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News from the Delevine Mediaverse

70% of brands useless, report claims

If marketing is about selling a dream, have consumers finally woken up? …

A majority of consumers would be perfectly happy if 70% of brands disappeared, according to new research from Havas, a media buying group. The survey, which polled 50,000 consumers in 14 markets, aimed to chart the extent to which consumers felt brands had a “meaningful impact” on their lives. Factors such as health, happiness, values, financial security, society and the environment were considered. In developed markets, the perceived impact was minimal: consumers in the US said only 5% of brands positively expanded their quality of life. In Europe that figure was 8%. In developing markets, brands had a higher resonance, with 30% of brands in Latin America deemed meaningful to consumers. The report said that “positioning brands as socially responsible” had a “moderate impact” on consumer sentiment towards the brand.

Comment: Havas comes to the conclusion that the marketing isn’t working and better investment is needed. That’s to be expected, since Havas sells media. I think there are conclusions to be reached in addition to this. If traditional marketing is based on selling a dream, it looks to me as though consumers have woken up. Either: the reality fell short of the myth, or: there’s a dwindling appetite for myth at a time when hard realities are coming knocking for an increasing number of consumers. Either way, the revelation that consumers have no time for 70% of brands will be welcome news to retailers and their private label partners.

What’s left of Sara Lee?

Can you divest non-core assets if you don’t really have a core? …

US food and beverage group Sara Lee has sold its North American coffee business to JM Smucker for USD 350 million. The business, which generated USD 285 million in sales this year, was part of the international beverage business the company spun off in January. In a statement, Sara Lee executive chairman Jan Bennink said the sale to the maker of Folgers coffee was part of the Sara Lee’s “mandate to create the strongest possible pure-play company.”

Comment: Although the split earlier this year was clearly a precursor to a divestment, I was mildly surprised to learn there was anything left of Sara Lee to sell.  It got out of apparel back in 2006. In 2009 it sold its personal care business to Unilever. Last year it sold first its North American dough business to Ralcorp, then its fresh bakery operation to Bimbo. It also sold off its Spanish bakery and French dough businesses. The story raises a couple of questions. The first is: is it wise to divest non-core assets if you don’t really have a core? Does Sara Lee have meat at the centre of its brand equity in the same way that Tyson does? I’m not convinced it does, although meat is more or less all it has left to “pure-play” with. The second is: what are discarded Sara Lee assets ultimately worth to their buyers? Grupo Bimbo — which paid close to USD 1 billion for the bakery operation — admitted Monday that it saw “low growth” ahead in the Sara Lee units it acquired. Either: Sara Lee is a company whose assets aren’t up to much; or it’s a company that doesn’t really know what it’s in the game for; or it’s getting stripped piecemeal by shareholders upset at net profits of only USD 642 million on sales of USD 10.8 billion. Could all three be true?

Photo credit: Takeflight Design

The Great Correction: How the Euro Crisis parallels our worst business models

Short-term thinking will send us all off the cliff in the long run …

Not too long ago I sat in a meeting with a company CEO, who was outlining the (let’s call it) strategy for the upcoming year. The model was this: greatly increase service fees, accepting that there would be significant attrition in the number of clients willing to bear them;  then persuade the remaining clients to pay to fund products which would then be made available for free to those who didn’t pay for them. A tough sell, you might think.

During this time, costs would be controlled by reducing the number of services offered in the areas where the company was already successful and well differentiated. Resources would also be scaled back here. This would both reduce revenue streams in the near term and possibly force an exit in the long term.

To recap: destroy or damage existing revenue streams and put all the company’s eggs in the basket least likely to bring in new money. Now, not only would that model fail but it had failed before, spectacularly. The answer to that failure, rather than to re-evaluate the model, had been to divert money from something that was working to pump into further attempts — and to keep pumping to the point at which the funding sources dried up.

