by Adam Hartung | Oct 28, 2014 | Current Affairs, Defend & Extend, Food and Drink, In the Swamp, Leadership, Lock-in, Television
I’m a “Boomer,” and my generation could have been called the Coke generation. Our parents started every day with a cup of coffee, and they drank either coffee or water during the day. Most meals were accompanied by either water, or iced tea.
But our generation loved Coca-Cola. Most of our parents limited our consumption, much to our frustration. Some parents practically refused to let the stuff in the house. In progressive homes as children we were usually only allowed one, or at most two, bottles per day. We chafed at the controls, and when we left home we started drinking the sweet cola as often as we could.
It didn’t take long before we supplanted our parent’s morning coffee with a bottle of Coke (or Diet Coke in more modern times.) We seemingly could not get enough of the product, as bottle size soared from 8 ounces to 12 to 16 and then quarts and eventually 2 liters! Portion control was out the window as we created demand that seemed limitless.
Meanwhile, Americans exported our #1 drink around the world. From 1970 onward Coke was THE iconic American brand. We saw ads of people drinking Coke in every imaginable country. International growth seemed boundless as people from China to India started consuming the irresistible brown beverage.
My how things change. Last week Coke announced third quarter earnings, and they were down 14%. The CEO admitted he was struggling to find growth for the company as soda sales were flat. U.S. sales of carbonated beverages have been declining for a decade, and Coke has not developed a successful new product line – or market – to replace those declines.
Coke is a victim of changing customer preferences. Once a company that helped define those preferences, and built the #1 brand globally, Coke’s leadership shifted from understanding customers and trends in order to build on those trends towards defending & extending sales of its historical product. Instead of innovating, leadership relied on promotion and tactics which had helped the brand grow 30 years ago. They kept to their old success formula as trends shifted the market into new directions.
Coke began losing its relevancy. Trends moved in a new direction. Healthfulness led customers to decide they wanted a less calorie rich, nutritionally starved drink. And concerns grew over “artificial” products, such as sweeteners, leading customers away from even low calorie “diet” colas.
Meanwhile, younger generations started turning to their own new brands. And not just drinks. Instead of holding a Coke, increasingly they hold an iPhone. Where once it was hip to hang out at the Coke machine, or the fountain stand, now people would rather hang out at a Starbucks or Peet’s Coffee. Where once Coke was identified and matched the aspirations of the fast growing Boomer class, now it is replaced with a Prada handbag or other accessory from an LVMH branded luxury product.
Where once holding a Coke was a sign of being part of all that was good, now the product is largely passe. Trends have moved, and Coke didn’t. Coke leadership relied too much on its past, and failed to recognize that market shifts could affect even the #1 global brand. Coke leaders thought they would be forever relevant, just do more of what worked before. But they were wrong.
Unfortunately, CEO Muhtar Kent announced a series of changes that will most likely further hurt the Coca-Cola company rather than help it.
First, and foremost, like almost all CEOs facing an earnings problem the company will cut $3B in costs. The most short-term of short-term actions, which will do nothing to help the company find its way back toward being a prominent brand-leading icon. Cost cuts only further create a “hunker-down” mindset which causes managers to reduce risk, rather than look for breakthrough products and markets which could help the company regain lost ground. Cost cutting will only further cause remaining management to focus on defending the past business rather than finding a new future.
Second, Coca-Cola will sell off its bottlers. Interestingly, in the 1980s CEO Roberto Goizueta famously bought up the distributorships, and made a fortune for the company doing so. By the year 2000 he was honored, along with Jack Welch of GE, as being one of the top 2 CEOs of the century for his ability to create shareholder value. But now the current CEO is selling the bottling operations – in order to raise cash. Once again, when leadership can’t run a business that makes money they often sell off assets to generate cash and make the company smaller – none of which benefits shareholders.
Third, fire the Chief Marketing Officer. Of course, somebody has to be blamed! The guy who has done the most to bring Coca-Cola’s brand out of traditional advertising and promote it in an integrated manner across all media, including managing successful programs for the Olympics and World Cup, has to be held accountable. What’s missing in this action is that the big problem is leadership’s fixation with defending its Coke brand, rather than finding new growth businesses as the market moves away from carbonated soft drinks. And that is a problem that requires the CEO and his entire management team to step up their strategy efforts, not just fire the leader who has been updating the branding mechanisms.
Coca-Cola needs a significant strategy shift. Leadership focused too long on its aging brands, without putting enough energy into identifying trends and figuring out how to remain relevant. Now, people care a lot less about Coke than they did. They care more about other brands, like Apple. Globally. Unless there is a major shift in Coke’s strategy the company will continue to weaken along with its primary brand. That market shift has already happened, and it won’t stop.
