The Low Growth Conundrum

I was interviewed last week by Brand Week magazine who were writing an article about the sales success of Special K over the past year.

I’ve never really considered myself a CPG expert, we just don’t do that much work in this arena, but what really interested me about the subject is that this is a typical low-growth category.

The challenge for Special K, and anyone else in similar categories, is that innovations in new flavors and product types are usually destined to create marginal improvements in revenue at best, and dangerously fragmented low (or no) profitability extensions at worst.

Add to this the unsustainable levels of promotional spend that are required to create uplifts in market share and you’ve got some pretty dangerous economic factors at play:

- Micro segmentation of brand/product portfolios creating chaos on the shelf and increased marketing management and operational costs

- Unsustainable advertising costs and value destroying sales promotions designed to drive share (but usually at the expense of profits)

What this means is that it doesn’t really matter how good your advertising creative is, or how engaged in your campaign the consumer becomes, the net result tends to be a falling back to the status quo once the unsustainable level of marketing spend reduces to normal levels.

Which creates a massive growth conundrum faced by many, many brands. What do you do when incremental product extensions and marketing promotions are no longer enough to drive meaningful and sustainable growth?

Clearly there isn’t a silver bullet answer for this (if there was, I wouldn’t be here writing this) but one solution that more brands should consider is the leverage of their brand into new, higher growth categories that may require a new business model.

Mercedes Driving Academy is a great example of this that Wolff Olins worked with Mercedes to create. Here, the idea is to leverage existing infrastructure owned by Mercedes (test track and cars) and leverage it into a completely different growth model (a service to provide driving instruction for children)

One wonders what the Special K brand could leverage into?

If you take the view that Special K isn’t really a cereal or food brand, but is instead about healthy living, then this is a brand which could potentially leverage into dieting, fitness, wellness and more.

What the growth potential of these is I don’t know. But I suspect that if the US Military see obesity as a risk to national security because 27% of potential solidiers are too fat to fight, then there’s probably significant upside potential.

And if memory serves, I believe Curves was the fastest growing franchise in America for some time.

Just imagine if Special K had done that?

(Paul Worthington)