What’s the strategy? Series: Word from the top of Canada’s biggest CPG players – Nestlé’s innovation renovation

Bob Leonidas dips a spoon into a bowl of Purina Beneful dog food, lifts it to his lips and unhesitatingly swallows a mouthful, then offers a taste to said reporter, who politely declines.

Bob Leonidas dips a spoon into a bowl of Purina Beneful dog food, lifts it to his lips and unhesitatingly swallows a mouthful, then offers a taste to said reporter, who politely declines.

‘It’s fantastic,’ says the president/CEO of Nestlé Canada, pointing out the healthy ingredients – veggies, meat and rice – clearly visible in the chow. He also stresses the packaging – a plastic bowl with a lid that is easily snapped on and off. ‘Here we’re taking canned dog food and putting it in a [format] that’s unique and you can just take it and put in on the floor.’

Interestingly, this pooch product reflects the type of fare that global giant Nestlé is serving up for human consumption as well. Leonidas, who has been with Nestlé Canada for the past 22 years and took the reins of the company last March, notes there is a trio of trends driving the Toronto-based CPG firm’s business for the future – health and wellness, convenience and portability, and taste, the latter being ‘always at the forefront.’

To deliver on these consumer needs, Nestlé, which has a vast array of brands in categories ranging from water to pet food and confectionery, has implemented what its leader calls an ‘innovation renovation’ strategy. (More on that later.)

He adds: ‘We’re an evolutionary company, not a revolutionary company. We don’t come out with big statements saying we’re going to do this or that. But if you look at our annual report, you will see good, steady growth. In the food business, I think it’s the right strategy.’

Integral to the process of ‘innovation renovation’ is a thorough research procedure. Nestlé Canada has put into place an ‘expert panel’ of eight that visits HQ every two weeks to rate the goods.

The participants, who have been involved in the program for three years (it was first introduced in 2001), have an affinity for the culinary and have been trained for their task, not unlike wine experts. They sit in a booth and are passed dishes through a window, where they examine the product under infrared lights, judging it for appearance before moving on to aroma and taste. Their results are then tabulated. Leonidas believes the research panel is unique to the Canadian marketplace, both in terms of its scale and interaction.

He adds that the Canadian division, which has 4,300 employees, 27 locations and 11 factories, also takes advantage of its Swiss parent Nestlé S.A.’s product technology centres, of which there are six. ‘You can ask them to develop ideas, and [there is also a] research institute in Switzerland,’ he notes. ‘We spend well over $1 billion on research globally, which is huge in food.’

Nestlé’s carefully crafted strategy for growth appears to be working. According to its 2005 annual report, Nestlé S.A. experienced 6% organic, and 4% real internal growth, which measures like-for-like volume growth.

Here in Canada, things appear equally buoyant. ACNielsen data, for the 52 weeks ended March 18, 2006, indicates Nestlé’s market share was up 11% from the previous year, making it the fastest-growing CPG company in the country, in a category that is holding steady at between 1% and 3% growth.

Strategy sat down for a Nestlé-brand-filled lunch with Leonidas, to find out what’s feeding his company’s steady climb upwards.

Can you explain how innovation renovation works?

We’re constantly working on our products to make sure that we’re delivering taste, better health and wellness, or portability.

For example, we’re the first to launch 50% less fat, 33% less calories ice cream. Another product is Lean Cuisine Spa, which has got us into whole wheat pasta – a fact highlighted at the back of the package. It says: ‘Good to know: Whole wheat products such as whole grain pasta contain more fibre than refined white grain products. Aim for at least three servings every day – this product provides one serving of whole grain.’

With Nesquik, we’re now offering one-third less sugar. People can have chocolate milk, all the same great taste, but it’s better for you.

When you look at portability, we have Nestea sticks. We just launched them in April and we can’t keep up with demand. People can keep these sticks in their pockets, in their desks, and they can take their [bottled] water and now make it a flavoured occasion. Historically Nestea was sold in a large canister in a grocery store. It’s an example of what I call reformatting [that occurs] with a little bit of marketing thinking, and some unique research techniques.

Have Nestea sticks enabled you to move the brand outside of its traditional aisle?

Absolutely. Two days ago, I was in Montreal at a Metro, Super C and IGA store. You see secondary displays now in the water section. Also, a lot of stores have ready-to-eat sections, where you can buy a deli sandwich or dessert, and now they have Nestea sticks there to go with your water. So, we also have it in third locations within stores.

How much of your marketing spend is non-traditional?

We try to highlight where appropriate [on packaging] what the nutritional message is, whether it be peanut-free on chocolate bars, or a fibre message. Those things wouldn’t have occurred 10 years ago.

For several years now, we’ve been going through a media neutral planning process. Our main [goal] is to develop a relationship with the consumer, and that can take many forms – TV, print, Internet, text messaging.

Within my stable of brands, I have everything from infant nutrition – which is a one-to-one relationship with a mother through direct mail or Internet – to ice cream, which has extremely high household penetration. So we use more mass media, like television. Then we have things like the Cat Club online, for Friskies and Whiskas. In our confectionery area, where there are more teenagers, we’re working more online and in-store, because it’s a much more impulse-driven purchase.

Can you expand on your efforts in-store?

We work very heavily in plannogramming, making sure our brands are hitting the sweet spot in the section, eye to thigh level. The second thing is that many of our brands favour themselves to secondary locations – Nestea with water, chocolate bars in the meals-to-go section. The third area we’re working on with major partners is how to bring traffic into aisles. As an example, the ice cream section is a cold place to be physically and visually. Is there a way to warm that aisle up? We have a lot of projects to generate more traffic, so retailers can increase the size of the shopping basket, such as in-store signage on coolers, headers and information on the floor.