As an analyst, it was my job to point out the flaws in this strategy and warn about the giant cliff looming, but the advice went unheeded on that particular occasion. Here’s why. The CEO was rewarded (richly) in the short term, not the long term. If he implemented the board’s flawed strategy he, personally, would make a lot of money now, not in a few years time. Therefore it didn’t pay him to reflect on what could happen to the business and its staff in the long term.

Now I read this article by Paul Krugman about the Euro crisis and I have to chuckle. Except it’s not funny. The notion peculiar to lenders that interest should be highest for borrowers who can least afford to pay it — on the basis that the “risk” is greater — is a masterclass in short-term thinking. Or stupidity, as I like to call it. The punitive rate more or less obliges the borderline borrower to default. They are ruined but hey, they paid so much interest on the repayments they did make that the investment is recouped, so who cares, right?

Except that if your business model is to destroy your source of revenue, eventually you will have no one to sell to and they will have no money to buy with. Let’s call that — oh, I don’t know — how about recession or global financial crisis or depression. As with finance, so with business. Killing the goose that lays the golden eggs hasn’t been a viable model since Aesop. And yet people are still getting paid fortunes to implement it. People are calling our current times “The Great Correction” : but unless the blinkered short-termism that characterises this particular incarnation of capitalism is corrected, that name will remain as vacuous as it sounds.

Life without Steve

 

I don’t want to clutter the web with my addition to the obits for Steve Jobs, who died earlier today. As I sit typing on my MacBook Pro, listening to iTunes in a café in central Paris, using a wifi connection I found using an iPhone app, I hardly need remind anyone of the impact Mr Jobs has had on our lives.

When I left university no one had a computer. I learned computing on an Apple Mac — a giant beige box — because I was apprenticed to a graphic designer. The Mac was then known as an expensive, exclusive professional tool for media and creatives. You couldn’t get one on the high street: reps came. In the Mac-related magazines I bought, Jobs, by then long gone from the company he co-founded, was a dirty word, routinely drubbed as a loose cannon. Friends mocked me for my geeky Mac obsession — which they saw as self-consciously alternative and “creative” — even as they rebooted their PCs after MS Office crashed for the eighth time and their hard disks had been eaten up by worm viruses and adware.

By the time I had saved up to buy a second-hand Mac, Apple as a company was near death — victim of its own arrogance and attachment to vertical integration — and it looked as though it would go the way of Betamax. Then we had the second coming of Jobs, the birth of the affordable, trend-setting iMac, the iPod and the regeneration of a brand that today dominates our daily lives. Gradually, the desirability of Apple products permeated public consciousness and those who had mocked a few years earlier now boasted. I knew Jobs had won when status-conscious corporate types started with the “sent from my iPad” rather than the “sent from my Blackberry”.

Here’s what I want to take from this. The sacking of Jobs from his own company and his subsequent return — not only to rescue it from the brink of banruptcy but also to transform the computing, the entertainment and the communication industries — is a salutory lesson for all companies. Jobs’ firing was a product of corporate power politics and nothing more. Jobs was judged not corporate enough, too fiery, creative and entrepreneurial to play well with others on the board. He was basically kicked out for possessing a challenging personality and a fierce vision. These things can be threatening to those who don’t have them, but without them somewhere in your company, you’re sunk. Apple threw the baby out with the bathwater and paid a terrible price.

Jobs was re-hired for the same reasons he was fired. In the interim he had founded Pixar and learned many lessons. He had matured somewhat but lost none of the vision and, by all accounts, little of the fire. On his return, aside from recreating the brand, Jobs deliberately altered the hierarchical structure of the company to avoid the kind of fiefdom- building and power-play that harm innovation. Executives at Apple now radiate out from the CEO in a circle. Power is spread: the head of the online store, for example, doesn’t get to choose what is stocked, nor the design. Project leaders are appointed based on talent for the particular job at hand and no other reason.

