Resisting the Siren Song of the Hot New Product in Food & Beverage

October 4, 2023
/ SKUBlog
/ By Susan Sipos

SKUFood has been focused on bringing you insights into industry terms over the last year. We have been working behind the scenes on bringing a new feature to the newsletter with guest contributors from people we are proud to work with in the industry. They have new perspectives for you and we are excited to share some in the upcoming weeks.

One of the great things about the food and beverage industry is there are many different perspectives. I always appreciate the perspective Norm Purdy brings to the situation. Norm has great experience with large consumer packaged goods companies like McCain, Irving and Crosby’s. He understands the importance of trade spend required to deliver the sales. He is also driven by making the items profitable. His focus on the relationship between efficiencies in production and the amount required to sell the product is great learning for me every time. We appreciate Norm’s contribution this week.

Resisting the Siren Song of the Hot New Product in Food & Beverage

You’ve probably heard references to Homer’s Odyssey. In the Greek saga, Ulysses forces his men to tie him to the mast so that he could resist the songs of the Sirens that lured sailors to their deaths. I see small food and beverage processors fall victim to this very same temptation….the dreaded “hot new product”.

In the late 1980’s I was a young product manager at Ben’s in Halifax. We launched Grain House Mill’s Oat Bran bread and sales skyrocketed for a few months. Less than two years later the item was delisted. Ben’s Holsum white bread was their biggest seller then and remains that way almost 40 years later. I fell victim to the Health Siren.

Owners and senior managers are most vulnerable, especially when they are struggling with problems in their existing product lines. Growth slows, competition intensifies, customers get distracted, and profits get squeezed. You ask yourself why you got into this business in the first place. Worse, you read in the trade journals about darling food companies that have grown from nothing to hundreds of millions in one or two years. What are they doing that you are not?

This is the siren song that is so dangerous.

In 2001, Bain’s Chris Zook wrote “Profit from the Core”. The book was based on analysis of thousands of projects conducted by Bain for clients. The findings were dramatic, suggesting that the way to steady profitable growth was to stick to “the core” of the business. Pursuing hot markets with new products was proven to be wasteful and unsuccessful.

I agree with Zook because I have seen the damage and cost to businesses that abandon their core to chase what seemed like great opportunities. It’s exciting and it’s easy to justify spending money because you are anticipating great returns. The problem isn’t necessarily that the new market or product is a bad idea, it’s that you take your eye off the ball on your core business. The one that pays the bills.

Your core business is defined by five things: your most profitable customers, your most profitable channels, your most profitable products, your differentiated capabilities, and any special assets you have but don’t necessarily appear on your balance sheet (e.g. space on retail grocery shelves).

If you find your business struggling, I would recommend you strengthen your core before you fall prey to the “new product sirens”. To do this, ask yourself these six questions:

1. Have I implemented a formal continuous improvement program in place to drive costs out of my operations?

2. Have I segmented my customers and developed differentiated value propositions for each of them?

3. Have I embraced value-based pricing and am I actively managing (and measuring) the impact and ROI of price discounting?

4. Have I benchmarked with other processors of similar size to compare my financial ratios?

5. Have I put in place a system to measure and track customer loyalty over time?

6. Have I identified strategic acquisition targets that could strengthen the core?

If you can answer yes to all of these, then you should be good position to use adjacency mapping to pursue growth. However, in my experience 90% of all companies need to work on their core first. It’s hard, it’s boring, and it takes discipline. But, just like going to the gym for personal fitness, the results will come if you stay focused.

- Norm

Norm Purdy holds a BSc. and an MBA in marketing, is a certified change management practitioner and a lean sigma black belt. With over 25 years’ experience with some of Canada’s best known food companies and brands, Norm brings a fresh approach to thinking about sales and marketing as processes to add value for customers and consumers. This process thinking enables managers and owners make better decisions about how they improve their organizations’ capabilities.

PCX Advisors helps clients identify the processes they must excel at to execute their strategies, then put in place metrics as a foundation for regular accountability reviews.

Norm has delivered courses in lean six sigma and commercial excellence. His engaging and challenging style helps participants learn and to apply the continuous improvement concepts in their day to day jobs.

A deadline to lower prices

Another indication the politicians in Ottawa do not understand the food and beverage industry was the summons for executives to appear at a meeting this week with two senior cabinet ministers.

The first question the government needs to answer is whether our prices are out of line. This could be researched relative to other markets and explored as a percentage of disposable income. They should be sharing those facts before they mandate retailers to lower prices by Thanksgiving. If the answer is our industry is over priced, then explore the root cause of the problem. This really needs to be done by category or sector.

To address the pricing in the food and beverage industry, government needs to focus on the entire value chain. Retailers are a key component but not the only players. Large multi national companies operate in Canada and they have significant shares in categories. They influence pricing as much or more than retailers. This approach will probably create more animosity between retailers and suppliers.

Timeframes need to be realistic. 6 weeks to make changes? It almost seems like the government has painted themselves in a corner on this issue. Will they really impose tax changes on the retailers? Not sure I understand the details, but usually more taxes result in higher prices? I am not a legal expert, but I would think it is hard to justify businesses that are generating a profit under 5% and sometimes closer to 2% need to be taxed more.

Some more productive ideas...

Provide incentives for Canadians to get into food retailing.

Explore the logistics costs of moving product in Canada now that we have a carbon tax. Distribution is a huge cost and it starts with raw materials and does not end until the product gets to the store.

Reduce some of the regulations that drive up the cost of producing in Canada.

Mandate Canadian content in categories.

Change competition laws to allow the Competition Bureau to block consolidation, even in the most competitive markets like Toronto, Montreal and Vancouver.