The past six months have been less stellar than predicted in this post crisis environment. Four factors stand out that are driving flat foodand beverage trends and weak growth prospects through the remainder of the year: (1) market variation ; (2) increased volatility; (3) growing cost pressures; and (4) stakeholder nervousness, limiting access to growth capital.

“Shoppers are still making conservative and deliberate purchase decisions and are reluctant to open their wallets. With this in mind, manufacturer and retail decision makers must uncover select, high-growth categories, and target products and offers to very specific shopper groups.” – claims Dr. Krishnakumar (KK) S. Davey, Managing Director, Symphony IRI Consulting.

Successful innovators are growing. A small group of growth companies are beginning to master the new environment. The principal is simple. Growth companies tend to be really good at generating substantial cash flows or earnings, and outperform the economy or relative category they play in.  This allows them to invest in building considerable market advantage and to be more successful at winning and retaining market leadership.

Fage_Greek_YogurtThese companies are entering new markets, securing additional equity funding and accumulating cash to enable them to take action quickly. They are not focused on cost reduction — perhaps because they already have their costs under control. Nor are they frantically developing scenarios for the future — they already have a good idea of their plans and understand what the variables may be. They are certainly not cutting back on R&D. The picture is even more distinct for companies playing in rapid-growth markets.  These growth companies are also proving to be successful innovators.

The companies who are outperforming others in the new economy are innovating in three areas:

  • Consumer reach: Targeting and satisfying customer needs.
  • Operational agility: Increasing speed and flexibility and moving from supply chain to integrated value chain.
  • Cost competitiveness: Winning sales at a price that generates a sufficient return both for stakeholders and the investment needs of the business.

These successful innovators are responding to new patterns of demand. They have been alert to the impact of the economic turmoil in their markets and have acted to re-establish their customer focus and relationships in a much stronger way.  

Says an investor in fast growth companies, Ben Narasin, Managing Partner of TriplePoint Ventures: “There is no innovation in “me too” Williams Sonoma 3these days. You need to set yourself apart, know and own your target consumer and show that you can scale through a value proposition that is highly differentiated.”

Nine ways companies are winning. In the last 18 months, our clients have gained practical insights from several high performing companies  that are mastering the new environment and difficult conditions.  Following are key strategies that are driving growth for these businesses:

  1. Broader product/service offering. Some companies are using incremental innovation to capture the wallet of current customers.
    • William Sonoma is moving up the value curve and securing better prices for their efforts, through innovative product design and marketing to establish and protect a brand premium position. They have shifted from housewares to specialty food products where they can grow a unique premium position ahead of their competitors.
    • Charonge (Delicato Family Vineyards), is pioneering a brand new category of super-premium, fruit-flavored wines, following Screen Shot 2012-10-23 at 6.24.26 AMthe well-established market for fruit-infused spirits and craft beers. Conceived by an employee, Jim Ferguson who noticed that his friend’s wife was drinking fruit-infused vodka while his adult daughter was enjoying a beer with an orange slice.  Ferguson grabbed a citrus slice and tossed it into his Chardonnay. Released in July, Charonge already is making its mark with brisk sales and grown to more than 20,000 cases in two months. 
  2. Prioritized markets. Others are working with current customers and employees as primary sources of innovation — moving innovation closer to their target market and increasingly in rapid-growth markets.
  3. Increased speed and success rates in the innovation process. Companies are developing formal innovation processes, but with greater clarity on “go/no go” criteria, and with customer feedback and review built into the development process.
    • Peets’ Coffee is redefining their market position through increased customer engagement by experimenting with innovative products and customer experiences at some of their stores.
  4. Reinforced branding. A careful focus on choice of customer segments is allowing companies to create truly unique positioning and long lasting competitive advantage.
    • Urban Outfitters has targeted the fast-growing millennial shopper segment, critical to their success.  The company trades at more than twice the valuation of the Standard & Poor’s 500 Index. Its premium is higher than that of Gap Inc., the biggest U.S. specialty apparel retailer, and Limited Brands Inc., the operator of the Victoria’s Secret chain.
  5. Efforts focused on most profitable market segments.
    • Smaller and mid-sized food and beverage manufacturers (companies with revenues under $1 billion) have discovered and Nespressosuccessfully penetrated specific market niches, such as Fage Total within the Greek yogurt category and Nespresso single-cup coffee machines within the coffee category.
    • Potentially popular products, such as new-age snacks, and health and wellness-focused items are being offered at attractive price points and are achieving sustained short- and long-term growth.
  6. An innovation process that engages all stakeholders (employees, vendors, customers). By being closer to the end consumer, companies have far greater responsiveness to local trends and speeds response and production times.
    • Bonefish Grill Restaurant Chain is empowering local decision-making closest to the market and realizing large increases in customer satisfaction and craft beer sales.
    • Intuit is enabling ‘inspired teams’ of employees to innovate without management intervention. Says Brad Smith, Intuit’s president and chief executive officer: “Our innovation pipeline is flowing faster than ever.”
  7. A supply chain strategy that enables greater responsiveness to trends and better cost management. 
    • ChoiceLunch is creating regional or sub regional supply chain hubs and has greater control over managing profit and loss.
    • Semifreddi’s bakery has a 50-mile radius rule for whom they service, enhancing flexibility of their supply chain in response to smaller but highly profitable opportunities.
  8. Cost reduction efforts that drive process change, rather than just discretionary constraint. Some companies are structuring their cost base to capture value by increasing market spend to build brand premium – optimizing capital wherever possible.
  9. Greater flexibility in pricing strategy through decisions that are informed with full cost information. There is an old saying that “if you aim for the top, you at least guarantee hitting the middle.”  High performers seem to focus on seeking premium pricing wherever possible.
    • Medium and large beverage manufacturers are enjoying success in the alcoholic beverage and energy drink categories through very small price increases or declines.
      • Anheuser Busch, for example, enjoyed value sales growth of 5.5 percent versus large manufacturing average of 1.3 percent. 
      • Monster Beverage Group posted an astounding 27 percent value sales growth rate.
    • Some companies are moving from demand-led pricing to flexible pricing “in real time” to match competitors’ offers.
      • Making heavy use of analytics to understand the “value” creation process.
      • Gaining a better understanding of customers’ value assessment and price points.

