Greg Kitzmiller01.01.02
Buy or Build: Strategies That Made Bar Products Famous
A lesson from PowerBar.
By Greg Kitzmiller
Bar products have been highly successful, almost as prototypes for nutraceutical foods. One of the consumer attributes that likely makes bars successful is the fact that they make nutraceuticals portable in a form that easily substitutes for or supplements regular food. Thus, bars are very versatile in how they may be used and what they may be used for.
Yet much of the success stems from sound long-term strategy on the part of current and previous owners of bar brands. Big firms, in fact the world’s two largest food companies—Nestlé and Kraft—are now the owners of the biggest U.S. bar brands. Both, of course, were acquisitions and both have done better through the marketing and muscle of these mega firms. But as neither brand was incubated and grown to a critical mass position in a big firm, it is worth looking at the growth of bars as a formula for the development of other nutraceuticals.
The PowerBar Example
The “granddaddy” of bar products in terms of success is PowerBar. PowerBar is no overnight success—the road was very carefully paved with a strategy that copied success rather than reinventing the wheel. In 1994 Brian Maxwell, entrepreneur and developer of PowerBar, said that his success upto that point had been dependent on athletes. Yet, he declared that he intended to follow the example of Gatorade by adding flavors and increasing distribution to gain use by many different consumers as a healthy snack. The formula for success was quite clear.
To make PowerBar successful, Mr. Maxwell had originally developed the product to suit runners and sold the bars out of his car at marathons and races. He then broadened the market to include bicyclists because he thought this included more people with more casual activities, continuing to seek distribution in specialty bike and running stores and to market primarily with personal contact and small ads. His big break came when PowerBar was featured on national TV when U.S. Tour De France participants were interviewed and happened to talk about their use of PowerBar.
As sales grew, Brian hired an ad agency and by the middle of the 90’s was running breakthrough radio advertising in various markets to promote the brand. Mr. Maxwell’s slavish observation of the pattern for Gatorade growth helped him with the vision for PowerBar. He recognized that Gatorade had also begun with serious athletes. But the phenomenal growth of Gatorade came with linking it to sports while extending more casual consumption. This casual consumption came through a combination of awareness and image building, availability through increased distribution and increased product offerings to attract younger consumers.
Mr. Maxwell also hired an experienced marketing professional and worked to expand distribution, awareness and product line. Today, PowerBar resembles Gatorade in distribution and in the many flavors that are available. Both Gatorade and PowerBar experienced even greater growth once the money and muscle of a more mainstream food firm took over. And now even more international muscle will be added behind Gatorade with PepsiCo just as Nestlé offers the same international growth opportunities to PowerBar.
The first strategic principle then is emulation. The concept of emulation means that if you can find a similar brand with somewhat similar product attributes you can extend the strategy from one brand to another. Procter & Gamble or Kraft can use this strategy inhouse from one brand to another. Yet, small firms can use emulation by studying growth of brands that may share some attributes. Attributes are critical factors, often expressed as consumer benefits, such as the ability to use spokespersons, specific taste profiles or packaging properties that may be extended as key success factors for a brand. Some say emulation is the purest form of flattery. In brand management appropriate emulation may be the purest form of making your own good luck! The principle of emulation drives the process of case study in top business schools. If we can see how others have done well we may apply those exact principles to our own success.
Note that many such nutraceuticals reach critical mass under the tutelage of an entrepreneur rather than as part of a large marketer. Large firms, especially food firms accustomed to low margins, tend to be conservative about developing new brands and have high, many would say too high, expectations for the pace of growth and level of critical mass they expect of new products. A mass firm may quickly discard a brand that only reaches $10 million in a year while an entrepreneur will likely be ecstatic. Thus, the entrepreneur nurtures small growing brands a bit like flowers waiting to be sold. And sold they are as most larger firms only have successful nutraceutical brands because they’ve bought them from the entrepreneurs.
Thus the second strategic principle involved is to understand entry and exit strategies. The large firm will likely want to identify acquisition strategies as Kraft has done while the entrepreneur will want to identify suitors and be measuring the market for the prime time to make a sale. Kraft bought Balance Bar and now is using the brand as a flagship for involvement in other nutraceuticals. Betsy Holden, Kraft USA CEO, was quoted in the Financial Times (9/3/01) as saying Balance Bar is a great trademark to extend. Large companies need the growth potential of many smaller brands. The food industry in the U.S. struggles to grow at anything more than 2% per year. Entrepreneurs would struggle if they couldn’t get double digit and even triple digit growth in early phases. So each must carefully monitor the business environment and competitive set to consider the right time to buy and sell. Too early may mean a product that needs more nurturing cannot get in a house with $200 million brands. Too late and a firm may be in the position Gardenburger found itself after competitors Boca Burger and Worthington Foods were snapped up by the two biggest interested firms. Gardenburger has struggled to hold distribution and find a suitor.
Of course, some firms like Natrol, Weider and Schiff likely don’t intend to use an exit strategy. These firms often depend on their distribution networks to launch specialty products. Yet a difference in strategy between the big food firms and the nutritional firms is that the big firms buy the brand at a critical mass point and put marketing muscle behind their acquisition. This muscle usually comes in the form of pushing distribution points, lowering costs to allow more competitive pricing, trade promotion to gain display and in-store activity and advertising. The big multinational firm can invest with deeper pockets than the mid-sized firm. In traditional food, drug and mass merchandiser retail categories the big food firms have more clout to get more product cross-merchandised in various locations in a store. There is probably no easy answer for the mid-sized multiple brand firm but it might look at how Hain-Celestial has leveraged many brands by concentrating on marketing and outsourcing production where possible to keep costs down and put more funds into the marketing muscle activities that build brands.
All in all, emulation of a brand with similar attributes, determining an exit and entry strategy and knowing where you fit, what your limits are and how you can build muscle in the market seem to be keys to the bar market and likely good principles for other categories as well.NW