The Greatest - Lux Research

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
Otto Frederick
Rohwedder
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
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?
Basic
Greatest
Uncrustable
8
Agenda
The increasing demand for consumer convenience
The Convenience Index helps to understand winners
Using the Convenience Index in new product development
9
Uncrustables has limited choice, but how does it
really stack up on convenience?
10
7
yp
s
f
a
n
ma
uf
ct
ri
g
a
e
s
Uncrustables vs. PB&J, tale of the convenience tape
Buy 3 items
Buy and bring home 1 item
Store 2 items in fridge, 1 on shelf
Store 1 item in freezer
Ready to eat upon prep
Combine and spread ingredients
7
typ
es
of
lea
n
ma
nuf
act
uri
ng
wa
ste
s
Requires thawing 0.5 to 1 h
No preparation
Cut off crusts?
No preparation; no crusts
3 spoilable ingredients
Thawed per use, minimized spoilage
Different
Uniform
11
Consumer convenience has seven axes
Transportation
Buy and bring home 1 item
Inventory
Store 1 item in freezer
Waiting
7 types of lean
manufacturing wastes
(muda)
Motion
7
typ
es
of
lea
n
ma
nuf
act
uri
ng
wa
ste
s
Requires thawing 0.5 to 1 h
No preparation
Over-preparation
No preparation; no crusts
Over-production
Thawed per use, minimized spoilage
Defects
Uniform
12
The Convenience Index is a framework to determine
product convenience to the consumer
Transportation
Inventory
Waiting
7 types of lean
manufacturing
wastes
Convenience Index
(muda)
Motion
Over-preparation
Over-production
Defects
13
Breakfast is a convenience-first meal
Basic
Greatest
Uncrustable
14
Bars and yogurts are seeing rapid growth
$700
$600
Bars
$500
Sales (in millions)
$400
$300
CLIF
$200
KIND
$100
$0
1990
1995
2000
2005
Year
2010
2015
2020
5000
4000
Yogurt
Total
U.S. Yogurt 3000
Production 2000
(in million lbs)
1000
0
1970
1980
1990
2000
2010
16.0
14.0
12.0
10.0 Per capita
Yogurt
8.0
Consumption
6.0
(lbs/person)
4.0
2.0
0.0
2020
Year
Yogurt Production 1991-2003
Per capita Yogurt Consumption
Yogurt Production 2004-2015
15
Cereals are getting crushed
$10,000
8%
$9,000
6%
$8,000
4%
$7,000
$6,000
Cereal/morning
foods revenue $5,000
(millions)
$4,000
2%
0%
$3,000
Growth
Rate (%)
-2%
$2,000
-4%
$1,000
$-
-6%
Year
Cereal/Morning Food Net Revenue (Millions)
Percent Change
16
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
Transportation
Buy and bring home 1 item
Inventory
Single servings; only 1 ingredient
Waiting
Convenience Index
Motion
7
typ
es
of
lea
n
ma
nuf
act
uri
ng
wa
ste
s
Eat on the go
No preparation or dishes
Over-preparation
No preparation
Over-production
Single serve; no over buying or serving
Defects
No spilling
18
The Convenience Index demonstrates the causes
behind consumer disruption
Transportation
Inventory
Waiting
7 types of lean
manufacturing
wastes
Convenience Index
(muda)
Motion
Over-preparation
Over-production
Defects
19
Casper is changing the way mattress are purchased
Basic
Greatest
Uncrustable
20
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.
$100
Casper total revenue by month
$95 million/
21 months
$80
2015 growth 275%
$60
Revenue
(millions) $40
$20
$0
$1 million/
1 month
$20 million/
9 months
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Months since founding
21
Casper goes 6-0-1 against traditional mattress
buying
Transportation
Standard shipping
Inventory
Tie
Waiting
Convenience Index
Motion
7
typ
es
of
lea
n
ma
nuf
act
uri
ng
wa
ste
s
No waiting for delivery or in showroom
No going to store, laying on samples
Over-preparation
Doesn’t require frame or boxspring
Over-production
Free returns within 100 days
Defects
Sample bed at home in real conditions
22
The Convenience Index demonstrates the causes
behind consumer disruption
Transportation
Inventory
Waiting
7 types of lean
manufacturing
wastes
Convenience Index
(muda)
Motion
Over-preparation
Over-production
Defects
23
Subscription boxes are cutting into traditional
online shopping
Basic
Greatest
Uncrustable
24
Discovery boxes like Ipsy and Birchbox drive
convenience of choice
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 setup subscription boxes.
Subscription
boxes
Convenience
Same product delivered
on a regular schedule
Amazon family
diaper subscriptions
Dollar shave club
Discovery
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.
25
The exponential inconvenience of modern choice
Health
IT
• Insurance
• Provider
• Data
• WiFi
• Mobile
• Entertainment
Number of
products in a
supermarket
Consumer
goods
House
• Energy
• Structure
• Decor
Consumer
• Food
• Clothing
• Etc.
26
Birchbox and Ipsy win hands down against
traditional online shopping, going 6-0-1
Transportation
Tie
Inventory
Trial size, minimal storage
Waiting
Convenience Index
Motion
7
typ
es
of
lea
n
ma
nuf
act
uri
ng
wa
ste
s
No finding/evaluating new items
No searching
Over-preparation
No need for returns
Over-production
No commitments to large bottle
Defects
Wrong product carries low risk
27
Agenda
The increasing demand for consumer convenience
The Convenience Index helps to understand winners
Using the Convenience Index in new product development
28
The greatest thing since the iPhone?
