2001 New Products Conference: Take a Chance
Keynote speaker Ira Blumenthal, founder and president of Co-Opportunities, San Diego, Calif., discussed “2001: A New Products Marketing Odyssey,” observing that while change is not new, the speed of change is faster than ever. Companies have three options to address change:
- Ignore them, which is not suggested for a company hoping to experience growth.
- Adapt and adjust, simply react to the change, which may allow a business to survive.
- Make other changes. A change catalyst, he says, can find success. Change catalysts are constantly re-inventing the business.
The importance of execution also was addressed by Ron Paul, president of Technomic, Inc., Chicago, in discussing “Best Practices in Foodservice New Product Development.” Foodservice development faces a number of challenges, including new/expanded uses of flavors and spices, the expansion of ethnic cuisine, growth in flavor-boosting cooking methods (i.e., stir-frying, fire-roasting, braising) and a wider variety of flavor profiles.
In working with a foodservice chain to develop a new product, the idea must be feasible. The development process is ongoing and rigorous, Paul warns. As such, it requires a commitment of resources. Operators desire help, so food companies can assist with idea generation, test marketing, etc. Interested food companies should understand the core competencies of the potential customer, audit their resources (people, equipment and processes), review their development practices and evaluate their adaptability.
The relationship with foodservice can well be a two-way street, a fact that led H.J. Heinz, Pittsburgh, Pa., to one of its greatest successes.
With the Boston Market line, Heinz leveraged a brand in a new category, recalls Mike Walters, a partner with Sterling-Rice Group, Boulder, Col. In so doing, the company created a new revenue stream and witnessed explosive growth.
Walters presented no illusions, however. Only a third of new products will be on the shelf in two years. A company can improve its chances by learning from others' successes and failures.
Bringing Home the RestaurantBy attempting to replicate the Boston Market experience, the line would prove the most successful introduction in the history of Heinz, garnering $130 million in consumption sales and boosting the category 14%. Walters offered several suggestions stemming from the Boston Market development:
- Evaluate the strategic fit.
- Understand consumer trends.
- Obtain high-level commitment
- Prepare for curve balls.
- Agree on an aggressive development plan and timeline.
- Concept development and testing is the foundation of success.
- Understand situational usage.
- Make the package work for you.
- Support the launch aggressively.
- Licensing can be a new product strategy—if the fit exists.
- Understand volume potential.
- Be fast but careful. Much value rests in being first to market (shelf space, publicity, the correlation of the brand to the category, the perception of the brand as pioneering). However, do not rush to failure. Do not get caught in escalation bias, the thought that development should push ahead despite negative indicators.
- Get the products and positioning right by involving the most experienced staff and test marketing with a full marketing plan.
- Benchmark, plan and evaluate. Skala suggests companies learn from past mistakes and set realistic goals.
- Advertise. A product is only new once, and up to 35% of year-one revenue can be attributed to advertising. Skala also cautions companies to be prepared for dramatic sales post-advertising. Furthermore, she says, have new news to tell consumers—of a line extension, new offerings, etc.
Globally, snacks will see the most growth, and the U.S. is likely to see a continuing crossover between sweet and salty varieties. Meal introductions in the U.S. should remain steady, with high-end items possibly replaced by value offerings. Growth is likely in European frozen meals, a category neglected for too long, says Jago.
While sauce offerings in Europe should remain steady, the U.S. will see introductions increase, largely due to gourmet and upscale offerings. Europe should see more dressings and table sauces, which are underexploited areas, according to Jago.
Emerging Consumer Food TrendsFocusing on “Merging Trends in Culinary Food Products,” Wilbert Jones, president of Healthy Concepts Inc., Chicago, noted consumers' desires for retail products with restaurant quality. Popular regional cuisines include low country (incorporating Southern, African and European influences), Floribbean (well-seasoned dishes from the Caribbean isles), New England (boiled dinners with various meats) and Hawaiian cuisine. Regional foods could easily be manufactured, says Jones, who most recommended Cajun dishes (including jambalaya and gumbo) as a source of opportunity.
