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Posts Tagged ‘Nestle’

New realities of competitive advantage

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This week’s purchase of Yahoo suggests Verizon’s strategy department thinks much the same way as myriad other organisations; “size matters”. Whether it’s about minimising risk or increasing economies of scale, such logic has steered many companies to successful tenures. However, there are new trends in the marketplace that make such aphorisms more and more contentious.

It was a couple of years ago now that Rita McGrath wrote about “the end of sustainable competitive advantage”. Prior to this, the arrival of digital was, in general, supposed to have done away with such things. But perhaps the most recognisable face of the digital revolution over the past decade has been none other than Facebook. Facebook has consistently maintained competitive advantage through a savvy use of lock-in via network effects and an aggressive proclivity to buy out any competition (see Instagram, Whatsapp). Users spend about 50 minutes per day across these platforms.

What about organisations outside of TMT? For several years now, Zeitgeist has seen qual data showing the waning power of branding. As we’ve written extensively about in previous posts, this is partly to do with information asymmetry. In the early days of advertising, it wasn’t easy for an average person to be able to know much about a product like Colgate; a brand identity was a quick way to communicate what expectations a consumer should have. Nowadays, almost entirely due to the internet and digital communication, we are able to quickly ascertain what products meet our requirements (what size tube do I need), which are bullshitting (how much whiter teeth?) and which our friends use (still ranked as the most important data point for trying a new product). Companies like Colgate sit in the Consumer Packaged Goods [CPG] category, where most of the world’s most instantly recognisable brands reside. But according to research from Boston Consulting Group, between 2011 and 2015, CPG companies lost nearly three percentage points of market share in the US. Nestle has missed its sales growth targets for the past three years.

Part of what’s hitting the CPG sector is a sustained enthusiasm for “local”. Zeitgeist first saw this trend emerging in 2011 when he worked in a strategic capacity for retailers who were increasingly looking to tailor their store design and offering to the area they were in. This is happening in media too, where local content in the Chinese market is quickly adapting to the pyrotechnics and thrills of imported Hollywood fare, and reaping the rewards. Many of China’s businesses are built on being the home-grown version of x foreign product. Uber’s recent deal with Didi Chuxing is an example of this. Moreover, if you’ve decided you’re happy to pay a premium for a product, it is increasingly unlikely you’ll choose a mass produced one. A real treat would be buying a nice cheese from Jermyn Street’s Paxton & Whitfield, not from one of the thousands of Waitrose stores in the country. Deloitte report that US consumers would pay at least 10% more for the “craft” version of a good, a greater share than would pay extra for convenience or innovation.

Of course, as mentioned earlier, digital has had a profound impact on lowering barriers to entry. From The Economist,

[New entrants] can outsource production and advertise online. Distribution is getting easier, too: a young brand may prove itself with online sales, then move into big stores. Financing mirrors the same trend: last year investors poured $3.3 billion into private CPG firms, according to CB Insights, a data firm—up by 58% from 2014 and a whopping 638% since 2011.

Digital’s impact has also been to dovetail with the trends already mentioned. Consumers’ turning away from brand messaging and interest for local is a quest for authenticity in a crowded market. Rightly or wrongly, no other tactic has proved so successful to communicate a roughshod authenticity as the viral video over the past ten years. New entrants are communicating using different channels but also in different ways, that make incumbents uncomfortable. As pointed out though in an editorial from the FT this weekend, “It is tempting to see these young companies as miracles of branding. In fact, they expose outdated industry structures and offer dramatically more value to consumers.”

Large organisations, sensing the eroding advantage, are responding in different ways. P&G is increasingly focusing on its top tier brands, selling off or consolidating around 100 others. Unilever recently bought the famous Dollar Shave Club, and VC arms are popping up at companies like General Mills (think Lucky Charms) and Deloitte, which like other firms is also thinking about how to avoid disruption.

At the start of this piece we mentioned two reasons that going big could lead to sustained advantage: minimising risk and establishing economies of scale. In our eyes, the former is more at risk than ever, as firestorms on platforms like Twitter and Periscope can eviscerate a brand more quickly than ever; VW’s vast operations have not saved it from significant reputational damage. Economies of scale are also a risky proposition, as The Economist points out “Consolidating factories has made companies more vulnerable to the swing of a particular currency, points out Nik Modi of RBC Capital Markets”.

But what about Facebook? At the start of the article we talked about its ongoing rule of the social world, but that definition seems too narrow for what the platform is trying to accomplish. Zuckerberg has talked about Facebook becoming a “utility” as part of a long-term vision over the coming decades. This is interesting given this is exactly what every mobile phone network operator in the world is trying to avoid. Reflecting on Yahoo’s demise last week, the Financial Times wrote that “the Achilles heel of each new wave of technology is that it eventually turns into a utility”. Teens don’t tend to find utilities exciting, and perhaps then it is no surprise that Pew reports declining usage and engagement with the platform from this age group. For Facebook then, commoditisation is as much a risk as disruption by a new entry.

 

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Food for thought as multinationals seek to do good

September 29, 2010 1 comment

Nestlé and P&G announce their plans for the future.

