Getting smarter with health marketing
The challenges of how to take new products to market in ways that enable companies to earn better margins, to build better relationships with consumers and give new ideas a chance to grow – and escape the stranglehold of supermarket chains with their short-term thinking and limited shelf-space are what forward-thinking companies are now wrestling with. If some of the ideas being tried out come to fruition, the decades ahead will see a transformation in the way that healthy products go to market.
First published in New Nutrition Business, October 2010 Newsletter, by Julian Mellentin
Getting your product where the consumer can buy it is key to the success of all healthy food and beverage products. In fact, your ability to get and keep distribution, to merchandise the product well, to get it on the right shelf, are often more important determinants of whether your healthy product succeeds or fails than branding and advertising. But for many companies distribution means the supermarket channel a channel whose constraints are such that many innovations never see the light of day.
Supermarket chains margin targets, their control over pricing, their desire for products to be successful within just eight weeks or they are kicked off the shelf, the fact that retailers aren’t willing to give more shelf space to existing categories, and that for a new product to go on the shelf another one usually has to come out – these are just a few of the factors in supermarket retailing that mean that many innovations never make it out of the ideation stage, and many that do don’t last long in the warzone of the supermarket.
In large part the problem is because in many countries, perhaps most, there is an ever-greater concentration of power among a shrinking number of grocery retailers. It’s a trend that’s well-advanced in most markets and in some has already reached its logical conclusion – in Australia, for example, 90% of the grocery market is controlled by just two supermarket chains.
As a strategist you have two choices. You can either accept the status quo and live with the stranglehold that the supermarket chains are slowly tightening around your business or you can think how to get round it.
Danone is clearly a company that is thinking outside the box: this summer saw the opening of two Yoghourterías Danone at Madrids Barajas international airport.
In a joint venture with Areas, the leading Spanish foodservice company which runs the services at Barajas, Danone has opened two 48 square metre branded retail outlets at Barajas offering yoghurt and ice-cream that can be garnished with cereals, fruits or other more indulgent ingredients, such as chocolate sauce and candy.
For those of you who speak Spanish (and the pictures tell the story interestingly enough for those of you who don’t) you can find a short film about the new Yoghourterias by following this link: http://www.youtube.com/watch?v=58tnlbe5u90
And it seems that the openings in Madrid are just the beginning of establishing a new and independent point of sale. The idea was piloted starting in 2008 in Barcelona, where Danone made a rumoured 0.5m ($0.68m) investment to open a yoghourtería in a space of 300 square meters that includes a restaurant as well as offering information on nutrition and health.
Customers can buy food to consume on the premises or to take away and the restaurant offers salads, meats and fish as well as yoghurts. The concept attracted favourable media coverage for its inclusion of local wines on the menu. According to Spanish press reports, Gelabertó Agate, head of Retail de Danone, said of the new openings: “These yoghourterías are born after the good reception from the public to the yoghourteria in the Danone House of Barcelona. We are sure that the yoghourterías of Barajas will be as successful.”
AN OPPORTUNITY FOR SMALL BUSINESSES?
You don’t need to be a global corporate giant to think about innovative ways to reach the consumer – in fact, it can be to your advantage not to be constrained by existing special partnerships (as retailers always call them just before demanding a massive price cut from you) and the fear of giving offence to touchy supermarket buyers.
Comvita is a brand of manuka honey, a honey said to have anti-microbial properties and used in some hospital systems for its benefit as a wound-treatment and related bee products that is marketed in Europe and Asia by a New Zealand-based company, whose $62 million/45.8 million annual sales makes it a minnow by international standards.
Faced with the question of how to break into the Chinese market with its super-premium products, Comvita wisely avoided committing itself to the clutches of supermarket chains. Instead, it found a way to develop a direct relationship with the consumer and retain the margin that in conventional distribution models goes to the grocery chain. It opened its own-branded stores and today it has 32 stand-alone stores in China, seven of those in Hong Kong. Unsurprisingly, Asia has rapidly become Comvita’s largest and fastest-growing market, the stores contributing around $15 million (11 million) in sales.
It’s not necessary to open your own retail stores to go direct to the consumer. Fedgling vegetable juice maker, Wild Bunch, is using direct-to-home delivery to drive its expansion in the London area, as it has already learnt how to do in Singapore, its start-up market.
“Ten years ago if you’d tried home delivery in London I don’t think it would have worked, but the city’s a different beast today,” observes CEO and co-founder Mark Walker. “Now a lot of people are used to getting food delivered to home.”
Ten years ago we would have had to educate the market but delivery services like Ocado, Riverford Organics, Evelyn & Cole and the many other home delivery services that are out there have done that work for us. People think, “If we can get it delivered that fits in with our lifestyle.” Today there are many routes to market.
Home delivery can seem like a novel idea to many food industry executives, but in major metropolitan areas there’s nothing novel about it. In New York City you can even have breakfast delivered: Energy Kitchen is one of tens of companies offering a healthy breakfast, home delivered, within New York City.
Home delivery is a business which is best suited to major metropolitan areas with high density populations but these are also the places where you find the greatest concentration of health-conscious consumers and people with high disposable incomes. Such cities, sometimes referred to as world cities and estimated to number around 70, their numbers including Madrid, Barcelona, New York, London and Singapore, are just the tip of the iceberg of opportunity. Already 640 million people live in the world’s 300 largest cities and the world is urbanising more every day.
The idea of opening branded retail outlets or engaging in home delivery is anathema to many corporate managements. The argument against is usually that, “We don’t have the skills.” But you don’t need to go it alone. You can form a joint venture with a retail organization or experienced franchisees – both mighty Danone and minnow Comvita work with retailing partners who bring skills and know-how.
The capital allocation is also not much of a barrier retailing is not a capital-intensive business, in fact, it’s much less capital-intensive than your factory.
The companies willing to look beyond these objections need also to look at the opportunities of which the most compelling is the possibility of better margins. For example, if 80% of your sales makes you 40% gross margin in conventional supermarket distribution, but 20% of your sales makes 60% gross margin through direct-to-consumer channels, then the direct-to-consumer will be generating 20% of your sales but 30% of your operating profits.
That makes every dollar of sales in your own channel worth more in margin than a dollar of sales in the supermarket channel in other words more money for less work. It isn’t rocket science to work out and it’s why so many smart thinking companies are exploring direct-to-consumer. If you aren’t, then it’s time you should.
About New Nutrition Business
New Nutrition Business is a London-based research, publishing and consulting company which specialises in researching, analysing and forecasting developments in the business of food, nutrition and health around the world.
The strategies and success factors it has identified in the 1990s have become the benchmarks for strategy development and brand positioning in the worldwide nutrition business. It works with companies all around the world, from the United States to Australia and from Sweden to South Africa.
New Nutrition Business is headed by executive director Julian Mellentin, one of the world’s very few global specialists in the business of food, nutrition and health.
He is the editor-in-chief of New Nutrition Business and Kids Nutrition Report, the only industry journal in the world on the rapidly developing kids nutritional marketplace.
Julian is co-author of both The Functional Foods Revolution: Healthy people, healthy profits?, the first-ever book on the business of functional foods, now translated into Japanese, and Commercialising Innovation: The Food & Health Marketing Handbook.
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