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Like many food companies, Kraft Foods has had to deal with the rising costs for commodities, as well as the changing wants and needs of consumers. Several years ago, the company — which has annual revenues of more than $18 billion and a 27-brand portfolio that includes Velveeta, Jell-O and Kool-Aid — was launching new products at a rapid rate, but it wasn’t really investing in any of them. In recent interview on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111, Barry Calpino, Kraft’s vice president for breakthrough innovation, discussed how Kraft rethought its strategy and reaped the rewards of a multi-year, multi-channel mindset to marketing.
Listen to the full interview above and read edited excerpts from the conversation below.
Knowledge@Wharton: Could you describe the concept of breakthrough innovation?
Barry Calpino: There’s a lot of definitions around it, but there is also an intention behind the term and the title. It’s really to push our organization and our innovation teams to shoot for bigger opportunities, more incremental white space, new categories and new usage occasions. We have teams that work on some of the closer-in extensions of current brands. But my charge and my push is to really encourage the organization and lead, making sure that we deliver on big, big, big innovations that help not just grow our brands here at Kraft, but also grow the categories that we’re in.
Knowledge@Wharton: What kind of examples are you talking about?
Calpino: I guess the poster child, the one that we use here internally to teach everyone the concept, is that we launched a brand called Mio about three years ago. Mio started out as a really close-in idea. It started out as a liquid version of our Crystal Light powder and it was going to be marketed that way.
And via a lot of changes we had made in the company in terms of how we were thinking about and approaching innovation, we made it one of these big, big bets and big breakthrough projects with our beverage division. We decided rather than just make it a close-in extension of the current business, [we would] conceptually launch Mio as a totally new category idea — liquid water enhancers — and go after all the water usage occasions there are in the U.S., both tap water and bottled water, and look at Mio as an opportunity to accompany all those occasions, rather than only targeting people who currently buy powdered mix-ins for their liquids….
We launched Mio as a new idea, a new brand, a new category. And it’s won almost every imaginable innovation award you could win. But more importantly for us as a company and for the retailers we work with, it’s created literally a new category. You walk into the store today, and there is a whole section of these liquid water enhancers. And I think it’s a more than $800 million total category worldwide three years into it. And most of that has come from going after incremental usage occasions. So it’s been a big win for everybody who’s been involved. And that’s the concept of breakthrough innovation — thinking bigger and thinking broader and moving aggressively.
Kraft spent more than $50 million launching Mio, the most we had ever spent on a launch. But more importantly, we continued to invest the second year, the third year and now the fourth year because these big ideas don’t just happen overnight. You have to stick with them and you have to invest in them.
“These big ideas don’t just happen overnight. You have to stick with them and you have to invest in them.”
Knowledge@Wharton: How do you continue to build on those innovations after several years have passed?
Calpino: I’ve been in the innovation game one way or another in consumer products almost 20 years. And the number-one consistent cause of failure is not investing in a good idea beyond just the launch period. You have to stay with it. The ones I’ve been part of that have been big wins have been [instances] where we’ve stuck with it, we’ve invested behind it, and we realized that to get something new to stick, it doesn’t just happen quickly — you have to have staying power.
Knowledge@Wharton: Kraft was started in 1903, but remade in 2012. Can you describe that process?
Calpino: The company split. The international business and what was our Nabisco business and our chewing gum business was split off as a separate company called Mondelez. And what was left behind was the traditional Kraft brands that many consumers would know. And it’s a U.S. company.
We decided to not just treat the de-merging as a transaction for Wall Street, [but rather] to really make a big deal about this for our company culture and our employees. I talk a lot about how important culture is to innovation and your performance as a company. And so we decided in 2012 when we made the split to celebrate it, and we had signs up that are still everywhere in our company about we were remade in 2012. We’ve tried to really encourage a fresh mindset among our employees to say, “Look, we have these tremendous old brands, but we need to think fresh every day to make them current and relevant.” As you know, consumers are constantly evolving and changing, and your brands have to keep up with that.
Knowledge@Wharton: There’s an interesting video I saw of an interview that you did, and you brought up the concept of that one of the most important things to understand is what your customers hate about your products.
Calpino: Yes. It’s one of my favorite topics, and it’s the one that gets the strongest reaction. I think it’s human nature that you want to focus on what people love about you, and it’s painful sometimes to get that negative feedback. But I’ve studied this. I have a whole presentation on innovations that were born out of companies willing to be open about asking, “Where is the pain in the experience of our product? What do you hate about our category? What do you hate about [the product]?” And then that becomes the fodder for great innovation.
The two classic examples I always throw out is that Campbell’s soup did a big study in the 1970s, literally a quantitative study of what do people hate about soup. And the number-one complaint was that the pieces [of meat in the soup] were too small. So they launched this brand [of] chunky soup, which is still on the market 40 years later. Very few new products stick around for 40 years.
