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04/01/2012

Betting on New Products

The success of new products is never a given. The risk associated with innovation can become magnified by a difficult economy, when budget cuts are the norm for both manufacturers and consumers.

Yet companies that pull back entirely risk losing out to competitors, while those that go for it might have an easier time attracting attention. Gehl Foods didn't let a tough 2010 economy dissuade it from launching a shelf-stable yogurt drink that can be stocked with soft drinks.

The Germantown, Wis., dairy foods manufacturer recognized the strength of the concept behind Main Street

"Our position was: Forget the economy. This is a big innovation."

– John Slawney,

Gehl Foods

Café Protein Smoothies, its first branded item for the mass market, and proceeded. "The down economy is all we've known with Main Street Café Protein Smoothies," says Katherine Gehl, chairman and chief executive officer of the privately held family business, which has $200 million in sales.

"Our position was: Forget the economy. This is a big innovation," says John Slawny, vice president of sales and marketing at Gehl. "We didn't want to put an innovation like this on the backburner because of the economy. We felt our new products fit a longer-term consumer trend and believed there might actually be less clutter today as other companies were backing down from lesser innovations."

Gehl Foods' endeavor paid off. Since launching the product in December 2010, the company has sold more than 1 million bottles of Main Street Café drinks, which retail for $1.99 to $2.09 for an 11-ounce serving and have a shelf life of six months.

"Consumer goods companies have historically been among the most prolific product innovators in the world," says Bryan Seyfarth, director of product strategy for Sopheon Corp., a Minneapolis-based supplier of innovation management software.

MISSING THE MARK

Yet development and success don't always go hand-in-hand. While CPG companies derived an average of 25.7 percent of their revenue from products introduced over the past three years, only half the products achieved their profit goals, according to an October 2011 CPG innovation study by Sopheon and Consumer Goods Technology magazine.

A lack of product differentiation and poor market analysis can lead to disappointing results, the survey indicates. "Only 18 percent of the consumer goods products that come to market are what their creators call truly innovative. The rest are line extensions, packaging changes and incremental work," Seyfarth says. A sound market analysis should be brought to bear in the early stages of product development to decide whether to continue or to drop a project, he says.


"Only 18 percent of the consumer goods products that come to market are what their creators call truly innovative."

– Bryan Seyfarth,

Sopheon Corp.

Reinventing Product Lines

CPG manufacturers have to continually reinvent their product lines, says Todd Bamberg, founder of Chicago-based Launchpad Consulting, which works with CPG manufacturers on new product development. "They've got to keep having new offerings up there for customers to just keep stimulating that loyalty and that brand recognition. Otherwise, they may just end up getting a little complacent, a little stagnant, and maybe competitors will come in and even start trying to capitalize on that lack of drive and determination to succeed."

The CPG's goal should surpass the success of the latest new product introduction to center on boosting awareness of the overall brand, says Bamberg, who is also a former senior global grocery buyer at Whole Foods Market.

"It's really all about positioning your brand, growing awareness of your brand, inciting trial, getting customers to hopefully change their shopping habits and pick a new product over something they may have been habitually shopping over time," he says.

Introductions Decline

Even in a bad economy, companies need to look ahead to better times, so they should budget more for new product development and marketing, Bamberg and other experts suggest. Yet CPG companies don't always heed that advice. Since 2008 when the economy entered recession, the number of new food and beverage introductions has declined 20 percent, says David Sievers, consumer products and retail practice leader at Archstone Consulting, a division of The Hackett Group. The drop compares with a 25 percent increase in new CPG rollouts in 2006 and 2007 from the previous three years, according to a 2008 Archstone report.

While many CPG companies are more cautious with their research and development budgets, Sievers says, "If you're Kraft or PepsiCo, product introductions [and] product innovation is a central tenet to a successful formula."


"If you're Kraft or PepsiCo, product introductions [and] product innovation is a central tenet to a successful formula."

– David Sievers,

Archstone Consulting

In good economic times or bad, consumer packaged goods companies and their retail partners strive for category growth, says Barry Calpino, vice president of breakthrough innovation at Kraft Foods in Northfield, Ill.

Pushing Growth

"I don't know that there's been a recent big shift in terms of how we think of innovation," he says. "For all the retailers that I've talked to, the biggest issue is how do we drive category growth." When the economy is growing at a snail's pace, innovation is one way to push growth.

In December, Kraft announced a broad list of 70 new product introductions for 2012, including new meal options Kraft Fresh Take and Velveeta Cheesy Skillets Dinner Kit as well as MiO Energy Liquid Water Enhancer and belVita Breakfast Biscuits, which are whole-grain, on-the-go biscuits.

Kraft looks for innovative ideas from retailers, consumers, Kraft employees, product teams and research and development. "A part of success in our innovation is making sure when you're trying to come up with new ideas that you spread out and you hit them from a lot of different places," Calpino says. "There are so many constituencies and angles at how they look at the brands, and [they] have fresh approaches and fresh ideas."

Kraft attempts to "harmonize" its product introductions with retailers' needs by including retailers in its go-to-market planning, Calpino says. For example, several retailers had cooks provide in-store demonstrations of Philadelphia Cooking Creme to generate traffic and create in-store excitement when the product launched in 2011, Calpino says.

Market Changes Bring Opportunity

New product ideas can come from anywhere, but watching shifting demographics and changing tastes is often a good starting point. Chester, N.J.-based Run-A-Ton Group, maker of Wholly Wholesome pies and crusts, took notice of smaller family sizes as well as the challenging economy when it introduced smaller, six-inch pie shells. Consumers can buy three smaller shells for the price of two larger ones. "There is a lot of interest in people saving money [by] making their own food," says Doon Wintz, chief executive of the company. "So there is a down economy angle and pocketbook issues here."

Run-A-Ton Group, which sells to Wegmans Food Markets, King Soopers, Publix, Giant Eagle and Whole Foods, also launched an organic rolled pie dough for consumers who want to use their own pie pans and a reformulated dairy-free pumpkin pie aimed at vegans and lactose-intolerant consumers. In retrospect, the company might have introduced the organic rolled pie dough a year earlier, says Wintz, but held back because he felt the dough was too expensive for the down economy.

The company introduced the rolled dough in 2011 at a higher price, and the market has been receptive. "I hate to have lost the year, and we may have been too conservative," Wintz says. "Live and learn."

Howard Wolinsky is a Chicago-based business/technology writer and an adjunct professor at Northwestern University's Medill School. His work has appeared in BusinessWeek, Chicago Tribune, Crain's Chicago Business and Chicago Sun-Times.