From the popularity of vegan and plant-based food, to the trend for non-alcoholic beer and the wider shift towards premium spirits, consumer behaviour is evolving at such a rate that brands are left scrambling to keep up. Now companies are going back to their portfolios to work out if they really are fit for purpose.
Change is already afoot across the global FMCG sector. In April, Kellogg’s sold its biscuit businesses including Keebler and Famous Amos to Ferrero for $1.3bn (£1bn) in order to focus on its snacks and cereals.
Kris Bahner, senior vice-president of global corporate affairs at the Kellogg Company, explains that divesting this element of the portfolio enables Kellogg’s to hone in on its biggest snacking brands, as well as improve its financial flexibility through a better margin mix and reduction of debt.
“While our cookie, fruit snack, ice cream cone and pie crust businesses have iconic and beloved brands, we simply cannot allocate the sufficient focus and resources they deserve,” Bahner says.
“The changes we are making to our US portfolio are not easy, but we know we are taking the right steps to return Kellogg’s to growth. While we can’t speak for any other company, we know continually reviewing our portfolio for growth opportunities is the right thing to do for Kellogg’s.”
The company believes there is room for growth in the snacking category with products such as RXBar protein bars, which Kellogg’s acquired in October 2017 for a reported $600m (£465m). Introduced to the UK in January, RXBars are being sold direct-to-consumer, as well as through 20 high-end gyms such as Barry’s Bootcamp and CrossFit.
The changes we are making to our US portfolio are not easy, but we know we are taking the right steps to return Kellogg’s to growth.
Kris Bahner, Kellogg’s
Also in April, French FMCG giant Danone sold organic salad brand Earthbound Farm to US company Taylor Farms with a view to refocusing its portfolio around yogurt, water and plant-based products. The company is keen to continue investing in healthy startups through its Danone Manifesto Ventures arm, which last year acquired baby food brand Yumble and wholegrain oat yogurt Hälsa.
Of course, companies outside FMCG are not immune to using portfolio management to change their company’s direction. Tobacco giant Imperial Brands is currently looking to sell its premium cigar business as part of a wider “simplification agenda”. Imperial says that while its premium cigar business is growing, it has a different consumer base and route to market to the other businesses in its portfolio and therefore no longer fits the “strategic focus”.
Divestments do not, however, always go smoothly. Kraft Heinz is still struggling to sell off its Maxwell House coffee brand after putting it up for sale in February for a reported $2.5bn (£1.9bn). According to CNBC, Kraft Heinz is hoping to get rid of brands that consumers are not willing to pay a premium for as competition from retailer own-brands ramps up.
Open to possibilities
In the beauty sector, Avon has embarked on a process of portfolio sharpening using its Open Up strategy to “clear out the weeds of the portfolio”, explains chief brand and beauty officer, James Thompson.
The idea is to improve access to Avon’s products online and via its representatives, while building a reputation for selling great products that cannot be sourced elsewhere. Thompson is convinced that simplification is the key to achieving this goal.
The Avon Care portfolio, for example, has moved from 25 skincare collections worldwide to just 14. This portfolio has also cut basic product lines by 30%, while reducing formula bases from seven to two. By developing common bases and removing non-essential ingredients Avon improved its gross margin by 100 basis points. The money saved was pumped back into simplifying the packaging and including more “on-trend” ingredients. Sales rose by 10% as a result.
Based on the success of the Avon Care shake-up, the company is now looking at separating its Avon True and Mark make-up brands, which will allow for greater price-tiering.
Thompson also points to the release of Avon’s Vitamin C serum in May, a single SKU (stock keeping unit) that is already 20% ahead of forecasts. The simplicity of the packaging conveys the fact the serum contains the same levels of active vitamin C as 30 oranges. Across the wider group portfolio, Avon has reduced its SKU count by 25%.
This strategy is freeing Avon up to look at what is really driving consumer choice and the emotional segmentation that impacts on purchase, Thompson explains. The teams have gone back to basics and “relearned the categories”, taking time to determine the areas of most value. They have also made the brochure and ecommerce site much easier to navigate.
“If you take this approach in one part of the organisation it spreads to the rest of the organisation and you see the value of making choices to be brave and to be simpler,” says Thompson.
“It effectively becomes a business habit. If there is advice I was going to give to anyone it would be use this as the flagship for simplification and making choices across an organisation.”
He adds that it is important to set targets, because it gives the organisation something to get behind. Avon has been able to over-deliver on the simplification process because it has a galvanising target, says Thompson, meaning the team was not willing to accept a 17% reduction in product lines if the goal was more than 20%.
In many cases, divestments and acquisitions are a way for brands, particularly in the alcohol sector, to move their portfolio in new directions.
For Corona’s parent company Constellation Brands, the $1.7bn (£1.3bn) sale of 30 brands from its wine and spirits portfolio to E & J Gallo Winery in April signalled the company’s wider ambitions to grow its premium portfolio.
Speaking at the time, president and CEO Bill Newlands said the company was evolving to keep pace with emerging consumer trends, adding the focus on premium wine and spirits brands will better position the company to achieve accelerated growth. It has backed that strategy up with the acquisition of a minority stake in artisan Los Angeles-based mezcal label, Mezcal El Silencio.
