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Brand Leadership and Product Innovation as Firm Strategies in Global Food Markets
Mark J. GehlharAnita Regmi
Spiro StefanouBarry Zoumas
International Food and Agribusiness Management Association15th Annual World Food and Agribusiness Forum, Symposium and Case Studies
June 25-28, 2005
Competition in global food markets
• Competitiveness: re-emerging issue of national interest in the United States
• U.S. is now a net importer of processed food
• Is innovation taking place and what are the motivations?
New Drivers of Change
• The consumer: -Aging, educated, affluent consumers in developed markets
-Greater urbanization in developing countries
• Product design: merging of food science and health awareness into products
• The retailers: growing concentration in developed markets with global retailers now reaching developing countries
Shift in balance of power
• Retailers pressuring manufacturers (quality and reliability)
• Margins on branded products under greater pressure more with private labels (store brands)
• Food products more difficult to differentiate with “imitator” manufacturers increasingly supplying retailers
• Branded manufacturers undergoing an identity crisis?
New Food Products Introduced Globally
Source: Productscan
0
500
1,000
1,500
2,000
2,50019
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Snacks, sauces,and soups
Dairy products
Mealreplacements andentrees
Number of products
10.5
11
11.5
12
12.5
13
1990-1994 1995-1999 2000-2004
0
1
2
3
4
5
6
7
8
share in total foods
number of dairy products
Source:Productscan,2005
Dairy share of food products
Number of new dairy products (thousands)
Dairy products as share of all new food products is rising
New Food Products Introduced Globally by the H.J. Heinz Company
Source: Productscan, 2005
Number of new products
0
50
100
150
200
250
300
350
400
450
500
1980-1984 1985-1989 1990-1994 1995-1999 2000-2004
A period of divestments but “focused” growth
New Food Products by Snyder’s of Hanover:
A medium sized U.S. private company “America’s Pretzel Bakery”
Source: Productscan, 2005
Number of new products
0
5
10
15
20
25
30
35
1980-1984 1985-1989 1990-1994 1995-1999 2000-2004
How does the branded manufacturer compete in the changing environment?
• Marketing
• Quality
• Productivity
Basic Orientations of Firm
Orientation Primary emphasis of firm Examples of firm activities
Market Gain high level of expertise in gathering and Conduct market surveys
analyzing current market trends Consumer testing of new products
Process Readily adopts processes for reducing organizational boundaries Implement cutting-edge information services
increase efficiencies in physical and information flows for Upgrade to state of the art equipment
reducing costs in production, distribution, and financial transactions Establish efficient networks with partners
Product Extensive product knowledge to enhance quality Conducts and monitors international R&D
Stress creativity in products Develops innovative speciality products
Strive for superior quality or functional foods using sophisticated ingredients
Terminology adopted from Traill and Meulenberg, 2002
Types of firms and motivationfor innovation
• Previous study using case series approach Trail and Meulenberg 2002, Agribusiness
• Hypotheses:
-Every successful firm has a single dominant orientation either in product, process, or market
-Successful branded manufacturers are predominantly product or market oriented
-Privately owned companies are more likely to be product oriented than public companies
-Cooperatives are less product innovative and expected to be more process innovative
Market orientation
(produce what current market wants)
Process orientation
(adopt efficient production and distribution technology)
Product orientation
(innovate products with quality focus)
Branded food manufacturer
Non-branded manufacturer
Traditional cooperative
Firm orientations and competitive forces
Our Approach • Interview leading firms of different ownership types and
sizes supplying in different product markets
• Discover their identity (or who they think they are) What makes them different ?
• What are they doing about securing growth and leadership?
