Well, now we know what not to do. Makers and sellers of processed food are under pressure

Well, now we know what not to do.” After decades of rising sales and high popularity, makers and sellers of processed food are under pressure. Stringent regulations, negative media campaigns, declining popularity, shrinking margins and consolidation are the trending words in the food processing industry.

American market share of food and beverage producers
American market share of food and beverage producers (Source: Credit Suisse & Economist.com)

What’s the way out for Big Food companies? 

Solution 1 (Consolidation and cost-cutting): 

The situation in Big Food sector is similar to that of tobacco industry where consolidation and cost-cutting was the only way-out to keep profits up. If the decline in processed foods’ popularity continues, two further strategies—consolidation and cost­ cutting—will become more prevalent.

Example: In 2013 H.J. Heinz Company announced that it has entered into a definitive merger agreement to be acquired by an investment consortium comprised of Berkshire Hathaway and 3G Capital, in a transaction valued at $28 billion. In 2015, Berkshire and 3G backed Heinz in its roughly $45 billion merger with Kraft Foods, created the third-largest North American food company.

Solution 2 (Emulate lean startups): 

Big companies face a common issue: sunk-cost fallacy. As per sunk-cost fallacy, companies continue to invest more time and money into the existing projects because they have already invested a lot of time and money into that project. This situation is similar to the case of Family farms, who are going out of business for decades, but new ones are being founded, promising organic, locally grown produce.

Example: Kind, a healthy snack manufacturer, has more than $100m in annual sales in less than ten years. Chobani, a maker of Greek­style yogurt, has reached to a sales of $1.3 billion in the same period.

Go-to-strategy: Emulating lean startups in 3 easy steps

“Prevention is better than cure”. The once undisputed “benefits” of scope, scale, and history are now often dismissed, or worse, disrupted, by newer entrants in the Big Food sector. Successful lean startups famously outperform their older, heavier competition in everything from customer adoption to speed- to-market.

Step 1: Identifying key obstacles

Recognising obstacles is critical but more important is to understand what startup qualities to copy, what to ignore, and what to adapt. Some of the key issues to consider in innovation are: development time, right ideas, culture, team coordination, customer insight, performance measurement, leadership, compensation model, and marketing innovation. Objectively defining all these parameters with their impact could make the decision making process more robust.

Step 2: Defining key success factors 

  • Focused: A lean startup’s success often comes from being close enough to the customer to listen. Ensure that executives are naturally closer to the end user.
  • Flexible: The ability to see that something is not working, or that a new opportunity has arisen, and then have the entire organisation react, instantly, to capitalize on this new learning requires both dexterity and courage.
  • Fast: There are thousands of innovators with unprecedented access to cheap development tools and investment capital looking to capitalize on unmet needs. They can move from an idea to a delivered product in just months.

Step 3: Execution

  • Hire people with greater risk-taking profile.
  • Make risk-taking more celebrated and rewarded.
  • Bring outside ideas and thinking into your own innovation process by inviting collaboration, crowdsourcing or teams to form joint innovations.

 

Please feel free to share your experiences and feedback in the comment section below.

 

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