I used to work at the Wrigley company, and we did the same research in the 1980s. The number-one complaint was that the flavor [of the gum] didn’t last long enough. We literally created the brand Extra gum out of that research. And Extra was the number-one brand of chewing gum for about 25 years in the U.S.
My favorite [example] that I use all the time today is Uber and the Uber app. The story behind it [is that there were] two guys who just hated the taxicab experience in San Francisco…. Their hate led to their innovation. And you think of all the things you hate about a taxicab experience, Uber literally flips every one of them over. So being open to it can be a tremendous source of innovation ideas.
Knowledge@Wharton: The numbers so far in terms of sales tied to new product innovation are pretty good for Kraft. The number I read was about 13% of all the revenue?
Calpino: Yes, we were 6% to 6.5% five years ago. We got over 13%. We’ve doubled our sales from new products…. When we were around 6%, we made a decision as a company that the current way we’re doing things today isn’t working, and we’re going to look at innovation and approach it very, very differently. And the results so far have borne out that the new approach we’ve taken has really made a big impact on our innovation results.
We feel like we’ve still got an incredible amount of room to grow and to get better at this. But we did change our approach, and that’s been a big driver of getting from where we were to where we are.
“Consumers are constantly evolving and changing, and your brands have to keep up with that.”
Knowledge@Wharton: How is that new strategy borne out on a daily basis?
Calpino: The hardest thing for anyone who works in innovation is that for the big ideas like Mio, a lot of the seed effort and work happens two to three years ahead of time. And a lot of that work is not glamorous. And the results don’t come instantly. The teams that work on those projects, their work is what leads to the big launches two to three years out. So a big part of my job is to make sure across the whole organization that we’re continuously filling what we call our funnel and the pipeline of new ideas — and that we’re constantly working on the next thing, so that we don’t wake up one day and say, “You know what, we don’t have anything.”
A lot of us who work in consumer products have had those moments where our management [says], “We need a new product,” and you don’t have anything, or you don’t have anything exciting. And then you scramble. And then you launch small ideas. It’s about being proactive and filling the pipeline and making sure that while we have teams in the company that are launching new products, we also have teams that are building the future. Because for every great idea we launch now, some team did great work two to three years ago up to now.
Knowledge@Wharton: How is your experience at Kraft different than a tech company like Apple?
Calpino: What we have in common is that what you come out with has to be great for the consumer. But in our case, tastes and what people are looking for in food constantly evolve. For our innovations to hit home, we have to be really, really well attuned to what is happening and what changes are going on. We spend a lot of time and energy on making sure that all of our innovation teams are up to speed on food trends, culinary trends and what consumers are looking for — whether it’s a cleaner ingredient line, fresher, less processed food, things like gluten-free. The things that consumers want in food change all the time. And you just have to be on it. You have to try to be ahead of it, too, which is one of the hardest things to do.
Knowledge@Wharton: How does that impact the corporate responsibility and other programs that you have as well?
Calpino: It has a big effect on where we invest in new technology and where we place our bets on which brands to invest in. One of our pride and joys this year is the renovation and re-launch of Philadelphia cream cheese. We’ve added a lot more real fruit to the products and real vegetables. And we have a whole story to the consumer about it going from farm to fridge in just a few days. Consumers today care so much about that. And we felt like the Philly team just was so attuned with today’s consumer….
Knowledge@Wharton: You talked about the successes you’ve had with a new product like Mio, but like Philly cream cheese, there are a lot of brands that you have that have been around for decades, that are staples with consumers. What are the challenges of making changes to products that people have loved and used for so many years?
“I’m a big believer in love and hate driving innovation. The haters give you ideas. But then the lovers also give you inspiration.”
Calpino: That’s the art of what we call renovation. In fact, one of our best points of emphasis now at Kraft is renovating our current brands while we innovate at the same time. When you renovate a brand it’s exactly what you said: Everybody has studied the famous new Coke case. Nobody wants to be the next [failed re-launch] in the Wharton case study. What the Philly team did beautifully was to make the product more relevant and more current, but deliver what people expect and love and care about. And you also have to make sure that for everything you do, you run it by your consumers who love your brand.
One of the things that we teach all of our teams is, when you mess with a current brand, mess with it to make it better among the people who love it first. Because if they give you the vote of confidence, then you’re going to bring new people back to the franchise, but you don’t want to lose the people who love you. It’s one of the trickiest parts of what we do. People will tell you that when they try to renovate and update an iconic brand like Philadelphia cream cheese or Kraft Singles, it can be really tricky.
Knowledge@Wharton: You mentioned the successes with Mio. What is the number two on your list in terms of innovations that you’re most proud of?
