Making The Grade
Battling an 86 percent failure rate, successful grocery products must fill unmet needs and improve on what's available.
If supermarket products were university students, the U.S. educational system would be in shambles. Every year, more than 10,000 CPG items are introduced but fewer than 16 percent succeed—a bit more or less depending on the category and which expert is talking. ■ Like parents paying tuition, manufacturers pump billions of dollars into research and development. But a new product cannot thrive unless it improves upon current offerings. It must also meet a consumer need, deliver on what is promised and be relevant to the brand it stands for. And, it should be appropriately priced and promoted.
"It must be better than 99 percent of what's out there," says Kevin Price, president of Market Performance Group Inc., Fairfield, Conn. "Then, the consumer will reach into their pocket, hand over money, and the retailer and supplier will be happy. If it isn't better, it's just a dog fight. But before all that happens, you must understand what 'better' means. While this is absurdly obvious, few companies do it."
According to Information Resources Inc. (IRI), Chicago, 84 percent of non-food items and 77 percent of food and beverage products generate less than $7.5 million annually. Fewer than 3 percent achieve year-one sales of more than $50 million.
Still, traditional supermarkets are the preferred channel for introductions. Upscale fresh and discount food stores are growing faster and do not charge slotting fees. But assortments are limited, particularly in center store. "Supermarkets have always been the target and still are due to market share," says John Rand, senior vice president at Kantar Retail, Cambridge, Mass. "Even with all the new formats, 55 percent of CPG and edible grocery is sold in supermarkets. People shape new items for this channel, even though there is so much competition."
Most new products are not revolutionary. They are line extensions involving mild changes to the original (e.g., a new flavor, size or package). Others are "me-too" responses to competitors' introductions. While the first strategy is okay, it will not transform a category. The second can work if the new item is priced lower than the original.
Both tactics are often defensive. "It's the emperor's new flavor in toothpaste," Rand says. "They're doing it to establish a shelf presence, block other brands and gain better visibility."
These tactics are less risky than introducing a drastically different item into a mature channel. CPG sales in food, drug and mass (excluding Wal-Mart) grew just 2.57 percent to $365.5 billion between 2003 and 2011, according to IRI. Units grew 0.27 percent to 31.5 billion.
Much of the growth of CPG—along with dairy— depends on increasing dollar volume more than unit volume. While risky, true innovation is the only way to accomplish this. Additional toothpaste flavors, for example, will not make people brush more. But when whitening products were introduced a few years ago, a whole subcategory was born.
Dairy has seen the introduction of heart-healthy, lactose-free and non-dairy beverages made from soy, coconut and rice. These command higher prices than regular milk but occupy equal square footage. "With dairy in particular, you're dealing with fixed space," says Neil Stern, partner at McMillian Doolittle, Chicago. "If an item goes in, one must go out. Many supermarkets were built 30 years ago with 32 feet of dairy. Look at the category then and today and you see the problem. The same with eggs. There were three kinds, now there's a dozen."
Spreading the Wealth
Once a supplier creates a winner, the next step is to maintain the excitement through additional items. This is the case with Procter & Gamble's Swiffer line, which now includes other successful floor-cleaning items—despite overall consolidation and shrinkage of the stick-goods category. "It started as an electrostatic mop, then went to Swiffer wet, then hard floor, linoleum and lemon-flavored products," Stern says. "The product was innovative and it sells at a pretty high price."
Innovation has also driven craft beer, with Sam Adams and myriad small companies constantly introducing products. "Sam Adams comes out with all sorts of beers," says Gary Stibel, founder and CEO of the New England Consulting Group, Norwalk, Conn. "Many aren't intended to last forever, like seasonals. They know craft beer drinkers want change, so they keep the brand novel."
Some CPG brands can be extended into new categories. But the brand has to translate and perform as well as the core item. "If you put your label all over it and it's a label of trust, you could hurt yourself," says Manny Picciola, vice president at L.E.K. Consulting, Deerfield, Ill.
Sometimes, a good idea does not carry over. Israel Rodriguez, principal at Edgewood Consulting, Parsippany, N.J, pointed to the failure of A1 Poultry Sauce. Shoppers could not think beyond steak. "A1 was a good idea that morphed into a bad one," he says. He also notes the wide-ranging success of Dole, which appears in fresh produce, canned goods, frozen popsicles and other areas. But everything there relates to fruit.
New introductions or line extensions must also be what Ray Jones, managing director at Dechert-Hampe & Co., Northbrook, Ill., labels "experiential." In this case, an item's meaning goes beyond the product and its intended use. It makes the consumer feel a certain way, can have social implications and may relate to how a person defines him/herself. This is particularly evident in beverage alcohol and apparel.