The vertical hierarchy is over. It’s an artificial and outmoded structure, based on nothing but our own vanity. As Facebook has shown, the world is now a network and in a network, collaboration and crowd-sourcing of ideas and information are the routes to success. If companies persist in rewarding individual performance with pecking order status and power over others, they will only encourage zero-sum competition. Positions of power are usually won by the people who most want power, not by the people most able to innovate. Once positions of power are obtained, the executives concerned are no longer coming into work to do their jobs. They are coming in every day to maintain and defend their position. Politics take precedence over productivity. New ideas threaten such power structures and are crushed. We’ve all seen it. No wonder few companies can really innovate.

Innovation requires trust, mutual respect and collaboration. Companies with traditional vertical power structures can and do achieve innovative miracles, by plucking individuals away from their daily routines, creating task forces and suspending power-politics for a limited brief and a limited time. It works, but there is an erroneous consensus that this kind of “peak performance” microcosm cannot be maintained on a daily basis. Yes it can. Jobs did it. You change the structure, you change the reward. You reward innovation, you reward collaboration, you reward challenges to the business model and challenges to the status quo. You reward drive, curiosity and creativity. And — as Google does — you reward these with autonomy, rather than power. Autonomy is all we really need to be satisfied. Power is how we usually get it. But that can change. When we all do this, we may all produce something as majestic and world-changing as Jobs did.

Why no SKUs is good news : Private label marches on

Private label news: The FT had a rather interesting take on the SKU-editing trend. Responding to the revelation that Unilever is to cut 40% of its range, the article maintains that the manufacturers’ “trend towards less complexity is helped by the support of retailers, which are eager to clear more shelf space for their own-label products”. Meanwhile, Kraft and P&G say they have no intention of scaling back ranges.

Comment: “Helped by the support of retailers” is an interesting way of putting it. In truth, retailers’ SKU-delisting exercises and the rise of private label are forcing manufacturers to reconsider their ranges. But smart companies are turning the situation into something positive. Unilever is using the exercise to cut costs across its supply chain and leverage scale: the leanness will serve the company well. It’s a sensible and businesslike response to increased private label activity, as is increased collaboration with retailers over NPD. There is consensus that consumers will not abandon their “hero brands” for private label, but the endless flankers are helping no one, least of all the consumer. The cult of “new” is so ingrained in brand marketing strategy, however, that I doubt many manufacturers are ready to abandon it. Wall Street’s demand for growth is so insistent that it must seem so much easier just to add variants than work out how to get genuine organic growth from existing products. Such innovation is all very well, but if you can’t sell it in …

Keep calm and sue : copyrighting the public domain

Brand news: A rights battle is raging over the British wartime slogan “keep calm and carry on”, the FT reports.  Mark Coop, owner of  Keep Calm & Carry On Ltd, has been selling items bearing the slogan since 2007 and acquired the EU trademark in April. However, he is not the only person selling such items. Among the others are independent traders on Ebay, who have now found their products delisted. Intellectual proerty adviser Trade Mark Direct has applied to have Coop’s rights cancelled. Trade Mark Direct argues that the phrase, which was created by the British government in 1939, was already in common usage before Coop attempted to corner the market.

Comment:

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Supermarkets: the low-key wow

Good lord — for once I don’t fully agree with Seth Godin. Godin posted a piece yesterday about new media and how it’s hard to succeed these days unless you can provoke a “wow”. That may be true, but Godin used the example of supermarkets to contrast the elsuive and theatrical “wow” factor. “My local supermarket stocks waxy, tasteless tomatoes from Chile and Mexico and Florida,” Godin says, “when local tomatoes are delicious”. Defending the supermarket’s decision not to “wow” with tomato quality, Godin asserts: “This supermarket, like most supermarkets, is a checklist institution, one that is in the business of providing good enough, in quantity, at a price that’s both cheap and profitable.” But what if the supermarket “programmed” its stores, as theatres do, to provide something “magical or terrific” — something that would be “worth the trip”? Wouldn’t that be better, Godin appears to imply?