Some regional dishes offer a unique opportunity. Jones mentioned Coke cake and 7-Up cake, both with the respective beverages as an ingredient. These usages are increasing and present excellent opportunities for co-branding and experimentation with the ingredients.
Experimentation has always been inspiration for some R&D departments, a subject for John Ruff, senior vice president of R&D and quality with Kraft Foods Inc., Northfield, Ill.
Detailing “R&D Trends,” Ruff noted companies' higher expectations for new product entries and a need for sustained growth. Globalization of the technology marketplace will lead to alliances worldwide. Consolidation and scale are driving a renewed commitment to research. Nevertheless, Ruff says the industry does not necessarily need more ideas; rather, it needs fewer, but bigger ideas.
R&D departments must step up their ability to capture consumer insights. They should listen to the passion of their champions, as breakthroughs may well meet resistance. These groups also must wage a continuing battle against fear of failure. Failure should be embraced as a learning experience. Also, Ruff believes the industry should seek to drive science into the marketplace, informing consumers.
Consumer awareness was also discussed by Cathy M. Kapica, Ph.D., R.D., director of nutrition education for Quaker Oats Co., Chicago. Consumers are aware of a connection between nutrition and food, she says, but companies have barriers to overcome. The public appears to be unwilling to compromise in a number of areas, including taste, convenience and cost.
Lowfat items lost ground, failing to deliver on taste or weight-loss promises. Fortification of foods is a plus, and individual nutrition is key, Kapica says, citing a survey which found 79% of shoppers say eating healthy makes them feel good about themselves.
Knowledge-based marketing strategies are critical, Kapica stresses, advising companies to use sound science. Anything less risks damaging product credibility. Nutrition may not define a product, but science and functional benefits are valuable support. The overriding principle is for a company to be truthful and not misleading in supporting a product.
Health is one of six themes motivating consumers, says Scott Lutz, president and CEO of 8th Continent LLC, Minneapolis, Minn., and corporate vice president with General Mills Inc., Minneapolis, Minn. Relating in no way to categories or products but to life, these themes are family, energy, health, stress, pleasure, and community.
Existing products, Lutz cautions, will not meet earnings targets. A company must add new wealth. The odds are stacked against a new product. Only 2% of new product ideas make it out of the building and onto grocery shelves, Lutz says, and of these, 96% are line extensions.
In the SpiritHowever, with a new product success, the company can build intimacy with a consumer, who is liable to reward that company with the one thing he can give—loyalty. To achieve that loyalty, Lutz says, the company and product must make an emotional connection and appeal to more than just the rational, perhaps reaching the consumer's emotions. The brand, Lutz offers, is a means to an end. Make contact with the consumers. To do this, a company should be courageous but avoid desperate measures, which can prevent real innovation. New wealth, Lutz contends, requires fortitude and a degree of a revolutionary spirit.
Some consumers view organic food producers as revolutionaries, and Anthony Zolezzi, president and CEO of New Organics Co., Burlingame, Calif., addressed lessons learned and pitfalls found in developing organic products. The organic market has grown tremendously, but Zolezzi notes that, despite its success and the publicity surrounding new organic standards, 62% of Americans still know little or nothing about them.
Some of the problem, Zolezzi believes, stems from supply chain economics. Direct store delivery (DSD) adds 30% to the cost of organic products, which is passed to the consumer. In addition, while many stores are moving to the store-within-a-store concept, New Organics' sales trends show the benefits of offering organic items side-by-side with their mainstream counterparts. Recent disruptions in the economy, Zolezzi contends, should not impact organic sales greatly, as organic purchasing has not moved to enough periphery consumers to make a difference. He foresees organic becoming a functional aspect of an existing brand or a functional aspect of a private label.
