Kevin Ryan's: Culture Matters

Post-COVID Third Places
Starbucks announced last week that they would be opening 90% of their stores by June. However, how the stores operate will be different than pre-COVID. The company is strongly emphasizing mobile orders, which will be picked up by drive-thru or via new "entryway hand-offs" (areas in stores' entries where customers can pick up drinks without ever entering the store). Only select stores will reopen their interior to the public and allow customers to place orders with a cashier and, within these stores, seating will be removed and social-distancing markers put into place.

Relatedly, Dunkin’ Brands chief executive David Hoffman said during an earnings call last week that “with customers’ daily morning routines disrupted, we are seeing a shift in sales across dayparts…Sales volumes in the early morning are down but have picked up from 10:00 AM to 2:00 PM as people venture out for a break.” In fact, McDonalds and Taco Bell are reporting that their breakfast sales were down by  25% in the last month—with companies like Quaker seeing record sales for their at-home breakfast products.

So What? This happened to me twice last week. I had a regularly scheduled call with a client via Zoom, but instead of being greeted by their faces in their at-home offices, I see them in their car. “I just had to get out of the house,” they said.

After being cooped up at home for weeks, we are beginning to see consumers get a little stir-crazy. Without the daily retreat to the office, the ability to pop out for some ‘me time’ at a salon/barbershop/spa, or even the simple excursion to a coffee shop, people are craving a space that isn’t their house.

Whether its to get away from kids/partners or just a change of scenery, in the era of Starbucks on every corner, we’ve all become conditioned to the availability of a ‘third place’ where we can decompress and unwind. COVID-19 has eliminated these spaces, shrunk our social bubbles, and made us fear interactions with strangers so much that we’ve backed ourselves into the only safe ‘third place’ that we know: our cars.

This isn’t a new idea. For years, car companies have anticipated a future where consumers see their vehicles as auxiliary ‘safe zones.’ In fact, some companies (especially those thinking about the future of autonomous vehicles) have concepted automobiles that really lean into being a ‘third place.’ However, no one thought that it would come so fast and with such urgency.

‘Third places’ are not returning to their former selves anytime soon, and that is going to leave a very big hole in consumers’ lives. Even when coffee shops, hair salons, nail shops and other community hangouts tentatively reopen, people aren’t going to feel comfortable sitting around eating and drinking for hours. For companies like Starbucks, Panera, or Caribou, the challenge becomes ‘how do you maintain the power of your brand without the ritual and reinforcement of place?’ If you are CPG, the challenge becomes, ‘how do I steal some of these moments from QSR and keep these consumers in the future?’
Both challenges will require a deeper look at how people are consuming in newly evolving third places like the car, the home office, or even the garage.
Maintaining Your Slice of the Mindscape
In their earnings call last week, PepsiCo CFO Hugh Johnson said that the company would be "reducing nonessential advertising and marketing spend to reflect the realities of the current environment.” While the company saw an 8% lift in sales last quarter (5% attributed to panic buying), the company feels they need to shift marketing spend away from some sectors (specifically out of home channels like gas stations) toward more in-home spots like snacks and Quaker products. The company will also divert more money to e-commerce as usage of the channel spikes. This follows Coca-Cola’s announcement that they too were going to, “pull sizable marketing campaign[s] through the early stages of the crisis and reengage when the timing is right.”

Several companies have mentioned in recent earnings calls, reports or interviews that, for the foreseeable future, they will be reducing the number of SKUs they manufacture to meet the demands and costs of serving consumers in the ‘new normal.’ Hershey’s SVP and CFO Steve Voskuil mentioned recently that the increased safety and sanitation in the company’s plants would be offset by SKU rationalization (as well as reductions in travel and entertainment expenses). Similarly, ConAgra, in their 3rd quarter earnings call, said that they are getting more demand from retailers for their ‘hero’ SKUs and less pickup on their new products. General Mills Australia supply chain director Michele Canepa said that the company had,” temporarily delisted certain SKUs to reduce the complexity and workload in the plant.”