For Coke to regain growth it needs a far different future which aligns with trends that now matter more to consumers. The company must bring forward products which excite people ,and with which they identify. And Coke’s leaders must move much harder into understanding shifts in media consumption so they can make their new brands as visible to newer generations as TV made Coke visible to Boomers.
Coke is far from a failed company, but after a decade of sales declines in its “core” business it is time leadership realizes takes this earnings announcement as a key indicator of the need to change. And not just simple things like costs. It must fundamentally change its strategy and markets or in another decade things will look far worse than today.
by Adam Hartung | Dec 18, 2012 | Current Affairs, Defend & Extend, Food and Drink, In the Swamp, Leadership
How would you recognize signs of a troubled business? Often the key indicator is when leadership clearly takes "more of the same" to excess.
This week McDonald's leadership began encouraging franchisees to open on Christmas Day. Their primary objective, clearly stated, was to produce more revenue and hopefully show a strong December.
I nominate McDonald's for the 2012 Dickens' Award as the most Scrooge-est business behavior this season.
"Christmas is but an excuse for workers to pick their employer's pockets every 25th December" is I believe how Charles Dickens put it in "A Christmas Carol." Poor Bob Cratchet couldn't even have 1 day off per year. And in McDonald's case the company founder actually made it corporate policy to never be open on Thanksgiving or Christmas days so employees could be with family.
Bah! Humbug!
Now, there are a lot of trends McDonald's could legitimately cite when making a case for being open on Christmas – a case that could actually shed a positive light on the company:
- The number of single people has risen over the last decade. This trend means that many more people now have a need for at least one meal not in a family setting on 25 December.
- America has a large and storied Jewish community for whom 25 December does not have a special religious meaning. For these people enjoying their habitual norms such as eating at McDonald's would indicate an open-minded company supports all faiths.
- America is a nation of immigrants. While the founders were European Christians, today America has a very diverse group of immigrants, especially from Asia and the Indian sub-continent, who follow Islam and other faiths for which 25 December has, again, no particular meaning. Offering them a place to eat on their day off could show a connection with their growing importance to America's future. An act of understanding to their impact on the country.
These are just 3, and there are likely more and better ones (please offer your thoughts in the comments section.) But truthfully, this is not why McDonald's is urging franchisees to toil on this national holiday. Instead, it is just to make a buck.
But then again, what trend has McDonald's successfully leveraged in the last… let's say 2 decades? Despite the rapid growth of high end coffee, the "McCafe" concept was a decade late, and so missed the mark that it has made no impact when competing against Caribou Coffee, Peet's or Starbucks. And it has had minimal benefit for McDonald's.
To understand the dearth of new products just go to McDonald's web site where you'll see an animated ad for the "101 reasons to eat a McRib" – that mystery meat product which is at least 30 years old and rotated on and off the menu in the guise of "something new."
McDonald's had a very rough last quarter. It's sales per store declined versus a year ago. The number of stores has stagnated, sales are stagnant, new products are non-existent. Even Ronald McDonald has aged, and apparently moved on to the nursing home. What can you think about that is exciting about McDonald's?
Desperate to do something, McDonald's fired the head of North America. But that doesn't fix the growth problem at McDonald's, it just demonstrates the company is internally fixated on blame rather understanding external market shifts and taking action. McDonald's keeps doing more of the same, year after year; such as opening more stores in emerging markets, staying open longer hours at existing locations and even opening on Thanksgiving and Christmas in the U.S.
McDonald's Ghost of Christmas past was its great strength, from its origin, of consistency. In the 1960s when people traveled away from home they could never be quite sure what a restaurant offered. McDonald's offered a consistent product, that people liked, at a consistent (and affordable) price. This success formula launched tremendous growth, and a revolution in America's restaurant industry, creating a great string of joyous past Christmases.
But the Ghost of Christmas present is far more bleak. 50 years have passed, and now people have a lot more options – and much higher expectations – regarding dining. But McDonald's really has failed to adapt. So now it is struggling to grow, struggling to meet goals, struggling to be a kind and gentle employer. Now asking its employees to work on Christmas – and ostensibly eat Big Macs.
What is the Ghost of Christmas Future for McDonald's? Not surprisingly, if it cannot adapt to changing markets things are likely to worsen. No company can hope to succeed by simply doing more of the same forever. Constantly focusing on efficiency, and beating on franchisees and employees to stay open longer, is a downward spiral. Eventually every business HAS to innovate; adapt to changing market conditions, or it will die. Just look at the tombstones – Kodak, Hostess, Circuit City, Bennigan's ….
