The Food & Drink Innovation Network

The food industry is suffering from a strong case of over-supply, with more supply than demand in almost any category that you can think of. How, then, does a brand manage to keep its head above water in the constantly changing world and make sure it is able to maintain customer loyalty and overall success?

Andy Knowles, Managing Director at branding organisation Jones, Knowles, Ritchie, believes that a brand’s importance is in its identity. Commoditisation, he explains, is all-too-common in today’s world, where consumer fatigue seems to be setting in and causing many shoppers to always head for the bargain options, rather than paying a premium for higher-quality goods.

Commoditisation has already affected the food industry quite noticeably. The bread sector provides a good example. Kingsmill was once a premium brand, on a par with Warburton and Hovis. But while the latter two have continued to retain brand loyalty through a variety of methods, Kingsmill’s fortunes have suffered and as a result it decided to take the easy option and cut its prices to Tesco’s own-brand levels. Now consumers see Kingsmill as being on a par with the supermarket own-brand option, something which has caused it to run into financial troubles recently.

So innovation may be called upon to keep commoditisation at bay. The bread industry also makes a useful example for Andy. He points to the introduction of Hovis’ Best of Both, which for the first time offered consumers white and brown flour in one bread. But soon after, Kingsmill and Warburton both followed suit and introduced similar innovations. With no copyright in ideas, the challenge for any company that is relying on innovation is to stay ahead of their rivals, otherwise people will not pay a premium for one product when other companies are providing the same product for less.

A good portrait of this is the situation that Magner’s has found itself in over the past few years. Four years ago, the company introduced the idea of cider ‘over ice’, which managed to capture the public imagination and resulted in a massive uptake in sales of cider after years of steady sales. Magner’s enjoyed string growth and had predicted big things for the future, however 2007 has been a disappointing year for the brand. One of the reasons for that has been the response from Strongbow and Bulmer’s, among other cider producers, which has shown that people may be sold on the cider over ice concept, but they have clearly not been too picky when it comes to the particular type of cider that they are pouring over their ice. As a result, Magner’s has suffered something of a slump as other brands battle back. As Andy explains, Magner’s was “very quickly emulated and surpassed”.

What Andy is saying is that businesses do not necessarily have to follow the examples set by Kingsmill or Magner’s. Instead, they need to invest some time thinking about the “cycle of commoditisation” and work out how best they can avoid it. In his opinion, there are two methods which need to be employed “in harmony” by companies. The first is the route that some well-known brands on the market have achieved, such as Guinness and Innocent Smoothies, which have cultivated an affinity between consumers and their brands, thereby boosting the likelihood that people will remain loyal to a brand even when new innovations and pretenders to the throne come onto the market.

So can innovation alone ever be enough for continued success? Phil Lynas, former managing director of Phileas Fogg, suggests that innovation needs to be nurtured in the right culture to be successful. Phileas Fogg provided some true innovation a few decades ago when it began marketing snacks to adults, offering a winder variety of flavours than had previously been seen. Its success saw it quickly snapped up by snack giant KP. Phil argues that KP’s attempts to “plug-in” the innovation at Phileas Fogg snacks into its own business was a failure because “it squashed the innovative culture”.

But does this mean that a new innovation cannot work in a big company? Hamish Renton, the managing director of Riviera Desserts, insists that it can. And he should know, having launched the Nomoo Desserts brand from within the company. The UK’s first chilled, dough-free dessert range is now reaching a crossroads, Hamish admits, but this is what is helping to keep the product appearing young and vibrant. Rather than being subsumed by the larger organisation which spawned it, Nomoo is able to act, in Hamish’s view “like a start-up”, thanks in part to the structure of the brand’s team. Hamish says that Riviera Desserts set up a separate, small team which managed to foster a spirit of its own and that spirit remains today.

Nomoo now has a variety of options in front of it. Hamish comments that it can look to enter the European market, attempt to extend its line, develop different desserts or aim for supermarket expansion. Because these choices are being faced by a small team, who have the power to make decisions of their own, the brand is able to remain well-placed to make quick changes if one approach proves unsuccessful. Hamish explains that the brand can act like a start-up and is able to “be nimble”, even though it is part of a big company.

