Of Pacesetters and Transformational New Products

By Rick Moss

Packaged salad…soy milk…restaurant-to-retail food. These, according to Valerie Skala, VP, Analytic Product Management, Information Resources, Inc., are landmark “transformational”
products of recent times. A transformational product is defined as one that “reinvents or creates a new category of products to address an important consumer need.” When marketers
hit this mother lode, they can see a category go from negligible to spectacular in the course of a short decade — as was the case with packaged salad, now pulling in $3 billion
plus in sales annually.

In her “Close Up” presentation at the FMI Show this week, Ms. Skala said that only a fraction of the nearly 34,000 new food and beverage SKUs introduced in 2003 are actually
new or innovative, rather most are line extensions or seasonal “in-and-out” items geared to short-term incrementalilty. Of the truly new brands, about 24% (233), she estimates,
achieved “Pacesetter” status last year, with sales of $7.5 million during year one of introduction. The “Mega-Hits” — $50 million and up — were represented by only 2 – 3% of
new products (22).

But success can be fleeting, even for Pacesetters. It’s not uncommon for them to be discontinued even before the end of their first year on the market. The failure rate for new
products and line extensions is around 50%, according to IRI, and more like 75% if counted by individual SKUs. With those dreary odds, Ms. Skala stressed “sustainability” as a
key concern numerous times during her presentation. She also ran through the top performers of 2003, linking consumer trends with new product successes. Here are some highlights:

• The Top Ten: Among the top new food and beverage brands for 2003 were items for the indulgent as well as the dieter (but it seemed that even the latter possessed qualities
  of the former). Topping the list was Vanilla Coke (including diet) grossing $292 million year-one FDMx dollar sales. In second place was Krispy Kreme doughnuts ($235 million).
  Also notable: Michelob Ultra ($156 million), which was introduced for the boomer set, but achieved much broader acceptance by year-end.
• Brand Support: When the cost of new product advertising for the top performers was reviewed, the power of great word-of-mouth was clearly evident. Coca-Cola poured out $25
  million for Vanilla Coke vs. the modest $1 million Krispy Kreme spent to introduce its products to retail outlets. Michelob Ultra was the top spender at $40 million.
• Category Contribution: But undoubtedly, the Michelob folks are convinced it was worth every penny. Because of Ultra’s dollar sales contribution, total Michelob sales grew
  by over 52% in 2003. In fact, IRI estimates that the entire domestic beer category was bumped up more than a percentage point due to the product’s introduction.
• The Ones to Watch: Among those coming on strong with less than a year of history on the market are Pepsi Vanilla ($155 million), Sprite Tropical Remix ($120 million), Yoplait
  Nouriche ($72 million) and Nabisco Ritz Chips ($68 million).
• Trends Entering the Mainstream in 2003: Low-carb; soy milk and other soy-based products; products enhanced nutrients beyond the 8 basic vitamins and minerals; and natural/organic.
• Convenience Innovations: Pre-cooked bacon; squeezable peanut butter; pre-made PB & J sandwiches (aka Smuckers Uncrustables); and Campbell’s Soup At Hand. As Ms. Skala
  put it, manufacturers kept “raising the bar on convenience.”

Moderator’s Comment: With thousands of products competing for retail real estate, how can retailers best recognize
a new product winner when they see one?

Ms. Skala’s answer is to look for three “transformational” characteristics: 1) the product “says” what it does and does what it says; 2) sales are large,
incremental and sustainable; 3) it’s the kind of product that creates “buzz” among buyers. –
Rick Moss – Moderator

• To read more about “New Product Pacesetters”, click
  here for downloadable publications on the subject by Information Resources, Inc.