Innovation

by Keith Nunes
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After several years as an aside, new product innovation was once again a key theme at this year’s Consumer Analyst Group of New York (CAGNY) conference, held in Boca Raton, Fla., in mid-February. Managing profitability in the midst of the economic downturn and the challenges presented by spiking ingredient costs had been the primary focus of the meeting during the past two years.

The trend of consumers shifting their spending away from the food service segment toward in-home dining combined with an increased demand for products perceived as a value by consumers were identified as two key macro trends driving new product development.

“We may be in an economic statistical recovery, but don’t tell consumers that just yet,” said Gary M. Rodkin, chief executive officer of ConAgra Foods, Inc., Omaha, during his company’s presentation. “We believe value is here to stay even beyond the eventual recovery on Main Street.”

To capitalize on the value trend, Mr. Rodkin said ConAgra has a significant amount of innovation and renovation planned for its Banquet brand in fiscal 2011, including the launch of Banquet Fruit Pies. Currently in test marketing, the fruit pies mark ConAgra’s first foray into desserts. Also in the Banquet line, he said the company is transforming its family-serve entrees to improve margins and give ConAgra room to drive the segment.

Three years after introducing its “steaming platform” with the launch of Healthy Choice Cafe Steamers, ConAgra continues to stay innovative in the category. Mr. Rodkin said the company is rolling out Healthy Choice Mediterranean Steamers and plans to launch another line of steaming products this summer. He said the product lines should help the company “grab a bigger piece of the very large lunch segment where we are underdeveloped.”

“The steaming platform has been a major factor in our success in the frozen meal category where we’ve grown our share more than two full points this fiscal year to date,” he said.

ConAgra used the basic steaming concept of upgrading food quality through packaging technology to create Healthy Choice Fresh Mixers in 2008 and Marie Callender’s Pasta Al Dente meals in 2009. The two brands are expected to deliver $65 million in net sales this year and when combined with Chef Boyardee microwave meals give ConAgra the No. 1 position in shelf stable microwave meals, Mr. Rodkin said. He said the company plans to launch two product lines on the platform later this summer.

ConAgra is setting its sights on developing products that are not easy to copy, have lasting power and deliver on value.

“We expect our innovation to stick and grow beyond year one,” Mr. Rodkin said. “We’re about creating new insulated technology platforms, not easy to copy and highly differentiated from private label. We look to leverage external partners, which dramatically multiplies our internal capabilities.

“Price value is a critical part of marketplace success and that’s why we work backwards from price point as part of our innovation. This is all about delivering outstanding quality at a given price.”

Mr. Rodkin also cited the fact diets among younger consumers are evolving and shifting toward increased vegetable consumption.

“We know there’s only a small percentage of the population that is exclusively vegetarian, but a good 44% of consumers are looking to replace some meat in their diets with more veggies,” he said.

Under its Light Life brand, the company has begun test marketing a line of frozen vegetable entrees.

“Early reads are positive and we believe we can open up an important segment adjacency for us,” said Mr. Rodkin.

Frozen food a focus for Heinz

The H.J. Heinz Co. plans to introduce such frozen food items as mini burgers, sweet potato fries and skillet meals, said William R. Johnson, chief executive officer of the Pittsburgh-based company.

“Sales in the frozen entree category, despite what anybody says to you, are terrible,” Mr. Johnson said. “They continue to be adversely affected in this recession, as we predicted at CAGNY last year. The consumer has not responded to aggressive promotion activity.

“We continue to believe that long-term innovation is the key to this category, and we intend to be well-positioned when the economy improves.”

Heinz will launch Weight Watchers Smart Ones items, including Anytime Selections mini burgers and chicken wraps this month, said Mr. Johnson.

“The launch of mini burgers, or sliders, has tested particularly well, and we are enthused about their potential,” he said. “In fact, we are so enthused we are also including sliders under the Friday’s line to help that business.”

The sweet potato fries will be sold under the Ore-Ida brand. Consumer demand for value sizes sparked another Ore-Ida launch, a 4-lb package of french fries.

“With the continued success of Ore-Ida Steam n’ Mash and the launch of sweet potato fries — and increasing marketing to further enhance the brand’s equity — we expect the business to continue to benefit from increased at-home consumption trends,” Mr. Johnson said.

