocolate
16.4
Plain
Percentage of sales
by distribution
channel
Globally
In France
Supermarkets /
Hypermarkets
55.8
75.1
28.3
Independent retailers
21.6
11.1
16.2
11.2
Specialist retailers
12
9.5
Creamfilled
12.7
16.3
Other
10.6
4.3
Wafer
10.7
5.6
Other
27.1
12.8
Butterbased
Sources: Datamonitor Industry Profile on Global Biscuits, 2009; Datamonitor Industry Profile on Biscuits in
France, 2009.
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Exhibit 4
Market Share Development in the French Sweet Biscuit Market
Source: Euromonitor Country Sector Briefing on Biscuits in France, 2009.
Exhibit 5
LU’s Petit Écolier, a Well-Loved Brand in France
The distinctive shape and the famous “Petit Écolier” (little schoolboy) image help customers
distinguish the real thing from other chocolate-coated biscuits, and link customers to the history of the
brand. A famous poster from 1897, showing the original “Petit Écolier”, is shown below.
Source: LU Petit Écolier website, 2010
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Exhibit 6
Ind
dicative Prrices of Privvate Labell Biscuits in
n Carrefourr Hyperma
arkets in 20
005
Privatee label brand
Tyype of biscu
uit
Priice per 100g (€)
No. 1
Ch
hocolate
0.38
Carrefouur brand
Ch
hocolate and butter
b
0.52
Reflets dde France
Ch
hocolate and apple
a
0.52
Carrefouur Bio
Sttrawberry tart
1.30
J’aime
Leemon cake barr
1.39
Escapaddes Gourmanddes
Asssortment
1.51
On averaage, national branded sw
weet biscuits have a price premium of
o around 500% over privvate label
brands across
a
all Freench retailerss
Source: Private
P
Label Strategy
S
in Caarrefour, Busin
ness Insights in
i associationn with AIMAR
RK & Europannel, 2005
Exhibit 7
The Most
M
Common 20 Tagss Placed on
n Packagin
ng of New Bakery
and Cerea
al Productss. % of Pro
oducts Laun
nched from
m 2005 thro
ough 2008..
Source: IInnovation annd Market Driivers in Bakerry and Cerealls: Fast growtth markets annd strategies for
f adding
value, byy Natasha Hortton for Busineess Insights, 2009
2
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Exhibit 8
Example of Brand Extensions under the LU Prince Brand
2a: The original LU Prince cookies
2b: “Health” extension: multigrain
2c: Package extension, large pack
(2 x standard packs, sold together)
2d: Package extension, pocket-pack
(10 x packets of two cookies) and family
pocket pack (15 x packets of two cookies)
Source: LU website, 2010.
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Exhibit 9
Description of Fauchon and Hédiard
Fauchon and Hédiard both sell fine French foods.
Founded in 1886 by Auguste Fauchon, Fauchon sells a range of luxury food products including
chocolates, cookies and delicatessen products through its chain of franchise stores, though it remains
most famous for coffees and teas. In the tea market, in particular, Fauchon has been particularly
innovative, and has been credited with introducing fruit-flavoured and flower-petal teas to the French
market in the 1960s and 1970s.
Fauchon struggled financially in late 1990s and again in the early 2000s, almost going bankrupt in
2004. By 2009-10 it achieved operational break-even on sales of around €135 million, after drastic
reductions in staff, selling off unprofitable stores and focusing on markets outside of France.
Fauchon sells a range of cookies,
which it describes as “made
following age-old production
methods...and
according
to
traditional recipes...” A 125g
pack of plain butter Palets de
Bretagne cookies cost €5 on its
website in 2010.
Hédiard was founded in 1832 by Ferdinand Hédiard as a seller of gourmet
spices and tea and coffee products. Its range in 2010 still includes teas, coffees
and spices, as well as fruit products, gift packs and biscuits.
Like Fauchon, Hédiard´s recent strategy has focused on growing sales outside
of France. As of 2007, it had over 200 stores, of which only one in ten was in
France. Around the same time it was acquired by the Russian luxury group
LuxAdvor and had sales of around € 30 million.
A100g pack of its plain butter Galettes cost €5 on its website in 2010.
Source: Fauchon and Hédiard websites; newspaper articles about Fauchon and Hédiard.
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