Phil Kafarakis is president of the Specialty Food Association, an umbrella organization representing 3,700 innovative, entrepreneurial member companies in the food and beverage industry. The third article in his five-part series can be found here, the second one is here and the first is here.
We’ve discussed in earlier columns that Big Food companies need to take new approaches to reinventing their businesses, including the deployment of accelerators and incubators and learning from the business models of those small, innovative brands that represent about 14% of the $890-billion total food market (and expecting to hit 20% in just a few years).
Currently Big Food R&D departments function under a centralized, methodical, stage-gate decision-making model focused on testing and retesting for a 99% assured future. But what they need to do is mimic small food companies and deploy a more decentralized, entrepreneurial, fail-fast-fail-early model — what the smaller companies do best.
There’s much to be learned by taking this approach, but what Big Food can appropriate from adjacent or even unrelated industries can also be highly instructive.
Many large organizations have gotten into the M&A game as a way to bring in new capabilities as well as expand their product portfolios, access new customers or increase their geographic reach, according to retail executives surveyed for a recent A.T. Kearney study on Retail M&A. Others have taken a different approach by hiring in leadership from other industries from healthcare to vitamins to Amazon. Let’s look at the lessons other industries might be able to teach Big Food companies about adapting to the new market and regaining lost customers.
Taking one example of cross-industry fertilization, Nestlé’s appointment of Ulf Mark Schneider, a lifetime healthcare executive, moves the company away from its traditional business model of cost-cutting and toward a focus on nutrition and wellness. And while Kellogg’s strategy of appointing a vitamin executive may appear to be driving toward a similar goal, it differs because Steve Cahillane was tapped particularly for being in touch with evolving trends and for building the e-commerce side of his business.
In a way, it can be said that the food industry is undergoing the same radical transformation as the financial services industry in terms of larger companies needing to acquire small, innovative startups. Fintech start-ups are focused on creating frictionless customer experiences and are not weighed down by legacy systems. Similar to Big Food, traditional banking has been insufficiently attuned to its changing customer preferences. As a result, these small fintech companies have had a highly disruptive effect by serving consumers exactly what they want — an easy-to-use, inexpensive, app-based approach to getting loans, saving for retirement, or making P2P payments with minimum hassle. Ditto for traditional insurance and insurtech, or medicine and medtech.
Bringing in a Google executive to run a food company may even open the way to consumer- and technology-driven thinking in food. Can you imagine a Big Food company taking the same approach as a fintech — say, hiring a tech industry executive to bring in a “foodie” app-like concept that is frictionless and easy for the consumer to use? Or perhaps taking an approach that aggregates the best products that appeal from a health or a personal preference and making it as easy as one-click for customer ordering?
Food manufacturing can also learn from the pharma and microchip industries, particularly about how to create ideal conditions for manufacturing in “clean rooms.” Food could take “clean” even further with elements such as lighting, temperature control, water filtration dynamics and the end of cross-contamination all coming together in the next generation of clean room technology for food processing.
Food is already learning from technology, but we can go further to minimize product defects. While food manufacturers already use this technology to some extent, we need to become much more sensitive to defects as we assess product quality. Similarly, we need to universalize technology that traces the provenance of ingredients — following the supply chain all the way back to the field. We’re talking about tech that scans, for example, a lemon that came out of a particular grove at a particular time of day and inform producers when and how that lemon came to production.
The food industry may not need a digital and tech makeover to the extent that, say, the banking or insurance industries do, but we can benefit from it. We also need to look at the bigger picture and acknowledge that all companies should attain the agility of small startups while simultaneously meeting clear, highly advanced product quality standards.
Whether the future takes the form of enlightened acquisition, a more partner-like approach with accelerators and incubators, or the introduction of tech capabilities hitherto not applied to food, the industry would do well to take its lessons where it can and look at how other industries are making these leaps. When it comes to Big Food and specialty producers, David is challenging Goliath, but Goliath has both the resources and the clout to not get left behind.