Why Chipotle brand will Rebound Quickly

Chipotle has been through no picnic recently, with two multi-state E-coli outbreaks, a separate norovirus issue, and widespread negative food safety publicity.   However, barring any other major food safety issue, Chipotle will recover quickly and thrive, for five major reasons.

1. Consumers LOVE, not like, the brand – Chipotle has extremely high levels of brand awareness and brand esteem, well beyond their peers, which yields very high levels of brand equity, from which a setback can borrow.  Brand equity is like a bank account: continued positive experiences build brand equity; issues will erode.  Consumers have a very strong personal affinity, love and respect for the brand; it’s well beyond a fast-food choice they visit.  In fact, Chipotle scores 83 (out of 100) on the American Consumer Satisfaction Index (ACSI), nearly at the top of all fast food brands, which average 77, well beyond Wendy’s (73) and McDonald’s (67).
2. Chipotle has been transparent in its communication and rigorously improved product safety – Once the second E coli incident occurred, Chipotle’s leadership has aggressively communicated taking responsibility for the problem, sought best-in-class system-wide food safety counsel and implementation, and has invested in redundant measures to ensure food safety.   In their most recent quarterly report, Steve Ells, founder, chairman and co-CEO of Chipotle said “We are pleased to have this behind us and can place our full energies to implementing our enhanced food safety plan that will establish Chipotle as an industry leader in food safety. We are extremely focused on executing this program, which designs layers of redundancy and enhanced safety measures to reduce the food safety risk to a level as near to zero as is possible. By adding these programs to an already strong and proven food culture, we strongly believe that we can establish Chipotle as a leader in food safety just as we have become a leader in our quest for the very best ingredients we can find.”  This contrasts with several food companies who either hid or understated their food safety or recall issues and were quick to try to claim it was solved with a reactionary nominal manufacturing change.
3. Favorable food safety and public relations are reassuring and reminding consumers to return – Yesterday, both the CDC (Center for Disease Control) and FDA (Food & Drug Administration) called Chipotle’s E. coli outbreaks over.  Chipotle will close its stores for several hours on February 8th to have a company-wide meeting reviewing new food safety measures.  Internal communication and execution of these improved processes are already in effect in their stores.  We also expect Chipotle to resume and increase its compelling advertising, in-store promotion, and couponing programs to welcome concerned consumers back to their stores and resume their unusually high frequency and loyalty of coming back to the stores.
4. Chipotle will refine, but stay true to its compelling promise of Food With Integrity –
   Chipotle loyalists are drawn to their unique positioning as a higher quality fast food option, strong price/value, and great taste.  While their will be refinements in product sourcing and distribution, the product promise of Food With Integrity will remain intact, and strengthened. Consumers will continue to see the Chipotle brand as a superior fast food choice meriting their continued loyalty.
   
5. Same-store-sales will rebound faster than industry averages – Since Chipotle has a stronger and more loyal customer base, traffic will improve more quickly than the industry’s typical 12-18 months to recover same-store-sales performance, as per Credit Suisse estimates. In addition, their marketing and promotional effectivenessand sophistication will also accelerate the pace of same-store-sales rebound.  We expect a recovery in 3-4 quarters, propelled by an even stronger in-store experience, product quality, favorable public relations, and consumer word-of-mouth.

Lessons learned:
1.  Give consumers a superior, differentiated product and a reason to love, not like, your brand.
2.  Beloved brands can, and do, recover from quality and public relations issues, if they are quick, contrite, and responsible.
3.  Be proactive and vigilant in your product quality processes, pre-prepare how you would mobilize to address a product quality issue.
4.  Incent post-crisis consumers to resume confidence in your brand and incent/reward them for their loyalty.

by Tammy Katz

Can I patent my recipe? – Typically No!

We’re delighted to be included in today’s New Food Economy Article:

“It’s everyone’s first question, and no one likes the answer, But while we’re on the subject of patents, here’s a way of thinking about them that can make a huge difference for your business.

Here’s what everybody wants to know: Can I patent my recipe? The sad answer is no. You probably can’t. And even if the U.S. Patent and Trademark Office granted you one (they do sometimes) it would probably be useless if a Big Food company turned its lawyers loose on you.

