the convenience index: scoring how new winners make old
TRANSCRIPT
The Convenience Index: Scoring How New Winners Make Old Mistakes
Jon Melnick, Ph.D.
Senior Analyst
Consumer of the Future
May 11th, 2016
Agenda
The increasing demand for consumer convenience
The Convenience Index helps to understand winners
Using the Convenience Index in new product development
2
This transition was “The Greatest” in consumer innovation……and it was all about convenience
Basic Greatest Uncrustable
5
How did we get sliced bread?
1916-1928 Rohwedder developed slicing machine
Needed to solve for two problems: staleness and sloppiness
First tried pins, then moved to wax paper
1928 sold first machine to Chillicothe Baking Company
Sold to Rohwedder’s friend Frank Bench who was going bankrupt
Produced commercial sliced under name Kleen Maid
Sales grew 2,000% in two weeks
Continental baking owned Wonderbread,
Learned of growth of Kleen Maid
Wonderbread first pre-sliced national bread
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Otto Frederick Rohwedder
The rise of Uncrustables
What is an Uncrustable?
Frozen sandwiches, thawed and eaten
Seven varieties, mostly PB&J
How quickly is it growing?
16 consecutive quarters of double-digit volume growth
Smuckers produces >1 million sandwiches/day ($200 to $300 million/year) and building a new production line to increase volume.
Uncrustables are more expensive too:
Uncrustable $0.60 to $1
PB&J ~$0.45: [bread ($0.10 x 2) + Jelly ($0.15) + Peanut butter ($0.10)]
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Agenda
The increasing demand for consumer convenience
The Convenience Index helps to understand winners
Using the Convenience Index in new product development
9
7 types of
lean
manufacturing waste
s
Buy 3 items
Store 2 items in fridge, 1 on shelf
Ready to eat upon prep
Combine and spread ingredients
Cut off crusts?
3 spoilable ingredients
Different
Uncrustables vs. PB&J, tale of the convenience tape
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7 types of
lean
manufacturing waste
s
Buy and bring home 1 item
Store 1 item in freezer
Requires thawing 0.5 to 1 h
No preparation
No preparation; no crusts
Thawed per use, minimized spoilage
Uniform
Consumer convenience has seven axes
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7 types of lean manufacturing wastes
(muda)
Transportation
Inventory
Waiting
Motion
Over-preparation
Over-production
Defects
7 types of
lean
manufacturing waste
s
Buy and bring home 1 item
Store 1 item in freezer
Requires thawing 0.5 to 1 h
No preparation
No preparation; no crusts
Thawed per use, minimized spoilage
Uniform
The Convenience Index is a framework to determine product convenience to the consumer
13
7 types of lean manufacturing wastes
(muda)
Transportation
Inventory
Waiting
Motion
Over-preparation
Over-production
Defects
Convenience Index
Transportation
Inventory
Waiting
Motion
Over-preparation
Over-production
Defects
Bars and yogurts are seeing rapid growth
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$0
$100
$200
$300
$400
$500
$600
$700
1990 1995 2000 2005 2010 2015 2020
Sales (in millions)
Year
CLIF
KIND
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
0
1000
2000
3000
4000
5000
1970 1980 1990 2000 2010 2020
Per capita Yogurt
Consumption (lbs/person)
Total U.S. Yogurt Production
(in million lbs)
Year
Yogurt Production 1991-2003 Yogurt Production 2004-2015
Per capita Yogurt Consumption
Bars
Yogurt
Cereals are getting crushed
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$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
-6%
-4%
-2%
0%
2%
4%
6%
8%
Cereal/morning foods revenue
(millions) Growth Rate (%)
Year
Cereal/Morning Food Net Revenue (Millions) Percent Change
Cereals have given us a good excuse to laugh at Millennials, but they’re right
“Almost 40 percent of the millennials surveyed by Mintel for its 2015 report said cereal was an inconvenient breakfast choice because they had to clean up after eating it”
“Cereal, a Taste of Nostalgia, Looks for Its Next Chapter” NY Times February 2016
Given the strength of US cereal over 2015, we would expect our US cereal to grow a couple of percent in 2016
Kellogg’s chairman and CEO John Bryant
“Put fun back on the box with Avengers and Disney Frozen themed cereals”
“Fun additions” Smorz and Disney Dory themed
“Improved the fundamentals…..in-store execution has been significantly better”
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Yogurt and bars crush cereal on convenience and it is not just about cleaning up bowls
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Convenience Index
Transportation
Inventory
Waiting
Motion
Over-preparation
Over-production
Defects
7 types of
lean
manufacturing waste
s
Buy and bring home 1 item
Single servings; only 1 ingredient
Eat on the go
No preparation or dishes
No preparation
Single serve; no over buying or serving
No spilling
The Convenience Index demonstrates the causes behind consumer disruption
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7 types of lean manufacturing wastes
(muda)
Transportation
Inventory
Waiting
Motion
Over-preparation
Over-production
Defects
Convenience Index
Transportation
Inventory
Waiting
Motion
Over-preparation
Over-production
Defects
Casper mattresses offer little choice and have grown to nearly $100 million in less than 2 years
What is a Casper mattress?
