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.
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Tony, Thanks for your comment. A great challenge.
There are times when you have to decide to re-define your core business, if after trying everything you decide it is in terminal decline.
A couple of examples would be Kodak and film, and Encylopedia Brittanica. In both these cases the brands were still strong, but they were caught out by a radical change in how the benefit was delivered. Very hard to manage, as you have a massive "legacy" business that is doomed.
Also, I'm all up for brand stretch into "blue oceans", provided you have two things:
1. A compelling value proposition for the consumer, which is truly different, better and affordable
2. A sustainable business model
This is my issue with Heinz chilled soup. Not sure it has either. Apple had both when they launched the iPod and, though early days, the iPhone
Regards
David
Posted by: David Taylor (brandgym) | November 28, 2008 at 07:58 AM
Hi David
Agree with your argument. Grow with your core first before you seek pastures new. However this assumes a. your core remains big / is growing b. you are in a strong position. However, if either isn't true and you can see new blue oceans, why not look further afield? There are plenty of brands that have successfully entered and grown new categories / businesses - not least your favourite brand Apple and plenty of others who have stuck to their core and withered on the vine eg Crosse and Blackwell.
Posted by: Tony Franco | November 28, 2008 at 05:21 AM
david,
do you believe in the theory that brand extensions with a small difference to the core product will only succeed if the proposition is completely different?
f.e. harley davidson succesfully launched a low priced after shave product.
Posted by: roland (xo creative agency) | November 26, 2008 at 10:35 PM
Roland,
Thanks for joining the conversation.
The story was focusing in on soup, which is also big in the UK, and looking at the core of that business.
But you are right that tomato ketchup plays a key role in defining the Heinz brand and being a big bit of business.
IN the UK you could say that they have 2 core businesses I guess.
David
Posted by: David Taylor (brandgym) | November 26, 2008 at 03:50 PM
very much agree with your analysis. however, isn't the core business and at the same time how everybody knowes the brand
simply tomato ketchup?
Posted by: roland (xo creative agency) | November 26, 2008 at 02:41 PM