I think that Godin has missed the point about supermarkets and what consumers want to get out of the experience. Over the last five years

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Killing Steve Jobs: the future for Apple

The Economist had a couple of interesting articles last week. The first was yet another speculative piece about how Apple will fare after the departure of its iconic founder and CEO Steve Jobs. This article was notable for attributing to Jobs’ replacement, COO Tim Cook, a couple of things generally credited to Jobs, such as the removal of manufacturing from the balance sheet and the move to outsourcing. That move did much to make Apple financially viable when it was teetering on the brink and the revelation that it was in fact Cook’s idea bodes well for his stewardship of the Apple ship. Apart from that, it was typical fare: speculation and a tone of cautious optimism masking an underlying fretfulness.

People are right to fret about the departure of Jobs. If he was not directly responsible for the inventions, the marketing and design genius and business nous that brought Apple back from the brink, his leadership allowed these talents to come through from below. It was precisely the culture of risk-taking, the willingness to be “foolish”, as he put it, and rethink business models affecting whole industries, that made Apple what it is today. In business we hear an awful lot of that buzz word “sacred cow”. The sacred cow is that idea, structure, product or philosophy that no one dares to touch. Jobs was unafraid to kill these and rewarded that mentality among his team. Vertical integration was destroyed; the notion that Apple was just a computer company was destroyed; the notion that Apple could not be a retailer was destroyed. The notion that the music business or the publishing business could not be changed was destroyed. The notion that technology didn’t need to be elegant, couldn’t be a fashion statement: that was destroyed too. His was a culture in which ideas that challenged not only the status quo of the market, but which challenged the existing Apple ethos, were allowed to bubble up, to the profit of the company. His was a culture of creative disruption that reversed the fortunes of many.

The second Economist article, somewhat ironically, was a treatise railing against the cult of the CEO.

The worst thing Apple could do now is preserve Jobs in formaldehyde. The worst thing it could do is be so worried about living up to that legacy that it becomes risk-averse. If Jobs has done his job well, he has taught the company to be unafraid. Apple under Jobs excelled at killing sacred cows and doing the unthinkable. The next sacred cow Apple needs to kill is Jobs himself.

The Scramble for Africa

Will Tesco buy Pick n Pay?

Now that the authorities in South Africa have cleared Walmart’s acquisition of a controlling stake in Massmart, the CPG world is abuzz with speculation about further retail incursions into the Sub-Saharan region and South Africa in particular. With reason: retail sales in the country are growing at about 8.2% CAGR, in line with GDP, while consumer spending is set to grow by just shy of 8% in the next five years. Consumer price inflation is just under 6%: the market is ripe for international retailers to introdce EDLP with globalised sourcing and private label. So far, foreign retailers have less than 1% of the market. There seems a lot to play for.

Market gossips report that growth-hungry Tesco is keen to snap up Pick n Pay, which has just entered Mozambique. That may be so, but how likely is it? It’s clear why Pick n Pay would be attractive to Tesco. It’s South Africa’s third-largest retailer (Kantar Retail ranking), behind Shop-Rite and Spar and ahead of Massmart, turning over about ZAR 55 billion (EUR 5.6 billion) annually … It has a solid food offer, a presence in seven African countries and Australia, a couple of million loyalty card holders and a range of formats that could dovetail nicely with Tesco’s multi-format strategy.

Family story

Despite the “good fit”, it is not a foregone conclusion that Pick n Pay would sell. Although the retailer is publicly traded on the Johannesburg Stock Exchange, the company is controlled by the Ackerman Family Trust. Yes, a deal with Tesco might give the family firm the deep pockets and buying power necessary to compete with a Walmart-driven Massmart. But it would surely do so at the expense of its brand. The brand is something that’s vitally important to founder Raymond Ackerman and is something his son, Gareth Ackerman, who took over as chairman of Pick n Pay in 2010, has always appeared to embody.

Since 1967, Pick n Pay has meticulously built its identity as a socially-reponsible family business and a fierce consumer advocate. Outspoken on matters of racial equality, politics, and social mobility – and comfortable with controversy – its brand seems uniquely tied into the personality and values of Raymond Ackerman and his family as members of the South African community. Ackerman is hailed as an icon, a pioneer and philanthropist, unafraid to take on Apartheid and business cartels alike in the name of a fair deal for all. Tesco, good neighbour though it tries to be, cannot boast quite the same bombastic credentials.

