Organic agriculture has grown into a major market, resulting in food companies making bold commitments to bring organic products into their portfolios. For example, General Mills has transformed its portfolio to include nine organic brands, including Cascadian Farm, Annie’s, Food Should Taste Good, and LÄRABAR. Danone has similarly initiated a strong organic push by acquiring organic, non-GMO, plant-based food company WhiteWave for $12.5 billion in 2016. One of the primary drivers motivating food companies to develop organic product lines is the overwhelming demand from consumers. Consumers are demanding more nutritious, healthier, and sustainable foods, which they often associate with organic. Continue reading
Choosing to put resources toward innovation is hard even in the best of times. Innovation can take years to show a return on investment and therefore challenging to justify in today’s budgets. This challenge is particularly strong when external forces are putting pressure to not innovate. We see four major currents working against innovation:
- Pricing pressure. When costs shift out of your favor, as many in the O&G sector have been experiencing, it’s easy to circle the wagons around your core revenue-generating business and wait, or lay off a portion of your workforce to cut costs.
- Regulatory hurdles. Whether due to murky regulatory policies, geographic differences of opinion, or rapidly shifting rules of engagement, regulatory pressures can be enough to keep companies out of entire regions and markets.
- Consumer misinformation. Modern consumers are vocal and engaged, but often uninformed when it comes to science and technology forcing companies in areas like GMOs and vaccines to scramble.
- Supply chain uncertainty. Forming new supply chains around innovative solutions is hard enough, but the risk of a supply disruption can be too much to bear.
While innovating against these currents is so hard that many just look to cut innovation out altogether, solutions around these issues can be found in nearly every industry, from energy to food to electronics. Below we highlight examples of companies using new technology solutions to improve their bottom lines while swimming against these currents:
- Pioneer alleviates pricing pressure by cutting costs with innovative well completion technology. While most headlines read budget slashing and lay-offs as a primary source of pain-control during the current oil and gas price slump, Pioneer Resources has been testing completion strategies that optimize stage length, clusters per stage, fluid volumes and proppant concentration to drive down the cost per BOE.
- Reebok avoids regulatory hurdles with device claims. Rather than push directly against medical regulations, Reebok designed CheckLight (client registration required) to provide warnings about impacts that could cause concussions, but stops short of diagnosing a concussion, giving the company a toehold in a hot-button medical issue without needing any regulatory approval.
- General Mills develops the “best” product by avoiding consumer misinformation. Food companies like General Mills are learning to meet consumer demands like a desire for whole over fortified grains, using cooking and packaging innovations like vacuum and steam treatments for products that incorporate whole grains.
- Silver nanomaterials alleviate ITO supply chain instability. Foxconn, amongst others, has invested in indium tin oxide (ITO) replacement technologies (client registration required), creating legitimate alternatives that keep device production moving regardless of intermittent supply disruptions that occur when Samsung or Apple needs to scale up production on a new device and exhausts the industry’s supply of ITO temporarily.
These examples set a roadmap for innovating in challenging waters. Rather than considering all factors combined, focus on specific pressures you can mitigate. No single approach solves for every current pushing against an industry, but each offers a path forward in spite of the strongest current against them. Take a look at the sum of the pressures you face. Break them down into individual currents, and then develop an innovation strategy to match.
Jim Kirkwood, Chief Science & Technology Development Officer at General Mills, and VP of its “GTECH” organization, sat down to speak with Lux Research. Jim discusses the past and future of innovation at General Mills with Lux Research’s VP of Consulting, Kevin Pang.
Jim and Kevin discussed:
- How to deliver enough macronutrients like protein to feed a growing world
- Leveraging bioprocessing and life sciences and the future role of GMOs
- General Mills’ changing relationships with suppliers and how supplier business models will be different in the future
- Getting a deep understanding of customers’ problems, and the importance of “tip of the spear” consumers and customer segmentation
- How to create flexible talent to meet future challenges
To watch Jim Kirkwood’s Keynote Presentation from the Lux Executive Summit, click here.
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Lux Chief Research Officer Chris Hartshorn’s opening keynote at this year’s Lux Executive Summit pointed to military innovators from Frederick the Great to Napoleon to Stanley McChrystal, their gifts for “seeing the theater” to determine when a change in strategy was needed – and how their organizations needed to change along with it. General McChrystal’s quote from his book Team of Teams: New Rules of Engagement for a Complex World, “We have moved from data-poor but fairly predictable settings to data-rich, uncertain ones,” demonstrates commonality between the military theater and the theater of emerging technologies. Within the theater of emerging technologies the Lux Research analysts cover, Chris pointed to “redistributed everything” as a critical cross-cutting trend, noting that fields from energy to automotive are seeing shifts between products and services, capex and opex, centralization and distribution, and more.
As one example, Chris highlighted the healthcare market, where the current model for delivering care has hospitals organized into silos focused on particular organs, system, and conditions, from cardiovascular disease to asthma to infertility. In contrast, emerging digital health and wellness technologies provide capabilities like monitoring, predictive analytics, and behavior augmentation that can establish unexpected connections between disparate conditions – identifying a common behavioral thread between diabetes and depression, for instance.