As part of its premium push, Diageo sold 19 of its lower-end spirits brands, including Seagram’s Five Star whisky and Myers’s Rum, to US drinks company Sazerac for $550m (£422m) in November. The drinks giant then announced in May it was launching new super-premium Italian gin, Villa Ascenti, across 14 European countries. Reflecting on the new launch, Diageo cited IWSR Europe gin category statistics which show super- and ultra-premium gins are the fastest growing segments within the category across Europe.
Pernod Ricard is similarly pursuing a “systematic premiumisation policy”, which the company’s 2018 annual reports explains will mean the future acquisition of high potential premium brands and disposal of “non-strategic” assets.
In January, for example, Pernod Ricard sold its Argentinean Graffigna, Colón and Santa Silvia wine brands to Chilean wine company VSPT, reportedly to take a step back from sales based on volume and discounting. Then in April the company acquired Italian super-premium gin brand, Malfy.
Encouraging consumers to move upmarket is one of Pernod Ricard’s four key growth accelerators and figures suggest it is a savvy approach to take. Between 2007 and 2017, Pernod Ricard grew volumes across its prestige category by 7.2%, compared to growth of just 1% in its standard category.
Focus on the core
Moving out of categories that take attention away from the core product is a smart move as it frees businesses up for experimentation. Four years ago, British baker Hovis culled its offer in pancakes, crumpets and muffins to focus on ramping up the quality of its core bread products.
It’s all about the 80/20 rule, explains marketing director Jeremy Gibson, meaning that 20% of products deliver 80% of the value. His philosophy is, if a product is not performing Hovis should proactively pull it and find a better replacement.
When analysing the popularity of a product, Hovis looks at the rate of sale and penetration data, as well as speaking to consumers a minimum of once a month, and sometimes as often as once a week, to gauge their opinions.
A big part of Gibson’s role is to manage the stage and gate process, starting off with the business case, the product design and the opportunity in the market. Based on this analysis, the team work out if the product is viable or whether investment is needed to revamp the packaging or tweak the design.
Looking at the portfolio and making choices allows us to put more money behind areas where we see huge growth potential.
Steve Challouma, Birds Eye
Gibson feels “a huge obligation” to ensure Hovis has the right range and explains that the product cull four years ago means the business is now in the “luxurious position” of having a strong core of products to build upon.
“The SKUs we have on shelf are proven to be successful; they don’t just command space, they’ve become really important for many of our customers. My challenge is not to keep cutting what we have. But, if you want to expand the footprint of our brand, where do you go next?” he explains.
Pulling out of extraneous categories freed up Hovis to follow evolving consumer trends, a strategy that inspired the launch of its sourdough bloomer and seeded batch loaves in September 2018. Now the core business has been strengthened, Gibson has his sights set on the brand “nudging its arms” further out on the shelf and exploring the opportunities in premium-style loaves.
Maximising your assets
Birds Eye made a big change in its brand architecture three years ago, moving away from a master brand strategy to four category-focused sub-pillars – fish, chicken, vegetables and Inspirations.
Launched in 2014, the Inspirations sub-brand housed all Bird Eye’s premium products across fish, chicken and beef. However, econometrics and shopper behaviour began to show that when Birds Eye put marketing spend behind an Inspirations product in a category like fish, the spend was not lifting the Inspirations range as a whole.
So, Birds Eye decided to bring its modernised Captain Birds Eye back to the fish portfolio after a decade long hiatus and put the premium tier of Inspirations products under the Captain branding. The decision to retire Inspirations in March was a logical one for Birds Eye, based on the high level of penetration of the Captain Birds Eye character, the halo effect on the wider brand, as well as thorough neuro-testing and shelf testing in-store.
While Inspirations has been retired from the fish category first, as it represented the vast majority of the sub-brand’s sales, marketing director Steve Challouma insists a similar logic will be applied to the chicken and beef categories.
The move means Birds Eye can now use the £7-8m of investment its puts behind the Captain range across a wider set of products, resulting a less fragmented media spend.
Birds Eye has also been able to reinvest the funds it used to support Inspirations into its “future facing” veg and plant-based foods, which are a “big strategic priority” for the business. This year the company plans to double ad investment in its veg portfolio to £8.8m, supporting its Steam Fresh veg and pea protein Green Cuisine range of meat-free sausages, burgers and meatballs.
“Looking at the portfolio and making choices allows us to put more money behind areas where we see huge growth potential, which in the long term will have a transformative impact on the brand and the balance of the portfolio,” says Challouma.
He argues that sometimes brands underestimate the importance of brand architecture and the impact it has on organising a portfolio. The Birds Eye marketing director suggests looking at how other brands structure their businesses to stimulate debate around the kind of brand you want to be, from Coca-Cola’s master brand strategy to Kellogg’s house of brands.
“Try and pitch where you want to stand as a brand and then find those parallels in the category you’re in. Then write down some hypotheses of what those different options would be,” Challouma advises.
“Where architecture really lives or dies, especially in packaged goods, is in design. Even if it’s a prototype or a hypothesis, imagine what it would look like and then make sure you have the right methodology to test your hypothesis and the consumer reaction.”