If Tesco acquired Pick n Pay, could it wholly embrace Brand Ackerman and keep running the stores as Pick n Pay? That doesn’t really fit with Tesco’s modus operandi – it’s too fond of its own brand and I’d expect to see the multi-format model rolled out, along with its excellent Tesco-branded private label. Surely that would be the whole point. But could it wholly obliterate the Pick n Pay story, rebadge everything and start with zero goodwill, as it did with Fresh and Easy in the US? That doesn’t seem right either: there might be a backlash and then there would be all those Pick n Pay franchisees to bring on board. Yet, some kind of clumsy brand mash-up, à la Tesco Lotus, seems to offer the worst of both worlds. All options would therefore carry risks for the UK giant, whose success abroad has not been universal.

For many reasons, I prefer Shoprite for Tesco in South Africa and beyond. True, the core grocery stores come with some baggage, including 112 “Hungry Lion” fast food outlets and 224 homeware and furniture stores. But the fast food business could be sold and Tesco has been adept at running diversified non-food formats. Controlling shoprite would put Tesco in a top-two position in grocery in 12 African countries and a top-three position in a further four. While it doesn’t have the showing in apparel that Pick n Pay does, Shoprite’s multi-format approach is an equally good fit and Tesco could teach Shoprite a thing or two about running convenience, which the South African retailer can’t seem to grow. I don’t see the same brand conflict here either. The only stumbling block might be the price: Shoprite turns over about ZAR 74 billion, making a controlling stake a far pricier proposition than Pick n Pay.

Legacy

In the end, if Tesco really does want Pick n Pay, its ambition will depend on whether the Ackerman clan can make its collective peace with the idea of a sell-out. While I can see the long-term business advantages such a tie-up would bring them, I can equally imagine Raymond putting his foot down.

Raymond Ackerman turned 80 this year and his current official title is “Advisor”. I wish Mr Ackerman a long and merry life, but should he one day move on, the redoubtable patriarch could still influence decision-making at Pick n Pay from the other side: at a trade event I once witnessed him promise to “come back and haunt” his sons if they ever compromised the company’s philanthropic goals.

I do believe he meant it, too.

Is green over?

Will consumers pay more to be green?

Sales of eco-friendly products are fading as economic troubles pull consumer confidence down. But are we telling the green story in the right way?

A few years ago, I went for an espresso in a London branch of one of the many coffee shop chains that compete in the UK capital and was offered the following up-selling choice: “do you want Fair Trade for an extra 30p”? The coffee in this particular chain was already very highly-priced; paying an extra 30p would take the bill to close to GBP 3.00, roughly the same price as a 50g bag of ground coffee. That’s a high price by any measure. And yet, if you are told that one choice is “fair,” the implication is that the other choice is actively “unfair”. It’s a classic double-bind proposition: choose one and you feel like a bad person; choose the other – to defend your self-esteem from this sneak attack – and you feel like you got fleeced.

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You are what you watch

Can a child really get fat from advertising?

 

No one really denies that obesity is a growing problem. In the US alone, 64% of adults are “overweight or obese” today, while 26% are classed as “obese”, according to the North American Association for the Study of Obesity, which defines obesity according to a person’s body mass index. Between 1986 and 2000, the prevalence of severe obesity quadrupled from one in two hundred Americans to one in fifty, the US Centers for Disease Control (CDC) contends. The CDC’s National Health and Nutrition Examination Survey shows a dramatic shift to obesity in children between 1976 and 2000. For children aged 2-5 years, prevalence increased from 5.0% to 12.4%; for those aged 6-11 years, prevalence increased from 6.5% to 17.0%; and for those aged 12-19 years, prevalence increased from 5.0% to 17.6%. While these figures are from the US, the trend is mirrored across the globe, including developing countries.

