Why the Greek Yogurt Craze Should be a Wake-Up Call to Big Food

Why the Greek Yogurt Craze Should be a Wake-Up Call to Big Food

by Manny Picciola and Stuart Jackson  |   8:00 AM March 14, 2014

In 2005, Hamdi Ulukaya purchased a yogurt factory in upstate New York that had been shuttered by Kraft Foods. He wanted to use it to produce a line of strained, or “Greek,” yogurt called Chobani. If you’ve been in a grocery store lately, you probably know the rest — the brand caught on quickly. But for years, as Chobani gobbled up market share, the major food companies stuck to their regular lines of yogurt. Chobani went on to become the second largest yogurt seller in the U.S. and cost General Mills, Dannon, and other established players billions of dollars in sales. And new reports say that Chobani is talking with investors about a deal that would value the company at $5 billion.

Food fads develop quickly in today’s marketplace. Consumers are more tightly connected now and are more likely to follow word-of-mouth (or word-of-keystroke) advice than in the past. Amid this changing environment, you’ll find rows and rows of marketing teams at the Mid-Western headquarters of America’s largest food companies — in no industry does marketing appear to play a more prominent role. But despite this manpower, “Big Food” missed Greek yogurt. As the dynamics of the American food market have changed, the industry that essentially invented the modern marketer has been slow to notice.

As the Chobani story shows, Big Food needs to make some changes, particularly to a customer-centric, as opposed to marketer-centric, marketing approach. This transformation holds lessons for all consumer-goods companies. And it requires companies to consider steps like these:

Give up some control and get nimble. Big Food has a proven formula for its products that involves controlling the message and the channel. Companies build consumer awareness through paid media and get products in front of customers by offering promotional dollars to supermarkets to display products prominently in the aisles. But entities such as social media, online grocers, and word-of-mouth marketing are adding a whole new dimension beyond traditional paid media. Companies need to experiment with other means of going to market, including launching products with specialty retailers and using social media and other tools to drive word-of-mouth (and keystroke) marketing.

Remember the difference between “good taste” and “tastes good.” Controlled experiments involving consumer taste preferences have taken food companies down a path of continuously fatter, sweeter, and saltier products. By the time Chobani entered the market, a single pot of traditional yogurt had come to contain as much sugar per serving as many desserts. Ulukaya has said he launched Chobani with almost no money available for promotion or advertising because “deep down I knew I had something very good.” To unleash food fads, companies need to have the same confidence and choose products that they can believe in.

End your obsession with ingredient cost. Big Food favors products with big gross margins — in part so that they have more to spend on needed marketing and promotion. One of the reasons that Big Food didn’t like Greek yogurt early on is because it costs more to make and contains less water than regular yogurt. Food companies should distribute their gaze more evenly across their value chain. Instead of focusing primarily on downstream activities such as packaging and promotion, they should also look upstream to identify promising natural ingredients. Great products can command premiums, and become popular with very little marketing spend. Kale, quinoa, or chia anyone?

Put the product ahead of the brand. Brand management has hijacked the most important part about food: the product. Food companies constantly narrow their focus on how to convey what the product means rather than what the product is. The fact that, for example, a suburban housewife is the center of a certain brand’s universe is important knowledge, but that insight can never trump creating a product consumers actually want to eat. Branded food companies should invest more in innovation and less on brand marketing.

Learn the art of “small ball.” Giant companies like P&G and Unilever tend not to be interested in product launches unless they offer hundreds of millions in potential revenue. It’s possible that had an established food company attempted to compete with Chobani from the start, they would have withdrawn the product because it didn’t meet initial sales goals. There are two ways to solve a “swing-for-the fences” bias. One is through M&A. PepsiCo is a leader at this inorganic approach — their partnership with Sabra unleashed a hummus craze that shows no signs of abating. Another is to put semi-autonomous incubator groups in charge of smaller and softer launches. General Mills’ Small Planet Foods, for example, operates semi-autonomously from the company’s mother ship in Minnesota, and has recently added several successful brands.

Shorten your development cycle. Alternative food companies use co-packers so they don’t require long-run investments in factories. They start by launching products online and in specialty channels instead of through traditional grocers. They dispense with large consumer surveys and test products directly with networks of loyal customers. All of these contribute to shorter development cycles and much lower costs for new product launches.

Big Food has become “big” as a result of a terrific success: their traditional marketing departments have helped generate billions in profits. But relying on one approach to marketing has left these players exposed in today’s fast-moving climate. If a company has only one way to go to market and think about its business, it limits its opportunity to respond quickly, flexibly, and to enter and exit fast-changing food categories in a timely manner. And that’s true for any consumer goods company.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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