Calpino: I would say in addition to Mio, it’s probably a tie between Oscar Mayer Selects and Velveeta Cheesy Skillets…. They were both $100 million launches. But what they both have in common is they’re what people would call old brands. And they were brands that some people would say had lost touch with today’s consumer. But the teams behind them were totally committed to making them relevant, and never accepting that the brand is irrelevant.
Our CEO’s favorite phrase, one of his favorite phrases, is that there is no such thing as a tired brand, only tired marketers. And one of my favorite expressions from Good to Great is facing the brutal facts. The Oscar Mayer team made a call across all their whole business that we were going to make Oscar Mayer products more real. And so Oscar Mayer Selects took almost every element of their product line and [changed it]. They launched products with no artificial preservatives and cleaner ingredients. And it was a monster success, and it’s changed how people perceive an old brand like Oscar Mayer.
Velveeta was a brand that people used to make fun of. And people asked “Hey, does Kraft still make Velveeta?” It’s now one of our fastest-growing businesses because of the team behind it. I mentioned the importance of talking to people who love your brand; I’m a big believer in love and hate driving innovation. The haters give you ideas. But then the lovers also give you inspiration. What we found is that Velveeta lovers really love the brand, and there was a lot about the brand that we weren’t leveraging. The whole skillet dinner line — which was, again, a $100 million award winner — was all grounded in what people loved about it. We had this tagline, “liquid gold.” And liquid gold is literally how Velveeta lovers describe it. And it delivered a great dinner experience; it really delivered for a family, a strapped family from an economic standpoint, the ability to feed your family at a low price, with great taste and a great experience.
“There is a lot of potential in our portfolio because we’re in categories that are in all parts of consumers’ lives.”
People love to talk about the Apple iPhone. Mio was kind of like that for us. But it’s just as rewarding, and sometimes more rewarding, when you can have really big innovation on brands that you’ve had for, say, 100 years.
Knowledge@Wharton: What segment of Kraft’s business do you think has the greatest potential growth opportunities in terms of innovation over the next 10 years?
Calpino: That’s a good question. I get asked that a lot inside the company, and sometimes that becomes a self-fulfilling prophecy when you say you’re a high innovation brand, you’re a low innovation brand. I work across all the brands here, and I will tell you that I walk out of every single review and there are three or four things that I’m incredibly excited about. There are categories that I may say in my head, “This doesn’t have a lot of potential.” And then the team shows me three or four great ideas. It’s that mindset that got us to where, with Velveeta, we weren’t innovating. So it’s a tough one.
Our beverage business has had some huge wins. But then I can show you the [success of the] Skillets and the Selects. There is a lot of potential in our portfolio because we’re in categories that are in all parts of consumers’ lives. One of our favorite expressions at Kraft, which we try to emphasize to all of our employees, is that we have to earn our place in your life. We don’t just get in your house because we have all these brands; you have to choose our brands, and we have to keep earning it. Just because you bought us 20 years ago doesn’t mean you’re going to buy us today. That mindset tries to avoid the “Hey, we’re just going to milk this because it doesn’t have the potential.”
Knowledge@Wharton: How do you ensure employee buy-in for your innovation strategy?
Calpino: You can have the greatest processes in the world, but usually when you break down companies that are successful in innovation, and innovations that are successful on their own, when you do the postmortem analysis, usually the talent and the team are at the top of the list. We have teams, talent and culture all over Kraft that are thinking about what’s possible for these brands. They’re not thinking what’s not possible…. We’re not going to accept the fact that this is an old brand. We are going to constantly look for ideas.
When you have that mindset all throughout your company, that’s when you’ve really hit your stride. You know that you never have to lie awake at night worrying about [whether you] are going to have enough good ideas, because you know that there are really talented people all over the place who are trying to create the future and fill the pipeline. By far, the most rewarding part of my job is when I get to see that energy, because that energy is contagious and it creates momentum. And momentum can go negative, it can go positive. Innovation is so hard that that aspect really does matter.
Knowledge@Wharton: So it’s not a case of where even an established company like Kraft can rest on its laurels?
Calpino: Right. Everybody’s trying to connect with the same consumer. The business is out there. We’re all competing for flat to 1% growth, and we want more than our fair share of it. We all want to grow more than the market. And the one who innovates best usually is the one who wins.
You know, we just won the [Nielsen] Breakthrough Award for Gevalia [coffee]. And at the Nielsen conference, they told us that there were 3,426 new products launched. Seventy hit $50 million in sales. And then the 14 breakthrough winners, of which we were one of them, from that field of 3,400, were the new products that were successful for the first two years. So that tells you — 14 out of 3,400, that’s what you’re shooting for. So it isn’t easy. But when you hit it, nothing’s better for your company, for your business, for your category.