MBA Master Thesis
Developing and Analysing a New Product Development Process for Foodservice Channel in KraftHeinz
Author Rohan Malhotra
Email rohanmalhotra88@gmail.com Submission date 13th August
Supervisor Edward Huizenga
The Amsterdam MBA program 2017-2018
Master of Business Administration Company Project Amsterdam Business School – University of Amsterdam
Executive Summary
The purpose of this paper is to help KraftHeinz devise a specific process for new product development in a systematic manner across its European markets in its Foodservice channel. It currently does not have one in place as it mostly follows the retail product portfolio and there is no consistent process amongst all of its EMEA business units.
The objective is to find a framework that fits into this scope which can be further developed and tweaked to make it as customized for the company as possible. The end result would be a model for new product launches that would have a high success rate within the all European market that products are launched in.
For achieving this objective, literature review has been done to understand the success of new product development and ways in which it can be achieved. The reviews done of literature, journals and business cases are the foundations of this new product development model. These studies were then scanned for common factors of existing models to help achieve the most optimum framework possible for the company. There is also certain quantitative and qualitative research done within the company as well as outside it, to help understand requirements and current set processes of new launches the company is following.
The paper summarizes new product development success factors, metrics that should be used at each stage of the process and certain tools and techniques to help elevate this process. This was done and brought together in a final framework that can be proposed to KraftHeinz to follow for its new product development projects.
Table of Contents
I. Introduction
a) Company & Channel Introduction………...………1
b) Personal Learning & Contribution………...3
c) Research Question & Scope………...………..4
d) Structure of over-all study………5
II. Literature Review a) Overview………..7
b) What is NPD?...7
c) Importance of NPD………..8
d) Stage Gate model………...9
e) Why is innovation necessary?...10
f) Market influences on NPD……….12
g) Why adaption is necessary……….13
III. Framework and Application a) Overview ………..14
b) Current Situation………...15
c) Stage Gate Framework………..17
d) Methods for Front End Stage Gates………..19
e) CAGE Distance Framework……….31
IV. Research Methods and Approach……….38
V. Managerial Recommendations, Conclusions & Limitations a) Recommendations……….………39
b) Limitations………42
c) Conclusion………43
List of Abbreviations used
NPD: New Product Development BU: Business Unit
FOH: Front of House BOH: Back of House
QSR: Quick Service Restaurants FSR: Full Service Restaurants FS: Foodservice
SKU: Stock Keeping Unit KH: KraftHeinz
I. Introduction
a) Company and Foodservice Channel Overview:
The KraftHeinz Company is an American food company formed by the merger of Kraft Foods and Heinz in 2015. Kraftheinz EMEA specifically refers to the regions of Europe, Middle East and Africa. Known originally for the iconic Tomato Ketchup recipe, Kraftheinz also manufactures various other food and beverages across different markets. It’s scope covers but is not limited to sauces, condiments, tomato products, baby food, concentrated syrups, soups and more. It operates primarily in the retail and foodservice channels.
In this paper, emphasis and focus is placed only on the foodservice channel since I was specifically working in said channel to help implement better go to market strategies. Nowadays people are eating outside their home more often then they’re eating at home. Foodservice channel is all about the consumption of food and beverages outside the consumer’s home.
To understand the significance of the foodservice channel we can look at Figure 1 below to see how over the last three decades its share worldwide has been constantly increasing and while it is relatively less in comparison to Retail, it none the less owns a significant chunk of the pie. And its piece is constantly growing so there is of course an immense potential there for companies to increase not only their market shares but also their overall sales volume growth along with revenue growth.
To an outsider, FS channel may seem something that has a limited scope but when you work in the industry or go in depth into its various channels is when you actually realise how big it really is and how much of a potential it actually holds. Figure 2 shows this breakdown of the FS channel perfectly in terms of how it flows down right to the end customer.
Figure 1: Foodservice vs Retail share in total market (worldwide): Technomic 2012,
b) Personal Learnings & Contribution in KH
By the end of this research project I would have finished about 7 months of my internship at KraftHeinz in the Amsterdam office. I was working in the Central European Foodservice Marketing team and my title was that of a Marketing & Innovations intern. What I enjoyed was the fact that I wasn’t given intern like work at all but in fact had a full-fledged role where I managed proper projects. The fact that the FS channel was growing and had so much
opportunity made this possible.
When I joined, there was no data or numbers that were set in place for the Foodservice channel. Essentially, none of the business units across Europe knew they historical sales or their top selling SKUs. It was like they were almost shooting in the dark. Among other things, this was one of the core projects that I worked on where I essentially made metric checks and set benchmarks for all managers across EU to look at while thinking of new projects or to analyse how the existing SKUs had sold so far.
A lot of work I did would involve streamlining processes for all the BUs. Working on projects briefs that would require certain templates sets or marketing collaterals that had to be
presentable across all of EU. I personally feel I was able to definitely set certain things in the right direction, in terms of setting structure.
Another project that I worked on involved the Central Catalogue where I personally worked with our design agency to make sure we had the latest range and product portfolio made available to all our B2B customers across Europe.
I’ve left KraftHeinz after learning so much about the company as well as the industry. An end customer will never be able to realize the amount of hard work and endless coordination that goes into the making of every single bottle of Ketchup (among other sauces!)
The processes and data sets that I have set and left behind will not only be of benefit to multiple teams but will also make everyone understand the necessity of learning and fully utilizing market data and sales data.
c) Research Question and Scope
In today’s time, with the ever growing consumer demands, foodservice professionals are constantly facing challenges to provide quality, innovation and cost efficient products to satisfy consumer needs. This pressure automatically cascades to companies producing these products. An adequate research and strategic planning are of essence before presenting a new product to the customer (Gluck, 2012). In a product launch strategy there are several
important stages involved; development, internal testing, external testing, objective setting, positioning and event timing. (Gluck, 2012).
When we look at foodservice channel itself which is business to business (B2B), we can see that the decision making process is very different from that of business to consumer (B2C). Not only is the customer segment smaller, but the market size itself is small as well.
Everything from the marketing and sales process to the purchasing process is also different. In B2B the decision making can go through many gate keepers, which is unlikely to happen in B2C. (D’Souza, 2012).
