Monday, November 17, 2008

A little "inside baseball"...

Last week I contributed an opinion to the always insightful newsletter Beverage Business Insights.

The editor - Gerry Khermouch and I had an interesting discussion about how it was becoming tougher for new product ideas to reach the marketplace through the tradition Direct Store Delivery (DSD) system of beverage distributors... Here's the piece.

Since leaving job developing strategy at Cadbury Schweppes Americas Beverages, Neil Kimberley has been working with independent emerging brands. Here's Neil's take on what has been shaping up to be monumental impasse on DSD, from point of view of bev vet trying to get innovative new brands seeded into marketplace:

Every year in marketing departments and entrepreneurs' garages across America, hundreds of beverage ideas are created. Over the past 5 years, these ideas that have propelled total liquid refreshment beverage consumption growth at a rate 4X greater than population growth, yielding incremental consumption of almost a liter per week per US resident.

However, this growth is in jeopardy. Over the past year, fewer innovations are coming to the mainstream marketplace. This is not due to a lack of interesting ideas; it is because interesting ideas are not getting access to the marketplace.

To be fair to the DSD systems, incubation is more difficult than ever. The combination of past new-product failures, higher operating costs and line extensions bloating existing portfolios have made the DSD business so complex that the channel's ability to successfully incubate a new idea requires more support than ever. But these environmental changes pale in significance to the change in DSD mindset in the aftermath of Coca-Cola's acquisitions first of Fuze and then of Glaceau.

The deal requirements for a brand entering a DSD system are now reaching way beyond necessary support, and the list of demands is growing almost daily: personal equity, dedicated sales people, dedicated marketing teams, local media support, retailer funding, sampling funding, other guerrilla marketing, exclusivity, and license perpetuity are now commonplace requirements. ... and this is only if your product is of interest. If innovation success was then guaranteed, these concessions would be cheap at the price. The reality is that nothing is guaranteed beyond a slot in the warehouse, a kickoff meeting and a line on the order form.

In place of DSD systems, many innovators are now considering alternative ways to bring their products to market. Retailer consolidation is making direct sales a legitimate alternative; there is a hotbed of innovation in natural food channels; and now there are sports nutrition distributors experimenting in this space. Any of the alternatives can reach target consumers and build a success story - and may ultimately bypass DSD systems.

So, are DSD systems the right incubators for new ideas? The answer is an unequivocal "maybe."

Innovators and DSDs need to re-establish the mutual respect lost in the aftermath of recent acquisitions. Both innovators and DSDs need to have realistic expectations for each other, and re-establish a partnership that has been lost among the billions of dollars of the Glaceau deal.

If this partnership is not forthcoming, there will be a space in the market to be filled. Right now these distribution alternatives are small, but with one successful brand, a new system will emerge - and DSD systems will lose out once again. Remember that a great product can be failed by poor incubation, but a poor product will never be saved by it. If that was true, then the world today would be awash in Surge.

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Foods, Fluids and Beyond Blog by Neil Kimberley at www.foodsfluidsand is licensed under a Creative Commons Attribution 3.0 United States License.

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