delivering more breakthrough products final

www.kalypso.com

Delivering More Breakthrough Products

from R&D in Food & BeverageGeorge Young, Kalypso

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Agenda

• The Innovation Engine

• A Survey of Breakthrough Products in the Industry

• How Do You Develop Breakthroughs?

• 7 Practices for Cultivating Breakthroughs1. Articulate an Innovation Strategy

2. Keep the Front End Fuzzy

3. Understand Macrotrends

4. Create the Right Innovation Culture/Climate

5. Create Unique Environments for Innovation

6. Manage Portfolio and Investment Allocation for Breakthrough Products

7. Process and IT Are a Must But Won’t Make You More Innovative

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3www.kalypso.com04/07/2023

The Innovation Engine

Our services are designed to help companies become more innovative and provide a systemic view of new product & service development.

Business & Innovation Strategy

PLM Technology

Leadership & Learning

Intellectual Property Management

Front EndOf Innovation

Portfolio & PipelineManagement

New Product Development

Execution

Pricing and ValueManagement

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Agenda











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5Source: IRI New Product Profiler

<$7.5 $7.5-$10 $10-$20 $20-$50 $50-100 $100+0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

78.0%

3.0%

8.0% 9.0%

2.0%0.3%

Food & Beverage

Non-Foods

% o

f pro

duct

laun

ches

in e

ach

laun

ch fr

ame

2005

-201

0Breakthrough products in F&B are

rare

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NPD effort in F&B is declining while CPG is increasing

2005 2006 2007 2008 2009 20100

100

200

300

400

500

600

700

800

900

1000

931903 916

859

659 647

821 796833

963 949 957

Food & Beverage

# o

f N

ew

Pro

du

ct

La

un

ch

es

by C

PG

Co

mp

an

ies

Other CPG Companies

• Non-food CPG efforts are increasing• CPG conglomerates have been divesting F&B units

Source: IRI New Product Profiler

04/07/2023

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Kraft South Beach

Dreyer's/Edy's Slow Churned Ice Cream

Campbell's Select Harvest

POWERADE ION4

Slim-Fast Optima

Gatorade G2

Chobani Greek Yogurt

Breyer's Double Churned Ice Cream

Bud Light Lime

Dannon Activia Yogurt with Probiotics

$0 $50 $100 $150 $200 $250

$231.0

$229.0

$201.8

$190.5

$166.0

$159.0

$149.4

$135.0

$132.6

$128.0

Launch year revenues in millions of dollars

Top

Ten

F&B

Lau

nche

s (2

005–

2010

)


Top 10 F&B Product Launches (2005–2010)

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Kraft South Beach

Campbell's Select Harvest

Slim-Fast Optima

Chobani Greek Yogurt

Bud Light Lime

Budweiser Select

Gatorade Rain

Dunkin' Donuts Coffee

Glacéau Vitaminwater Zero

Cherry Vanilla Dr. Pepper

$0 $50 $100 $150 $200 $250

$231.0$229.0

$201.8$190.5

$166.0$159.0

$149.4$135.0$132.6

$128.0$123.0$121.0$120.0

$114.1$112.0$112.0$110.3

$107.0$107.0

$101.0

Launch year revenues in millions of dollars

F&B

Pro

duct

s ov

er $

100M

in R

even

ue


F&B Products over $100M in First Year (2005-2010)

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Agenda


• The State of Innovation in the Industry









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R&D spending is not the answer

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• “No correlation” does not necessarily imply cutting innovation spending

• The bottom 10% of R&D spenders perform worse than the rest• Optimizing current processes should be the focus

Cutting R&D is not the solution

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• ~2% of revenue

• Expected to be flat

R&D Spend

Trade promotion spend vs. R&D spend

www.kalypso.com04/07/2023

• ~20% of revenue• Expected increase of 1-

3% each year• Second only to COGS as

a P&L item

Trade Promotion Spend?

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Breakthrough innovation requires commitment

• In mid-1990’s, Toyota saw environmental factors affecting the automobile industry

• Made a big bet on radical innovation based on environmental factors and market trends

• Assembled on the same production lines as mainstream models like the Camry

• Functional deficiency and timing prevented its initial success in 2000

• In the mid-2000’s, it became “cool” to drive a hybrid

• Bestselling hybrid car in the US – passed 1 million cars in US sales since launch in 2000

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Breakthrough innovation requires commitment

• Highly caffeinated and disruptive drink• “No other new product has ever failed this

convincingly!” – Red Bull market research organization

• Intentionally created a new beverage category and took industry by surprise

• Commercialization strategy key to success - clever marketing and channel management

• Holds 70-90% of the energy drink market share in over 100 countries

• $5+ Billion in revenues annually

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Agenda











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Agenda











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Articulate your innovation strategy simply

“We will deliver 25% revenue growth from new products in the next 5 years. Half of that growth is expected to come from breakthroughs.”

