FROM THE FIELD
February 2004
'Pinching Pennies to Greatness'?

Last week, at a foodservice equipment trends seminar put on by Southern California Gas Co., an independent manufacturers’ rep who does a lot of business with supermarket chains was telling me some of what’s going on in that business. He brought me up to date on the supermarkets’ showdown with labor unions. He also talked about other strategies to drive cost out of that industry’s supply chain. One of the key drivers of this cost-cutting initiative, the rep said, is that “Wall Street is clobbering the supermarket stocks.”

Sound familiar? The supermarket situation may be even tougher than what we’ve had in foodservice, but it’s not entirely different. Both industries are notorious for margins so thin you could cut yourself. Not surprisingly, investors can be slow to flock in our direction.

How can two industries built around food—a must-have product, by the way—manage to move so much of it without making a ton of money?

The only way out is innovation.

Lots of answers leap to mind. We’ve all heard the consultants proclaiming oversupply, with “functional equivalence” of products leading to “commoditization” in pricing—even of engineered goods. Thus, whether you’re an operator or a supplier, pricing becomes a matter of figuring out how little we can charge and still survive. We get our channel partners to share burden, the profits wither, development funding goes away, and more commoditization follows.

Somewhere along the line, we all have to break through to where we can put a bigger value on innovation. Ultimately, to stretch the bean counter analogy, the goal should not be to preserve the beans we already have, but to find new ways to make more beans.

Or, as IndustryWeek Chief Editor John Brandt suggested to listeners at the NAFEM Executive Summit four years ago, “You cannot pinch pennies to greatness.”

Everybody who’s been in marketing awhile knows there’s a lifecycle to a technology, product or service. The early part of the cycle, when there’s a distinct advantage and no similar competition, is where the profit is. Later on, competition gets thick, and profits thin.

The only way out is innovation. We have to find ways to truly advance products and services—not to do the same things better, but to truly change what we’re doing. Microwaves, for example, were a huge leap. Cook-chill systems were not as big a breakthrough, but they were big, too. Some recent steam development has been almost as significant. Lightwave cookers, induction and so on almost make the same list. Drive-through systems didn’t change the food product, but they sure did take delivery to a new, much faster and more convenient level.

We’re overdue for a big shakeup. Who—and what—will be first?

Brian Ward
Chief Editor