competition in global food markets

21
Brand Leadership and Product Innovation as Firm Strategies in Global Food Markets Mark J. Gehlhar Anita Regmi Spiro Stefanou Barry Zoumas International Food and Agribusiness Management Association 15 th Annual World Food and Agribusiness Forum, Symposium and Case Studies June 25-28, 2005

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Brand Leadership and Product Innovation as Firm Strategies in Global Food Markets Mark J. Gehlhar Anita Regmi Spiro Stefanou Barry Zoumas International Food and Agribusiness Management Association 15 th Annual World Food and Agribusiness Forum, Symposium and Case Studies June 25-28, 2005. - PowerPoint PPT Presentation

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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