Bonefish_Grill_LogoKey Questions about growth: Do you have answers to these?

Our client work over the past three years has shown that continuing instability is forcing companies to react fast to upturns and downturns in an ever-shortening time frame. Because of variability and volatility in the market place, business leaders are required to be more proactive and be prepared at all times to adapt quickly to opportunity and challenges.

These are key questions your management team should be prepared to answer on short notice:

  1. Which market(s) will be the most important in the short, mid and long term, and how do your investment plans prioritize these markets?
  2. Do you have the right processes, information systems and experience to assess market opportunities and implement strategies?
  3. Do you understand your optimum geographic footprint in light of shifting risks, opportunities, regulation and levels of government intervention in different regions?
  4. What alternative business combinations, market entry strategies and channels are you considering to further market reach, while managing risk and without over-extending capital?
  5. How flexible is your supply chain; from supplier choice through manufacturer to customer?
  6. How quickly could you profitably respond to a 25% increase in demand? Or a 25% fall?
  7. Is your business prepared for the growing competitive pressures from low-cost emerging market exporters, as they make inroads into existing markets and, even more so, into other fast-growing markets?
  8. How can your outsourcing, offshoring and shared service centers play a role in improving operations and increasing your speed to market?
  9. How can you use technology effectively to improve operational efficiencies and manage risk?
  10. Have you engaged in a competitive review of pricing strategies?
  11. How confident are you that you have full visibility of your cost base and key value drivers?
  12. How are you ensuring sufficient capital is available at a reasonable cost to deliver your growth strategy? What alternative sources of capital are you exploring?
  13. How effective is your cash flow forecasting and cash reporting? Do any measurement tools and performance indicators need to be enhanced? Are your forecasting models as useful as they could be?

 

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ABOUT THE AUTHOR. Deborah Steinthal is Founder and Managing Director of Scion Advisors, a leading boutique, strategy consulting firm serving the U.S. wine industry. With a proven approach enabling business owners to position for profitable growth or for exit, she has worked alongside over 150 winery owners and CEOs; and has moderated over 80 Winery CEO Roundtables involving more than 50 top wine industry CEOs for over a decade. Deborah’s expertise is in the area of business growth strategy, family business transformation, and board and leadership development.

Based out of McMinnville, Oregon; born in Lima, Peru; raised in Belgium and Germany; Deborah has lived, worked and travelled globally. She is broadly published in the national business press, an invited speaker, panelist and widely quoted for research on key practices, such as such as How to Build a Pull Brand, Digital Commerce and Family Business Transition.

For more information call Deborah Steinthal at 707.246.6830.

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Among her clients: Cristom Vineyards, Adelsheim Vineyard, Wine by Joe, DeLille Cellars, Woodward Canyon Winery, OVS, Willakenzie, Elizabeth Chambers Cellar, Patz & Hall Winery, Benziger Family Vineyards, Calera Wine Company, Delicato Family VIneyards, Cakebread, Spottswoode, Gundlach Bundschu, Luna Vineyards, Clos Du Val, Quail’s Gate Winery, Wente, J. Lohr, Choice Lunch,
 Cowgirl Creamery, 
Easton Malloy 
(producers of Peppermint Bark for Williams-Sonoma)
, and McEvoy Ranch.

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