2010 2015

$500 $450

$275

$275

Business Growth GoalExisting Products Acquisitions Innovation

$1,000

Breakthrough

Would you rather be the 1982 St. Louis Cardinals or the 1975 Baltimore Orioles?

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Where will your emphasis be as part of your innovation strategy?

M&A

New business systems

New suppliers

New markets/distribution channels

New plants/expansion

New equipment

New productsNext 12 months

New Product De-velopment

Organic Growth

Mergers & Acquisi-tions

1

3

2

Food & Beverage Growth Strategies 2011

Fast Facts on Food Processing: Growing the business. Grant Thornton and Food Processing magazine, 2011.

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Agenda











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Don’t kill all of your good ideas

• Avoid evaluating projects the way you would with Stage-Gate – keep that at Concept and after

• Develop scoring models and evaluation methods that favor the qualitative over the quantitative– Ex. Wagering: Allocate $ or units and ask people to bet on

projects– Ex. Tournament theory: Set up an NCAA bracket for projects

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Agenda











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Breakthroughs have come from understanding macrotrends

• Health and Wellness – Functional foods• Experiential Eating – Extreme flavors• Impulse and Indulgence – Treat/reward• “Free” – Trans fat, caffeine, gluten...• Convenience/Ready-to-eat – On-the-go lifestyle

Ex. Pepsico investing $50M in expanding nutrition business to triple revenues from $10B in 2010 to $30B by 2020.

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Do we develop breakthrough products for a market or develop products for a breakthrough market?

• Big Players in Asia• Nestle: Sales growth of 12% in Asia in the first half• Unilever: Expects 5 times its current business in China• Kraft Foods: Double-digit growth in Asia in 2010• PepsiCo: 17% volume growth in India from April-June• Coca-Cola: Profits jump 18% in Asia and Latin America

• Products imported from Asia into western markets• Beer: Sapporo, Kirin, Asahi, Hite, Cass• Ramen: Ichiban Ramen, Shin• Tea: Lupicia Fresh Tea• Prepared: Wanchai Frozen Chinese Food

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Agenda











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Breakthrough products may require a fundamental change in culture

• Does the structure permit the right people to work together?

• Do we have the right people in critical roles? Do we have enough people?

• Are people rewarded for results and do we learn from failure?

• Are timely, informed decisions made?

• Is relevant data readily available to make decisions?

• Are the work processes efficient and clearly defined?

Structure People

Decision Making

RewardsDecision Making

WorkProcesses

Adapted from David Hanna, Operational Performance Model 1988

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Agenda











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P&G Innovation Initiative: GYM

What• An offsite innovation center and collaboration space built to immerse P&G

team members in the innovation process Goals• Strengthen innovation and initiative work where teams develop just-in-time

expert solutions to their challengesWhat Worked• Active working session to address specific issues and challenges• Operating GYM as a business• Client-centric focus• An environment conducive to innovationSuccesses• Crest Vivid White Night• Olay Ribbons Body Wash

P&G also created an alternative innovation structure called The Garage which was “sanctioned skunk works”

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Agenda



• How Do You Develop Breakthroughs?– Look for Historic Metrics/Trends

– Look for Practices that Led to Breakthroughs







7. Process and IT Are a Must But Won’t Make You More Innovative04/07/2023 28

29www.kalypso.com04/07/2023

Manage portfolio and investment allocation for breakthrough products

Support40%

Ex-ten-sions35%

New Plat-

forms20%

5%

Average Company Example Product Mix

Support35%

Extensions25%

New Plat-

forms25%

15%

Innovative Company Example Product Mix

Breakthroughs

Breakthroughs

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Agenda



• How Do You Develop Breakthroughs?– Look for Historic Metrics/Trends

– Look for Practices that Led to Breakthroughs







7. Process and IT Are a Must But Won’t Make You More Innovative04/07/2023 30

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Innovation Capability Framework

Innovation Strategy

Fuzzy Front End

Business Strategy

Innovation Leadership

Consumer& Customer

Insights

Brand

Technology

NPD Portfolio ManagementIn-market Portfolio

Management

Idea Concept Portfolio

Management

Launch Manageme

nt

Product Lifecycle Management

New Product Development & Commercialization

Results Analysis

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Closing Thoughts

Breakthrough innovation requires commitment, strategy, investment, resources

Evaluate trade spend vs. R&D spend

Look to macrotrends and new markets

Fail fast, often and well

Conduct strategic experiments

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delivering more breakthrough products final

Documents

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develop breakthroughs

cultivating

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