Guide 6: Food Money Machine - Competitive Advantage
The Food Money Maker is the foundation of all growth. A Food Money Maker is a specific market opportunity combined with your company’s approach to capturing it.
A Food Money Maker Consists of Five Key Components:
1. A target consumer who’s aware of his or her problem.
2. A promise that your company makes to prospective consumer.
3. A distribution channel for reaching and transacting with the target shopper.
4. A product or service that fulfills the promise made to the customer.
5. A sustainable competitive advantage.
In this article, I’m going to discuss issues with the fifth, and final, component of a Food Money Maker: the sustainable competitive advantage. A sustainable competitive advantage is a “soft” or “hard” asset that’s difficult for a competitor to duplicate. This enables you to extend the lifespan of your Food Money Maker.
A soft asset might be a product development process capable of producing new food product revisions in only four months, while the rest of the industry takes seven months. Another soft asset might be a method of recruiting and interviewing that consistently attracts exceptionally gifted employees.
A hard asset could be a patent on a unique product design, a manufacturing facility, or a refrigerated warehouse.
Here’s an example of why creating a sustainable competitive advantage, while growing revenues, is so important:
Sustainable Competitive Advantages Enable Sustained Revenue Growth
We discussed briefly direct to store delivery and this has been a source of sustainable competitive advantage for one leading snack food and potato chip company in the United States.
Frito-Lay has built up an efficient dsd delivery system that can reach the smallest of retail outlets and channels. It uses small step-van trucks that take small order to small outlets like gas stations, convenience stores and drug stores. It has built an efficient delivery system of depots and routes that allows it to do this economically.
This direct approach and visiting the locations provides Frito with enormous advantage compared to other snack food companies with what goes on the shelf, how much shelf space they end up with in-store and the amount of special displays and secondary marketing opportunities they receive with retail stores.
The company is very focused on their distribution system and you will not see beverages or heavy products or larger bulky consumer products on their trucks that slow down their delivery efficiency. The result has been a competitive advantage against other snack food companies and offers them a much higher unit sales rate at very attractive margins. It’s important to note that many of their products are me-too and not unique.
Frito-Lays distribution system is one of their competitive advantages.
Leverage a Competitive Advantage or Create One
There are two types of Food Money Makers; small ones and big ones. A small Food Money Maker might be a particular one-time-only promotion to your existing customers. It’s a growth engine with a limited lifespan but one that’s acknowledged and accepted. These “low hanging fruit” opportunities can boost a company’s revenues with unusually low risk. However, the lifespan of these opportunities is often measured in weeks or months.
The second type of Food Money Maker is the big ones—cracking open new markets, going after a new customer segment, or solving a new class of problems for your existing customer base. The investment of time, money, and resources in the pursuit of these opportunities ranges from “significant” on the low end to “bet the company” on the high end.
For these types of Food Money Maker opportunities, the role of the competitive advantage is important to consider. Each major growth engine should either take advantage of an existing competitive advantage or create one as a byproduct.
The reason for this is that the sustainability of your revenue growth engine is directly tied to your competitive advantages. If your pursuit of a revenue growth engine doesn’t involve using or creating a competitive advantage, competitors can duplicate your efforts easily. This shortens the lifespan of the opportunity and makes it nearly impossible to sustain extreme revenue growth.
In contrast, when you leverage an existing competitive advantage as part of your growth engine it makes it difficult for a competitor to copy you. We are seeing this in category after category in the food sector.
One of the most dismaying trend of all for large, mega-brand food companies is that scale is losing its value. Small brands are able to compete effectively by outsourcing manufacturing and other business functions while developing supplier relationships with big chains that sell to a large part of the ACV market. In fact, many retail supermarket chains are actively pursuing relationships with smaller brands to appeal to changing consumer preferences.
This is the key for creating extreme revenue growth that’s sustainable over the long haul. You must either link revenue growth engines to exploit your existing competitive advantages or incorporate the creation of competitive advantages into your revenue growth plans. Either way, the sustainable competitive advantage is the key for long-term growth.
Purchase and Invest for Competitive Advantage
Competitive advantage is also important to company valuation and the future life of your food business. In recent years I’ve seen as many as 400 mergers and acquisitions in the food business. It’s fascinating and interesting to see the reasoning and models these food companies are using to justify these expansions and sell-offs. We all are aware of consolidation but with the challenges from upstart brands, there is more effort placed into production and product capabilities.
Common Corporate Purchase Strategies in the Food Industry
Product or Category Relatedness
Ultimately, Food Money Makers achieve market share and sustain competitive advantage making them ripe targets for purchase by capability-building suitors or those searching for valuable and special food businesses to operate.