Take time between now and 2013 to ask yourself, what is your Ghost of Christmas past upon which your business was built? How does that compare to the Ghost of Christmas present? If there's a negative gap, what should you expect your Ghost of Christmas Future to look like? Are you adapting to changing markets, or just hoping things will improve while you resist putting enough coal on the fire to keep everyone warm?
by Adam Hartung | Jul 17, 2009 | Current Affairs, Disruptions, General, Innovation, Leadership
Business leaders too often react to a recession by cutting costs, stopping spending, discontinuing new product launches — and waiting. The theory is that the market is bad, so it's an uphill slog to try doing anything new. Supposedly, a smart leader waits until things improve before spending again.
An example of this thinking is at GM. The retired executive brought back to head marketing, Bob Lutz, supports killing off the Pontiac brand to make GM smaller and leaner. But he realized this week that there was a car in the Pontiac lineup called the G8 which was selling pretty good. Designed in Autralia, this 2 passenger sports car had sales up 56% from last year – something no other GM car could boast. So Lutz said he'd find a way to keep making and selling the car. But now, Lutz has reversed position and in "GM's Lutz Makes another U-Turn" from the Wall Street Journal he says "upon further review and careful study, we simply cannot make a business
case for such a program. Not in today's market, in this economy, and
with fuel regulations what they are and will be." In other words, we can interpret these comments as "we at GM want to save money and try selling the cars we've got – whether you like them or not – rather than move forward with a car you may really want." This kind of thinking is not the way to grow out of a recession.
On the other hand, we have Tesla Motors. The company Mr. Lutz laughed at a few months ago claiming it wasn't a serious car company. Tesla has one car for sale today, a superfast 2 seater sports car that is 100% electric. Today in Marketing Daily we read "Tesla Plugs Dealership into Manhanttan's Chelsea". Tesla is selling 100% of its production, and it is supporting that by opening a new, stylish dealership in Manhattan. While GM is eliminating a hot seller, Tesla continues to promote theirs. While GM closes dealerships, Tesla opens a new one. Tesla is making a car, albeit a low production model, that people want. It is going where the market is shifting. That's how you get out of a recession, you give customers what they want.
I met another great example last week at Morgan Aircraft. You've never heard of this company unless you've been to an air show. While the makers of private aircraft like Cessna and Gulfstream are shutting down production, Morgan has raised millions of dollars while developing a new aircraft slated for market introduction in about 4 years (flying in tests today, still needing FAA approval). But the Morgan isn't a typical plane as you know it – what's called a "fixed wing" aircraft. The Morgan is able to take off vertically, like a helicopter, then fly horizontally like a plane. This dramatically improves the use of a plane by eliminating airport runways, and thus the commuting requirements to/from airports for business flyers. Morgan has identified the early users of their aircraft, which will allow successful introduction as it expands the market for its technology. Morgan brings to market something new, something different, something that gives buyers a reason to buy – better economics and improved ease of use. That's how you raise money and build a business in a recession – by offering something new that creates demand for your product.
Perhaps even Starbucks' new leadership is getting the idea. After months of doing "the wrong stuff" (as reported in this blog), The Seattle Times reports "Starbucks Tests New Name for Stores." Only this is way beyond a name test. The new stores have a different menu, including liquor, a different ambiance, and even different coffee making equipment. This is something new. Will it matter? We don't yet know, because (a) we haven't heard of any Disruptions in Starbucks to make us think this is a really serious initiative that could displace the earlier commitment to "coffee", (b) we don't know how much permission the developers of the new idea have to really do something new – like maybe not sell coffee at all, and (c) we don't know if there are any significant resources committed to the project. So it's too early to know if this is really White Space. But at least it's not another flavor of coffee or repackaging of coffee or more of the same – which was killing Starbucks. If the leadership really starts creating some White Space projects to develop new stores then even the beleagured Starbucks has the opportunity to grow itself out of this recession.
Recessions dramatically bring home market shifts. Those clinging to old Success Formulas are exposed as very weak (like GM) and are targets for failure. Those who reach out to provide solutions to new market demands can not only grow during the recession, but upstage older competitors. They can change market competitiveness to favor themselves, and grow dramatically by overtaking the Locked-in competition. Recessions end when businesses launch new products and services that meet the needs of a shifted market. So if you're waiting on the recession to end – just keep on waiting. When it ends you just might find you are so out of the market you aren't competitive any longer. Instead, get with moving toward the new market needs today so you strengthen your business and become a leader in the near future.
by Adam Hartung | Jun 30, 2009 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Lock-in, Web/Tech
With all due respect to the great guitar playing songwriter Jerry Reed, today Starbucks and Dell continue to look like copies that were once hot – but now couldn't warm a nose in a blizzard.
