Grabbing More of the Value Chain

Posted on March 7, 2007

When a customer has it easier because of your innovation, they’ll either pay more for your product or will choose you over your competition. Loren Kimura, CEO of Basic American Foods, shows us how committing to innovation can make your customer’s life simpler and grow your bottom line.

Excel is the antithesis of the show, Hell’s Kitchen.  Not Excel the spreadsheet program, but Excel, a category-leading dehydrated potato mix that is sold to the food service industry by Basic American Foods.  CEO Loren Kimura slipped me some samples of the powdered mix after we met and I made some myself at the house.  “Yummy”, said my wife.  All I did was add 1 cup of boiling water, stirred, covered, and let it sit for 12 minutes.  It would certainly calm some of the panic and chaos that is the currency of Hell’s Kitchen.

Excel was born out of such kitchen chaos.  Basic American Foods sells nearly 70% of its 450 million revenues through the food service channel, so their key customer works in the back of the house.  Before Excel, their customers had to mix in the butter and tend to the making of the mashed potatoes.  That meant more manpower and higher labor costs.  With growing pressure on restaurants to provide more value for less, Excel was developed and introduced in 1995.  In a few short years, it became one of the best selling products in the company’s history.

What Basic American Foods did with Excel was to do their customer’s job for them.  When a customer has it easier because of your innovation, they’ll either pay more for your product or will choose you over your competition.  In B-School speak, they have pulled value from one participant in the value chain into their own operation.  Their innovation reduced the amount of value creation in the restaurant kitchen. This is a fruitful area for innovation.  I shamelessly did this myself in my own (non-food) company after finding some big pain points that I could easily solve with technology.  But I had to spend enough time with my customers to actually see and feel the pain point.  I wonder how many times Loren or his team sat in a corner of a restaurant kitchen watching trouble erupt and tempers flare, until they decided to make mashed potato preparation even easier.  Now they have a reason to sit in a corner of consumer kitchens everywhere to see what the pain points are in that environment.

With the licensing of the Hungry Jack brand from Smuckers in January 2010, Basic American Foods has entered the grocery channel in a big way, and is already hard at work introducing their most popular food service products into the retail market.  They brought in Bain and Company to give them a head to toe physical, and one of the six key critical initiatives recommended was innovation.  So Loren formed an innovation group in January 2010 that reports directly to him.  He plucked some of the best executives from inside and outside the firm, and the team of 9 is almost fully staffed now.  Their goal is to have at least 20% of their sales coming from new products released in the prior three years.  That sure seems like a lofty goal to me, but Loren told me that the team came up with that number, not him.  The biggest challenge will be coming up with the ground breaking ideas that will translate into the 20% growth goal.

It’s easy to give lip-service to innovation, but getting results that move the needle are difficult.  Loren Kimura has put his money where his mouth is and has invested in and empowered an Innovation Department.  That’s quite a contrast to what Kimpton Group CEO Michael Depatie does to foster innovation at his 50 hotel/50 restaurant enterprise.  It’ll be fun (that’s a clue) to tell you what I learned in that interview, so stay tuned.  That essay is coming in a few weeks.