The KraftHeinz Company in EMEA has previously had very less focus on its foodservice channel compared to the retail channel. The retail sector has always been predominant in terms of sales, marketing or even backend research and development. However, over the years it has become apparent that due to over saturation in the market, foodservice is the only channel where there is potential for growth as sales in retail sector have become sluggish. In order to further hone this channel; it is essential to come up with specific new products and white space opportunities via constant forecasting and research and development that give the company a clear path for year on year growth.
These trends and strategies will of course vary for every business unit i.e., for the internal country divisions across EU. What works for Germany will not work for Spain or Italy for example. But currently, most of the launch processes are based on existing retail portfolios or go through management decisions that are based on case to case issues only. Essentially, there is no set process of how to develop a new product or a new product portfolio in any of the markets. Hence it is essential to put into place a New Product Development process that can be used consistently and systematically without any trial and error and of course across different markets.
The objective of this thesis to find a framework or model that can best fit into KH.
Hence, this research can also then be broken down into a series of sub-questions which by being answered can then give structure to the over-all scope of the main research question. These sub questions will not only help give direction but also help us understand the process we can follow to get to our end goal at KraftHeinz.
The overreaching research question here is: ‘How can revenue and market data help improve the New Product Development process of KraftHeinz?’
For answering this fundamental question, the thesis will provide a breakdown of the new product development process and a stage gate model which can be adapted to the inner workings at KraftHeinz. We will break down the stage gate model into its various stages and then look at each of those independently but with a lense that caters to specific needs of KraftHeinz.
We will also try to answer the below sub-questions with the help of our frameworks. These questions are actually specific target areas that the Foodservice channel is focussing on for their 2020-2021 initiatives at the moment and hence, to understand the best ways to generate ideas for these would be quite beneficial for KH, as they can also help set the stage for more ideas or trends that can be subsequently looked upon. So, basis market research data as well as trends that the market seems to be developing, below are the three trends that need to be confirmed and analysed for KH:
• Is snacking a segment that is set to grow in Europe?
• Do condiments and cold sauces only sell well in the Plastic bottle format? • Does QSR hold the largest market share in the FS channel in Europe?
d) Structure of over-all study:
There is currently no data in place with Kraftheinz right now to study these trends. The first task will be to collect and organize all the revenue data and volumes sold data from 2013 to 2017 across different core business units. This data will be collated with the help of the finance team and the local business units and will cover Calendar year, Format range,
Volumes sold and Net sales value among other fields. This will be unstructured data that needs to be first edited, formatted and made consistent across.
Once the data is consistent, certain design rules will be set up through which forecasting trends will be worked on. Major areas will be format type, flavours, format size and of course Business unit wise trends. The main attempt here is to find out key areas of growth that are possible and future focus points.
Then there will be data collected via various market research tools available to the company along with information collected via consumer questionnaires which will then be used to validate the analysis from this historical data mentioned above.
Basis this initial collection of data, comparisons will then be made to certain literature review to understand the process and best methods of NPD which will be further used in the
frameworks chosen to see how best to develop strategies for KH. Currently, KraftHeinz is not officially using any specific existing product development and launch process in its FS
II. Literature Review
a. Overview:
In the literature review section, I will begin by explaining the meaning of new product development as is relevant to this thesis. I will then review research done on the different types of Stage Gate models, which is usually the framework used for new product
development by corporations. I then touch upon why innovation is necessary in new product development along with a faster approach or a leaner approach to the whole process.
The literature review will examine what is currently being done in the food industry specific to processed food that KraftHeinz manufactures, the kind of innovation necessary and possible and also a few trends that seem to be developing in the industry. It will more importantly examine the necessity of individual market needs across countries or business units in Europe to understand that one size does not fit all.
I finally conclude the section with explaining the meaning and relevance of the CAGE framework and why it is essential in developing and launching of new products into the market and where precisely it fits into the whole process.
b. What is New Product Development?
A new product development process consists of all the activities that a company carries out in order to develop, manufacture and launch new products. Any new product that is introduced into the market first goes through a number of stages in a particular sequence, beginning with an initial concept of the said product which is then ultimately evaluated, developed and then tested before being launched ( Booz, Allen & Hamilton, 1982). All these steps or activities that are undertaken can be seen as ways of gathering more information about the product so that the management becomes more certain about its subsequent launch into the market.
Griffin (1997) defines new product development as a set of tasks, processes and pre-defined actions that materialize the sales objectives of a company by converting its naturally
development processes, several studies show that NPD productivity is in fact going down (Griffin & Page, 1996; Cooper & Edgett,2008; Barczak et al., 2009)
c. Importance of New Product Development
A study in 2004 by SAP identified four important drivers for NPD:
1. Trends in new product introductions
In most markets and industries, especially relating to consumer products, the number of per annum new product introductions have been increasing. This is all happening due to shorter product life cycles, technology advances and ever increasing consumer demand. All of this just pushes companies to keep launching newer products into the market.
2. Financial Performance
With high rate of new product introductions and very short life cycle of products, companies have become dependent on revenues from these new products to drive their sales up higher each year.
3. Sustainable Growth
New products in the market allow companies to keep growing their revenues and also retain higher margins. This is one way that a company also creates new customers in the market as well. Even if sales are stable, a company needs to be able to cannibalize its existing products or at the very least replace the products that are about to reach the end of their life cycle.
4. Company Value
By investing in new product launches, companies are also investing in themselves. Successful companies have higher stock market values and this is a direct consequence of the new
product development process which is responsible for growth and revenue.
We are now living in an age where every single company is competing to develop new and innovative products in the market and gain greater market share each time. However, as is the case with a lot of companies over the world, a lot of them develop a high number of new products every year. Most of these products tend to fail by not having any competitive advantage and then just end up being another sunk cost for the company (G.Cooper 2001,
1-10). Since new product development is a continuous process it is necessary to have a structured and step by step process that is not only easy to follow but also easy to communicate to all business units internally. (Rantanen, 2013)
A product innovation does not necessarily have to require a change in the physical product itself, all marketing parameters can lead to some actors regarding a product as new (Klaus G. Grunert, etc all, 1995). However, the new product development is actually one of the riskiest processes that require a lot of focus and very high investments. (G. Cooper 2001). In several industries, corporations are using a structured idea to launch a process that helps with success drivers and reduce the risk of product launch fail. (Cooper & Edgett,2012)
A very commonly used structure of NPD is to have a dedicated research and development department but there are several ways to organize this (O’Connor et al.,2006).
d. The Stage gate model
A widely used model for the new development process is the stage-gate model that is used during the development phase. While this model was introduced by Cooper (1990), who called it a stage gate system, a similar process already existed before this but did not contain any gates, only stages (Booz et al. 1982).
