Health strategy and marketing in the recession

First published in New Nutrition Business February 2010 Newsletter

No packaging innovation

Good packaging supports a brand in asserting its difference. It’s the best way to catch the consumers eye and earn premium prices and better-than-average profit margins. Putting your new product in a standard 1-litre gable-top carton makes it look like every other brand on the shelf and enables consumers to easily compare prices between your product and regular products.

 Contrast this approach with the daily dose probiotic dairy drinks brands such as Actimel and Yakult, which are among the world’s most expensive products, measured on a price per litre basis. Their packaging innovation makes it very difficult for consumers to easily compare prices.

In pursuit of volume, Innocent made the mistake of putting its products into standard 1-litre cartons, making the high price premium very clear and thus reinforcing the effect of driving away the more price-sensitive mass-market consumers and carrying the brand back towards its original niche.

With its strategy having failed to justify its super-premium pricing and sales plunging as a result, Innocent has drastically cut its prices by 30%-40% in some cases. It’s a step that might protect the brand’s volume, but once taken Innocent will most likely never be able to recover the lost value.

While Innocent’s pack designs look appealing the company has failed to innovate in packaging design and now finds itself up against brands such as Compal Essencial which are marketed on the same 5-a-day message but use packaging innovation to communicate the benefit, stand out on the shelf and conceal the extent of their price premium.

Innocent is paying for its failure to innovate and differentiate – its retail price is down as much as 30%-40% in many retail outlets. When the recession ends it won’t be able to get its prices back up again. It is sacrificing margin to maintain volume and with the expensive ingredients found in smoothies that’s a route that can only result in a serious erosion of profitability.

A significant part of Innocent’s initial success arose because it was creating a new category based around an innovative product – it was the first all natural, not from concentrate smoothie brand on the UK market.

It created this new category and it remains the category leader seeing off attempts from PepsiCo to break in. With the launch of its Veg Pots vegetable snack meals for one  Innocent has managed to create another new category, with first year sales of more than £15 million ($24.2 million/17.3 million). However, as with fruit smoothies, the opportunity has an upper limit. Sustaining a brand in ready meals (which is what Veg Pots effectively are) is difficult. Consumers require new flavours frequently and grow bored quickly. It’s a category where brand loyalty is non-existent and hence in the UK market is 90% dominated by private label. These factors will, we believe, keep Veg Pots at a niche level for many years and limit its ability to transform Innocent’s fortunes.

Flawed international strategy

For some years now Innocent has been working on growing its brand in the rest of Europe, marketing in the Netherlands, France, Sweden and elsewhere. But all it has to show for its efforts is a toehold and one that it will be hard-pressed to improve upon.

Innocent may boast that it has 47% of fruit smoothie sales in mainland Europe, but fruit smoothies are an ultra-niche in continental Europe with barely a 2% share of the fruit drinks market and very slender profit margins. The main reason for the difference is that the consumer types who have driven the growth of smoothies in the UK do not exist in the same numbers anywhere else in Europe.

In terms of incomes, the UK is the most unequal society in Europe, with an upper income group whose incomes are vastly higher than the rest of the population. London and the south-east, the heart of Innocent’s business, has for a decade been filling up with young people earning stratospheric salaries in finance, IT, consultancy and related services. These high income groups also pay less in income tax than their peers anywhere else in Europe.

Nowhere else in Europe do you find this concentration of high-earning, low-tax paying younger people. Put simply, the potential smoothie market in the rest of Europe is very small. Figures from drinks consultancy Zenith, for example, underscore that smoothies remain a UK and US dominated phenomenon.

In the long run, we believe, Innocent will continue to perform less well than the science-based brands that deliver measurable benefits and which have already demonstrated that, unlike Innocent, they can sustain sales growth and premium pricing in a recession. These brands are successful because the companies behind them have a better grasp than Innocent on the rules of the food and health business and have been more savvy in their consumer targeting. The challenge for Innocent will be to show that it can now accept and apply the rules. If it does not, we believe its business will not regain its former status anytime soon if ever.

About New Nutrition Business

ImageNew 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.

ImageNew 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.