"Starbucks continues food push with overhauled menu items" is the Advertising Age headline. Starbucks closed hundreds of stores last year, saw sales in stores open a year fall 8%, and profits dropped 77%. But they aren't bringing anything new to their business. They are revamping the food to make it more healthy. There's nothing wrong with introducing healthier food, but how does Chairman Schultze think this will turn around Starbucks? The company's "return to basics" program has made it overly sensitive to retail coffee prices, while robbing the company of its highly desired cache. An enhanced instant coffee did nothing for revenues. And now this overhauled menu doesn't really offer anything new to excite customers. It's still a ton of calories – even if they are healthy calories – offered at a high price.
Starbucks has given rejuvenated life to McDonald's. Nobody expected the McCafe to be a huge success. But Starbucks has played right into McDonald's sites by shutting down most of its "non coffee" operations and repositioning itself not as a destination but as a fast food outlet. McDonald's reminds me of the hunter who spends all day tramping the forest in search of a deer, only to get back to his pick-up and have a big buck walk within 20 yards of his vehicle. When he least expected to get his kill, it walked up on him. And that's what Starbucks has done. It's made McCafe much more viable than it appeared likely, simply because Starbucks chose to move into direct competition with McDonald's rather than continue on the new business programs it created earlier in the decade.
Starbucks has gifted McDonald's by choosing to fight them head-on right at McDonald's strengths – operational consistency and low price. And now Starbucks is showing complete foolishness by entering into traditional advertising – an area where McDonald's is a powerhouse (the inventor of Ronald McDonald is an expert at ad content and spending). Even worse, Starbucks, which eschewed advertising for years, has decided to promote its new food menu by placing ads in (drumroll please) newspapers! At a time when readership is dropping like a stone, and during summer months when seasonal readership is lowest, Starbucks is choosing to promote with the least effective ad medium available today. Even billboards would be a better choice! We have to ask, wouldn't the previous, much savvier, leadership have launched a wickedly intensive web marketing program to lure customers back into the stores? Some viral videos, lots of social media chat – that sort of thing which appeals to their target buyer? Why would anyone choose to fight a giant – like McD's – on their court, using their rules, against their resource strength? That's not savvy competition, it's suicide.
Simultaneously the once high-flying Dell has been in the doldrums for several years. Decades ago Dell built a Success Formula that ignored product developed, placing its energy into supply chain advantages. Competitors have matched those operational advances, and now Dell gives consumers little reason to make you prefer their product. Not to mention forays into service cost reductions like offshore customer support that absolutely turned off customers and sent them back into retail stores.
Now "Dell is working on a pocket web gadget" according to the Wall Street Journal headline. Not a phone, not a netbook, not a laptop the new device is an assemblage of acquired technology into a handheld internet device. How it will be used, and why, is completely unclear. That it will give you internet access seems to be the big selling point – but when you can accomplish that with your iPhone or Pre, or netbook should you choose a larger format, why would anyone want this device?
Dell seems to forget that it has to compete if it wants to succeed. It's products have to offer customers something new, something better. That's what made the iPHone so successful – it gave users a lot more than a traditional phone. And the same is true for Pre. And these devices now have dozens and dozens of applications available – everything from playing video games to ordering pizza at the closest delivery joint to reading MRI screens (if you happen to be a neurologist). Yet, this new Dell device has no new apps, and it's unclear it is in any way superior to your phone or netbook. Dell keeps trying to think it has distribution superiority, and thus can sell anything by forcing it upon customers. Even products that have no clear application. Dell is Locked-in to its old Success Formula, all about operational excellence, but that model has no advantage now that people with new technology – superior technology – can match their operational excellence.
When companies remain Locked-in too long they become obsolete. And it can happen surprisingly fast. Every reader of this blog can remember when Starbucks seemed invincible. And when Dell was the information technology darling. But both companies remain stuck trying to Defend & Extend their Success Formulas after the market has shifted – and their results are most likely going to end up similar to GM.
Don't forget to download my new ebook "The Fall of GM" and send it (or the link) along to your friends and social network pals. http://tinyurl.com/nap8w8
by Adam Hartung | Apr 29, 2009 | Books, Current Affairs, Defend & Extend, General, In the Swamp, Leadership, Lock-in, Openness
Today the U.S. Federal Reserve indicated that the worst of America's economic downturn may be over, according to "Fed stands pat, and says worst may be over" at Marketwatch.com. Fed officials seem to think that the rate of decline has slowed. Note, they didn't say the economy is growing. The rate of decline is slowing. They hope this points to a bottoming, and eventually a return to growth.
