Posted on 06-11-2011
Filed Under (BUSINESS) by Shombit

From Discomfort Zone column by Shombit Sengupta in Financial Express and Indian Express

Once upon a time a hundred years ago, the wealthy developed a craze to cross the Atlantic in the lap of luxury. Boarding RMS Titanic, the world’s first most luxurious, avant garde first-class ocean-liner sailing from Britain’s Southampton to New York, they were not going on a cruise, but just displaying affluence. Publicized as invincible against natural calamities and piloting mistakes, Titanic was tom-tommed as unsinkable. Yet the way crew members disused their every moment operating discipline (EMOD) took passengers to a watery grave. If vigilance with binoculars was delayed due to not finding them easily, it seemed like rat-like negligence in the ship’s elephantine preparations. Overconfidence was so high that for 2229 passengers just 20 lifeboats were provided, which saved 710 lives only when suddenly mid-Atlantic mid-April 1912, Titanic hit an iceberg. As per the ship’s size and much touted fantastic engineering, it was inconceivable that an iceberg hit could sink it. In sum, being high-tech, gigantic, accident-proof, pilot-mistake-proof and offering overwhelming experience all went for a toss for lack of 360-degree foresight, poor contingency planning and cocksure arrogance.

This is the Titanic fissure. It can happen in your business too at any time, irrespective of size. Unless you are alert, any size of hole in your enterprise ship can destabilize it. Growth mantra in business can have Titanic fissure symptoms resulting in inevitable disaster. Business requires a boundary fence, beyond which lurk these Titanic fissures. In emerging countries, jumping this fence for growth has become a religion. As demand is high, corporate culture fulfils it with vanilla supply. This syndrome of delivering on demand without caring about delivering real difference has seen company bottomlines plummet to 1-3% when global trend in the same industry is 8-10%. What’s the point of making a billion dollars in revenue but minuscule profit? Even a bank fixed deposit gives you 9.25%; when you go for high risk venture capital you can achieve upto 25% or even more.

Indian companies need to concentrate on the inner meaning of perceptible differentiation. If 2 soup makers differ their soup in colour, advertising story or packaging design, is there difference beyond the pictorial? If consumers perceive no functional benefit, tongue enjoyment and health benefit among the competing soups, they’re all similar. Real differentiation comes when extra benefit is provided to improve consumer life. In today’s proliferation of global brands in India, consumers understand this difference. So brands offering no perceptible differentiation cannot charge a premium. With all brands in a category aligned to the basic, the result can only be distressing profitability for the companies.

Let’s take the food category. The critical area to satisfy is uplifting what’s perceptible to consumers. Tongue enjoyment, functional health benefit and perceived differentiation are reasons for consumers to readily pay premium for branded food. Has the food industry debated upon or tried to understand the score or deeper meaning of the consumer’s organoleptics sensation? They merely seem to spotlight on supply chain issues, downscaling production or input cost, contracting temporary labor to shrink cost and creating entertaining Bollywood-style advertising.

Look at how young Indians are changing their food habit with American burgers, pizza and fried chicken. You may say global companies are attracting them with big ad spends. But look objectively at their business model, with less than 10 varieties they’re delivering a totally different taste to Indian food. It’s not the fast-food chain ambience people are returning to, they’re being offered a haunting taste that’s compelling.

With 63 million people, France’s food market is Euro136 billion. Branded food accounts for 30%, 50% is driven by the retail industry’s private labels while 20% comprises unbranded categories. The dominance of private labels reveals how brand companies conceitedly stopped differentiating product delivery since 1980s. They figured brand awareness and advertising will allow them to charge premium. But private labels challenged with equivalent quality and upto 30% lower price. So brands became vulnerable and private labels picked up market share.

The French love food, so do Indians. At least 200 million people in India can afford branded food, which can translate to a $200 billion market tomorrow compared to approximately $7 billion today. But lack of vision and execution capacity of India’s food industry has blocked profitable market growth. Companies need to invest to understand the consumer’s social environment and culture, from tongue enjoyment to health benefit. Only from research can a platform emerge for a food brand that consumers will devour. Marketing can sell the product but cannot design the consumer organoleptics-driven food product proposition. Nor can R&D professionals technically develop it. A lab analysis using the world’s finest chefs who have total knowledge about the consumer’s tongue can define the platform.

Food is a very sensitive category. Upto now, people in India are cooking food or enjoying it in restaurants, taking responsibility for their health. But a food company’s fundamental duty is to take total responsibility of the consumer, from taste to digestion to providing health benefit. A food manufacturer need not grow a diverse product portfolio or jump from one category to another with no core relationship among products. As India’s food market is vast, saturation will take place only after 15-20 years. So food companies have immense possibility to grow in a pre-determined boundary as per their knowhow competence.

I’ve personally experienced the Danone example where the company was growing with 14 highly diversified product categories post acquisitions, but profitability was about 2.5%. In 1993 Danone stopped this vulnerable growth and focused on one category, dairy. Apart from health benefit and digestion, Danone labored to score on taste even in 0% fat products. Such focus has made Danone global No 1 in the dairy category today with about 10% profitability.

A food company should design a limited number of categories that kowtow to the consumer’s tongue preference upto digestion and health benefit, and not get blinkered on the manufacturing backend. The more specialized the company is, the better its chances of making multi-billion dollar revenue and double digit profit.

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