There still are potential pitfalls to launching successful products. One is introducing something nobody really needs. Case in point was Starbucks' Cream Liquor. Unveiled in 2005, it was discontinued in 2010. Consumer taste reviews were positive. But at $24.99, it cost more than Bailey's Irish Cream, the established brand. Another popular label, Carolyn's is cheaper than Bailey's. But the cream-liquor category is small and has no room for three major players—even though the Starbucks taste worked well.
Barilla's Restaurant Creations pasta sauces also failed due to lack of need—despite winning awards for the product's unique, two-tier jar packaging (Packaging World, Feb. 28, 2006). The product involved mixing two prepared sauce ingredients. But this "in between" pasta preparation position may have hurt.
"They spent a lot to get it right and it didn't gain traction," said one analyst. "There's a segment of the population that wants to make sauce from raw components. At the other end are people who want ultra convenience and don't want to mix anything. Being in the middle didn't work."
Companies can also mistake a fad for a trend. This happened a few years ago with low-carb foods following the South Beach diet craze. Many manufacturers were burned.
"They loaded up shelves with 100 SKUs in every category and it was a huge fiasco," says Ben Ball, vice president at Dechert-Hampe, Northbrook, Ill. "Sorting trends from fads is hard because fads are so visible, communicate so broadly and propagate quickly in today's information world. They can be meaningful but have a short life cycle."
Some categories, such as nutritional supplements, are driven by fads. Category managers must stay on top of them. "Gummy vitamins and vitamin D are really hot now," says John Ferramosca, principal at Edgewood Consulting, Parsippany, N.J. "The question is, what is the next gummy?"
Generally, supermarkets are not set up to jump on fads. They are about distribution and replenishment. "This isn't an environment or business system to exploit fads," Ball says. "It moves too slowly. Data and culture are all orchestrated around taking lots of items and frequently replenishing them in many locations. That shouldn't change."
But speed to market can be important with hot new CPG items. Rodriguez says speed varies by retailer, with slower chains taking up to 13 weeks. "This is a whole fiscal quarter slower. They aren't telling shoppers they're the place to go when something comes out. Wal-Mart's supply chain is much more efficient."
For minor launches, speed is less important. For major ones, like P&G's highly successful Tide Pods, the product should be on the shelf within three weeks. "If it's being launched off cycle from their shelf reset, they'll get manufacturer funding," adds Rodriguez. "For minor launches, the retailer can wait for the next reset."
Today and Yesterday
It is much harder to launch new products in grocery stores today than it was 20 years ago. In addition to the channel's maturity, costs have escalated tremendously. "Cost is the big impediment," Stibel says. "It's more expensive than ever."
A fragmented market with more ethnicities and lifestyles also presents challenges. Some companies have not reacted. "They don't have a homogenous audience anymore," Rand says. "While there are now many working mothers, for example, nobody is targeting men who shop and cook."
The growing private label segment is another barrier. Private label can occupy 10 percent to 30 percent of shelf space, Picciola says. "There's much more competition, with three brands plus private label fighting over space."
Some companies are bypassing grocery and making introductions in specialty stores, club stores or elsewhere. This eliminates slotting fees and other pitfalls. If the item succeeds, supermarkets will request it. Chobani Greek Yogurt, for example, entered specialty outlets first since the company was initially too small to introduce and back products in supermarkets. Today, it has displaced many supermarket dairy items.
"We're seeing variations on the path to market with some items crossing over," Rand says. "Chobani is a good example of both ends of the spectrum. The strategy works particularly well with natural and organic products. If the product is taken by Whole Foods or Sprouts, it becomes more compelling to general retailers. It's easier to go from specialty to the general market than the other way around."
This also happened with Nutela. The hazelnut spread was sold in specialty stores for 30 years. Two years ago, following what Ferramosca calls a "terrific marketing program with outstanding sales support," it went mainstream. "They also successfully communicated with retailers on how to merchandise it for visibility and did social media. Everything took off like a rocket."
Some companies bypass food channels altogether. This works well with candy. "The biggest growth has been in other channels," Jones says. "Our clients sell tons of candy in Bed, Bath & Beyond and OfficeMax."
Maybe all those sheets, towels and paper shredders activate the sweet tooth. Perhaps supermarkets should cross-merchandise dental floss near gummy vitamins—while gummies are still a fad, that is.
Every year, more than 10,000 CPG items are introduced but fewer than 16 percent succeed.
Generally, supermarkets are not set up to jump on fads. They are about distribution and replenishment.