innocent’s stretch into veg pots: pots of money, or not?

Update on last year's post on the stretch of smoothie brand innocent into veg pots. These are individual, veggie based meals sold for £3.50. 85% of people had then down as a miss in our 2009 hit 'n miss survey. However, based on a record amount of 20 positive comments on the blog, I started to wonder if we called it wrong. Let's look at the issues raised, and what has happened.

Will veg pots will be "a dwarf"?

On the one hand….

The biggest question was would these pots make pots of money? My concerns were not with the brand equity stretch. We can trust innocent to go from fruit to veg. And the funky new design and quirky pack copy are very innocent. No, the concerns raised were about the business model stretch. Could innocent profitably create a new market sector, and get the product into peoples' repertoires, given a high price-point of £3.50?

The only report I have been able to find suggest sales are c.£8million. And the fact innocent are advertising the veg pots suggest they must be doing OK. So, on the one hand, not bad. And by no means a flop. I think I didn't give enough credit to innocent for the good stuff in this brand extension:

– Solves real consumer problems: i) what to have for lunch?, ii) getting 3 of your 5 daily fruit and veg

– Decent, tasty product: made by one of our clients, Kerry Foods, who know a thing or too about tasty products

– Creating a new, premium segment: what I under-estimated is how keen the innocent fan-base of pretty upscale folk would be to buy these pots. They see £3.50 as a fair price for a hot, healthy, tasty lunch

On the other hand….

However, compare this to the sales of smoothies at c.£100 million, and you do get a slightly different picture (see below, done to scale). The veg pots are still dwarfed by the smoothie business. Now, as one smart Unilever manager asked at a recent workshop in Cape
Town, "Is this a dwarf, or a toddler?". As it stands, the veg pots look
pretty dwarf-like. But, innocent seem to think they have potential to
grow. Net, I think we need more time to see what happens. Also, I'd love to know the profitability of the veg pots vs. the smoothies, as in most cases new products make less profit than core products.

Risk of neglecting the core

The other issue raised, which has unfortunately come true, is the risk to the core business when stretching. We predicted that the time spent by management in 2008 on developing veg pots should have been spent on driving growth of the core smoothies business, and defending it against the launch of Tropicana. I shared this view with innocent founder Richard Reed when I met him at the innocent AGM back in Jan 2008, suggesting a need to drive distribution and also move down pricing to make the brand more accessible. This would also have protected the business against the ravages of the recession that was to come.

Well, unfortunately this bit we called right. UK smoothie sales fell 17% last year, a loss of £17million. In other words, twice the amount of new sales in veg pots. If effort had been focused on the core smoothies business, lets say half of this loss could have been avoided. This would have produced the same revenue result, but a much stronger business.

Now, to innocent's credit they learnt from what went wrong. They worked to get the price point of the smoothies down. They have promoted the brand at point-of-sale. Supported them with advertising. And, benefited from a recent Department of Health ruling supporting the "2 of your 5-a-day claim". These efforts are making an impact, with sales for the quarter to September reported as up 10%. They have won back just over half of the 2008 losses. Add in the veg pots and you have the same business as last year. But, more fragmented, with two different product lines.

Conclusions

First, credit where credit is due, innocent have shown the importance of creating new products that meet a true consumer need, in a way that builds on the trust and user-base the brand has created. Second, neglect the core at your peril. The growth in sales from the new product was more than off-set by loss in sales on the core. If you are going to stretch, ensure your protect enough time, effort and money for the core.