Is Pepsi the "next generation" of yogurt?

Early this week Pepsi announced it is entering the Yogurt market via a joint venture partnership with German dairy company Theo Müller.  The joint venture will be run as the Müller Quaker Dairy and called Müller by Quaker and will begin by being sold in the northeast US.  It appears that they will offer at least 3 different types of yogurt: conventional, Greek, and Fruit Up (fruit mousse in top of the yogurt that gets stirred in).  The yogurt will be packaged in a square contained with one corner filled with an ingredient that the consumer can mix in; including caramelized almonds, tiny chocolate-covered crunch balls and granola.

Pepsi, which in addition to its traditional beverage business also owns Quaker, Gatorade, Tropicana, and Frito-Lay, is looking to diversify its portfolio as the soda category continues to be squeezed by health trends and the company looks to jump start long-term growth.


Why Yogurt?
Yogurt offers Pepsi three advantages.  First, its a fast growing category (+9%) that outpaces traditional grocery categories as its alined with consumer health an wellness tailwinds.  Second, it gets Pepsi into a new section of the store - the dairy aisle.  And third, Pepsi could likely leverage its refrigerated Tropicana DSD network to capture significant cost scale.


Will it be successful?  
Pepsi research suggests that Americans consume ~12 pounds of yogurt a year, which is half as much as Canadians and only a third the amount of Europeans.  Pepsi attributes this gap to the US category offerings being boring vs. international offerings: “It’s been an ‘I gotta have it because it’s good for me’ kind of a product . . .The 'wanna have it' was missing” according to Dr. Mehmood Khan, who oversees PepsiCo’s global research and development and was interviewed in a recent New York Times article. According to that article, Müller by Quaker will fill the current product offering void by offering a a new variety yogurt with its own unique texture that is between Greek and conventional yogurts.  The product will be marketed under the tagline "European for Yummy".  


While General Mills (Yoplait) and Dannon make up 50% of category sales, much of the recent category growth has been driven by Greek yogurt brands Fage and Chobani.  The fact that these smaller brands have gained traction and shelf space would suggest a brand backed by a CPG manufacturer with the clout and deep pockets of Pepsi would also be able to muscle its way into the category assuming the product is truly differentiated and delicious.  It also wouldn't be surprising to see Pepsi bring its soda strategy to life in this category by supporting the brand launch with an enormous advertising budget as well as running a significant amount of promotions focuses on BOGO's and bulk discounts.  The yogurt category has seen plenty of innovation over the past several years and I believe many category consumers are willing to experiment with new brands and flavors, but the category will remain highly competitive and unlike soda its wont just be a two horse race.


In conclusion, I believe Pepsi can clearly make a splash in the category and will help fuel overall growth.  However, I have a hard time believing the brand will climb higher than a #4 share behind Dannon, Yoplait, and Private Label, and may even have a hard time in the short-term outselling some of the hot Greek Yogurt brands.  One could see the brand, perhaps, ultimately reaching a 10-15% market share over the next 3 years.

Who let the Red Lobsters into the Olive Garden?

Darden Restaurant Inc, the operator of Red Lobster and Olive Garden, has opened three Red Lobster - Olive Garden combined store locations in smaller cities that they believe cannot economically support standalone locations.

As the picture below shows, the locations have two separate entrances entrances and dinning rooms, but reportedly share a bar area, kitchen, and bathrooms. Customers in one dinning room cannot order from the menu of the adjoining restaurant.

On the surface the strategy appears to make strategic sense, reach new customers by creating economies of scale to control costs and deliver incremental revenue.  Nevertheless, I question the overall strategy.  I would argue both restaurant chains have lost they way from their historic brand compasses and now currently suffer from a lack of authenticity.  For example I would venture to guess that many middle class Americans question how fresh the seafood at Red Lobster really is, while Olive Garden is hardly seen as real italian.  The fact that consumer sentiment has drifted from these initial positions is due to business decisions putting profit in front of brand equity.  The two in one concept further plays up the chain aspects of both brands and helps continue diluting their authenticity.  Then there is the old marketing rule that if do two things well enough it means you don't do anything great.

While Yum brands has executed this strategy on many of their fast food and QSR brands (KFC, Taco Bell, Long John Silvers, and Pizza Hut) with a major difference versus Darden's full-service restaurants being that they usually have joint dinning rooms, which enable families to all order different foods and then sit together delivering a benefit for the customer.

Applebee's "it's not a science show"

Give Applebee's credit.  It seem to understand its consumer and isn't trying to convince people it's something its not...For those that haven't seen it, Applebee's recently launched a new set of tv ads creating parodies off of the latest foodie trends - namely farm to table, heirloom, etc - in an effort to connect with their core consumer who are just looking for reliably good food at a good price.


I like the first ad better than the second ad because it hits home harder on the primary benefit that the food is a "good value and taste good" - because that's really why a consumer would choose to go to Applebee's.  Nevertheless, despite the parody, the ads still help portray Applebee's as using fresh ingredients - which is a nice halo benefit.


While I love the drama of the ads and believe they truly hit on relevant consumer insights, I have two concerns with how effective the ads will be in driving traffic. First the parody drama is a bit long, so there is a risk their core consumers may tune out the ad before the core message, and second, there could be strong brand linkage at the end of the ads. 


Overall though, bravo Applebee's, bravo...

Best Buy have a showroom problem?

It's no secret that Best Buy has had many business challenges lately as the chain faces declining sales and potential door closures.  Many analysts have pointed to showrooming for online vendors as one of the major culprits of Best Buy's woes.

Showrooming is the concept that consumers browse a product in a traditional brick-and-morter store, only to purchase it online at a cheaper price.  The primary case study of showrooming has aways been consumers browse and compare TVs in person at Best Buy and then ultimately purchasing online at Amazon where they traditionally haven't had to pay sales tax.

A recent analysis of the Stevenson Company’s TraQline market studies by the Consumer Electronics Association shows that while showrooming may be allowing Amazon to cannibalize customers away from Best Buy, its actually other brick-an-morter stores that appear to be more of an issue.

The study suggests that when it comes to purchasing a new TV, 48% of all TV shoppers visited Best Buy to browse the TV section.  Of these shoppers, over half (56%) ultimately purchased a TV at Best Buy, while 44% ultimately purchased somewhere else.  So where did these consumers purchase their TVs?  The TraQline data suggests that of the shoppers who visited Best Buy, but purchased a TV elsewhere: 

• 31% purchased at Walmart
• 9% purchased at Costco
• 8% purchased at Amazon
• 7% purchased at Target

So, while Amazon is siphoning of 8% of purchasers and one would expect that number to continue climbing, the data clearly indicates that Best Buy has larger challenges than showrooming for online vendors.  The data suggests Best Buys value equation is less compelling than many competitors.  As Best Buy continues to lose shoppers to multiple competitors that consumers feel offer better value, it needs to reexamine its overall value equation and better define its proposition for consumers.