Other Heinz launches include new snacks and skillet meals in the T.G.I. Friday’s line, new Boston Market casseroles, a 44-oz value size of Classico and a new thick Lee & Perrins Worcestershire Sauce.

While introducing new products, Heinz still has managed to reduce s.k.u.s by more than 40% over the past two years. Heinz is launching an assortment initiative to help its customers understand the benefits of s.k.u. reduction.

“A big opportunity for everyone is assortment simplification,” Mr. Johnson said. “New research sponsored jointly by Heinz and Cannondale

indicates that there are still far too many s.k.u.s on retail shelves. The average number of s.k.u.s carried per store in all channels has tripled in the last 30 years, while conversely consumers are buying fewer items per household.”

The s.k.u. clutter complicates the shopping experience and obscures high value, innovative products when they are launched, said Mr. Johnson.

To address the problem Heinz is testing a strategic assortment initiative to highlight the benefits of reducing s.k.u.s. The company recently tested the initiative with a retail customer on its Ore-Ida brand. They reduced total category s.k.u.s by more than 20% and experienced increased sales and reduced out-of-stocks.

“We believe assortment simplification represents a $25 billion opportunity for retailers to increase sales velocity, reduce inventory carrying costs and lower in-store operating expenses,” Mr. Johnson said.

Marketing to boomers, millennials

Kendall J. Powell, the chairman and c.e.o. of General Mills, Inc., Minneapolis, highlighted two key markets driving innovation at his company — baby boomers and millennials.

The growing population of older adults is expected to play a role in General Mills’ efforts as well. According to Euromonitor, by the year 2015 adults ages 55 and older will represent more than 1 billion consumers worldwide.

“This consumer group is intensely focused on the links between diet, health and wellness,” Mr. Powell said. “We are targeting product innovation, packaging innovation, and marketing efforts designed to meet their needs.”

Ian R. Friendly, executive vice-president and chief operating officer, U.S. Retail at General Mills, said baby boomers were the first consumers to bring yogurt into the U.S. mainstream. When General Mills launched Yoplait Yogurt in 1977 retail sales in the category were $600 million. Since then the category has grown to more than $5 billion in sales across all channels.

Mr. Friendly highlighted two new products General Mills has brought to the yogurt category, including YoPlus probiotic yogurt to capitalize on Baby Boomer demand for health and wellness products as well as the introduction of Yoplait Delights.

“Delights are bringing new users to the category because they taste like dessert,” he said. “… They have the nutritional benefits of yogurt and only 100 calories per serving.”

General Mills also is tapping into the market of 75 million millennials through the on-line marketplace. Whether it is through blogs on bettycrocker.com or downloading recipes through an iPhone application, he said General Mills is using technology to talk to the demographic.

Mr. Powell noted that millennials are a key demographic that has shifted its consumption patterns away from the food service channel toward eating more at home.

“… According to NPD CREST restaurant visits by these consumers have declined noticeably over the past two years,” said Mr. Powell. “What is more, millennials say they actually like to shop for groceries and put a lot of effort into their cooking.”

Mr. Friendly added that while the demographic likes to cook and is eating more at home, they still face the traditional problems of limited time and limited cooking skills.

Products developed for the millennial market include Macaroni Grill dinner kits, Green Giant Just for One, Wanchai Ferry frozen entrees, Simply Cookies, Simply GoGurt and Yoplait Greek style yogurt.

Kellogg focuses on renovation

John A. Bryant, the chief operating officer of The Kellogg Co., Battle Creek, Mich., noted the company is focused on new product innovation, which has averaged between $1.5 billion and $2 billion of sales for the company during the past three years, but that product line renovation also offers the company numerous opportunities.

He defined product renovation as the removal of ingredients perceived as negative from a product, such as trans fatty acids, and the reduction of sugar and salt content, as well as the addition of positives such as fiber.

“As we think about renovating our portfolio we think it puts us in a very good position to compete in the future,” Mr. Bryant said. “There is an intense increase out there in awareness and discussion around nutrition and health and wellness. And we believe as a company we are very well-positioned to win if consumers increasingly look for increased health and wellness and nutrition.”

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