Not all emerging technology theater is the same, so some 300 corporate executives, start-up leaders, investors, and policymakers gathered around an agenda ranging from Energy & Infrastructure to Information Meets Matter to the Future of Resources and the Consumer of the Future (for those who weren’t able to attend, presenter slides and videos are available on the conference website).
The theme of this year’s Summit, Ideation to Integration, had participants exploring not just how to assess the theater in which they operate, but also how to respond to it with the right technical capabilities and strategic partnerships to create and grow new businesses. Many speakers returned to the theme that building a clear view of the overall theater was one of the most critical success factors, both for identifying the right ideas and for building the plan to execute on them.
Bill LaFontaine, GM of Intellectual Property and VP of Research Business at IBM, described how IBM sees the theater through, in part, its Global Technology Outlook. Its researchers nominate important trends or discoveries, and a thorough process of vetting, grouping, and prioritizing ideas leads to a document that helps guide the Research Business and company strategy. Bill described how IBM Research identified the rising importance of data and analytics, leading to the development of the Watson platform that famously mastered Jeopardy and became the foundation of the IBM cognitive computing business.
Jim Kirkwood, Chief Science & Technology Development Officer and VP of R&D at General Mills, spoke about the transformations his firm has gone through in its 150-year history – and how General Mills sees the theater by following consumers’ lead. Jim spoke about developing “deep consumer empathy” in a “three I’s” approach – immersion with consumers to understand the problem, interaction to experience the problem, and idea creation to solve the problem. Jim explained how consumer insight led General Mills to focus on inherent nutrition. It made sure all its “Big G” cereals had at least 10 grams of whole grains per serving, then this year committed to use no artificial colors, no artificial flavors, and no preservatives – necessitating a new toolbox based on bioprocessing rather than chemistry.
Throughout the Summit, Lux analysts and industry speakers alike explored changes to the landscape corporate executives are facing – from Lux’s Katrina Westerhof on the reinvention of the power sector, to Isaac Brown on the future of manufacturing, to Teradata’s Carl Howe and Oracle’s Paul Sonderegger on the digital transformation of industry. Seeing the theater will be critical for allowing companies to capitalize and generate continued growth.
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Consumer demands and shifts in societal trends drive food industry sales, and recent years have shown cereal and traditional morning foods are no exception. Growth in this segment has slowed since 2007 and, indeed, has experienced negative sales growth of 1.3% across General Mills, Kellogg’s, and Quaker Foods since 2010. As we watch cereal sales decline and alternative products gain popularity, incumbents must scramble for the right balance of strategies to keep profits afloat.
The traditional Porter’s 5 Forces model shows the threat of substitute breakfast products as the highest threat to the industry. However, the modern-day industry also faces additional hardships not included in the traditional model. These include shifts in the market, such as a dwindling population of breakfast consumers and a blossoming market of alternative products, which expand eating contexts and are luring traditional breakfast cereal consumers away from the market.
In hopes of reviving sales, three strategies jump out for incumbents in the space. Incumbents with a hefty market share may choose to focus on further marketing their existing products in hopes that they will remain a top player while others exit the space. Examples include the targeting of millennials through advertising focused on childhood memories, or targeting parents, as exemplified by Frosted Flakes’ Tony the Tiger advertisements and the “dad knows best” mentality. A second approach is through product line extensions, wherein existing brands include popular nutritional components like protein and fiber, or expansion of products to new geographical areas to make up for the hole in the existing base. Going a step further, entirely new product lines have to be considered, shifting brands away from traditional breakfast cereal products appeal to consumers embracing new eating habits. Post Holdings is a leading example, with 8 acquisitions in 18 months enabling entry into the rapidly growing protein, sports, and health food market share to offset shrinking cereal sales.
Incumbents must respond to the shifting breakfast food landscape with changed products. Faced with ever-increasing product diversity, consumer loyalty is dwindling. Players must respond to this competition by offering a wide product range that caters to the current societal demands including increases in nutritive value, protein content, and portability for the modern on-the-go lifestyle. Those who do not instill these changes in their product lines risk losing their customer base to the
competition. Of course, discourse at the breakfast table opens up an opportunity for new entrants as well. Consumer pressures for convenience, portability, and increased protein content are spurring a flurry of alternative products. Start-ups such as Hampton Creek Foods are working to develop plant-based egg replacement products, while Kuli Kuli is offering energy bars made with nutritious high-protein moringa plant. High protein food forms that cater to society’s current on-the-go
lifestyle appeal to current consumer demands. In addition to high protein, products with ingredients touting extra health benefits leave consumers feeling more positive about their food choices. This expanding market of alternative products designed to be consumed around the clock creates hefty competition resulting in a stagnant cereal market. This also creates opportunity for alternate suppliers and feedstock materials to enter, given the right nutritional angle.
Change is often uncomfortable, especially for incumbents. That said, an entire segment of nutritional intake is on the move and there for the taking for those willing to see what’s coming.
Source: Lux Research report “The Breakfast Cereal Industry: Wading Through Soggy Cereal Sales” — client registration required.