Patents create a business asset—and that’s something investors look for.

That doesn’t mean you should stop thinking about patents and coming up with a patentable idea. Patents are a great way to create value for a company. You can sell them, license them, use them to fend off competition. They create a business asset—and that’s something investors look for.

So yes, you should be looking for opportunities to reinforce your company with patents. Your recipe was just one possibility. There may be others—and better.

But first you need to know some basics of patent law.

The recipe, the can, the bottom of the can . . .

Patents, specifically what lawyers call “utility patents,” are primarily approved for processes, devices and designs. A utility patent provides a monopoly for a set period of time—20 years for new patents. “A patent gives the patent holder the exclusive right to make, use, and sell the invention,” says James M. Singer, a patent attorney with the firm of Fox Rothschild in Pittsburgh. With patent in hand, you can sue an infringer. If you win, the court can order the infringer to stop copying your invention or make him pay you.

As a result, big companies tend to patent every innovation they can. When Procter & Gamble invented Pringles, it obtained separate patents for the recipe, the machine that made the chips, the insert for the bottom of the can that matched the curve of the saddle-shaped chip, and the packaging that kept cans from crushing each other during shipping, among others.  If you can keep your invention permanently under wraps while you sell your product, you may want to forego patents and rely on trade secret protection.

Inventions have to be new (we’ll get to that in a minute) but it’s possible to patent a process that builds on an existing one, though you can only claim ownership in the addition. For example, in 1902, a New York botanist named Alexander P. Anderson patented a process to puff grains of rice by heating them in a sealed chamber and then explosively releasing them through a set of tubes. Anderson sold the patent to Quaker Oats which used it to launch its “shot from guns” Puffed Rice and Puffed Wheat product lines.

Got the big idea? Here’s your application toolkit

The U.S. Patent and Trademark Office does what it can to hold your hand through the patent application process. The first thing to know, however, is you need to apply…yesterday.

“If you’re thinking of patenting something, you really should be thinking of it as soon as you create the idea,” says Tony Knight, USPTO’s acting associate commissioner for innovation and development. “That process generally to get the first decision from us takes about 17 months. And the overall process here, on average, takes about 26, 27 months.”

Here’s a roadmap:

1. Visit the USPTO’s inventors and entrepreneurs resources page (it’s very start-up-friendly).
2. Figure out what kind of patent you need.
3. Prepare to pay fees. There will be several: application (do this online or pay extra), search and examination. You can access the fee schedule here.
4. File your application.
5. Connect with an examiner. You’ll be notified of application deficiencies by mail.

Knight points out a number of resources start-ups can take advantage of, including accelerated examination, the patent pro bono program (for free legal assistance), and the pro se assistance program for inventors filing applications without the help of a patent attorney.

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But that wasn’t the end of the innovation. Over the years, dozens of follow-on patents have been filed for precooking the rice to make the final product crisper, for puffing brown rice, for turning puffed rice into cakes and crackers, for creating a microwaveable home-puffed rice cake, and so on. The original patent is long expired, but there seems to be no end to its progeny.

A hamburger plus a grilled cheese equals . . 

If so many inventions are patent-worthy, why not recipes? To be eligible for patent protection, an invention has to meet two standards—and both are difficult for recipes to meet.

It has to be novel. Your grandma’s lasagna? It may never have been sold commercially, but it’s not new. The clock ticks fast on inventions: If you’ve been distributing or displaying an item in public for a while, you’ve probably blown your chance at a patent. “You can’t patent something that you have been selling or serving others for a number of years or that anybody else has been selling or serving to others for a number of years,” says Singer. Your famous parmesan pizza dough? That “famous” is a problem.

A combination of diligently protecting your secret and developing strong consumer loyalty can effectively maintain your place in the market.

It has to be non-obvious. To explain this concept, Singer points to the cheeseburger. It couldn’t be patented today, because a cheeseburger is clearly not novel. But, even if we lived in an alternative universe with (shudder) no cheeseburgers, the patent office might still reject an application covering the concept. “If the patent office did a search and they found that the hamburger existed and the grilled cheese sandwich existed, they may come back and say, well it’s obvious to put those two things together.”

