I worked in the home-brewed/ground coffee business for a long time. Talk about a commodity (aka meatball) business. You know you are in a commoditized category when .... you make or lose most of your money based on changes in the price of the raw ingredient. When the coffee market went up, we did great. When it went down, so did we.
The only people who consistently make money in that kind of business are the market leaders. They are the ones that still have the volume to absorb fixed promotion costs (like trade ads) and have the leverage with retailers to get some return for their trade spending investment. Heck, they may even have money left over for advertising.
But it looks like that's still not enough to keep P&G interested. It wants out and is trying to spin-off Folgers. That's despite the fact that, as well as being the market leader, Folgers is one of P&G's stable of $1 billion brands. But, on the downside:
1) No growth: The category has been in decline for years as more and more consumers switch to whole bean coffee alternatives and are drinking less coffee at home.
2) Not international: Folgers was never a success internationally and P&G is focusing on brands that are global in reach.
3) Not the right category: P&G appears to be getting out of foods altogether. It's already sold its Sunny Delight and Jif peanut butter businesses and there are reports that its Pringles business is also on the block.
When I take an occasional walk down the coffee aisle, for old time's sake, I still find it amazing to see how thoroughly and how quickly the ground coffee business has been dismantled. Now there's just a sad little section of cans left, crowded out by whole bean bags and bean dispensers.
It's a great example of competitive paralysis. Even though we (the ground coffee manufacturers) could see the threat posed by Starbucks, none of us did anything much or enough about it. I think that's because none of us were prepared to venture outside of our area of expertise (packaged goods) and do what was required and take on Starbucks on its home turf by operating coffee stores of our own. That lack of willingness to reinvent ourselves is what has put the category is precipitous decline. If Mrs Olsen were still around, she'd be so mad at us but even she wouldn't be help much at this point.
Links:
The first of my earlier posts about Meatball Sundae by Seth Godin (to explain the above reference to meatballs).
Tuesday, January 22, 2008
Folgers: The best part of breaking up
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3 comments:
Well to put it bluntly Flogers and similar products are awful compared to the "real" coffees. For many years a lot of us grew up knowing nothing but typical grocery store fare. Products like Folgers in the day when the art of making coffee has been exposed to the masses make them the brownest of brown cows when so many coffee companies have realized the coffee can be an experience.
Martin, you really are drinking the red cool aid from Seth Godin huh?
Come back from the dark side into branding young Jedi.
That's the problem with coffee today. Folgers just sat there fat and happy. Change was like a disease to them. That's why they failed.
Look what Kraft Foods did for their Gevalia line. They are a premium online retalier. Can't find them in stores. I order once a month with them. I had no idea they were a Kraft product. I thought they were this mucky muck Swedish coffee maker.
You know that if you don't differentiate you're dead. You need a rock solid brand identity. Folgers had one in the 50's but hell it's 2008.
That's the problem, has nothing to do with meatballs!
linkerjpatrick is right: folgers is terrible coffee. But I suspect that even if you had good coffee, you'd have had to start selling it in a bag not a can for it to stay popular.
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