Nielsen data showed that private label grocery sales rose about a third more in both dollar and unit sales compared to national brands in Q1. In all U.S. retail outlets, private brands increased 14.6% in dollar volume and 12.8% in unit volume, just ahead of national brands that saw an increase of 11.5% in dollars and 9.2% in unit volume. Private Label Manufacturers Association (PLMA) President Brian Sharoff said in a statement. “Nonetheless, the statistics point to greater acceptance of retailer brands as the coronavirus crisis evolves.” Some retailers are re-looking at their fair-share allocations, specifically for high demand categories.

Even though many toilet paper companies don’t have product on shelves right now, they’ve made a point of increasing their presence in other ways. Quilted Northern (a Georgia Pacific brand) has released a social media spot assuring consumers that they have 100+ years of experience making their product and that they are working quickly to replenish stock. Cottonelle (a Kimberly-Clark brand) released a similar ad showing their current efforts and confirming that “we hear you” when it comes to consumer pleas for more product. Cottenelle is also partnering with the United Way’s COVID-19 Community Response and Recovery Fund to supply toilet paper to those in need, as well as donating $1 every time someone shares some TP with a friend/neighbor and posts about it on social( #ShareASquare Program).    

So What? One evening, while lying in a tent on the African savannah, Bernie Krause had an epiphany. The music engineer turned biologist realized that the animal sounds around him (from the howling of the wolves to the croaking of the frogs) were laid out like an orchestral score, each noise as distinct as a violin or woodwind section.   

Krause’s observation was the beginning of a whole new field of biology called the acoustic niche hypothesis, later named biophony. The basic idea was simple but revolutionary: every creature in an ecosystem ‘owns’ a sliver of the auditory landscape (or soundscape, as it is sometimes called). Just as animals have physical territories that they protect and defend, they also have auditory ones. The reason for this is clear. If a cricket’s chirp is at the same frequency as a bullfrog’s croak, their messages will be lost and potential mates may not hear them. For that reason, animals will go out of their way to defend, protect and adapt to keep their frequencies.  

Nature has soundscapes, manufacturers and retailers have consumer mindscapes, physical and psychological niches that their brands occupy. COVID is forcing manufacturers to pull back from these niches—reducing their on-shelf presence and their advertising voice. However, nature tells us that this is not a good idea, that giving up your hard-fought bandwidth could result in losing it. What to do? Nature has suggestions:
  1. Switch the role of your message:  Some animals only need a frequency during a particular time of year (e.g. mating season), however that doesn’t mean they cede their right to that bandwidth. Instead what they do is hold on to it with a new message (e.g. a territorial call). For companies that are not advertising new products, perhaps this a time to remind consumers about the legacy and mission of your company? In a way, this is what the toilet paper companies above are doing. Lacking product on shelf, they are keeping their brand top of mind with a reminder of who they are and their brand’s importance.
  2. Switch to a new time/new channel: When early morning road construction noises drowned out the birdsong of a particular species, biologists were surprised to find that the birds switched their singing from dawn to dusk.  Brands might try something similar. With changing schedules and different consumer patterns emerging, brands may do well by investing more money in e-commerce advertising, Instacart merchandising or social media. Go where your consumer is, not where you have comfort selling in.  
  3. Partition your message: When certain frogs found that their environment was being invaded by animals that were using their frequencies, they switched up their tactics. They partition their message so that, instead of a constant low hum of sound, they used occasional bursts of very loud sounds to get out their messages throughout the day. For brands, this could translate into big store displays, instead of smaller ones, or consolidating their advertising into more impactful and bolder efforts at key moments.
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Profitable Innovation = Focused Innovation
Mondelez CEO Dirk Van de Put said during the company’s Q1 2020 earnings call last week that, even though the company posted low double-digit growth for most of its portfolio (greater than 40% for brands like Newtons and Nutter Butter), they would be “making some adjustments that will make it easier for us in the recession.”  “…we have always had a lot of innovation projects, not always the most useful ones, I would say. So we are reducing significantly our innovation projects.”

