Big Food is snapping up smaller brands to inject some growth into their businesses. But how can large companies best roll out their new assets internationally amid a macro trend for local food? Simon Creasey investigates.
In April last year, just-food interviewed Scott Norton, the co-founder of US condiments brand Sir Kensington’s, the US condiments brand acquired by Unilever a year earlier.
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Norton spoke about his ambitious plans for the brand, which included securing a listing with a UK retailer either “later this summer or early in the autumn”.
More than 18 months down the line, Sir Kensington’s hasn’t as yet managed to secure that bricks-and-mortar listing in the UK. Unilever helped the company gain a listing with Walmart in the US following its acquisition of the brand, but despite its backing, to date the mustard, ketchup and mayo maker is only available for sale in the UK via amazon.co.uk. Unilever and Sir Kensington’s failed to comment when asked for an update on their UK plans for the brand.
So what’s the most effective way for big food groups like Unilever to take newly acquired smaller brands into new geographic territories and what are the main hurdles they need to overcome?
The conventional wisdom – and therefore the traditional approach – employed by big food companies has historically been to expand their brands into as many markets as possible to drive economies of scale across production, supply, marketing and branding and resources in general.
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By GlobalDataBut even the global FMCG behemoths often struggle to export their flagship brands successfully, never mind small brands that are relatively unknown outside their domestic market, according to John Ruff, a food industry veteran and R&D expert, who formerly worked for General Foods and P&G.
“I can think of more failures than successes,” says Ruff. “That’s not to say there haven’t been any successes, because there have been a lot of successes over the years, but it’s not easy to do this.”
It’s a view shared by Mike Musso, head of Conway MacKenzie’s consumer products practice. “I think it takes a very methodical and Herculean effort to take a brand and globalise it, especially a food brand,” says Musso. “Consumer buying habits worldwide are very, very different, so as you start to think about globalising a brand you can’t only think about ‘what is the sales opportunity per capita consumption’ and ‘the brand should do well because others in its competitive set are doing well’. You have to consider pack size, colour, nomenclature or the actual brand name. Are there any conflicts or jargon that would be negatively connoted by the name of a particular brand? Also flavour profiles are incredibly different worldwide.”
Musso does concede, however, that, over the last decade or so, it has got a little easier for food groups to internationalise both long-standing and newly-acquired brands.
“American shopping habits are moving more towards European habits, so smaller pack sizes, less ‘big gulps’, more moderation in terms of consumption – consuming for the day and not for the month,” he says. “I think it’s become a little bit easier moving from the US to Europe, because I think you’re starting to see more of a global appetite for brands.”
When taking an acquired brand overseas, food industry experts say it’s often easier to target those markets that are most like the brand’s domestic market.
For instance, US or UK brands should consider first expanding into other English-speaking countries before considering heading further afield. Other factors to weigh up include market size, category penetration, retail structure, logistics and consumer/shopper demographics, says David Sables, CEO of Sentinel Management Consultants.
“Typically there will be detailed models in place that allow a supplier to quickly run an initial assessment of the market’s suitability and viability for a brand,” he explains. “There will be clear financial parameters that have to be met and this will usually be the first step before the additional assessments are made, re: go to market, supply, regulatory, etc.”
Sables adds most big food group brand-owners will have multiple choices of where and when to launch and the financial model and market readiness will typically determine the sequencing of their market expansion model. “In some cases, a new brand will decide to enter a new market as an overtly offensive business decision – ie: first mover advantage or meeting an unmet consumer need – but it can also be a defensive move to counter a competitive brand threat.”
Whatever the motivation behind taking the new brand global, Andrew Csicsila, a managing director in the consumer products practice at AlixPartners, says overseas expansion should be done with caution.
Csicsila believes often the concept of international growth is “over-romanticised into a view that ‘there’s a great big world out there just waiting to be broken into’ when in reality there are often closer-in and more-profitable growth opportunities available domestically”.
He also points out that rather than think about expanding acquired brands into new territories based on factors like consumer spend, efforts to internationalise should start with one premise.
Csicsila suggests companies ask themselves: “What is the value proposition to the consumers in the market in which we’re trying to target?” He adds: “And if it doesn’t have the appropriate value proposition that it did in [a brand’s domestic market], then there’s nothing you’re going to be able to do to change your consumer to all of a sudden create a need for that item or desire for that item.”
Another key decision big food companies need to take early on when considering internationalising an acquired brand is whether to go after the retail or foodservice sector.
Sables says these ‘where to play’ choices are typically driven by scale and size of opportunity. “In markets where shopping habits have been groomed to focus on a limited number of channels and retailers, the options are easy to assess and the choices are easy to make,” he explains. “Every brand owner will consider the costs involved in bringing a brand to market and in some cases, these will, by necessity, dictate ‘where to play’ and ‘where not to play’.
