Brief points of the case:

  • Nestlé filed a lawsuit against the efforts of California Pizza Kitchen (CPK) to rescind its trademark contract which allows the Swiss food giant to sell their frozen pizzas in retail. Both companies are ready to resolve the dispute.
  • The case is California Pizza Kitchen Inc. and CPK Texas LLC, 20-33752, U.S. Bankruptcy Court for the Southern District of Texas (Houston).
  • The pizza chain declared itself bankrupt in July is now currently restructuring. It is trying and making efforts to reject its trademark contract with Nestlé as part of its reorganization. Nestlé stated in the lawsuit that “CPK must not be allowed to manipulate the bankruptcy process to unwind a decades-old licensing transaction which operated as an effective sale of its frozen pizza business to Nestlé.”
  • Restaurants have struggled a lot during the pandemic. And during this struggle, retail sales proved to be one solution to benefit them. Consumers are spending additional time at home so they purchase more groceries. Nestlé currently has the license to distribute CPK frozen pizzas. But on having a look at the situation of the PCK which is looking to restructure, it could be valuable for them while returning this line.

Insight:

Nestlé acquired the rights to sell CPK’s frozen pizzas in 2010. It purchased the license from Kraft which was a part of a deal of amount $3.7 billion for its pizza business. Since then, the CPK has remained the best choice for consumers and started coming amongst the top 10 frozen pizza brands, as stated by Statista data.

Despite CPK being popular with consumers for its frozen pizza, it was far from No. 1. Nestlé’s other brands like DiGiorno, Tombstone, and Jack have ranked above CPK in case of sales from 2011 to 2017, Statista showed. Undoubtedly, the Swiss company managed to gain a lot more than just a pizza brand from its licensing agreement. It asked in the lawsuit about the reorganization plan which included language confirming its rights so as to continue selling the frozen pizzas.

By licensing a restaurant brand Nestlé which is a CPG company got an opportunity to expand its offerings in the frozen aisle. The process includes the addition of a premium product which is having a built-in consumer base for a widely recognized brand.

Role of Nestlé:

  • Nestlé ensures that the offerings in the frozen aisle must match with what is actually being sold at dine-in facilities by working closely with CPK.
  • Nestlé always does a head-to-head taste test before the launch of any new product in the market. The test is between the frozen and restaurant pizzas so as to gauge the quality of the proposed offering.
  • The two companies constantly keep sharing information with each other. Nestlé tells CPK regarding its observations in frozen pizza sales at the store level. The restaurant chain divulges up-to-date information on the latest food trends it observes with consumers.
  • Nestlé worked to develop the version of the pizza with a cauliflower crust. CPK launched a cauliflower crust nationwide in early 2018 at its restaurants which were available on store shelves a few months later.

Such real-time information proves to be very much valuable to Nestlé and the biggest reason behind the company’s expressed desire to keep selling the frozen CPK pies. Reasons behind this can be the following:

  • Looking at the financial struggles of CPK, sales in retail stores could be one of its few bright spots. It likely wants access to the lucrative frozen pizza sales to help in its restructuring and to offset ongoing losses at its restaurants during the pandemic.
  • Not only, frozen pizza is a beneficiary of the increased number of dollars that shoppers are spending in supermarkets overall — grocery sales this August were 9% above the level they posted in August 2019 according to U.S. Census Bureau data — but these pizzas belong to a category that has seen a particularly dramatic increase in sales during the coronavirus pandemic.
  • Retaining its frozen brand represents an immediate source of revenue for CPK. In addition, chains that license their brand for retail products have posted an average 1%-2% increase in same-store-sales in markets where the products are sold, according to GlobalIcons. Regaining its frozen pizza line would be valuable for CPK, but would also represent a major loss for Nestlé that is not going to give up the brand without a fight

Canceled Auction

Earlier in the month of October, CPK also canceled the auction when it received no qualified bids by the deadline. The auction was planned to sell some or all of its assets after. Such an auction would leave its lenders as the likeliest new owners of the company.

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