The patent office tends to view recipes as mere lists or combinations, which are not eligible for patent protection, no matter how inventively the ingredients are combined. “Patenting a food recipe is nearly impossible and is a terrible waste of time for over 99 percent of entrepreneurs,” says Tammy Katz, founder and CEO of Katz Marketing Solutions, a brand marketing company. The patent office has a good article here on why that’s so.

And, as we said, there are exceptions. Recipes that solve a problem in a new way or adapt to new technology can be good candidates for patent protection. Think, refrigerated pre-made cookie dough, microwavable food, or even toaster cookies—though Pop-Tarts, among other well-known products, seem not to have been patented at all.

You’ve got a secret

Why would a manufacturer not patent an invention? In reality, there’s a downside to patents. You have to disclose the details of your invention in the application, a public filing. When your patent expires, anybody is free to use it. That’s why many food producers—including the likes of Coca Cola, KFC, and Bush’s Baked Beans—make a point of not patenting some of their most valuable intellectual property. They protect it another way—by keeping it secret. And, clearly, a trade secret can protect the intellectual property for far longer than 20 years

“A design patent is actually a relatively low cost way to obtain some type of intellectual property coverage on a product because it doesn’t require an attorney to draft pages of technical description, it just requires a few drawings.”

If your invention, by its very nature, is going to be disclosed to the public as soon as your product goes on sale, then trade secret protection is not an option. But, if you can keep your invention permanently under wraps while you sell your product, you may want to forego patents and rely on trade secret protection.

Fair warning: trade secrets aren’t perfect either. “If you have, let’s say, the yummiest barbecue sauce,” says Katz, “large companies can easily look at a prototype and figure out what’s in it—as can most people—and do it themselves.” But, as Coke has shown, reverse engineering is not always possible, and a combination of diligently protecting your secret and developing strong consumer loyalty can effectively maintain your place in the market.

If you do want aspects of your business to remain trade secrets, limit access to the information as much as possible—strictly need-to-know—and require that everyone in or outside the company who must learn the secrets sign non-disclosure agreements.

Utility patents and copyright are the most familiar ways to protect intellectual property, but they aren’t the only ones. Here are three other tools you need to be familiar with.

Beyond patents

Design Patents.

A design patent covers the ornamental design of a product, not the structural or utilitarian aspects of the thing. Design patents provide the owner with a 15-year monopoly. “A design patent is actually a relatively low cost way to obtain some type of intellectual property coverage on a product because it doesn’t require an attorney to draft pages of technical description, it just requires a few drawings,” says Singer. The James Smucker Company, for example, has a design patent for the appearance of its Uncrustables peanut butter and jelly sandwiches. Makers of chips and crackers frequently use design patents to protect the products’ shapes.

Utility patents, design patents, trade secrets, trade dress, and trademarks are all tools at your disposal to protect your company’s intelectual property and goodwill.

Trade Dress. If your product has been out in the market for some time, you may also be able to protect its appearance under trademark law. “If consumers associate some aspect of your product’s appearance or packaging exclusively with your company, you may already have built up what are referred to as ‘trade dress rights,’” says Leo Kittay, a trademark attorney with Fross Zelnick Lehrman & Zissu  (and a member of The New Food Economy advisory board). These rights can help you prevent others from selling a lookalike product hoping to capitalize on your brand’s goodwill.

Trademarks. As you work to make your products as high quality and desirable as possible, make sure you are protecting and enforcing your company’s trademark rights in the names, slogans and logos you use to brand your company. This means using your trademark consistently, obtaining strategic trademark registrations and policing the marketplace to ensure that no newcomers are using your trademarks, or anything too similar to your trademarks, in a way that might confuse consumers. This can be even more complex and time-intensive than registering and protecting a patent—but for many food companies it is a more powerful form of protection.

The right protection at the right time

Utility patents, design patents, trade secrets, trade dress, and trademarks are all tools at your disposal to protect your company’s intelectual property and goodwill. The savviest entrepreneurs rely on a combination of these protections. “The trick,” says Kittay, “is to develop a strategy that aligns with your strategy for growth, so that get the right protection at the right time without blowing your whole budget on intellectual property protection before you have even proven your business model.”

