Don’t overlook the small brands you already own

In our most recent Nielsen Breakthrough Innovation Report, Taddy Hall and I mention the fact that 49% of the growth in the U.S. food and beverage sector over the last four years has come from 20,000 companies below the top 100 largest companies. Many large firms are on an acquisition spree to pick up these small brands and buy the growth that is hard for them to generate on their own, often at Silicon Valley-like valuations.

Ironically, many big companies already own small brands that they could use to generate growth in a much cheaper, easier way. More often than not, these brands are small not because they can’t grow, but because there aren’t enough financial resources and leadership left over to truly explore their upsides.

Sometimes this is the natural result of portfolio strategy. But corporate development and merger and acquisition groups within companies need to apply the same rigor and imagination whether they’re evaluating the shiny objects outside of their companies or the seemingly dusty objects they already own.

Big companies can ask themselves three questions to see if they have a neglected small brand that could be much bigger.

The first is: “Has there been a big shift in demand underneath the surface?” Many companies miss shifts like these when they only look at overall growth rates. A seemingly flat growth category may actually have a high growth sector that is being canceled out by losses in another sector. In my experience, this kind of thing happens more often than not.

Consider the SweeTarts brand from Nestle USA. A few years ago its growth was flat. But over the last two years, Daniela Simpson, the director of marketing, has helped the brand achieve a 15% growth in revenue per year, which is seven times higher than overall category growth. Simpson and her team recognized a palate shift among consumers from traditional hard candies to gummier, chewier and more sour candies.

Simpson quickly shifted her focus away from the hard candies line and launched new gummy products using existing excess capacity. She relaunched an existing product (Kazoozles) as SweeTart Ropes (a tart, gummy, licorice-like product). These and other gummy products grew at a rate of 40% to 50%, which more than offset the declines in hard candies. Importantly, the gummy products drove new interest and consumers to the brand. Key customers took notice and elevated the brand so that it grew 20% to 30% in those channels. Brand consideration went up 20% without any big TV advertising dollars. Simpson brought SweeTarts back to life.

Small brands are important here for a few reasons. First, it is much easier for smaller brands to shift and pivot than large brands because small brands have less at stake. Second, shifting a small brand’s product so that it capitalizes on relevant emerging demand, rather than simply current demand, can transform brand equity faster and more cheaply.

The second question to ask is: “Is there a savvy, scrappy leader with a strong entrepreneurial spirit who can lead this brand?” This leader needs to be someone who is willing to challenge conventional wisdom, test and learn, and ask for forgiveness instead of permission.

When Steve Clapp and Carl Gerlach took over the Ball Park hot dog brand in 2006, the brand hadn’t grown in three years and was a good decade beyond its successful Michael Jordan ad campaign, with the tagline “They plump when you cook ‘em.” The brand wasn’t deemed a strategic priority for its corporate parent, Sara Lee, and had little in the way of resources.

So in an entrepreneurial fashion and with a minimal budget, Clapp and Gerlach created Ball Park Angus hot dogs after a casual “what if” conversation with Mike Clabby, the lead food scientist. They tested the product with just a few retailers with whom they had good relationships, and who gave them a pass on slotting fees for the new product. It was a small-scale hit, and Clapp and Gerlach soon expanded it. Within two years, Ball Park Angus became a $100 million product and the No. 1 hot dog brand. Clapp and Gerlach were on their way to growing the business 40% over three years. Their advertising budget went down, but their spending worked harder for them since they had a hit innovation that created momentum and clarity around the brand’s superconsumer: teenage boys.

Here’s the last question to ask: “Is there a senior leader who will protect these leaders in the event of both failure and success?” Achieving growth in this day and age requires placing bets and taking risks. When big brands do this, there’s a lot of effort made to reduce risk. Small brands and their leaders don’t have this luxury, so it’s important that a senior leader protects them if their bets result in failure.

Equally important, if less obvious, is the need to protect leaders from success. This is in keeping with the Japanese proverb, “The nail that sticks out gets hammered down.” Even when leaders of small brands are successful, the organization can inadvertently hammer them. Bending the rules brings the process police out. Savviness can be mistaken for recklessness. Thankfully for Simpson, her boss, Nestle President Carlos Velasco, was supportive of her approach with SweeTarts.

Hopefully more companies will ask and embrace these questions and not overlook the small-brand, high-growth opportunities right under their noses.