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On feeding the world

“The end of food”

In February 2011, wholesale food prices jumped up 3.9%, the biggest one-month increase in 36 years, causing scare headlines about the end of cheap food to be brought out of storage, where they have been since 2008, when they were put away in favour of financial meltdown. Some suggested insects could eventually replace meat. Some quoted economists and said that grain shortages, Middle East turmoil and extreme weather in critical crop-producing regions had interceded to send food prices higher this year.

We wrote about this in September 2007 and again in April 2008. While times have moved on since then, the discussion has not. In 1996, the United Nations Food & Agriculture Organisation (FAO) estimated that the world was, in fact, already producing enough food to provide every person with 2,700 calories a day. That’s about 600 more calories than any of us really need. The world has enough to eat. The problem is – has always been – that not everybody gets to it.

Waste
Between 30% and 50% of all food produced globally is wasted. In Britain and the US, a quarter of all food from shops goes directly into the bin. The US alone threw away 43 million tonnes of food in 1997, according to figures in The Economist. Extrapolating, if all rich countries waste at the same rate, this totals around 100 million tonnes of food a year. Why? The Economist cites “law”, presumably regarding food safety and use-by dates. These laws are there to protect consumers, so the temptation is to say that nothing can be done. But it also begs the question of why food is stocked that does not sell (half of all salads in shops are thrown away). Or why consumers end up buying too much food, which they cannot consume before the law deems it spoiled or unsafe. The article suggests that, when all is said and done, food in these countries is cheap enough for consumers not to care …

In poor countries, a similar quantity of food is wasted on farms or in the early stages of the supply chain. The reasons are inadequate or inappropriate storage, lack of infrastructure and cold chain and little money to invest in such improvements.

Fuel
It is galling to write again, four years on, about the threat that governmental biofuel policies pose to food security and the effect this could have on social stability and geopolitical conflict. Even back in 2007, it didn’t take great genius to see that if you divert food crops, such as wheat or maize, for fuel production then there will be less food and prices will rise. As policymaking goes, burning your dinner so you can drive to the supermarket surely has to rank among the most short-sighted and self-defeating. And yet, targets remain: the European Union, Brazil, Japan and Indonesia have set a target of 10% of all fuel to be sourced from biofuels. The US is supposed to meet a target of 30% by 2030. Not only this, but biofuel production is tremendously greedy when it comes to raw material. If the goal really is to ensure that the world has enough to eat in 2050, then production of biofuel should stop.

Inequality
Despite the FAO figures, the argument that we could feed the world adequately with existing resources is facile. There are political, economical and biological obstacles to effective redistribution and such a utopia is unlikely to emerge. But consumer goods companies do have an economic incentive to invest in agriculture, infrastructure and supply chain in the world’s poorest countries. They also have an economic incentive to drive waste out of the supply chain and better predict demand in stores.

Meanwhile, demand for meat and grain is growing from developing nations and increased productivity, rather than fairer distribution, seems to be the only way to meet it. But as seasonal change becomes ever less predictable and extreme weather events move inexorably from anomaly to norm, crops are thrown into disarray. Arable land co-opted for biofuel production cannot produce food, further reducing supply. How to produce more, then, from  less? Some claim there is a single solution, glowing brightly in the distance: genetically modified crops (GM).

An op-ed piece in The Economist – written anonymously, as are all articles in the paper – claims that by 2050, population growth will have slowed to almost zero. The genomes of most major crops have been sequenced, the technology to improve yields exists. It is perfectly possible, the piece claims, to feed the nine billion if only countries will embrace genetically modified plant technology. The article goes on to suggest that Europe will find itself marginalised if it continues its reticence, while the BRICs will rise in economic importance and geopolitical power.

In public at least, the major suppliers of GM seeds and technology fight shy of claiming their wares are the proverbial silver bullet when it comes to meeting the demands of population growth. What is certain is that the world is already producing enough to feed itself, without GM. What get in the way are politics, uneven distribution, short-term thinking and waste at every level, from producer down to consumer.

This seems a highly inefficient way to run a planet. Could it be time for a strategic review?