The stages represent the activities that are undertaken during the entire new product
development process while the gates represent certain criteria checks that need to take place in terms of metrics or approvals from management before the process can move to the next stage. After Cooper’s model came out, there came one used by Tzokas et al. (2004) which was similar but with slight improvements and finally a more compact model by Carbonell-Foulquie et al. (2004) which uses research for important criteria.
So while there are several models out there each with their own version of the stage and gate methods, we take a look at the core differences between all of them in the below table to better understand the over-all model and also the subtle differences between all the stated models.
Figure 3: Overview of different stage gate models (Osbakk, Vaksdal, 2015)
The above figure clearly shows the subtle difference and similarities between all the different models. Some isolate a particular stage/gate, while others merge them.
e. Innovation and lean structure in Stage Gate model
The food industry is constantly evolving. Distances across continents have more or less dissolved and this has replicated itself in the food sector as well. You have American trends in South Asia and Asian trends in Europe. But in order to survive as an organization in this sector it is very important to constantly adapt and evolve as a direct response to your
competition. In addition, today’s consumers demand unique flavours and singular foods that are guilt free, convenient to cook and eat with and also with an increased focus on health and needs (Costa, Schoolmeester, Dekker, & Jongen, 2007).
Most people in the world purchase traditional food for their basic diet but a large percentage of the population purchases processed and packaged food purely for the sake of convenience. (Wijnands et al, 2007).
Innovation in the food sector is unavoidable and yet at the same time, highly challenging and a complex process. The number of actors of different sectors involved in food production, together with their difficulty to single handedly meet all the heterogeneous requirements of intermediate customers, end users and legislators, determines that innovation activities must be carefully coordinated (Costa, Sarkar, 2008)
Let’s start with the validation of the problem definition. Kraftheinz in foodservice has an ad-hoc way of working that results in too many smaller- branched out projects that each have limited resources available. Prioritization is also a major problem being currently faced and so is the post launch feedback loop and review cycle. Cooper, Edgett and Kleinschmidt (2000) argue that too many small, low value projects on limited resources, poor project prioritization and poor jobs done on projects are all caused by having:
• A lack of resources for new products • Negligible portfolio management process • No placement of a new product process
This can easily be seen in Figure 2 and Cooper, Edgett and Kleinschmidt (2000) argue that in order to solve all these problems a relevant stage-gate system needs to be set in place.
Figure 4: Negative consequences of lack of NPD process (Cooper, Edgett and Kleinschmidt, 2000)
The focus of all previous models of the stage gate has always been on new and innovative products only. This fits perfectly with the ask of KraftHeinz where we want to only look at new innovative products during the new product development process. Cooper (1990), used different forms of the word ‘innovation’ throughout his first paper about the stage-gate model. In the paper by Tzokas et al. (2004), the focus is also on innovation since 52% of the
respondents on that paper stated their company was a technological innovator. And finally, the focus on the paper by Carbonell-Foulquie et al. (2004) is also on developing highly successful, innovative products.
f. Different Market influences
An effective framework to analyse attractiveness of any foreign market is the CAGE
framework created by Ghemawat (2001). This puts into scope four basic distances that can be summarized into Culture, Administrative, Geographic and Economic distances. All of these essentially come into picture to show how different markets have different needs when it comes to the NPD process as well.
Cultural distance can be defined as the social norms which characterize the way people behave in a society and also includes religion, race and language (Ghemawat, 2001). In comparison to other forms of distance, culture is not easily differentiated as it is highly inferred within a particular society (Hutzschenreuter, Kleindienst & Lange, 2013). The differences in behaviours between countries has a direct impact on the way business is and should be conducted (Ghemawat, 2001). As is expected, when the distance in culture
increases, companies will tend to have less and less information of said foreign country which could lead to misunderstandings and can obstruct internal or external communications
(Hutzschenreuter, Kleindienst & Lange, 2013). Cultural differences also tend to have direct impact of a customer’s perception on products being sold.
Having a good knowledge of governmental regulations in other countries can help decrease the risk of governmental reactions while doing business (Dow & Karunaratna, 2006). Any historical or political associations shared by countries can have an impact on the trade. A major example of diminishing the administrative and political distance is the integration of the European Union, however not all countries are members of the European Union.
Geographical distance doesn’t just mean the physical distance between countries or markets but the size of the countries, the distance to borders, etc. This also takes into account
transportation and communication infrastructure which are all man made attributes.
And finally, when we talk about the economic distance, it is the wealth of consumers in relevant markets which is the most important economic attribute that can create distance between countries (Ghemawat, 2001).
e. Why is adaption necessary?
The NPD process differs from industry to industry also on the end product itself. It should indeed be adapted to every industry’s needs in order to be able to meet specific company resources and needs (Booz, Allen & Hamilton, 1982). Research has shown that new product development can be organized in many different ways based on how the company wants to develop its products (O’Connor et al., 2006).
Depending on the scope or the project, the stage gate model can and should be modified. In later studies, Cooper himself supports the idea of modifying the model depending on the complexity of the project. For example, in a low risk project, stage one and two can be combined and thus the system would have three gates instead of five. (Cooper, 2013). Such claims have also been studied by different authors who have come to the same conclusions; one strategy does not fit for all products. (Mac Cormack, et al., 2012)
III. Frameworks
a. Overview:
In this section we will first discuss the current situation and problems at KraftHeinz. Then discuss the Stage gate model framework in detail, understand how it works and what each stage and gate means inside a process. For the sake of this research we are focussing mostly on the front end stages of the stage gate model, i.e. the stages before a new product goes into the development phase. This is because our main focus for this thesis is to understand how to not only generate but also filter out the best ideas before they go into the development phase. So our reach is only till those front end stages.
Post the development stage, every product ends up following the same process w.r.t R&D development and testing as it is. Hence, too much focus over there is not required. It was also a specified ask from the management to focus mostly on the front end stages as well.
We have therefore spent time to analyse the best ways of idea generation and then understanding ways of targeting specific market segments or in the case of KH, market business units. We have come up with market research data, information from consumers as well as internal sales data that can all help support our literature review. Essentially, we are trying to use data from more than one source to validate anything we want to say or aspire for and ultimately be able to come to conclusions with all of those data sets at hand.
