Pick up the annual report of any company, regardless of what it does, what markets it operates in or how much profit it makes in a year, and there is one word you are almost always likely to read at some point – innovation.
It is a term used by business executives the world over, but what it truly signifies is harder to pinpoint. What represents real innovation in a business? Steve Jobs, the man who co-founded the technology company Apple, once described innovation as what distinguishes between a leader and a follower. So is it the point of differentiation every business strives for?
When we think of what innovation might look like for a company such as Apple, it is abstract and far removed from the vast majority of agribusinesses out there. Instead, one of the more realistic and practical interpretations of the term is that true innovation is a change that unlocks new value.
Whether this change is in product design, marketing, supply chain management or customer services, it must be something that adds real value to an overall business. And while almost all companies claim to be innovative, how many really are making changes that unlock new value in the business.
True innovation
One company that can certainly claim to be a true innovator for its approach to a seemingly basic business model is the New Zealand-based kiwi fruit marketer Zespri. Formed in 2000, the genesis of Zespri stretches back as far as 1970 when the first kiwi growers in New Zealand came together to form an export co-op.
Much like Ornua here in Ireland, the aim of the export co-op was to create a joined-up approach across the industry to the international marketing and sales of kiwi fruit. Export demand for New Zealand kiwis came from Japan, China and Europe, but was also starting to take off in North America.
As a result, Kiwi production in New Zealand expanded rapidly from the creation of the export group with the area planted in kiwifruit ballooning from 3,500ha in 1979 to more than 18,000ha by 1986. Production is primarily concentrated around the Bay of Plenty region in New Zealand’s north island where 80% of all New Zealand kiwis are grown.
By 1988, the export group had evolved into the New Zealand Kiwi fruit Marketing Board (NZKMB) but by the early 1990s, New Zealand kiwi fruit had become a commodity product with high production and shipping costs to export markets.
The equally rapid expansion of the Chilean kiwi fruit industry had grown to compete directly with New Zealand exporters and the increased global supply sent kiwi prices crashing through the floor. By 1993, many kiwi fruit growers were facing bankruptcy and the NZKMB reported losses of more than €45m.
Differentiation
Although consumers saw New Zealand kiwis as healthy, nutritious products (they were also marketed under the slogan “the world’s finest”), the product had very little points of differentiation from the rest of the competition. A brand was needed.
To go about creating this new brand for New Zealand kiwi fruit, consumer insight teams engaged with kiwi eaters from key markets as to what a New Zealand kiwi meant to them and the Zespri brand name was eventually developed in 1997.
By 2000, the NZKMB was restructured into the Zespri Group, with growers allotted shareholdings based on their annual production volume. While it had a new brand label to operate with, Zespri still had the sizeable task of moving its products away from the commodity space.
The catalyst for this was a newly developed variety of kiwi fruit that was golden in colour opposed to the traditional green coloured kiwi fruit. With the property rights of this new golden variety owned by the New Zealand research institute, Zespri had a new, distinctive looking fruit that was sweeter than the green variety.
The visual distinction between the two varieties allowed Zespri to create two brands. The traditional green kiwifruit was rebranded Zespri Green to form its main offering, while Zespri Gold formed a new premium range and sold for a 30% higher price on the shelf.
The ability to offer two separate ranges allowed Zespri move away from a space where price was just a race to the bottom, or sometimes referred to as death in the middle. The higher priced gold range could meet the needs of more affluent, health-conscious consumers willing to spend a bit more on food. And the traditional green range could meet the demand from consumers who simply saw value as price.
Grower challenge
The next major challenge facing Zespri was getting its growers to buy into the new strategy. Zespri chief executive Lain Jager said at the time: “The greatest strength of Zespri is that it is grower owned and controlled. That’s also our greatest potential weakness. We must work hard every day to avoid becoming supply driven.”
It faced the challenge of communicating to its growers the importance of managing supply from year to year so as not to flood the market at any one time like in 1992 when a fruit glut in Europe caused prices to collapse.
Following the economic downturn in Europe, Zespri reduced volumes sold into that market in order to retain its price point and sent excess supply to markets in Asia where trading conditions were stronger.
As a customer-facing business, Zespri is also well positioned to pick up on the changing dynamics of its different markets and relay this demand information back to its growers. Indeed, the group quickly realised that certain markets were more demanding than others in terms of quality, appearance and taste, and were then able to communicate this back to growers.
It found that prices could be increased as wealthier consumers in markets like Japan were willing to pay more for sweeter, higher-quality kiwis. This in turn led to higher fruit consumption and acted as a barrier to competition as it set consumers’ future taste expectations, making them less willing to buy a less-sweet alternative.
So rather than incentivising growers to produce greater volumes, a new “taste Zespri” incentive programme was introduced that awarded bonuses to growers based on sweetness. Quality became the goal rather than quantity.
Innovation is intrinsic to the success of Zespri and it invests almost €10m in continued brand development and marketing. In 2016, Zespri describes itself as the company that sets “the global benchmark for guaranteed excellence” and it certainly rings true. Just like Mr Jobs, the business is a leader not a follower.
Comment
From an Irish perspective, there are striking parallels that can be drawn with the story of Zespri. Much like many of our dairy and meat exporters, the company handles a simple commodity product with demand coming from export markets around the world.
However, by taking an innovative approach to what appears a simple business, Zespri was able to move away from the commodity space. Convincing growers that becoming too supply driven would only deteriorate returns and that developing a premium, higher margin range was key to the group and the growers’ success.
Likewise, Irish dairy has had remarkable success through the development of the Kerrygold brand. As the Zespri story proves, a brand in itself is not enough. If we really want to move away from the commodity space, true product innovation is not only necessary but essential. The reputation of Irish dairy is unique with a sustainable and green production system. This is the opportunity in a globalised market but we must lead the market rather than follow it.
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