“It might make perfect logical sense to launch into the UK via the biggest grocery retailers to drive scale and maximise the penetration opportunity, but in reality, the associated costs may simply be prohibitive. In this instance, an alternative model would be a selected leveraging of smaller retailers, the convenience store channel and online – where the costs of launching can be closely monitored, managed and adapted to suit the evolution and growth of the brand.”
This alternative model is an approach that Cyrille Fillot, global strategist consumer foods at Rabobank, also champions. “This is about leveraging what the product/brand stands for,” he says. “I tend to favour foodservice and convenience as one is able to demand higher price points in those channels. The mass volume will be achieved in retail at lower price points. The question always is whether sufficient volume can be achieved in foodservice/convenience.”
However, as AlixPartners’ Csicsila is keen to point out, serving retail versus foodservice requires different routes to market and commercial capabilities.
“Retail is a larger market, and on its surface more attractive; however, the capabilities and importance of a strong and reputable brand is much greater. If, however, capabilities are less robust, and the brand has lower recognition, I would lean toward foodservice,” he says.
Regardless of the channel chosen, it’s possible changes will need to be made to products to ensure that they go down well with consumers in international markets.
Gaurav Gupta, affiliate at Kotter, cites the example of Unilever introducing smaller pack sizes of its products in India versus its standard pack sizes elsewhere in the world.
“You might have something that is viewed in the UK, for example, as an everyday product, but in your new market it might be viewed as a luxury item so you might need to produce smaller packaging sizes so that people can afford the product,” he explains.
Ruff says another good example of a global food group that tailored a product for a specific geographic territory is General Foods when it rolled out powdered drink Tang in Asia. “One of the reasons the product was successful in China and other Asian countries was these nations had iron deficiency problems,” he recalls. “So we figured out how to introduce irons and other vitamins, rather than the usual A and C, to Tang so that it still tasted good.”
He thinks Mondelez has done a similarly good job with Oreo biscuits in the same region. “Oreo has become a relatively big success in China,” says Ruff. “What did they do? They came out with local Chinese flavours that were slightly more savoury and that US consumers would turn their noses up at and it’s working.”
‘Localising’ a newly-acquired, smaller brand gets around the emerging global consumer trend of consumers increasingly seeking out local food, but it’s not always easy to do this and Csicsila says that whether or not the strategy pays off will depend largely on the strength of the brand.
“Many companies that have successfully extended their brands into international markets under an internationalisation strategy have begun with very strong brands with strong resonance in their home markets,” he says. “From this foundation, they are then granted ‘ex-pat’ credibility. However, with smaller brands that don’t have this level of success in their home market, the internationalise strategy is likely to follow a different ramp-up profile. I believe that it could drive growth, but I also believe that more times than not it will likely be based on its novelty and not be likely to accumulate significant scale.”
Sables agrees it’s still possible to expand an acquired brand overseas regardless of the current ‘local’ push, but he says it’s likely to be expensive due to the fact the marketing requirements will most likely be more costly.
“Some brand owners will leverage parts of the model that allow them to ‘play’ to the consumer preference for ‘local’ food – this includes tag lines like ‘made in x’ or ‘enjoyed by x consumers for y years’,” he says. “It might also include using some kind of local celebrity to endorse the brand and give it a local relevance that might be missing.”
Such considerations are part and parcel of the business structures that need to be put in place to support the roll out of a new brand – and especially a smaller, newly-acquired one – into international markets. These structures encompass production and supply chain, in addition to marketing and selling models.
“In the ideal situation, a brand owner would be able to replicate the model from country one into country two and beyond with minimal changes and therefore minimal extra costs,” says Sables. “Brand-owners will evaluate whether it is best to use a direct model where they have their own management organisation based in the market or, alternatively, use a local distributor who can own all elements of the ‘go-to-market’ model on behalf of the brand owner and without the brand owner needing to incur the costs of a permanent local organisation. The size of the brand being launched and the associated costs of the launch will usually make this choice easy.”
In essence, you can’t establish a global presence for brands new and old without putting in place a global structure to support that roll out, but to do so requires significant investment.
“You’ve got to be very, very careful because you can’t under service the customers or the channels by having such a lean structure that you’re effectively not out there marketing and growing the brand,” says Musso. “You have to find that perfect balance.”
Ultimately every commercial decision by every brand owner is about finding that perfect balance built on the size of the prize and the associated risk/reward profile attached to the decision.
“It is quite possible that a brand owner may decide not to launch their preferred brand [in another international market] due to poor financials, the competitive context or uncertain consumer appeal, in favour of launching a more tailored proposition that has a higher probability of success and less risk of failure,” says Sables.
Whether or not any of these factors have been behind the delayed introduction of Sir Kensington’s condiments to the UK market, only Norton and Unilever know.
