The recent history of Greggs*, the high-street chain of bakery stores, illustrates the choice companies face when responding to shifting consumer needs and competitive threats. (*For non-UK readers, Greggs are famous for selling fine British fare, such as sausage rolls and cornish pasties, at affordable prices). In the case of Greggs, the challenge was responding to the explosive growth of coffee shops like Costa and Starbucks.
Executives often feel the need to "think outside of the box" and come up with radical innovation that stretches the brand into new markets. This is the route Greggs took in 2011 to respond to the threat of coffee shops. The company created its own coffee shop called Greggs Moment, going on to open five of them. This had a modern, contemporary environment. Highly regarded interior designer Philip Watts was used, and he commented here that "Aesthetically the Moment brand is deliberately different from the normal Greggs because it is for a different activity. Spending time in any coffee shop is a luxury activity."
Now, warning bells should be ringing loudly if you've read our recent post on the importance of creating and amplifying "memory structure", and the risks of breaking with this. With Greggs Moment the company didn't just break the memory structure, it smashed it to smithereens.
Greggs is famous for good grub on the go. And the brand has created a distinctive visual identity with blue and yellow colours. In contrast, Moment was trying to be cool and black, and offered more fancy food such as made-to-order sandwiches, Focaccias, paninis and gourmet pies.
Thinking outside the box can give you a headache
Greggs Moment risked delivering a negative double whammy for the brand. First, your typical Costa or Starbucks customer was unlikely to switch to the new chain, as it lacked any major added value versus existing brands. Second, people who liked the brand may have gone into a Greggs Moment store and thought, "What the hell is this?", like one customer who commented here: "£2.95 for a chicken and chorizo ciabatta (using Gregg’s regular ingredients) would make most regular Gregg’s customers baulk (that includes me)."
An additional headache with thinking outside the box like this is that the service and product innovation is focused on the new brand extension, in this case five stores. The core business of 1,600 existing stores was neglected. And this may help explain the decline in like-for-like sales suffered in 2012 (-2.7%) and 2013 (-0.8%), with pre-tax profits down 18.9% to £41.3 million in the last year.
Option 2: Make the box bigger
A second way to grow is to try and make the box bigger, by renovating your core business. And Greggs eventually decided to take this route. The company killed Greggs Moment, instead incorporating ground coffee into the existing stores. In addition, a record 216 stores were re-fitted in 2013. This re-focus on renovating the core seems to be working, with like-for-like sales up 2.6% in the final quarter of 2013 announced here.
The advantage of this approach is that you make what is strong even stronger, remembering and refreshing what made you famous. You build on and reinforce memory structure, rather than breaking it.