One type of mattress (made of dunlop latex foam, memory foam, and polyurethane support foam) in six sizes
Online ordered and arrives via standard shipping; unfolds within a few minutes and has a 100 day free return policy.
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$0
$20
$40
$60
$80
$100
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Revenue (millions)
Months since founding
Casper total revenue by month
$1 million/ 1 month $20 million/
9 months
$95 million/ 21 months
2015 growth 275%
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Convenience Index
Transportation
Inventory
Waiting
Motion
Over-preparation
Over-production
Defects
7 types of
lean
manufacturing waste
s
Standard shipping
Tie
No waiting for delivery or in showroom
No going to store, laying on samples
Doesn’t require frame or boxspring
Free returns within 100 days
Sample bed at home in real conditions
Casper goes 6-0-1 against traditional mattress buying
The Convenience Index demonstrates the causes behind consumer disruption
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7 types of lean manufacturing wastes
(muda)
Transportation
Inventory
Waiting
Motion
Over-preparation
Over-production
Defects
Convenience Index
Transportation
Inventory
Waiting
Motion
Over-preparation
Over-production
Defects
Discovery boxes like Ipsy and Birchbox drive convenience of choice
Subscription boxes
Convenience Discovery
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Same product delivered on a regular schedule
Amazon family diaper subscriptions
Dollar shave club
Trial sizes of new products shipped on a regular schedule
For dozens of products: Make-up, jewelry and accessories, Snack food, Gaming/ comics, Booze, etc.
What is Birchbox and Ipsy?
For $10/month, get shipped 5 sample size cosmetics for $10/month; plans based on initial choices
How quickly is it growing?
Ipsy founded in 2011 $150 million revenue in 2015
Birchbox founded in 2010 revenue $125 million in 2014
Subscription box growth
400 to 600 companies in the U.S.
Cratejoy to help people set-up subscription boxes.
The exponential inconvenience of modern choice
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Consumer
House
• Energy
• Structure
• Decor
Health
• Insurance
• Provider
• Data
IT
• WiFi
• Mobile
• Entertainment
Consumer goods
• Food
• Clothing
• Etc.
Number of products in a supermarket
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Convenience Index
Transportation
Inventory
Waiting
Motion
Over-preparation
Over-production
Defects
7 types of
lean
manufacturing waste
s
Tie
Trial size, minimal storage
No finding/evaluating new items
No searching
No need for returns
No commitments to large bottle
Wrong product carries low risk
Birchbox and Ipsy win hands down against traditional online shopping, going 6-0-1
Agenda
The increasing demand for consumer convenience
The Convenience Index helps to understand winners
Using the Convenience Index in new product development
28
If the smartphone is the new sliced bread, are wearables the Uncrustable?