How do you measure the components?

There are only two things that matter – market share as audited by ACNielsen, and sales. Don’t let anyone fool you that it’s a bunch of other soft measures. If my market share or sales aren’t going up, I have a problem in marketing or sales, and we just circle right back and say: ‘Fix it.’

Marketing people have all these great ideas about how you can measure, and sure we do brand tracking studies, we measure awareness, trial, brand attributes, and we track all our big brands. And everyone gives me the great stories about how brand health is improving and this and that. But if our sales are going down, you have a short life. Next point.

Can you expand on your research methods?

We use everything from focus groups, to in-home use tests, to mall intercepts, to talking to élite athletes before a race to get information on how PowerBar is performing or not performing, to the type of panel you saw here. We also go into consumers’ homes. The real action comes from turning that into knowledge, which can give you insights to gain a competitive advantage that you can use in that product.

Where has that happened?

The Aero chocolate bar is a wonderful example. It was a number six bar in Canada, and it has been a little bit of a sleeping giant. We did a ton of different types of research, and we were able to [identify] what was most important to the female consumer, which was the melting of the bubbles and the sensation that occurs in the mouth. We turned it into what we call an ‘ownable brand idea’ of melting bubbles and the tagline: ‘Have you felt the bubbles melt?’ We were able to relaunch the brand and see the share grow to number three in Canada. That’s a great example of making an old brand new again, through the use of unique

research techniques.

How does Canada fit into the global Nestlé landscape, and how much influence do you have in overall strategy?

At the end of the day, Nestlé Canada plays an extremely important role in the Nestlé world. We are a very big market, relative to total Nestlé – we’re in the top 12. We are a net exporter of talent and ideas; however we’re not afraid to import ideas.

Canada is a very innovative market, and there are many examples. Aero Caramel and Nesquik one-third less sugar are going to be picked up in other markets, as are Nestea sticks and Stouffer’s Bistro. But we also steal with pride and it comes back to Nestlé being multicultural, multinational and multiproduct.

With so many brands, how do you foster collaboration across the groups?

It’s a pretty simple structure. We have eight operating companies. We have back-of-the-house synergies – payroll, taxation, treasury. At the front of the house, the stuff the consumer sees, we’re quite decentralized and the companies operate independently. That gives us great nimbleness, flexibility and a chance to react to competition, because a lot of our competitors are really focused in terms of one category.

Do we work together? Well, there’s a package right here for Stouffer’s that contains an image of Nestea sticks. We have another one with an image of a San Pellegrino bottle on the back. We put coupons for ice cream, for example, in our confectionery products. And it’s not just a question of on-package promos, it might also be sampling opportunities at events, such as PowerBar and Nestlé Pure Life water together at marathons. It has to make business sense and have a good ROI.

How do you rally the troops?

I do a ton of factory visits and town hall sessions. You have to get out and talk to employees, tell them the good and the bad. Every month I send a short note out to employees, telling them how we did for the month – what’s hot and what’s not, and where we need to focus as a team. I’ve had great reaction to them, from people who weren’t aware, but more importantly, people say: ‘Bob I can help. Here’s what I want to do.’

Do you operate in multifunctional teams?

Yes, and we have no walls in the building. Even I live in a Dilbert cubicle. I’ll give you an example of how we work. Nescafé is Canada’s number one coffee, and we have a 62% market share. We’re totally relaunching this brand right now, with a brand new jar, a brand new label and a brand new source of manufacturing to transform how instant coffee is done.

How did we do this? We put together a multifunctional team that was made up of supply chain, marketers, package designers, consumer communications, corporate affairs, and sales people. They have been working on this project for over two years, and we just launched it with [popular HGTV handyman] Mike Holmes as a spokesperson. This is a great example of a multifunctional team coming together – because we want a 90 share – as well as defining the business problem and working through the solution.

More and more coffee’s about one cup, whether it be one cup at Starbucks or Tim Hortons. Nescafe’s about one cup, and there’s a wonderful opportunity for a really good quality product because, historically, instant coffee has not been that great. This is really what I call a transformational play and we’re extremely excited about it.

How do you decide when to adapt a global strategy versus come up with a local approach?

If something is selling really well, why wouldn’t I adapt it? If we see the Spa Cuisine launch in the U.S., and bang, it takes off, I don’t think we should wait too long to launch it in Canada. In terms of how we develop things here, when we look at our network and we [see] a unique Canadian consumer need, then we have to put our team here into action to grab more information and develop unique ideas.

From a marketing perspective – how do you decide when to adapt a campaign?

Those decisions are made by individual divisional presidents, and frankly they’re pretty practical. On the Lean Cuisine Spa, we used U.S. advertising because it had great research results – why wouldn’t you take it?

With Nesquik, it would be easy to adopt the US. advertising, but we’re on the ‘one-third less sugar’ and ‘vitamin enriched’ strategy – and we’re pushing that. They’re not pushing that yet. So you have to assess the business situation you’re in, what the consumer is demanding, what choice they want, what kind of nutrition they’re after, and then make a good judgment, based on research and then on results.

How do you view the role of advertising at Nestlé?

Advertising is there to help us sell more products. Different brands have different motivation – whether the bubbles on Aero, 50% less fat on ice cream or rich taste on coffee. There are usually product attributes and emotional ones, and you’re usually working on a combination of those two, but you might balance it differently depending on the category. Confectionery for years was ‘humour.’ We brought it back to product attributes – we talked about bubbles – with humour, and that’s really changed our business.

You want to stand out and be unique, but at the end of day we are selling food, and it has to have appetite appeal.