Product Development Case Study in a Food Manufacturer

Reconstructing the Product Portfolio and Building a Foundation for New Product Development at a Salt Manufacturer Experiencing Declining Profitability Due to Proliferation of Products

A food manufacturer with approximately 100 employees that manufactures and sells salt for household and commercial use. For this project, we provided support through a team of several consultants as a short-term, intensive initiative.

While they had secured stable sales over many years, low profitability had become a major management issue. The consultation from the company was: “We want to develop high-value-added new products that generate profit.” At first glance, this seemed like a project that should start with new product ideas and market research. However, what became clear during the initial analysis was that, even before simple product development, there was a need to review the existing product lineup itself.

1. Discovery of Initial Issues: Sales Are Stable, but There Are Too Many Products

First, we reviewed the historical data of sales by product over the past three years. To be frank, our first impression upon receiving the list was, “Are they really handling this many products?” When we actually analyzed it, the top 17% of items accounted for approximately 80% of sales. Such concentration of sales is by no means rare for food manufacturers. The issue was how the many products with small sales were impacting the profits of the company as a whole.

Are products that sell only occasionally truly tied to profit? Is the excessive number of items turning into physical inventory or packaging inventory and squeezing profits? Are the setup changes and manufacturing man-hours for small-volume products being sufficiently reflected in cost calculations?

Therefore, even though it was a product development support project, the first thing we did was verify the financial and profitability structure. The first step in product development is not necessarily coming up with ideas. If you increase new products while leaving a product structure that makes it difficult to generate profit, SKUs will increase further, resulting in an increased burden on manufacturing, inventory, sales, and management. In the case of this company as well, product-by-product cost management was in a state of “seeming to be done, but not sufficiently visible.” Although it is difficult to strictly quantify everything—such as gross profit by SKU, profitability by B2B customer, stagnant inventory, packaging burdens, and manufacturing man-hours required for small-volume products—we estimated the items with large impacts first and proposed a policy to proceed with product development and product consolidation simultaneously.

2. Essential Issue: The Reason Product Consolidation Did Not Progress Was Not Resistance from the Field, but the “Decision-Making Structure”

Based on the results of the initial analysis, we had the company understand the necessity of product consolidation. However, when looking at the product consolidation plan that came out the following month, the targets for discontinuation and integration were limited to only a few types. When we listened in detail, there were important voices unique to the field.

“Local customers are buying them.” “If there are even a few sales, we want to keep them.” “We want to keep it because it used to be a flagship product in the past.” “Considering the relationship with specific customers, we cannot easily stop it.”

These are voices that should by no means be dismissed lightly. The voices from the field contain important information that is difficult to see through numbers alone, such as relationships with customers, trust in the region, and brand history. On the other hand, if they are all preserved without being verified through numerical values, it results in the structure of high-mix, low-volume production becoming fixed, becoming a factor that lowers the profit margin.

In fact, the problem of having too many products had been pointed out internally for many years. “The things that external consultants point out are things that someone inside the company has already noticed.” This is something that happens in many companies. However, even if it is understood within the company, because there are conflicts of interest between departments and past backgrounds, it does not easily progress to decision-making. Here lies the role of external support. The role we should fulfill is not simply to state platitudes from the outside. It is to visualize issues that were difficult to speak about internally using numbers, show future forecasts, and bring them to the table for decision-making.

3. Measure: Establishing a Product Portfolio Meeting Directly Under the President

Behind the lack of progress in product consolidation, there was also an issue that cross-departmental decision-making meetings were not functioning sufficiently. The sales department is particularly prone to becoming cautious about discontinuations and integrations. Because they directly hold relationships with customers, it is also a natural reaction.

However, sales wants to protect revenue. Manufacturing wants to increase efficiency. Development wants to create new products. Management wants to improve the profit margin.

Even though each department was saying the right thing, there was no place to look at products as a whole and decide “what to grow,” “what to maintain,” and “what to stop.” Therefore, we proposed a framework to regularly hold a Product Portfolio Meeting directly under the president.

In this meeting, rather than mere information sharing, the objective was to periodically judge products to grow, products to maintain, and products to be candidates for discontinuation.

Product development and product consolidation should naturally be discussed in the same place. This is because if you expand new products without consolidating existing products, the number of SKUs will continue to increase, and neither the burden on the field nor the decline in profit margins will be resolved.

4. Premise of New Product Development: Creating the Financial Stamina for the Company to Take Risks

Product development always involves risks. A certain amount of cost is required for prototype development, package production, monitor surveys, test marketing, sales materials, and in-store promotions. However, if the revenue structure of existing products remains weak, the capacity to take those risks will not be born. Therefore, at this company, we prioritized improving the profit margin through product consolidation first and preparing the ground to invest in product development.

New product development is not simply about thinking of new flavors or packaging. It is about deciding which products to keep, which products to consolidate, and in which areas to concentrate the limited management resources of the company.