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Basic Greatest Uncrustable
Wearables build on existing smart phone uses
Dozens of uses of mobile devices and wearable developers extend these uses
Direct communication
News/weather
Social media
Gaming
Entertainment
Health management
Health
165,000 health apps
58% of people have a health app
Range from logging, to advise, to sensing
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Skype on Android Wear Hicon Bangle
Cicret Peregrine Fove
QardioCore Qardio
Convenience Index
The Convenience Index plays different roles depending on the stage of NPD
Discovery Scoping Build
Business case Development
Testing and Validation
Full launch
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Ideation- understanding the gold standard
Testing ideas- competitive assessment
Partner selection- rapid screening
7 types of
lean
manufacturing waste
s
Worn continuously on wrist
Maintain additional app
Sun alerts on phone in real-time
Need to take off in water
Bluetooth data transmission
Needs an additional device
Does not include sunscreen
Understanding the gold standard: L’Oreal wants to develop a UV sensor for skin health
33
7 types of
lean
manufacturing waste
s
Buy and bring home 1 item
Store 1 item in freezer
Requires thawing 0.5 to 1 h
No preparation
No preparation; no crusts
Thawed per use, minimized spoilage
Uniform
Neatmo June
Transportation
Inventory
Waiting
Motion
Over-processing
Over-production
Defects
7 types of
lean
manufacturing waste
s
Worn continuously on wrist
Maintain additional app
Sun alerts on phone in real-time
Need to take off in water
Bluetooth data transmission
Needs an additional device
Does not include sunscreen
Competitive assessment: L’Oreal wants to develop a UV sensor for skin health
34
7 types of
lean
manufacturing waste
s
Buy and bring home 1 item
Store 1 item in freezer
Requires thawing 0.5 to 1 h
No preparation
No preparation; no crusts
Thawed per use, minimized spoilage
Uniform
Transportation
Inventory
Waiting
Motion
Over-processing
Over-production
Defects
Neatmo June L’Oreal My UV patch
What is it? Skin patch worn for up to 5 days uses photosensitive dye to evaluate sun exposure. Communicates with phone via uploading photo of patch or with NFC.
7 types of
lean
manufacturing waste
s
Worn continuously on wrist
Maintain additional app
Sun alerts on phone in real-time
Need to take off in water
Bluetooth data transmission
Needs an additional device
Does not include sunscreen
Competitive assessment: L’Oreal wants to develop a UV sensor for skin health
35
7 types of
lean
manufacturing waste
s
Worn continuously, but not fragile
Maintain replaceable tags and app
Requires checking on phone
Safe in water
Camera or NFC
Need many patches
Better accuracy
Transportation
Inventory
Waiting
Motion
Over-processing
Over-production
Defects
Neatmo June L’Oreal My UV patch
7 types of
lean
manufacturing waste
s
Worn continuously on wrist
Maintain additional app
Sun alerts on phone in real-time
Need to take off in water
Bluetooth data transmission
Needs an additional device
Does not include sunscreen
Partner screening: L’Oreal wants to develop a UV sensor for skin health
36
7 types of
lean
manufacturing waste
s
Worn continuously, but not fragile
Maintain replaceable tags and app
Requires checking on phone
Safe in water
Camera or NFC
Need many patches
Better accuracy
Transportation
Inventory
Waiting
Motion
Over-processing
Over-production
Defects
Neatmo June L’Oreal My UV patch
Where are these “almost-greatest” innovations on the Uncrustables scale of getting disrupted?
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Basic Greatest Uncrustable
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Takeaways
Consumers make logical convenience choices, meaning structured thinking beyond anecdotal focus groups can be used
The consumer of the future will start to naturally adopt efficient supply chain practices when available…..and pay more for them
What other industrial processes might be considered? Inventory control?
On demand ordering? Predictive consumption analytics?
There is definitely a limit on how much someone can talk about PB&J and have it still be interesting
38
When the two greatest consumer inventions collide, you need a new scale of convenience
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Basic Greatest Uncrustable
Basic Greatest Uncrustable
Basic Greatest Uncrustable
Basic Greatest Uncrustable
Basic Greatest Uncrustable
Basic Greatest Uncrustable
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Basic Greatest Uncrustable Basic Greatest Uncrustable
Basic Greatest Uncrustable
Basic Greatest Uncrustable
Basic Greatest Uncrustable
Basic Greatest Uncrustable Selfie-toast
Lux Research Inc. 100 Franklin Street, 8th Floor Boston, MA 02110 USA Phone: +1 617 502 5300 Fax: +1 617 502 5301 www.luxresearchinc.com
Thank you
Jon Melnick, Ph.D. Senior Analyst [email protected] +1 617 502 5324