Coca-Cola CEO James Quincey expressed a similar sentiment in his company’s Q1 2020 earnings call. Due to the beverage company’s extensive reach into foodservice (half their business), Quincey said that, while Q1 revenue only declined 1%, they believe “the impact to the second quarter will be material.” To that end, Quincey said that, “We're also taking this opportunity to reshape our innovation pipeline to eliminate a longer tail of smaller projects and allocate resources to fewer, larger, more scalable, and more relevant solutions for this environment.”

So What? In 1980, Nintendo wasn’t what it is today. Atari and Midway were the big names in arcade video games, churning out hits like Pac-Man and Space Invaders, and Nintendo was a 100-year old playing card and ‘love hotel’ operator that had only recently started an American subsidiary making electronic games. So when Nintendo America’s Radar Scope (a Space Invaders-like shooter game) flopped, the company was on the verge of financial collapse with 2,000 unsold arcade cabinets sitting in a Seattle warehouse (think pub-style arcade games, not home consoles). The head of Nintendo America called his father-in-law (CEO of Nintendo) and begged for help. However, all the company’s game designers were busy on other projects and the job fell to Shigeru Miyamoto, a newly graduated industrial designer/anime artist that had never programmed a game, nor written a line of code. 

However, Miyamoto had something on his side: the power of constraints. First, Nintendo told him to make the game Popeye-themed, because they were working to secure the rights. Second, the plan was to switch out part of the memory core of the Radar Scope games and replace it with a new game. However, this left precious little computing space in 1981 technology for Miyamoto to work with. Lastly, he had to finish everything in a month.  

Quickly, things started falling apart. The Popeye rights weren’t coming through, but lacking the time to change things, Miyamoto stuck with the idea of a love triangle—a common theme in anime-- replacing the Popeye characters with new ones: a gorilla for Bluto, a guy named Mario (originally called Jumpman) for Popeye, and Pauline (instead of Olive Oyl) for his girlfriend. Then came the challenge of memory. Miyamoto wanted his characters to move and jump realistically but animating hair and facial features was memory intensive. So, Miyamoto got creative. Instead of hair, he gave his character a static hat. Instead of a mouth and moveable eyes, he gave his character a big nose and a huge, mouth-covering mustache. All of which allowed him to deliver the game Donkey Kong to the US on time, a game that made Nintendo $250 million and a leader in arcade games. Miyamoto went on to not only single-handedly save the video game industry during the video game crash of 1983, but he became the creator of other legendary games like Super Mario and The Legend of Zelda.      
For a lot of companies, the next 12-18 months, are going to be a flurry of supply chain and production gymnastics. Cost-cuts and sacrifices are going to be common on many teams—innovation included. What Miyamoto’s story teaches us is that constraints can be a powerful creative force, but only when a team’s efforts are focused correctly.
Miyamoto later credited his success with having a clear and simple vision, grounded in the consumer, for any game that he worked on. “Games are too complicated,” he said, “and people and designers can get confused. Every project must start with two things, what emotion I want the player to feel and what goal they want to achieve…everything else can be developed along the way.”
In my experience, the best projects are those whose goals are clear but the path to get there is not. Tell your team exactly what to do and an open checkbook and you remove any chance for creativity and frugality. However, give them a goal and a hard budget and leave them to figure out the rest and you'll end up with success. 
The Lighter Side
Jimmy Fallon expressed the feelings many of us are having right now in his new music video, “Starting to Crack”
Let’s face it, we all need a haircut right about now. While some of us just complain, others take matters into their own hands. Exhibit A: this Irish farmer that uses sheep shears to “lighten the load.” If you can watch this without cringing, thinking he’s about ready to take off an ear, you are better than me.
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From Innovation to Ideation
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