Basic
Greatest
Uncrustable
29
If the smartphone is the new sliced bread, are
wearables the Uncrustable?
Basic
Greatest
Uncrustable
30
Wearables build on existing smart phone uses
Dozens of uses of mobile devices
and wearable developers extend
these uses
Skype on Android Wear
Hicon Bangle
Direct communication
News/weather
Social media
Gaming
Cicret
Peregrine
Fove
Entertainment
Health management
Health
165,000 health apps
58% of people have a health app
Range from logging, to advise, to
sensing
QardioCore
Qardio
31
The Convenience Index plays different roles
depending on the stage of NPD
Convenience
Index
Ideationunderstanding the
gold standard
Discovery
Testing ideascompetitive
assessment
Scoping
Partner selectionrapid screening
Build
Business case
Development
Testing and
Validation
Full launch
32
7
yp
s
f
a
n
ma
uf
ct
ri
g
a
e
s
Understanding the gold standard: L’Oreal wants
to develop a UV sensor for skin health
Neatmo June
Worn continuously on wrist
Transportation
Buy and bring home 1 item
Maintain additional app
Inventory
Store 1 item in freezer
Sun alerts on phone in real-time
Waiting
Requires thawing 0.5 to 1 h
Need to take off in water
Motion
No preparation
Bluetooth data transmission
Over-processing
No preparation; no crusts
Needs an additional device
Does not include sunscreen
7
typ
es
of
lea
n
ma
nuf
act
uri
ng
wa
ste
s
Over-production Thawed per use, minimized spoilage
Defects
Uniform
33
7
yp
s
f
a
n
ma
uf
ct
ri
g
a
e
s
Competitive assessment: L’Oreal wants to develop a
UV sensor for skin health
Neatmo June
L’Oreal My
UV patch
Worn continuously on wrist
Transportation
Maintain additional app
Inventory
Sun alerts on phone in real-time
Waiting
Need to take off in water
Motion
Bluetooth data transmission
Over-processing
Needs an additional device
Does not include sunscreen
7
typ
es
of
lea
n
ma
nuf
act
uri
ng
wa
ste
s
Buy and bring home 1 item
What is it? Skin patch worn
for up to 5 days uses
Store
1 item in freezer
photosensitive
dye to
evaluate sun exposure.
Requires
thawing 0.5 to
1 h phone
Communicates
with
via uploading photo of
patch
or with NFC.
No preparation
No preparation; no crusts
Over-production Thawed per use, minimized spoilage
Defects
Uniform
34
7
yp
s
f
a
n
ma
uf
ct
ri
g
a
e
s
Competitive assessment: L’Oreal wants to develop a
UV sensor for skin health
Neatmo June
L’Oreal My
UV patch
Worn continuously on wrist
Transportation
Worn continuously, but not fragile
Maintain additional app
Inventory
Maintain replaceable tags and app
Sun alerts on phone in real-time
Waiting
Requires checking on phone
Need to take off in water
Motion
Safe in water
Bluetooth data transmission
Over-processing
Camera or NFC
Needs an additional device
Over-production
Need many patches
Does not include sunscreen
Defects
Better accuracy
7
typ
es
of
lea
n
ma
nuf
act
uri
ng
wa
ste
s
35
7
yp
s
f
a
n
ma
uf
ct
ri
g
a
e
s
Partner screening: L’Oreal wants to develop
a UV sensor for skin health
Neatmo June
L’Oreal My
UV patch
Worn continuously on wrist
Transportation
Worn continuously, but not fragile
Maintain additional app
Inventory
Maintain replaceable tags and app
Sun alerts on phone in real-time
Waiting
Requires checking on phone
Need to take off in water
Motion
Safe in water
Bluetooth data transmission
Over-processing
Camera or NFC
Needs an additional device
Over-production
Need many patches
Does not include sunscreen
Defects
Better accuracy
7
typ
es
of
lea
n
ma
nuf
act
uri
ng
wa
ste
s
36
Where are these “almost-greatest” innovations on
the Uncrustables scale of getting disrupted?
Basic
Greatest
Basic
Uncrustable
Basic
Basic
Basic
Greatest
Greatest
Greatest
Greatest
Basic
Basic
Greatest
Greatest
Uncrustable
Uncrustable
Greatest
Uncrustable
Basic
Basic
Greatest
Greatest
Uncrustable
Uncrustable
Basic
Basic
Uncrustable
Uncrustable
Uncrustable
Uncrustable
Basic
Basic
Greatest
Greatest
Greatest
Uncrustable
Uncrustable
Uncrustable
Basic
Greatest
Uncrustable
Basic
Greatest
Uncrustable
Basic
Greatest
Uncrustable
37
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
Basic
Greatest
Basic
Uncrustable
Basic
Basic
Basic
Greatest
Greatest
Greatest
Basic
Basic
Greatest
Greatest
Greatest
Uncrustable
Uncrustable
Uncrustable
Basic
Greatest
Basic
Greatest
Uncrustable
Uncrustable
Basic
Basic
Greatest
Uncrustable
Uncrustable
Uncrustable
Basic
Basic
Greatest
Greatest
Uncrustable
Greatest
Uncrustable
Selfie-toast
Basic
Greatest
Uncrustable
Uncrustable
Uncrustable
Basic
Greatest
Uncrustable
Basic
Greatest
Uncrustable
Basic
Greatest
Uncrustable
39
Thank you
Jon Melnick, Ph.D.
Senior Analyst
jonathan.melnick@luxresearchinc.com
+1 617 502 5324
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