• Who they are is revealed by their actions
Heinz's Position in U.S. and World Ketchup in 2003
U.S. market World Brand Company Share Brand Company Share
Heinz Ketchup Heinz Co, HJ 58.9 Heinz Heinz Co, HJ 27.6
Hunt's Ketchup ConAgra Foods Inc 16.3 Kagome Kagome Co Ltd 5.7
Del Monte Ketchup Del Monte Foods Co 5.1 Baltimor Baltimor Holding ZAO 4
Private Label Private label 14.5 Hunt's ConAgra Foods Inc 3.4
Others Others 5.2 Del Monte Kikkoman Corp 2.1
Total Total 100 Del Monte Del Monte Foods Co 2
Calvé Unilever Group 1.4
Hellmann's Unilever Group 1.4
Felix Orkla Group 1.3
Hela Gewürzwerke Hermann Laue 1.2
Others 49.9
Total 100
Source: Euromonitor International, 2005
Snyder's of Hanover position in U.S. and World Pretzels in 2003
U.S. WorldCompany Brand share Company Brand share
Frito-Lay Co Rold Gold 31.5 PepsiCo Inc Rold Gold 21.4 Snyder's of Hanover Snyder's of Hanover 27.0 Snyder's of Hanover Snyder's of Hanover 17.9 Utz Quality Foods Inc Utz 5.0 Lorenz Bahlsen Snack GmbH & Co Salzletten 6.3
Mars Inc Combos 3.6 Utz Quality Foods Inc Utz 3.3 Bachman Co Bachman 2.7 Mars Inc Combos 2.4
Herr Foods Inc Herr's 2.3 Intersnack Knabber-Gebäck GmbH Stickletti 2
Old Dutch Foods Inc Old Dutch 1.6 Bachman Co Bachman 1.8 Jay's Food LLC Jay's 1.5 Herr Foods Inc Herr's 1.5
General Mills Inc Gardetto's 0.5 Ancel SA Bretzels 1.4 Private label Private Label 6.3 PepsiCo Inc Parkers 1.2
Other brands 18.0 Other brands 40.8 Total Total 100.0 Total 59.2Source: Euromonitor International, 2005
Leading Companies in Global Dairy Sales, 2003
Rank Company billions1 Nestlé 19.32 Campina Arla 12.73 Dean Foods 7.94 Danone 7.85 Dairy Farmers of America 7.76 Fonterra Cooperative Group 7.77 Lactalis 6.88 Unilever 6.69 Kraft Foods 6.3
10 Parmalat 5.711 Royal Friesland Foods 5.512 Bongrain 5.013 Meiji Dairies 4.814 Morinaga Milk 4.415 Humana Milchunion 3.416 Land O'Lakes 3.417 Nordmilch 2.818 Saputo 2.819 Schreiber Foods 2.620 Fromageries Bel 2.6
Source: Rabobank 2004
Case profiles of large public, medium private, and international cooperative
H.J. Heinz Snyder’s of Hanover Fonterra Cooperative Group
Strategic resources
(real or perceived)
-High quality brand image since 1869
-International expertise in condiments and sauces
-Fine art of pretzel baking since 1909
-Family tradition and geographic brand
-Deep knowledge of milk and dairy components
-Brand image of clean environment and green pastures
Product orientation
Packaging and innovation for healthier convenient products
Niche marketer of high quality snack foods
Improving dairy ingredients through technology
Process orientation
Streamlining initiatives with sharper focus
Flexibility and speed in adopting new ideas and products
Foreign partnership and global procurement to reduce risk and improve operational excellence
Market orientation Educate consumer about health benefits of products
Listen to new ideas and concepts from traveling abroad
Educate consumers about benefits of products and ecological sound practices
Case profiles of large public, medium private, and international cooperative: Company statements
H.J. Heinz Snyder’s of Hanover Fonterra Cooperative Group
Comments from management -Quality and innovation are the way forward”
-Brand growth will benefit greatly from sharper product focus, reduced bureaucracy and simplified business processes
-Do not let consumers take you where you don’t want
to go
-We want to be indispensable to our customers
-Rather than innovate across the board, we are narrowing our focus to our highest-earnings brands
Market orientation
Influence what market wants
Process orientation
adopt processes using strategic resources more effectively
Product orientation
Innovate to differentiate products using strategic resources
H.J. Heinz
Make existing product under Heinz brand healthier with convenient packaging
Snyder’s of Hanover
Specialize in baking tradition using product
extensions of pretzels
Leaders recognize strategic resources and use innovation to influence market for sustaining profits and growth
Fonterra
Use R&D extensively and promote wholesome “green pasture” image to promote milk products and ingredients
Direction for sustaining superior profits
Resource base
Leaders recognize strategic resources
Summary
• A dominant orientation is not revealed in cases here, rather there is a balanced orientation
• A “focused growth” strategy using improved processes to enhance product innovation
• Leaders have clearer identity when recognizing their strategic resources
• Leaders try to steer the market with new products and consumer education