After this we will see how best this framework can fit into the inner workings for KraftHeinz, and the best way to do so is to use our three main sub- questions and work with them through our front end stage phases while also finding an answer to each of those said questions. At each stage that we want to study in depth, we will pick one of our sub-questions and then using the process of said stage/gate, we will use information collected from market research, answers from various consumer research questionnaires and also from the data sheet that I have set up for KraftHeinz, and finally answer the sub-question itself.
So not only do we manage to give structure to the stage w.r.t KH but we also come to a conclusion about what our various asks our in this thesis.
b. Current situation
If we look at the product format portfolio (Table 2.1) of KraftHeinz in the last few years across Europe, we can clearly see that there is no specific trend in terms of growth. There are a couple of best-selling formats but even those do not seem to have any consistency in terms of growth in them. Consistency is lacking and so is a leaner portfolio. There is nothing being done in terms of removing the lower selling product formats.
For better perspective, the row showing details for Cans is highlighted. We can see here, that every year has a different sales volume, without any consistent growth or decline. It is all haphazard. CY 13 is more than CY14 and CY16 is less than CY15.
Table I : Product format , sales in volume/tonnes breakdown CY2013 to CY2017
Formats CY13 CY14 CY15 CY16 CY17 CAGR Growth Squeeze Bottle 13.64 13.48 14.14 1,045.03 933.56 133% 6742% Bottle 1,849.93 1,659.29 1,627.11 1,194.71 835.52 -15% -55% Bulk jar 9,428.98 10,458.01 10,894.88 6,591.75 11,024.97 3% 17% Can 29,233.05 28,064.20 30,161.26 10,845.76 32,506.12 2% 11% Dippot 8,849.06 6,706.91 5,742.57 5,974.23 6,200.44 -7% -30% Glass jar 778.94 832.06 893.15 1,213.34 1,249.95 10% 60% King Kong 1,075.32 1,319.15 1,345.80 1,775.46 3,272.14 25% 204% Merchandise 23.89 18.90 8.09 7.03 11.78 -13% -51% Other bulk 13,261.97 10,347.60 10,247.17 13,089.91 9,288.78 -7% -30% Packet 381.13 319.24 297.69 326.17 323.02 -3% -15% Pail 7,206.74 6,347.63 6,842.27 6,780.72 8,439.37 3% 17% Pouch 6,678.52 6,843.09 6,793.32 5,826.23 7,432.86 2% 11% Sachet 25,788.32 23,954.58 18,269.96 27,716.45 20,808.39 -4% -19% SqueezeMe 878.41 849.83 1,114.25 930.36 988.33 2% 13% Table top 7,986.97 9,883.01 10,816.09 26,938.13 12,319.30 9% 54% Tetra 2,966.28 3,661.81 4,099.87 4,193.89 3,810.94 5% 28% Volpack 10,632.17 11,473.98 5,723.99 9,313.09 5,460.40 -12% -49%
When we talk about the actual product or recipe, KraftHeinz has a vast product recipe portfolio that spans across multiple categories. For ease of understanding and reference, the major 10 product categories have been listed in the table below (Figure 5) along with their volume sales for CY 2017. Again, for ease of use and understanding only the top three markets have been taken into consideration.
Figure 5: Sales of Volumes/Tonne for Top 10 Categories in KH FS channel, CY2017
Again, for sake of understanding and ease of reference, let’s take the Asian category here. We can see that almost 90% sales are happening only in the Benelux region. But this category is still being produced and regularly updated in other markets and regions as well. This should not be done. If we know that something is not working or has a very tiny share in another market then we don’t need to supply or produce it for that market in order to save costs. This can rather be diverted to the other well performing markets, in this case, Benelux.
As can be clearly seen here, there is no specific business logic of the breakdown of sales per market or business unit. All this depends purely on the market reaction and differentiation. So again, in terms of a new product development process, there is no historical benchmarking to
work towards a standard product ideation strategy since the entire range is spread across different markets in a non-standardised format.
Further to this is the fact that when a particular business unit wants to launch something they have no idea what to focus on or how. It is like shooting in the dark and hoping that
something eventually works out for the best.
Product formats should be something that need to be closed during the initial stages of the new product development process and not during or after. This can take the financial dimensions out of scope either way and end up costing extra resources down the line.
c. Stage gate process
A stage gate model is a step by step, structured new product development process that is used to increase the success of launching new products while minimizing the chance of failures. The model is essentially a series of gates and stages as shown in figure 1 (Cooper, 2001) where each stage is followed by a gate. While a stage is a particular activity that is undertaken during the entire process, a gate is used as a checkpoint to determine certain criteria checks after each activity to understand the viability of the entire project.
Below is a basic explanation of how a Stage gate model works:
1. Idea screening and generation
This is the first step where ideas are searched for new products. This can involve looking at customer needs, the competition in the market and even specific market needs. When an idea is deemed suitable it passes through the first gate and then goes to the first stage. This is the point where as many ideas as needed can be generated but only the ones that meet specific criteria about potential costs, potential markets and strategic fits for the company pass through (Hart & Snelson, 1991).
2. Scoping
This is where the actual marketability of the product is studied. Where can it sell, what are the estimate financials that may be involved and what are the technological challenges that will be required or needed to overcome. This is the stage when the second gate comes into place. For this gate, customer needs and technical requirements need to be specified (Hart & Snelson, 1991).
3. Building business case
This is a stage where there is a requirement of an extensive evaluation of the new product. Here assessment of resources for the product is performed as thoroughly as possible, since usually it is a lack of resources which is the most common reason for new products failing (Cooper & Scoot, 2003). After this stage come the gate where the decision about starting development of the product is made. This is the stage where costs increase as the product goes into development after this. At this moment, to be approved at this gate, all preliminary information given earlier needs to be detailed and better defined with more than just estimations.
4. Development
This primarily deals with the actual development of the product. This is also the stage where financials and costs become more than just estimates since the actual development gives a pretty good idea of the costs.
5. Testing and Validation
This is the stage where feedback from all involved parties is taken into consideration and actual product after development is tested. There is focus on the attractiveness of the product in the market as well as its quality is taken into consideration. This is where a decision has to be made in order to pass the next gate, if the product can actually be sold in the market and where it stands with respect to the market competition.
