Innovation is a key ingredient for successful foodservice operations

Innovation is a key ingredient for successful foodservice operations
By Andrew Hui
June 11, 2015
Innovation is a key ingredient for successful foodservice operations

With a mixed economic outlook for different parts of the country in 2015, foodservice operators will be under even more pressure to build or retain traffic while protecting overall profitability. As the demands and expectations of consumers continue to evolve and day-to-day operating costs increase, successful foodservice operators will be those who quickly bring innovative and profitable products to market.

Innovation is often a challenge for foodservice organizations. Different regulations, overhead costs, and most importantly, consumer preferences have made it difficult to simply parachute a product developed elsewhere into Canada. And yet, innovation has an enormous impact on building traffic and improving profitability.

For example, in November 2014, Tim Hortons began heavily promoting the launch of its Dark Roast blend in Canada. In November and December 2014, the Ipsos Food Service Monitor estimated that Dark Roast accounted for 10 to 12 per cent of all brewed coffee sold by foodservice in Canada and about 17 to 20 per cent of Tim Hortons’ brewed coffee menu – an enormous achievement in just two months!

Grabs bigger market share

With McCafé, the introduction of specialty coffee has enabled McDonald’s to capture an estimated eight to 10 per cent of the specialty coffee market — a market once well-controlled by operators like Starbucks and Second Cup. With Tim Hortons, specialty coffee is estimated to represent eight to 10 per cent of their total hot coffee business.

At Ipsos, our experience has taught us that winning innovations must be anchored in consumer insight. Rearranging ingredients to build a new menu item is not enough to drive traffic into the stores. Too often, foodservice operators launch ideas using “gut feel” rather than systematically developing them starting with a fundamental consumer insight.

For small chains or independent operators who do not have large research budgets, innovation can seem daunting or financially impossible. However, innovation can be successfully adopted by any operator. While bigger budgets will buy higher accuracy, the process is largely similar:

Step 1 – Identify the consumer insight

A consumer insight is a revelation of a significant gap between consumers’ aspirations and what they perceive as available, which can be turned into a business opportunity. For example, a consumer insight that led to the McWrap was a desire for a more portable “sandwich” at McDonald’s. Consumer insights, whether they are identified through elaborate market research techniques or simply by talking with customers (and non-customers), are all anchored in the act of communicating with consumers. Small chain and independent operators can leverage consumer insights often offered by their suppliers or ask customers directly. In the age of social media, it is easier to get ideas from customers of what they would like to see on the menu.

Step 2 – Develop the innovation

The innovation must align with the consumer insight but must also be developed with financials in mind.  What are the food and labour costs? What are the opportunity costs? Should this new item replace an existing menu item? How much complexity would this new menu item add to the back-of-house? When developing new products, do not waste resources testing ideas that will never be financially viable.

Step 3 – Test the innovation

Gather a group of customers willing to give an honest opinion and have them test the product.  Operators with research budgets will often start by testing the concept using a survey and if the concept passes this hurdle, take it into in-market testing. This approach helps to better manage the costs of concept testing by removing weak concepts early from the innovation pipeline. For large operators the cost of carrying weak concepts throughout the pipeline is high, due to their more complicated supply chain systems and larger network of stores. Smaller operators actually have an advantage when testing the innovation in-store, as changes to the recipe can be more easily made and re-tested.

Step 4 – Launch

Even a strong concept can fail if it is not sufficiently promoted or if it is not executed well in-store.   Small operators are more likely to leverage in-store cues (e.g. signage, servers telling customers about the product, handing out samples) to drive interest, but a healthy social media presence can also be used to generate awareness. In addition, back-of-house training must support the execution of the new product. Trial is nice but re-purchase is better.

Step 5 – Re-evaluate

Once a new product is launched, operators must review the performance of the new item. Is it building sales as expected? Are the profits it was forecasted to generate materializing? What changes need to be made to optimize it further? Large operators often establish performance benchmarks for their innovations. If a product does not meet or exceed these thresholds, the product may be pulled from market. Learning is most effectively done through a series of failures. Smaller operators should not be discouraged with failed innovations, but rather use them as learning opportunities to create products that will do well in-store.

Innovation is not just the introduction of new products. Innovation is a process that begins with a consumer insight, evolves through significant testing, and builds traffic and profit through marketing support and great in-store execution. For 2015, foodservice operators will need a fast-moving, consumer-centric innovation process to succeed.

See also:


About the author:

Andrew Hui is a Vice President at Ipsos Marketing and has helped his foodservice clients through consumer insights for almost 10 years. Currently, Andrew leads the new Ipsos Food Service Monitor, a syndicated, market study launched in 2014 that measures the foodservice industry in Canada. For more information, contact Andrew by email at andrew.hui@ipsos.com.

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