The Convenience Index: Scoring How New Winners Make Old

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

What do these consumer innovations have in common?

3

They couldn’t capture the title of “The Greatest Thing Since…”

4

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

6

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)]

7

The greatest thing since sliced bread Uncrustables?


8

Agenda




9

Uncrustables has limited choice, but how does it really stack up on convenience?

10

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

11

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

12

7 types of lean manufacturing wastes

(muda)

Transportation

Inventory

Waiting

Motion

Over-preparation

Over-production

Defects

7 types of

lean

manufacturing waste

s




No preparation



Uniform

The Convenience Index is a framework to determine product convenience to the consumer

13


(muda)

Transportation

Inventory

Waiting

Motion

Over-preparation

Over-production

Defects

Convenience Index

Transportation

Inventory

Waiting

Motion

Over-preparation

Over-production

Defects

Breakfast is a convenience-first meal

14


Bars and yogurts are seeing rapid growth

15

$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

Fig15.xls

Fig16.xls

Cereals are getting crushed

16

$-

$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

Fig6.xls

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”

17

Yogurt and bars crush cereal on convenience and it is not just about cleaning up bowls

18

Convenience Index

Transportation

Inventory

Waiting

Motion

Over-preparation

Over-production

Defects

7 types of

lean

manufacturing waste

s


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

19


(muda)

Transportation

Inventory

Waiting

Motion

Over-preparation

Over-production

Defects

Convenience Index

Transportation

Inventory

Waiting

Motion

Over-preparation

Over-production

Defects

Casper is changing the way mattress are purchased

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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.

21

$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%

22

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

23


(muda)

Transportation

Inventory

Waiting

Motion

Over-preparation

Over-production

Defects

Convenience Index

Transportation

Inventory

Waiting

Motion

Over-preparation

Over-production

Defects

Subscription boxes are cutting into traditional online shopping

24


Discovery boxes like Ipsy and Birchbox drive convenience of choice

Subscription boxes

Convenience Discovery

25

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

26

Consumer

House

• Energy

• Structure

• Decor

Health

• Insurance

• Provider

• Data

IT

• WiFi

• Mobile

• Entertainment

Consumer goods

• Food

• Clothing

• Etc.

Number of products in a supermarket

27

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




28

The greatest thing since the iPhone?

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If the smartphone is the new sliced bread, are wearables the Uncrustable?

30


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

31

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

32

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




No preparation



Uniform

Neatmo June

Transportation

Inventory

Waiting

Motion

Over-processing

Over-production

Defects

7 types of

lean

manufacturing waste

s








Competitive assessment: L’Oreal wants to develop a UV sensor for skin health

34

7 types of

lean

manufacturing waste

s




No preparation



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








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


7 types of

lean

manufacturing waste

s








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


Where are these “almost-greatest” innovations on the Uncrustables scale of getting disrupted?

37












Basic Greatest Uncrustable Basic Greatest Uncrustable




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

39












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

mailto:[email protected]

Documents

The Convenience Index: Scoring How New Winners Make Old