5. Market Research: Converting the “Tacit Knowledge” of Sales Representatives into Judgment Material for the Whole Company

Next, we conducted a competitive shelf and price survey. In fact, the sales representatives regularly looked closely at competing products, store prices, and changes in shelves. However, that had become tacit knowledge within the minds of individual representatives, and it was not in a framework to be shared and accumulated across the entire company. Salt is not a category where new products come out one after another every month. That is precisely why it is important to continue looking at shelves on a daily basis and chronologically observe prices, volumes, packaging, usage appeals, and the movements of competitors.

Which price range is the main battlefield, what is the difference between the salt aisle and the spice aisle, is the packaging designed so that the usage is communicated to consumers, and for what reason are high-value-added products selling at a high price?

We emphasized converting these pieces of tacit knowledge held by the sales field into explicit knowledge that can be used for product development and pricing.

6. Redesigning Market Research in Commodity Foods

At first, there was an atmosphere within the company asking, “Is a web survey or monitor survey really necessary for a commodity product like salt?” Certainly, even if you ask about salt itself, “Do you like this salt?” or “Do you want to buy it?”, it is difficult to get effective results. What is important in commodity foods is not just the likability of the taste.

At what timing and for which dishes is it used? Which container makes it easy to use? Is there a reason to buy it even if it is more expensive than regular salt? Will they continue to buy it on a regular basis? etc.

In other words, market research is not unnecessary just because it is salt. What should be researched is not “salt itself,” but “salt that changes how it is used.” For example, if it is a product concept such as salt that makes vegetables delicious, spice salt that matches meat dishes, or baked salt that is easy to use on the table, the accuracy of consumer surveys will increase significantly.

Such products are not just salt, but are tied to specific dining scenes. Therefore, web surveys, dining photo monitors, prototype monitors, and test marketing in limited regions become effective.

In fact, even for commodity foods like salt, major companies in the industry continuously conduct ambassador initiatives, monitor projects, recipe postings, and sharing of usage scenes on social media. This is an effort not just to communicate the “quality of salt,” but to grasp how consumers use salt in their daily cooking and what kind of dishes match it to communicate the product value, conducting two-way communication.

Regarding this point, there were people within the company who had been proposing it from before. However, in an atmosphere of “is it really necessary to go that far for just salt?” or “if we make a good product, it will sell naturally,” it did not easily become a loud voice.

Therefore, while showing the fact that similar initiatives are being conducted even by major companies within the industry, we shared that such surveys and monitor initiatives are not special things, but are processes necessary for product development even for commodity foods.

The reason major companies can remain major is not just because of advertising expenses or distribution networks. It also lies in the fact that they diligently observe the usage of consumers, translate them into recipes and usage scenes, and continue to communicate the product value.

7. Test Small, and Judge by Actual Sales

However, for small and medium-sized manufacturers, there is no need to conduct large-scale market research from the beginning. Rather, it is important to experiment small at first and narrow down while looking at the reactions. What we proposed this time was a combination of realistic surveys and tests such as the following.

Discovery of usage scenes with a dining photo monitor of about 20 to 30 people Confirmation of taste, container, and price perception with a prototype monitor of about 30 to 50 people Observation of actual sales with in-store test marketing at about 3 to 5 stores

In recent years, by utilizing self-type survey tools like Freeasy or web monitors, it has become possible to implement them at a lower cost than before. However, being able to implement it cheaply and being able to obtain meaningful results are different things. Particularly for commodity foods like salt, what you ask in the survey becomes extremely important.

Instead of “Do you want to buy this salt?”, “Which dish do you want to use it for?” “Compared to regular salt, how much more expensive would you buy it for?” “Which container would you want to place on the dining table?”

A question design directly linked to commercialization judgment like these becomes necessary.

8. What We Valued in the Support: Creating a Structure That Generates Profit Before Increasing Products

What we emphasized most in this support was not simply putting out new product ideas. It was to create a structure that generates profit before increasing products. In food manufacturers, the number of products can continue to increase in order to protect sales. However, too many SKUs generate costs that are difficult to see with the eye, such as inventory, manufacturing switchovers, and order management. If you increase new products in that state, the profitability of the company as a whole will not improve. That is precisely why, in this project, we proceeded with the consolidation of existing products and new product development as one. That is precisely why product development changed from a simple generation of ideas into an initiative that improves the profit structure of the company as a whole.

9. Current Situation and Future Outlook

A few years after the support, I saw that the website of the company had been renewed. There, instead of simple “salt,” products whose usage at the dining table is easy to understand were lined up. I thought it had become a product creation that firmly captures user needs, such as salt that helps shorten cooking time.

Redesigning salt as a ingredient according to the cooking scenes of consumers. That direction was reflected in the product lineup and how it is shown on the web as well. What is important in the product development of a food manufacturer is not simply increasing new products. It is to create a product structure that generates profit, review the technology of the field from a customer-centric perspective, and reborn it into a product that is actually used at the dining table. This support became precisely the foundation building for that.