Is operational excellence a hidden curse?
Is private label food manufacturing’s focus on operational excellence stifling the industry and the retailers it serves? Most seem happy with the status quo, producing a generic product based on the major supermarkets requirements.
The genesis of private label lies in the food retailers’ desire to get revenue from the markets created by the leading brands. The raison d’être of this key UK industry is to deliver a margin to the supermarkets that would be impossible to achieve from the owners of branded product.
So, unencumbered with the need to create market (seen as the responsibility of the major brands), the private label food manufacturer is left to focus on operational excellence.
This culture is further reinforced by food safety and other ‘tick-box’ legislation. The cycle is manna from heaven for the operationally minded. It keeps them focused on processes and efficiencies gained through investment in plant and equipment.
The biggest and best private label food manufacturers were those who could make the capital investment in the latest plant and technology. The ultimate prize being they won/held onto the retailer’s business by delivering even greater margin.
So, what is the problem?
However it’s articulated, the big question going on in the retailers mind at review time is, “Why should I choose you over your competitor?”
The answer from the operationally minded is going to be around great product; great service and great price.
Now, these ‘givens’ need to be stated. But if this is all you (and your competitors) are saying, then the retailer is left with little room to consider, and will naturally default to the main comparison available to them: price.
This mindset of majoring on operational excellence keeps the private label food manufacturer stuck in the price-focussed supplier-relationship space. You know you are here when your retailer client is important to you, but you’re not to them… usually manifesting at review time when you lose out to a competitor on cost.
Paralysis by analysis?
Some private label food manufacturers are attempting to break free from the price-focused supplier-relationship cycle. They are going beyond answering the retailers brief with new product development. They are starting to offer a limited amount of speculative innovation.
The supermarkets are looking to capitalise on the private label food manufacturers desire to add value in this area. They seek to channel this energy by stretching their product/supplier review briefs.
But in challenging the private label food manufacturers to provide five-year, even ten-year category visions (yes, I’ve recently seen a brief from a major food retailer asking for a view on ten years out!) have some buyers ‘over-egged the pudding’?
Predicting the future is at best an educated finger poked in the air. It is not a science that can be relied upon.
Imagine this. The retailer is faced with as many different ‘Category Visions of the Future’ as there are suppliers in the race. On what basis do they choose which supplier to go forward with? Surely a case of paralysis by analysis?
This leaves the retailer with little alternative other than to default to tried and tested plan B… choosing based on price.
But this doesn’t stop a section of private label food manufacturers from nudging the retailers glass-ceiling. They are constantly raising their game through exciting, expert new product development. A few even feel they are ahead of the game by taking a more innovative approach to NPD (you’ll find my take on the difference between NPD and innovation below)
The review process always seems to end in tears when time after time; after all their efforts, the business is won or lost on price. Is not the definition of insanity to keep on doing the same thing but expect a different result?
So, where does the retailer’s focus lie?
The reality is that the retailer is never going to take a risk on untried, unproven product concepts. It is simply not their role. Their focus lies in distribution and consumer relationships.
The retailer relies on outside suppliers to create the innovative products that will bring the consumers to store. Currently the role of the brands.
Could the problem be that private label food manufacturers are trying to influence the agenda via product? Could the retailer actually be looking for category expertise? Ultimately, is the real game-changer for the private label food manufacturer around claiming the high ground through category leadership?
Private label food manufacturers who are reliant on operational excellence with a chunk of NPD may find taking on category leadership a daunting challenge. But there is nothing to stop them moving the client relationship to a higher level. To a place where positioning, not price becomes the key differentiator in choosing a supplier?
A new way
Presenting concepts with no commercial pedigree. Relying on commissioned comments from focus groups. Revealing assorted consumer insight theories. These activities have reached there sell-by-date as key points of difference in the review process. Practically all private label food manufacturers use them as standard. Anyway, most forms of research keep you stuck in the here and now, benchmarking the competitors to keep one step ahead of them.
The late Steve Jobs Co-founder and CEO at Apple Inc., probably the most innovative company of modern times, refused to undertake customer surveys. His argument was that consumers have no idea of what is possible – that is what Apple provide.
The process needs to evolve if the game is going to change and a new level of relationship is to be forged with the retailer.
How about presenting product concepts that come with a level of consumer traction? Taking on the risk of new product trials and introductions would be one way of demonstrating a desire for meaningful change… A study of the current food retail landscape will reveal this may be easier than you think! An article due in August 2017 will look at this in more detail.
It’s all about positioning
When it comes to supplier innovation, a key challenge for private label food manufacturers is to do with positioning. The major brands have always placed themselves as the creators of product innovation, driving the consumer to the retailer. It is more difficult for the private label food manufacturers to position themselves as players in this space.
But the landscape is changing. The business tools available have never been better suited for the ambitious private label food manufacturer to take on a risk the retailer would never consider. This can be done in a way that is of no-threat and low-cost to the private label food manufacturer. Critically it can deliver huge value to the retailer relationship.
Whether the ambitious private label food manufacturer chooses the product proving route, or the more challenging category leadership position. Process Driven Innovation is the new kid on the block. It has the ‘break-through’ potential to move a supplier-based relationship to the more meaningful enterprise space. Here, the partnership is umbilical.
NPD vs innovation?
The two activities are distinctly different. They start from opposite ends of the creative spectrum.
NPD takes it’s starting point in the here and now and stretches out from there. It’s routed in the comfort zone of the known, playing on its periphery.
On the other hand, innovation starts ‘way out there’ and by definition, is more visionary. Its domain starts in the ‘novel and useless’ working back to the ‘novel and useful’. The rewards for developing a focus on innovation are far reaching in terms of positioning and product uniqueness. They go way beyond what NPD could ever achieve.
”Innovation is the art of making money out of creativity” – Dr. David Hall
The private label food manufacturers that are currently stuck in the operational excellence mindset need not be overly concerned by competitors that appear ahead of the game. Developing a culture of innovation is within easy reach to all those recognising the need to do so.
Process Driven Innovation is not a fluffy, intangible concept that requires an open cheque book and office-based hammocks to inspire light-bulb moments. It is a methodology. It is a process. It is a defined series of steps that progress to a deliverable outcome. As such, any company with the right approach can embrace it.
Process Driven Innovation can be adopted without the usual upheaval associated with internal cultural change. With the right facilitation, it can be turned on and off like a tap.
Companies that embrace Process Driven Innovation will not lose focus on their core principles of operational excellence. What they will do however, is transform the way they are perceived, both internally and externally.