Another important way to keep consumers coming back for more is to make sure the organisation keeps innovating. “Companies look to innovation to become their salvation,” Andy explains. Nomoo is a good example of this, as it currently stands in a position waiting to decide where it should go next and its next innovative moves will no doubt have a major bearing on its long-term success. The problem that Kingsmill in particular now faces is that it is not bringing in the revenues it needs to invest in new developments and as such is facing a downward spiral, Andy suggests.

However, what is clear from some of the examples above is that innovation on its own is far from enough to keep a company successful. Genuinely new products are needed in the market in some cases, but even these cannot hope to succeed in the long-term if they rely simply on their innovation. Innocent Smoothies offers a good example of this. Although the idea of a smoothie is nothing new, Innocent has managed to package and sell the product as a healthy alternative to fizzy drinks. While its entry into the market has been helped by the current backlash against unhealthy foods and concerns about obesity, Innocent has managed to hold off a string of pretenders to the throne to retain around 80 per cent of the market share of smoothies. Many companies would love this kind of dominance so it is important to consider how Innocent has achieved such success. As well as developing a product that is targeting an increasingly health-conscious world, it has the advantage of having worked hard on its branding to become a trusted name that consumers will return to time after time.

Phil Lynas looks at the downfall of Phileas Fogg, explaining that there are lessons to be learnt from the way in which it was subsumed into the bureaucracy of the larger KP. But he insisted it is not inevitable that this will happen. There are plenty of examples of companies that have succeeded, with Green and Black’s one example of a popular, innovative brand that has lost none of its identity despite being a massive international organisation. Furthermore, Phil suggests that spicy chicken restaurant chain Nando’s offers a great example of the importance of maintaining the right culture within a company. Nando’s has maintained the right people on board to give it a culture of innovation and despite its rapid growth, Phil believes its existing culture is what will provide the company with sustained, long-term growth. “Future innovation at Nando’s will come from the brand culture it has kept,” Phil explained.

As Andy explains: “Too many companies overestimate the value of the idea and underestimate the value of the execution of that idea.” This is definitely something that Innocent has recognised, because its branding has made it stand out above competitors in a way that Magner’s innovation did not. In many ways, Innocent is saying to consumers: “Other smoothies are imitations of our innovation and are not good enough for you.” Magner’s was unable to get this message across with its own innovation and is now counting the cost.

There is a growing move towards the development of new brands in an effort to tackle the problem of commoditisation. Indeed, the current trend has seen consumers becoming increasingly apathetic towards simple brand extension and this is not surprising given some recent incidents. Bernard Matthews has suffered in recent months following the discovery of bird flu at one of its sites. When the outbreak was discovered, media attention on Bernard Matthews and speculation surrounding the conditions in which the animals had been kept severely damaged the firm’s reputation. Cadbury has also suffered over the past few years after a mass outbreak of salmonella led to the recall of a million bars of chocolate, tainting the reputation of one of Britain’s best-loved brands.

New models of business are challenging the old conceptions that brand extension is a more cost-effective way of maintaining business and avoiding commoditisation. There is currently a convergence of related trends that is leading to the development of new brands, as the move appears to be away from simple brand extension due to the consumer’s apparent appetite for something genuinely new.

The nutritional concerns of consumers and the growing sophistication of buyers regarding what ingredients are included in their products is one of the main reasons for this demand for new products. A recent survey found 71 per cent of UK consumers claim to think about the healthiness in everything they choose to eat, while only 41 per cent said they think about the calories. Meanwhile, retailers are coming under increasing pressure to deliver healthy, environmentally-friendly products and the growing knowledge of consumers about the industry means they are able to make more informed choices about he food they buy. As a result, many large supermarkets are now eager to stock small, local producers, giving new life to entrepreneurs in the food market.

While it is unclear how well these new brands will fare in the long-term, it will be interesting to see which of the new brands make it and how they achieve longevity.