With interest rates between banks at 0%, and short-term rates for strong companies near that level, there really isn't much more the Fed can do to create growth. It will keep buying Treasury securities and keep pushing banks to loan. But growth requires the private sector. That means businesses – or what reporters call "Main Street."
The government doesn't create growth. It can stimulate growth with low interest rates and money that will stimulate business investment. Growth requires people make products or services, and sell them. Those who are waiting on the government to create a growing economy will never gain anything from their wait, because it's up to them. Only by making and selling things do you get economic growth.
Recent events, closing banks and massive write-offs, are a big Challenge to old ways of doing business. Those who keep applying old practices are struggling to generate profits. The tried-and-true practices of American industrialism just aren't turning out gains like the once did. And they won't. The world has shifted. Entrepreneurs in India, Malaysia and China – places we like to think of as poor and "third world" – are building fortunes in the information economy. American businesses have to shift. If you make posts to install on highway sides, well lots of people can do that and competition is intense. To make money you need to make products that help move more people on the highway faster and safer – some kind of post that perhaps can provide traffic information to web sites and aid people to look for alternate routes. Posts aren't what people want, they want better traffic flow and today that ties to more information about the highway, who's using it, and what's happening on it.
Growth will return when businesspeople move toward supplying the shifted market with what it wants. Like Apple with a solution for digital music that involved players and distribution. Or Amazon with a solution for digitally obtaining books, magazines and newspapers, storing them, presenting them and even reading them to you. These companies, and products, appeal to the changed market – the market that values the music or the words and not the vinyl/tape/CD or the ink-on-paper. The customers that want the information, not necessarily the tangible item we used to use to get the information.
For the economy to grow requires a lot more businesses realize this market shift is permanent, and adjust. During the Great Depression those who refused to shift from agriculture to industrial production found the next 40 years pretty miserable – as rural land prices dropped, commodity prices dropped and the number of people working in agriculture dropped. Agrarianism wasn't bad, it just wasn't profitable. And going forward, industrialism isn't bad – but to grow revenues and profits we have to start thinking about how to deliver what people want – not what we know how to make. You have to deliver what the market wants to grow sales – even if it's different from what you used to make.
Starbucks offered people a lot of different things. And the old CEO tried to capitalize upon that by expanding his brand into liquor, music recording, agency for entertainers, movie production, and a widespread set of products in his stores – including food. But then an even older CEO returned, and he said Starbucks was all about coffee. He launched some new flavors, and he pushed out an instant coffee product. But a year later "Starbucks profit falls 77% on store closure charges" reports Marketwatch.com. His "focus" efforts have cut revenues, and cut profits enormously. He's cut out growth in his effort to "save" the company.
By trying to go backward, Chairman Schultz has seriously damaged the brand and the company. He has closed 570 stores – which were a big part of the brand and perhaps the thing of greatest value. Stores attracted people for a lot more than just coffee. People met at the stores, and buying coffee was just one activity they undertook. So as the stores were shuttered, the brand began to look in serious trouble and people started staying away. The vicious cycle fed on itself, and same store sales are down 8%. No new flavor or packaged frozen coffee bits for take home use is going to turn around this troubled business. It will take a change to giving people what they need – not what Mr. Schultz wants to sell.
With more and more people working from home the "virtual office" for many small businesspeople can still be a local Starbucks. When you can't afford take a client out for a snazzy lunch you can afford to take them for a coffee. When your wasteline can't take ice cream, you can afford a no-cal hot coffee in a great environment. Starbucks never was about the coffee, it was about meeting customer needs in a shifted market. And when the CEO realizes this he has the chance to save the company by taking into the new markets where customers want to go. Not by bringing out new instant coffee granules.
Starbucks is sort of a model of the recession. When you try to do what you always did, and you blame the lousy economy for your troubles, you'll see results worsen. As businesspeople we must realize that the recession was due to a market shift. We went off the proverbial cliff trying to extend the old business – just like Apple almost did by trying to be the Mac and only the Mac. To get the economy growing we have to look to see what people really want, and supply that. And what they want may be somewhat, or a whole lot, different from what we used to give them. But when we start supplying this changed market what it wants then the economy will quit contracting and start growing.
So be more like Steve Jobs, and less like Charles Schultz. Quit trying to go backward and regain some past glory. Instead, look into the future to figure out what people want and that competitiors aren't giving them. Be willing to Disrupt your business in order to take Disruptive solutons to the market. And get your ideas into White Space where you can develop them into profitable businesses. Don't wait for someone else to turn the economy around – just to find out then it's too late for you to compete.