6. Launching product onto the market
This is the final stage where there is only execution involved as all the preliminary checks would have happened in earlier stages. The actual product is launched into the actual markets.
7. Post launch review
This is the stage where the project can officially be closed and goes from a development project to a regular project (Cooper, 1990). Here is when strengths and weaknesses of the project can be assessed to help learnings in the next project task.
d. Methods for progressing through the front end stages of Stage gate framework
Our main focus for this paper is to understand what are the best ways of generating new ideas for KraftHeinz and then putting them through the Stage gate model. For this we will focus on the front end stages of the Stage gate framework and try to analyse the best methods for getting the new product development process started off. So below we will start by primarily looking at only the first three gates/stages that discussed earlier, i.e. Idea screening &
generation, scoping and building of business cases.
In each of these stages we will try to find the best practise methods and ways through which KraftHeinz can actually generate better ideas for their upcoming projects and portfolios in the future.
I. Idea generation methods
The ideation phase is when a company decides to undertake a set of product concepts. This is the stage where as many concepts are brought together as possible and then reviewed and finally the best options are the ones that are considered for further development (Kahn, 2011). According to Cooper (2001) it is essential to have a product strategy which defines the areas of focus in terms of where the company wants to head ahead in development or innovation and then go ahead from there.
The clearer this strategy is the more effective ideas that will come ahead as opposed to ideas coming from a random or scattered search which is what is currently happening at
KraftHeinz.
The idea generation process as given below is a concept to help clarify what kind of sources to look at for generating the best ideas before starting the over-all NPD process. There are four main sources that the company should focus on while generating ideas, they are shown and then explained in detail below (Figure 7) by Mahmutllari (2014):
Figure 7: Sources of idea generation, Mahmutllari, 2014
• VOC: Voice of customer is a term to describe the in depth process of understanding and capturing your customer’s expectations and needs. This entails market research in
the form of focus groups, in depth interviews and more. Since we are focussed on B2B markets it is important to also focus on your customer’s work flow and find out areas and problems that they can face or are currently facing. This is a method of VOC called Anthropological research. For KraftHeinz it would make sense to ask B2B customers, corporate and commercial chef’s, among others.
A new product should not just be an upgrade of the old product but should have new solutions that increase efficiency and effectiveness (Cooper, 2001). Another method of VOC is called Lead User Analysis, which is a method developed by Eric von Hippel in the 80’s. The theory entails that working with innovative customers can lead to development of innovative
products. Collaborating with innovative customers and finding new and innovative solutions of helping them out is an effective way of creating new products (Edgett & Cooper, 2008).
• Internal Sources: This is a method where internal ways of searching are used to find and generate new ideas. Employees are asked to brainstorm and give suggestions, inner workings and portfolios are looked at and historical data can be analysed to see impacts and trends along with an analysis of the past. This can all help generate a high quantity of ideas and quantity breeds quality, the more ideas, the better it is (Kahn 2011).
• Market research: this is a method where trends and market analysis comes into place. Understanding the workings of the market you operate in are very important. Knowing what is doing well and what might be happening two years from now is something of a critical nature to a company. These inputs not only tell you where the business is going to head but also tell you how to get your business to the place it needs to go eventually. For this we need to use market research tools, pure market data and trends among other things.
• Competitors: a very valuable resource for generating ideas is your set of competition brands and companies in the market. It can be an easy way to analyse their portfolio and see what they are doing and then do it better. Their products need to be seen in a 360 degree manner to understand what they are doing well and what they are doing wrong at the same time.
Let’s now take a look at our first sub-question using the sources of idea generation model:
Is snacking a segment that is set to grow in Europe due to innovative trends.
The basic idea here is to follow a set process in order to answer said sub-question. A
consistent way which can also be replicated or modified depending on the trend, topic or idea in question for any given business unit.
So we use each of the methods listed in the Sources of Idea generation model by Mahmutllari (2014) that we discussed earlier and in each method we try to apply the data that we were able to collect and analyse at KraftHeinz.
A> Voice of customers:
With the help of the KraftHeinz consumer market research team it was possible to get information about various sets of customers to help understand their needs and ideas of what snacking meant to them. Essentially, the consumer market research team regularly organizes studies either in-house or in collaboration with various market research agencies to study market trends or to analyse their existing product portfolios to further test the possibilities available to them for the future.
For snacking specifically, we were able to get our hands on out-sourced and third party data that the team had collected.
The data comes from a sub-set of a mix of online questionnaires that were filled by a base of approximately 1852 internet users aged 16 and above who have eaten snacks in the last two weeks before filling the said questionnaires, along with real life basic interviews held by the KH consumer market research team.
One of the core questions they answered was to do with the frequency of snacking. “How often, on average did they typically snack in between meals”. The breakdown of this question is given below in Figure 8.
Figure 8: Overview of consumers snacking trends (Lightspeed/Mintel 2016) 3 times a day or more 10% Twice a day 23% Once a day 30% A few times a week 21% Once a week 6% Less than once a week 10%
It is easy to see from the figure above that the tendency of snacking for people is in fact quite high. The percentage of people snacking on a daily basis is actually the highest of all.
A sub-trend of snacking that seems to be emerging is the healthier alternative version of snacking. Basically, snacking but in a healthier format or healthier version of a food product. So in order to understand this, a lot of surveys and questionnaires were looked upon for information and understanding.
Consumers were also asked questions regarding whether they preferred healthier snacks as compared to indulgent ones and around what time of the day. They were given a list of pre-defined choices which included a mix of healthy and indulgent options to choose from.
This result is given and analysed for each of the pre-defined choices basis time of the day in the table below (Table II).
Table II: Source: Canadean Consumer's Q4 global survey, 2014
Here you can clearly see that there is indeed a shift towards healthier eating habits even in snacking. It is also good to observe that the most amount of snacking happens between lunch and dinner time.
B> Internal sources: KH currently has an entire portfolio of snacking foods under the brand of Planters. This has primarily been a retail portfolio but has also been recently started in the FS channel. So we decided to look at the entire range’s current market consumption and get an idea from it as to how snacking has been doing so far in Europe.
Planters is already really big in the US but of course for this research we wanted to only restrict ourselves to Europe.
So we decided to look at the sales for 2017 across Europe for our Snacking brand, i.e. Planters across its entire range given in the image below and were able to see a positive upward trend with respect to both sales numbers as well as customer numbers.
