A recent survey on Heinz and other UK soup brands perfectly illustrated the power of growing by building the core business, instead of relying on brand stretch into new markets.
In an earlier post we looked at the challenge of Heinz stretching from its core in canned soup into chilled soup. Now, this is an attractive market: premium priced, modern, fast growing. You can see what's in it for Heinz to enter. However, its much harder to see what's in it for the consumer or retailer. Covent Garden dominate from a brand stand-point, with £55million in sales. Retail own label is another £45 million.
This makes the Heinz chilled soup launch a massive, and very costly challenge. It means new manufacturing, new product development and a new sales team to sell to the chilled department of retailers. And my guess is they needed to offer the trade a juicy trade margin to be stocked on shelf. The result of all this effort is a £1million business: a dwarf trying to fight the giants of Covent Garden and own label. The picture below is done to scale:
The good news is that Heinz have also been busy growing the good old core business of canned soup, worth a whacking £78million. They managed to grow this business by £5milion between 2005 and 2007, to £83 million, with product upgrades, packaging design and advertising support. Five times more growth than from chilled soup. And, what's more, this canned soup growth is higher quality:
- It makes what is strong even stronger: both in terms of brand equity and business
- It doesn't add complexity
- It creates economies of scale
- The growth is likely to be more profitable
Growing the core might not be as sexy and glamorous as stretching into new markets. But boy is it better for business.