Market View

Market View: The Right and Wrong Kinds of Food Industry Growth

Growth can come from a fresh look at your existing products, not just when you acquire another company.

By John Stanton, Contributing Editor

Growth is the mantra of the food industry. It doesn’t matter how much success you’ve experienced in the past; every product is expected to grow next year.

How we obtain growth has been more or less restricted to two ways: incremental/organic growth and acquisition growth. Incremental growth is doing a little better at the same things that you are already doing. For example, get one more facing of the product on the shelf or get one more new variety on the shelf; get one more consumer consumption occasion etc. In other words, the same thing just a little more and maybe a little better.

Acquisition growth is more popular with those companies that worship Wall Street. One type of acquisition growth might make sense if it was to buy new technology from the acquired company or new expertise, but to do this just to “grow” seems like sleight of hand.

It seems that you have two “so-so” companies and then one buys the other and they claim they grew. I think the end result is that you have one bigger “so-so” company. Another reason is to avoid having a strong (that means expensive) R&D program. The logic is to let the entrepreneurs develop new products, then buy them. Voilà, “innovation” with no innovation!

A very recent case of the acquisition route at the expense of R&D is Campbell Soup Co. Campbell bought many small businesses in the hopes of getting into emerging areas. After years of trying they were unable to make these profitable and now are selling them off. Further, the debt to buy these companies puts the base business in jeopardy.

I would like to suggest three ways to get true organic growth. The first is to get consumers not currently in your category to buy the category -- e.g., consumers who never bought jarred pasta sauce to start buying it. Second is to get people who already use it to use it more often. For example, if a consumer eats cereal for breakfast, get them to eat it as a snack. The third way is brand shifting: Get consumers who bought Ragu to buy Prego.

I believe that by looking at three sources of volume many companies with successful products can find new organic growth. Anything other than getting more people to buy your products is just sleight of hand.

The first step is to revisit the shelf with an open mind. In most cases, companies try to get more space, they “fidget” with plan-o-grams to show how one more facing will make the retailer wealthier. The days of pulling the wool over the retailer’s eyes are over. Look to spread yourself throughout the store. I know the concept of secondary placement is not new but it is also not practiced with the same intensity as category plan-o-grams.

You must begin to think like the consumer and not like the supplier. For example, a store typically puts cheese in the dairy section, meat in the meat section, onions and peppers in produce, and sauces in the grocery section. Yet a consumer who wants to make a fajita must walk all over the store to find the ingredients. Why not put these ingredients together? One store that did this increased its sales of cheese from 30 cases to 90 cases in a month. It increased its margins by putting the red and yellow peppers in the fajita section and not green peppers, and the store included the higher margin precooked chicken in that section. Another store puts everything you need to make a BLT sandwich in one place: Bread, mayonnaise, tomato, lettuce and bacon.

I also know it is not easy to convince retailers to play a more aggressive role in merchandising your food products. I was told a story by a person at Kraft, one of the leaders and innovators in this concept. The company convinced a store manager to put hanging racks of Parmesan cheese everywhere in the store where the cheese would be used. It was near the Caesar dressing, and romaine lettuce, near the minestrone soup, near the pasta sauce, etc. The store had it hanging in 10 locations. When the Kraft sales person returned to the store he found all the racks on the floor in the backroom. The store manager told him the experiment was a failure. He could not keep the racks filled!

I believe the biggest potential is to get current consumers to use your product more. Many of the frozen vegetable companies have added meat to the meal to encourage more frequent use through convenience. The athletic drink companies show the product being used in a wide variety of occasions. Corona’s new advertising shows all the different occasions you could be drinking Corona. My favorite is from V-8 with “I could have had a V-8” … makes you think of all the occasions you could have had a V-8.

When you look for growth don’t overlook the treasure you already have. You don’t always need new products or new businesses; you may only need new ideas for the old products.