Figure 9: Current portfolio of Planters available in KH in retail .
The above graph clearly tells us the growth pattern of the Planters portofolio is growing at a somewhat steady rate for all of CY2017. Order frequency is seemingly inconsistent of course but let us not forget that this is B2B at the end of the day.
C> Market Research: Through the help of various market resaerch companies and tools avaiable at KraftHeinz we were able to come up with quite a few significant insights of the market as well as some trends that seem to be coming up.
There are a lot of research tools available at KH, some which are subscribed too and some which KH periodically works with depending on certain projects , these are listed below which were used for observing certain trends on snacking which have been collated in the below two figures for easy reference.
• Hartman Compass 2014, NPD
• Mintel Snacking Motivations & Attitudes US 2015; • Nielsen Scan Data, Total US xAOC, YE 2014; • IRI State of the Snack Food Industry YE 2014
Figure 12: Overview of Snacking, Globally, (2016)
Again, looking at the data and numbers from the above market research , we can clearly see that snacking is a growing trend with a specific focus on health being the number one priority for consumers in today’s time.
All of this research just helps us understand where snacking as a trend is heading and in what different avenues. This just goes to show that it is indeed a segment that is set to grow further and further in all markets. Understanding this can be the genesis of the idea generation for the next set of products that KraftHeinz could and would want to launch.
Knowing this is important and of course the next step would be to see what others are doing in the market and what we can learn from them as well. For this, we look at different markets and examples and see and compare different products and portfolios.
D> Competition: Finally, we had a look at what competition was doing globally and tried to see some examples that were relevant as inspiration to KraftHeinz. And what we can see from the below examples in Figure 13 are that compeittion is also spreading across the snacking segment and actually focusing on healthier options when it comes to snacking.
Figure 13: examples of Competition Products (sourced from the internet)
Basis all of these points and information we can say the below things about snacking. • It is definitely a growing trend, not only in Europe but also world-wide.
• Consumers and competition are both experimenting with different food groups in snacking.
• Health is the number one trend right now when it comes to the snacking market.
Essentially, basis all of our market research data, consumer questionnaire analysis, internal data and competition analysis we can clearly state that Snacking is indeed set to grow in Europe in the coming years and is therefore a good area for KraftHeinz to focus on and ideate upon.
II. Scoping
After ideas are generated and listed down, the first major stage of the entire product
development process is scoping. This is when a preliminary market assessment is done where market prospects and potentials are measured. This is a stage where research is based on existing resources and basic market research, so nothing in detail. A preliminary technical assessment is also done to analyse the conceptual and technical feasibility. In this phase only a superficial check of business rationale and financial prospects is done (Cooper, 2001). All of this assessment is then used to justify the elimination or acceptance of ideas coming through from the idea generation phase.
Let us now look at our second sub-question: Do condiments and cold sauces only sell well in the Plastic bottle format?
o First we look at market research to show us that exact breakdown of
condiments and other sauces. This gives us the general idea of the market share and whether launching a new cold sauce even makes sense. As per the internal KH 2017 volumes sales data, the split is fairly even so going in any direction seems fine.
o Next week can look at the format breakdown per sauce category. We do this by looking at either over all Europe or country wise volume shares for different formats. This helps us understand what formats are working for which category and perhaps which sub-categories too.
o Lastly, at this stage we should also cross check the historical data set we have created internally for KraftHeinz. This is something that will show a
completely different outlook versus what we see in the total market as our own data versus market data will of course vary.
Hence, a lot of factors come into play during the scoping phase or at least should. We now look at the volume share in the below figure for the major categories of cold sauces across FS
channel in Europe for last year and then subsequently look at the breakdown of volume sales for each of these categories across different formats in the table after it (Table III).
Figure 14: Source: Global Data Reports 2017: Across Europe Region
Table: III: Source: Global Data Reports 2017 (Volume sales percentage, format wise)
Format Ketchup Mayonnaise Condiments Dressings Grand Total
Can 0.16 0.47 0.76 0.36 1.75 Carton 0.16 0.18 0.19 0.05 0.57 Glass 2.81 1.21 9.43 0.65 14.10 Plastic Bottle 2.36 0.78 3.24 1.43 7.81 Pouch 1.45 1.67 0.93 0.05 4.09 Tetra-Pak 0.81 1.27 1.17 0.36 3.61 Tub 8.30 11.97 3.30 1.67 25.24 Overall 0.89 0.09 0.43 0.09 1.50 Total 16.93 17.65 19.44 4.65 58.68
For Table III, for reference we can look at the columns highlighted in green. This is the entire market sales volumes data per format for Europe (Not just for KH). We can analyse that condiments sell well in the glass bottle format and not in the plastic bottle format. For all other categories of cold sauces, the tub format is the most popular. The plastic bottle format, lags behind for all the categories. This clearly shows that even though the Plastic format is a good choice, it is not the obvious choice in terms of what is selling well. At most, it is either in the second place or third place depending on type of cold sauce.
Therefore, it doesn’t make complete sense to focus only on the plastic format, not for all sauce at least.
Next basis our historical data tool set in the below figure (15), we can look at the actual volumes sales we had for the last year (CY2017) for cold sauces in KH across different format as well. This again shows a different picture, that in fact we have actually sold more of the sachets format rather than the table top or the King Kong, both of which are plastic
formats for KH.
Hence, basis all the data collated and assessed we can easily identify that the plastic bottle format is not actually the most favorable format to sell condiments and cold sauces in.
• We should focus on formats based on the type of sauces, i.e. Ketchup, Mayo, condiment or cold sauce and not just benchmark all sauces to the plastic format. • We need to look at our past sales and not the sales of the entire market or region in
isolation.
• We need to focus on specific markets and also look at what competition is doing in each of those markets as well.
III. Business Case analysis
The final stage before development stage is the one for building business cases. Everything in this stage is more detailed in structure. A proper study of consumer needs has to be made. Defining the customer value and benefit can determine if the final product is successful or not (Cooper, 2001). Research is indeed important but a product cannot be successful without any customer value attached to it (Hogan, 2013).
Another important aspect is doing a competitive analysis to understand what existing competition is already doing in the market and at what all levels it has managed to penetrate said market or region. We need to know the market size, trends existing in it and the buying patter of the markets we are entering.