As the nation’s average girth seems to grow ever wider, so the number of articles and features on the issue swells. Just last week, Zeitgeist watched an earnest BBC reporter skulking around childrens playgrounds highlighting how the width of slides and swings have increased by 50% to accommodate larger children.

Campaigners also pressed for ages to be taken off of childrens clothes so that bigger children didn’t develop self-esteem issues after being squashed into clothes intended for children a couple of years older than them.

The Child Growth Foundation state that since the 1970’s, children’s waistlines have expanded by an average of 12.5cm – that’s about 5″!

12.5cm is wider than this column!

Statistics also suggest that the trend is current as the number of obese children has risen by one third in the past decade with more than 30% of children now classed as overweight, while other studies suggest that such an unhealthy start to life sets us up for years of misery.

Just as well then that the foods we eat are going to start being good for us as well as tasty.

This week Nestlé ‘announced the creation of Nestlé Health Science S.A. and the Nestlé Institute of Health Sciences to pioneer a new industry between food and pharma’.

Their objective being to ‘develop the innovative area of personalised health science nutrition to prevent and treat health conditions such as diabetes, obesity, cardiovascular disease and Alzheimer’s disease, which are placing an unsustainable burden on the world’s healthcare systems‘.

The new wholly owned subsiduary will be run at arm’s length from Nestle’s main food, beverages and nutrition activities, arguably to avoid accusations of a conflict of interest and cynicism given their other core products such as confectionery.

Nestlé’s move is part of a trend amongst food and pharmaceutical corporations into high-margin non-prescription health products for both human and animal consumption. The company plans to invest heavily over the next decade to build ‘a world-class Institute of Health Sciences, which will conduct research in biomedical science to translate this knowledge into nutritional strategies to improve health and longevity.

So with all this healthy food helping us to live longer and healthier, it’s reassuring to know that another multinational is taking its responsibilities to the wellness of the planet seriously.

P&G have announced that they have set a number of sustainability goals to be met between now and 2020. These cover a range areas of the business, from innovations through to marketing, and will also involve conducting research to identify ways in which consumers can be encouraged to dispose of waste using environmentally friendly methods.

“What’s important is that we don’t treat environmental sustainability as something separate from our base business,” said Bob McDonald, Procter & Gamble’s CEO.

“It does us no good to grow our business today at the expense of tomorrow.”

The list of goals includes replacing 25% of petroleum-based materials with sustainably sourced renewable materials, ensuring 70% of washing machine loads use cold water, a 20% reduction in product packaging per consumer use and taking 30% of their energy from renewable sources.

The multinational also realises the importance of education.

Under its Future Friendly initiative in the US, P&G pledged to reach 50m households, providing information about potentially eco-friendly habits. Developing nations are also on the radar.

“In these markets that are enjoying tremendous growth rates, like in South-East Asia, we need to get way ahead of the sustainability curve and make sure we’re doing the education.” said McDonald.

“We will need to continue collaborating with our suppliers, with consumers, with retailers and in our industry. No one company can have all the answers, but we need to be part of the solution.”

Whereas as few years ago, Corportate Social Responsibility may have been something that large organisations implemented as a token gesture, such moves into pharma-food and public declarations of sustainability targets suggest that it is now becoming a key influence in the direction taken by multinationals. Anticipating the problems and needs of tomorrow today, arguably more efficiently than many governments.

Zeitgeist remembers seeing old TV clips promising that a whole meal would come in tablet form. Turns out the medicine is going to come in food form.

Does retirement beckon for Ronald McDonald?

Zeitgeist has always been somewhat midly peturbed by Ronald McDonald, not exclusively due to the fact that no matter which McDonald’s in the world Zeitgeist chooses to frequent, Ronald is unfailingly always at the very same one. That and the fact that he seems to enjoy sitting by himself on benches, smiling to himself.

For many however, Ronald is an enduring mascot, a brand ambassador like no other. The man has presided over McDonald’s profligate – but morally questionable and nutritionally unhealthy – past since 1963, as well as its more lean, green present form. It still commands massive clout as far as promotions are concerned, particularly for film and TV.

Now though, Corporate Accountability International  – whose previous targets include, Nestlé, GE and, fittingly, Target – has designed a website called Retire Ronald that states it is time for Mr. McDonald to join other brand mascots such as the Marlboro Man and Joe the Camel and stop recruiting children to unhealthy acts.

Comparing fast food to cigarettes might seem like a stretch, and Zeitgeist believes it is. To say that obesity rates have shot up in the US since the introduction of Mr. McDonald and directly connect the two in a latent manner – which the site does – is naiive and unrepresentative of fact. Creating a scapegoat will not solve the problem of overweight people in the US. It does also not account for the fact that people in that country are no longer getting fatter. “[S]cientific evidence continues to mount that McDonald’s marketing to kids is no less than commercial exploitation”; well, unfortunately, yes, marketing is exploitative. Zeitgeist would prefer to see as much effort put into policies and websites promoting healthy living, rather than focussing on the removal of an imaginary plenipotentiary, successful as it may be. AdAge currently features a poll on the matter.