DESTINATION: TRANSFORMATION

New product success is measured by much more than first-year sales. To be truly successful in today's consumer packaged goods marketplace, a new product needs to be transformational, meaning it creates a new category that addresses an important consumer need.To be sure, sales must be large. But what's just as important is whether those sales are incremental and sustainable, according to Valerie Skala

New product success is measured by much more than first-year sales. To be truly successful in today's consumer packaged goods marketplace, a new product needs to be transformational, meaning it creates a new category that addresses an important consumer need.

To be sure, sales must be large. But what's just as important is whether those sales are incremental and sustainable, according to Valerie Skala Walker, vice president, analytic product management, Information Resources Inc., Chicago.

"A new product can't just cannibalize sales," Skala Walker said in a presentation at last month's Food Marketing Institute Show in Chicago. "It needs to grow the category."

This could be difficult at a time when tens of thousands of new products are introduced each year. Last year, for instance, 33,678 new CPG products were launched, a 6% increase from 2002. Of these, most will fail.

Even those that don't fail are in for a tough time. Of all the new CPG products introduced in more than 280 categories between February 2002 and January 2003, just 223 qualified as "pacesetters," meaning they achieved $7.5 million in first-year sales in the food, drug and mass retail channels. And just 22 were "mega-hits," generating at least $50 million, according to IRI.

"There's a lot of competition, but few big hits," Skala Walker noted.

To become a hit, a new product must address a strong consumer need, such as convenience or health and wellness. Packaged salad is a perfect example of a transformational product because it created an entirely new convenience category, said Skala Walker. Among others: Olay Daily Facials, a product that brought a luxury item -- facials -- to the masses; soy milk; and restaurant-to-retail brands, like Starbucks coffee and Krispy Kreme doughnuts.

"Addressing certain consumer needs has resulted in true transformation in various CPG categories," Skala Walker said.

While it's critical to cater to consumers, it's just as necessary to ring up sales. To be truly transformational, a new product needs to have first-year sales of more than $50 million. Plus, those sales need to be incremental and sustainable. Packaged salad has done just that and more, generating $3.3 billion in sales in 2003, up from $1.2 billion in 1998, according to IRI.

"Products may be huge in year one, then drop off dramatically in the second year," Skala Walker pointed out.

Kraft Foods, Northfield, Ill., employs a number of measures to help ensure that new product sales are strong now and in the future. First and foremost, it puts the consumer at the center of everything it does.

"Since we talk to consumers all the time, we know that food today must be in sync with their lifestyles," said Alyssa Burns, company spokeswoman, Kraft. "[Kraft's] product development focuses on fulfilling true consumer needs."

Kraft delivers what consumers want, whether it takes the form of specialty products, or more offerings in health and wellness or convenience, Burns said.

According to Burns, Kraft leads its peer group in the number of new products launched, as well as absolute new product revenue. Kraft estimates that its new product success rate is around 50%, among the highest in the industry.

Kraft is currently focusing on introducing products that leverage the emerging health and wellness trend, according to Brian Driscoll, senior vice president, U.S. sales and customer service. These include its Carb Well line of barbecue sauce and salad dressings for people who are counting carbs; Nabisco 100 Calorie Packs, pre-portioned snacks that contain 100 calories, 2 to 3 grams of fat and 0 grams of trans fat. Selections in the line include Oreo Thin Crisps, Chips Ahoy!, Kraft Cheese Nips Thin Crisps and What Thins Minis. There's also Kool-Aid Jammers 10, a beverage for kids with only 10 calories per serving.

"We'll be introducing more health and wellness products as the year unfolds," Driscoll told SN.

Health and wellness is also the focus of new products from General Mills, Minneapolis. The company has begun using the "Carb Monitor" sub-brand to designate products that are lower in carbs. Items that carry the moniker include Hamburger Helper, Betty Crocker baking mixes, Pillsbury frozen dinner rolls, Betty Crocker Roasted Garlic Mashed Potatoes and Progresso ready-to-serve soups.

The company says its goal is to improve on the taste of low-carb products. Its new Yoplait Ultra, for instance, is said to have the same taste as regular Yoplait, but with 70% fewer carbs and sugar than regular low-fat yogurt.

"We know that many consumers, especially women, are looking for products that are easy to enjoy without compromising on taste," said Kirsten Aune, marketing manager, General Mills.

Along with food, there's a lot of room in the CPG market for new beverages, specifically low- and no-calorie options, said Skala Walker of IRI.

Both Coca-Cola Co. and Pepsi-Cola Co. have tapped into this area by launching a new category of "mid-calorie" soft drinks: Pepsi Edge and Coca-Cola C2.

Pepsi Edge is described as a full-flavored cola with 50% less sugar, carbohydrates and calories than regular colas. The brand is made from a blend of Splenda (sucralose) and high fructose corn syrup.

"The time is right, the proposition is strong and everyone we've talked to is ready for this idea," said Dave Burwick, senior vice president, chief marketing officer, Pepsi-Cola North America, Purchase, N.Y.

According to Pepsi, about 60 million consumers drink both regular and diet soft drinks. In the past two years, the number of "dual users" has grown 75%.

Like Pepsi Edge, Coca-Cola C2 will contain half the sugar, carbohydrates and calories of regular colas. Company executives say C2 is bound to meet consumer needs. "Consumers are the true architects of this idea," Doug Daft, chairman and chief executive officer, Coca-Cola, said in a statement. "Coca-Cola C2 was created to specifically address their desire for a lower-calorie cola with that great Coca-Cola taste."

BRAND TRANSFORMATION

To qualify as a category transformer, a new product must generate incremental sales

Top food and beverage brands converted sales to category growth

BRAND: % of volume converted to category growth

Vanilla Coke: 33%

Krispy Kreme doughnuts: 100%

Sara Lee bread/rolls: 4%

Michelob Ultra: 26%

Berry Burst Cheerios cereal: 0%

Oreo Double Delight cookies: 0%

Yellow Tail imported wine: 41%

Bacardi Silver malternative: 91%

Gatorade Ice sports drink: 100%

Dannon Light N Fit Creamy: 74%

Splenda: 42%

Source: IRI, based on comparison of new product sales in food, drug and mass, vs. category growth for the calendar in which each brand was introduced

BRAND REVOLUTIONS

Sales of transformational products are sustainable over the years

LEADING TRANSFORMATION PRODUCTS

Packaged Salad

1998: $1.2 billion

2003: $3.3 billion

Soy Milk

1999: $29 million

2003: $308 million

Restaurant-to-Retail Foods (Starbucks, Krispy Kreme, etc)

1999: $126 million

2003: $634 million

Source: IRI