All this is an analysis but more like a continuation of the preliminary analysis that was done in the previous stage, this is just more in depth (Cooper, 2001). The final steps here would be to have a proper financial business analysis along with a plan of action before going into the next stage.
Let’s now look at the third sub-question:
Does QSR hold the largest market share in the FS channel in Europe?
First let’s take a look at the over-all market share of all major channels in Foodservice across Europe. We can see a detailed breakdown in the below Figure 16, of all the FS channels across Europe in 2013, 2016 and how basis growth estimates they will grow in 2020. Basis
this it is of course easy to see that QSR does indeed hold the largest market share in Europe when we talk about the Foodservice channel.
Figure 16: Source: Euromonitor 2016, EU FS channel
Next, we analyse the top four markets or countries for KH in Figure 17 below, to see the share in each of them and this clearly shows that each market has a different break down of channel shares. While QSR is clearly got the highest share in UK, it is almost at the same level with FSR in Germany. In France, QSR is actually much lower than FSR, while in Spain it is higher than FSR but it’s growth rate is actually almost static compared to that of FSR.
This just helps to clarify the fact that even if QSR is actually with the largest market share across Europe, it doesn’t necessary have to be the same case when it comes down to individual markets or countries.
Figure:17: Breakdown of FS channels in EU for KH from CY2016 to CY2017
This is also the stage where we can refer to the CAGE Framework for more in depth understanding and analysis of each and every market.
The CAGE Distance framework is a model that identifies cultural, administrative, geographic and economic differences between countries (Ghemawat, 2001). It essentially helps to
understand and scrutinize the effects of actual distance and how it can lead to barriers in terms of acquiring a competitive advantage in another country or market. It eventually helps ensure a better understanding of trade, capital, information and human behaviour patterns (Sakarya et al., 2007).
The CAGE framework has been selected over other frameworks simply due to the fact that it best fits the situational demands with respect to the food and beverage industry that KH operates in. Such an industry is hugely affected by all four elements of the CAGE distance framework and since there are so many countries to target at in the European region it makes sense to use a certain structure to identify and evaluate each of these markets that have to be entered into.
However, what we are more concerned with is developing products, specific to market needs and for this we will look at the CAGE framework to analyse the factors that affect a product in a different market or country. The primary idea here is to link the CAGE framework with that of the NPD process and help minimize wastage of resources or failures of new launches.
By introducing new products, a company can also target a whole new set of customers. A new product can also influence a company’s expansion into other markets or countries, Figure 18 below expands upon the CAGE framework in detail.
Figure 18: CAGE Distance framework (Ghemawat, 2001).
The starting point of the framework is the culture distance and culture is considered to be the ‘software of mind’ (Geert, 2001). Even though it is intangible till quite an extent, it helps to determine how individual behave and what they hold valuable and traditional. It reflects as the difference in societal norms, racial differences, languages and religious credential between a set of countries (Griffith et al., 2014).
• For KH, culture can mean different cuisines, different taste buds and flavours that vary from market to market.
This is probably why different markets have different competitors for KH as can be seen in the figure below (Figure 19). Different brands appeal to different sets of people and cultures and hence the same brand cannot have the same market share wherever it goes unanimously.
Figure 19: Global Data 2016, Region wise competition percentage breakdown
Administrative factors reflect the political structure, the operating systems and the overall bureaucracy of a country. More importantly, culture represents a very important part of the environments informal institutions that actually support the formal institutions as well (Peng et al.,2008). Political risk plays an important part too as it brings into question the stability of the foreign markets (Quer et al., 2012).
Administrative distance is also reflected in the different governmental policies and governmental effectiveness (Ghemawat, 2001). A slow and inefficient government with complex legislation will only aggravate any business activity and in such environments companies are forced to invest more money and time (Poynter, 2012).
• For KH this could mean different food laws for each market. For example, food law regulations in the UK are very different than in Germany.
When we look at geographic distance it does include the actual geographical attributes in terms of physical distance but it is more than just that. It includes common borders, differences in time zones or climates as well as man-made geographic borders that can include all kinds of developed or undeveloped infrastructures. Such distances can increase costs of communication and transport.
• For KH this could mean distances from its factories to the end markets or consumers. • It could cater to the fact that storage methods would have to differ for each market as
well.
Economic factors include high labour costs, per capita income and other factors that can increase or decrease cost of production. Supply and demand of a particular market plays a significant role here.
• For KH this could mean different currency sets for each of its markets.
• Its factory labour costs variations depending on the location of the factory and more.
Hence it is also important to make sure to use the entire CAGE framework while building a solid business case in the NPD model with respect to specific countries that are being targeted.
IV. Research Methods and Approach
The method to approaching this thesis which is product oriented is Qualitative research. Qualitative research is used when the expectations are unknown and the researcher wants to define the problem or develop a particular approach to said problem (Mahmutllari, 2014). When compared to quantitative research, qualitative research goes deeper into the main issues and the researcher can gather more detailed information about the core problem areas (Mora 2010; Silverman 2005).
The focus has been on using data from in-depth interviews from end customers, B2B
customer sets as well as industrial chefs who are critical to the industry’s innovation growth. Apart from this inputs have been taken from various market research tools available during my internship role at KH which involved not only company but market and worldwide analysis as well. A lot of inputs also came from the literature review that was studied for guidance in areas relevant to the new product development process.
The base and genesis of all of this was the historical sales data set that was collated for all the different business units across KH EMEA. This was what pulled the idea of the requirement of a certain set direction that was required from the foodservice channel inside KH and also certain key target innovation areas that we covered with our sub-questions that we answered in the previous section.
Another important source of data is my experience working for KH where among all the marketing meetings and interactions with different business units across Europe, a lot of feedback was collected. There were numerous customer focused workshops, innovation focused workshops and programs where not only first-hand data was collected but also a lot of inter team feedback. All this data was prioritized, analysed and then paired with the recommended literature review. This has all resulted in a research which is reliable and valid because not only is it supported by relevant literature review but also but hard factual data and by actual customers and company employees.