Functional aspects of foods and beverages were also addressed in “Destination Wellness: How Consumers Live, Shop and Buy in the Wellness Category” by Harvey Hartman, chairman and CEO of the Hartman Group, Bellevue, Wash. New consumers, Hartman says, believe wellness is not only about health, but relates to a balanced lifestyle. As such, companies should study the ways that people live, watch them and monitor factors impacting their buying patterns.
Most retailers, he contends, do not understand their consumer. Demographics no longer play a role, he says, as they do not drive an understanding of the consumers and their buying patterns. Furthermore, Hartman believes there is no longer a mass market, rather a number of niche markets, driven by lifestyle. It would be wise to realize that individuals are trying to brand themselves and that a change in living brings a change in buying. Simply put, consumers are looking for more than a product, Hartman contends. They are looking for an experience. What is the personal connection?
Reach OutThe connection between Sara Lee and its demographic base was both a success and a troubling sign, according to Edward Haft, president and COO of Sara Lee Bakery, Chicago, a member of this year's President's Panel. Sara Lee emerged as a brand in the 1950s and 1960s but had seen growth slow in the 1980s. Research in 1995 discovered troubling characteristics of Sara Lee's brand awareness. Despite excellent awareness, the demographic was skewed to those over 55. The brand had strong equity but was not fitting into contemporary lifestyles.
Realizing brands are defined by the new products they offer and not by what was presented in the brand's “glorious past,” Sara Lee ceased additional line extensions, pulled back on current marketing and advertising, and worked on new packaging and advertising. Aware of the importance of new products in effectively reinventing, transforming or evolving a brand, Sara Lee developed a new product mantra centered around a three-”i” platform—indulgence, immediate and individual. These concepts, Haft believes, bridged where the company had been and where it wanted to go, all in line with six fundamental reinvention principles:
- A brand's equity/health is most influenced by new product activity.
- New product efforts must reflect the brand's principles.
- Understand new product financials and their impact on the total brand portfolio.
- Never ignore the base business during a new product roll-out.
- Welcome cannibalization as long as new product margins meet or exceed the existing line.
- Support early “no-go” decisions.
One of those concepts, Calzone Creations, debuted in a fast-growing category, and Haft believes Sara Lee underestimated consumer loyalty to Chef America's Hot Pockets. Indeed, Chef America has proven the leader in handheld foods, garnering 38% of the category's $1.8 billion in annual sales, and Paul Merage, co-founder and CEO of Chef America, Englewood, Col., and another member of this year's President's Panel, cited a number of reasons behind his company's success.
In developing Hot Pockets, Merage found inspiration from a number of trends, including women entering the workforce, the penetration of microwave ovens in America and the increasing popularity of fast foods. Merage envisioned taking this last concept a step further—from plate to handheld, from sitting to on-the-go.
With success in hand, another challenge would arise—defending turf against larger companies. Chef America had key strategies in this defense:
- Continue to improve quality.
- Become the most efficient/lowest cost producer.
- Pass value to the consumer.
- Implement aggressive defenses.
Those foodservice outlets have long proven a target for Anchor Food Products, Appleton, Wis., whose vice president of R&D, Karl Adams, Ph.D., also served on the President's Panel. Anchor became well-known in foodservice circles for product innovation and a gutsy marketing style. Their mission was to build the appetizer business through new product development. Success came fairly quickly, as Anchor's sales grew to $500+ million annually (blossoming 1,000% over the course of 10 years), balanced between foodservice and retail.
Adams describes Anchor's new product development as aggressive, as the company launched approximately 50 new products in 2000 alone. In fact, more than 20% of their 2000 sales were from new products, as Anchor pushed fearlessly into retail and new business segments. Adams described four drivers for new product success:
- Strategy (including speed to market), a unique new product development process, the view that new products will fuel growth, and monitoring of consumer trends.
- Strong commitment from throughout the organization.
- Well-managed teams with goals and timing that are part of a clear, proven process.
- Passion for innovation. No fear of failure, rather a focused determination.