V. Managerial Recommendations, Limitations & Conclusion
In this section, we will discuss the results that were found from the analysis that was done keeping in mind KraftHeinz’s current situation and the frameworks that were applied coupled with the literature review. We will also present certain recommendations in terms of the new product development launch at KH.
a. Recommendations
In terms of recommendations, the audience for this research is primarily the managers and business units at KraftHeinz. Perhaps for academic purposes, the only takeaway is the adapted model of the stage gate which will be discussed shortly. For the KH management, following points need to be kept in mind specifically the 3 below recommendations:
1. Constant update of the historical sales database dashboard.
The dashboard for internal data with historical sales and volume numbers that was built by me needs to be updated at regular intervals by the management, only then will it depict an
accurate picture of the internal KH market and the growth of the product portfolio vis a vis all the major markets in Europe.
2. Usage of the Stage gate model as a check list or metric check
The stage gate model needs to be adapted and used well into the new product development process at KH. In fact, it makes sense to adapt it each and every time depending on the project or product at hand. For this reason, a recommendation is made to use an adapted or modified version of the Stage gate model which has been discussed below. The purpose of designing a different version is to be able to adapt it better to the food industry and to KH specifically. It reduces the number of gates, thereby shortening the time to market and time to concept. This is crucial as currently KH can take up to 18 months to launch a new product by which time it becomes often too late in the market as competition takes over with a first mover’s advantage, thereby beating KH in the process.
3. Testing the new Stage gate model with a small sized project
Currently the model designed is only academic, so it obviously needs to be tested and used a few times to see how it works in real time. For this it makes sense to test it on a small sized
project that does not cater to too many markets or have a lot of revenue backed behind it. By doing so we reduce the risks on revenue costs, labour and factory costs, among other things. Once this model is tested a few times, we will be able to understand if it works well or if it needs to be further adapted or modified.
The genesis of this entire paper was the fact that KH in Foodservice channel did not have a set go to strategy for launching new products. A lot of what they did was from copying their Retail channel directly in terms of recipes or ideas. And a lot of the business units just copied each other’s portfolios as well till an extent. No one really knew what was selling well and what should be sold next.
And that is exactly what we tried to find out via this paper where we found a model that made sense for the foodservice channel to focus on. In this model, we further specifically analysed only the front end stages of said model which involved the idea generation process and the market selection criteria. Essentially, everything to do with the core concept of a product before it goes into the development stage.
This, specifically because it was the ask of the central marketing team of which I was a part of and secondly because we were involved as a team in projects only till the process before development. So streamlining the process before it went into development was what was needed.
The analysis shows that having a structured process selection in place helps reduce effort, error and failure in the product development process. The base used was the Stage Gate model, however the Figure below (Figure 20) shows the recommended product development process for KH in particular. This is of course mostly based on the Stage Gate model and is more or less a slight variation to it. Considering the industry, the competition and the way trends enter the market, the most essential factor here is time. So in the adapted model, the number of stages have been reduced or combined in some places so as to have least amount of time wastage.
Currently, going from an ideation phase into the development phase can take over a year at KH which is simply not a good idea. Because as researched internally, a lot of times by the time the product is finally launched, said trend might actually be in its declining stage already
or the competition may have already gotten its first mover advantage by launching earlier in time. Hence it makes sense to make it as lean as possible and as compact as it can be in order to make the entire process swift and smooth.
Figure 20: Adapted stage gate model for KraftHeinz
The recommended model of Stage gate also incorporates the frameworks for idea generation as well as the CAGE distance framework depending on the stage they are at. These are more to be used as tools inside the base framework essentially. As can be seen and compared with to the previous generic Stage gate model, the number of gates and stages both have been reduced to save upon time and resources.
Depending on specific projects or products, this can of course change or be adapted each time and the gates can be made longer or shorter depending on that as well.
To conclude this adapted model finally, we have used methods in idea generation that were discussed in the previous section to make it more structured. We have combined Scoping and Business Case and both have similar activities involved in them and also included the CAGE framework in their structure. We have then combined Development, Testing and Validation
as the next gate as these are processes or stages where usually there is high involvement of only R&D and Supply Chain and least amount of intervention from other teams. Post this is the last stage which is the launch stage where the marketing team again comes back into the picture. We have not focussed too much of the last two stages as was discussed and
mentioned in the earlier section due to them being out of scope.
b. Limitations
The research work done around this paper has been as accurate as possible. All efforts were made to synthesize data from market research tools, consumers as well as sales data.
However, granted the scope of human error along with time limitations there are of course some things that could have been done either differently or more in quantity. We will list down a few points below concerning the same.
When we talk specifically about limitations, we realize that this research was primarily limited only to the Foodservice channel. This was due to the fact that I only had access to FS channel data and tools in my working capacity and only worked on projects related to the FS channel. So even though analysis has been developed for foodservice, we don’t exactly know the inner workings of the retail channel at KraftHeinz which might have helped in giving another outlook of how things might work or might even work better if not the same.
When we look at the historical sales database that was created, we come across certain limitations here as well. There are still a lot of sub-categories in the channel which have data missing and have therefore not been made a part of said data set. So we do not have 100 percent of the data with us. This still gives us a picture of our portfolio but not an exact one or a full and final one.
Another limitation was the fact that data is not consistent across different Business Units. In order to make everything consistent in terms of labelling or conversions, manual labour was involved with the help of Microsoft excel. Even though precision was of upmost importance here, manual labour can only account to a certain extent of correctness. Hence the data set itself would be approximately 95 percent correct and consistent with the data it holds.
c. Conclusions
The stage gate model that was chosen here is an internationally recognized model which is easily applicable to the B2B market that we need to focus on. It is also a model that can be easily adapted as we have seen earlier on. Which is also why it has been edited and modified for KraftHeinz to use and test. This is also what makes it unique. We thereby come to a few conclusions basis this research as given below:
1. An important factor to note is that empirical research was not done by just focusing on the model or framework itself but also by supporting it with data from inside the company itself along with a lot of relevant market research.
2. In addition, each of the front end stages were studied separately and as holistically as possible to help combine different approaches that could be possible.
3. It is important to make sure that management teams across KH work in unison to implement this when they do. Designing and implementing this process by only one person in the company can lead to failure of the project (Cooper, 2001).
4. And they need to see what they have been doing in the past, wrong or right in order to plan a better portfolio for the future. The past of an organization leaves its mark on the future (Huizenga & Hertog, 2000).
5. Constant updates need to be made to the internal dataset to make sure it is kept up to date and relevant and to be able to make sense out of it all.
Launching an idea without any data backed research behind it, is not going to be fruitful in the long run. KraftHeinz is not working in isolation and needs to make sure it focuses on every aspect of the business and market environment before launching any new product
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