The place to really invest your effort, says Tammy Katz, is in building your brand. “The power of the consumer’s demand and love for your product and your brand—that’s your best protection.” 

 

4 Ways to Raise Pricing and Delight Customers

Most companies loathe or mismanage the harsh reality that pricing increases are often necessary to offset inflation, even with the most diligent cost control.     Often, this is a painful across the board price percentage increase on all units, on largely unchanged products and services.     Here are five great ways to drive price increases that consumers will willingly accept, and, even enhance loyalty to your company.
1.   Innovate to improve the customer’s user experience – Tide Pods is a brilliant innovation that makes washing clothes more convenient, portable, and less messy.    The idea is grounded in solving problems and consumer irritants in the category    Tide virtually reinvented laundry detergent from the customer’s perspective of easily, and properly doing a load of laundry.    Pricing impact:   +10-15% increase per load, plus a more space efficient configuration, which reduces distribution expenses.

2.  Resize to meet changing consumer preferences –   As consumers are trying to reduce their consumption of soft drinks and/or improve their portion control, Coke has come to their rescue with their new, appealing 7 1/2 ounce cans, ostensibly for consumers to choose versus 12 ounce cans.    And consumers are delighted; sales volume is up 9% according to the Wall Street Journal, while paying nearly double – yes double – the price per ounce for these cute cans.     Yes, this is an exaggerated, albeit successful example, but the bigger point is that Coke is re-evaluating serving sizes from a consumer perspective and looking at pricing on a price per ounce vs. price per unit basis.
3.   Innovate for new usage occasions –  Similarly, Crystal Light did this brilliantly by adding smaller On-The-Go packages, specifically designed to enhance the staple 8 oz. water bottle, again at a +100% price premium versus their traditional make a gallon at home package.    Lest you forget to buy these in the supermarket, they are brilliantly merchandised in convenience stores and gyms, right at your (now enhanced) water bottle point of purchase.

4.  Adjust product mix and package sizes –  Cereal and snack companies master the ability to change their product size mix and selectively reduce the amount of product in certain packages.     This can often mask direct comparisons versus the previous product line up and  pricing.    Further, you can strategically promote your more profitable package sizes more frequently, again, driving an effective price increase that is often invisible, and/or preferred by the consumer.

Lessons Learned:
1.   Think of pricing in broader terms than price per unit.     Price per ounce, price per pound, price per consumer usage occasion give you far more latitude for consumer-accepted price increases.
2.   Solve consumers’ most nagging problems in a product improvement or innovation and they’ll pay for that privilege.   Increasing convenience or reducing waste are among two widespread benefits that consumers will pay for.
3.   Build an expectation of gross margin enhancement into your innovation program and project selection criteria.

5 Hottest Food Trends at Expo West |

We were delighted to appear in The Ohio State University’s Food Innovation Center Blog:

“Natural Products Expo West 2014 was an incredible show of natural, organic, and healthy food and beverage manufacturing, ingredients, and in many ways – the future of the food industry, given that healthier food has moved from trend to societal shift. The natural, organic and healthy products food industry is growing nearly three times higher than the food industry average, per Penton. I had the privilege of attending with 67,000 of my closest friends and 2,600 exhibitors. Expo West was an enlightening window to emerging food industry trends.

 1. Gluten-free continues to explode, up 20% versus last year, driven by perceived health benefits and better diagnosing of celiac disease. New brands, new food categories, and improved organoleptics were virtually everywhere. Per NPD, 30% of consumers want to reduce the amount of gluten they are eating, and gluten-free foods’ household penetration has leaped to 11%, more than doubling since 2010, per Nielsen. The tidal wave is projected to continue as the foodservice sector (restaurants and institutions) catches up with consumer demand at retail. Even Pillsbury has jumped into the space with gluten-free dough (et tu, Doughboy?) as has Columbus’ Donato’s with its gluten-free Donato’s and Sonoma Flatbreads brands. Gluten-free is projected to grow by 22% annually through 2016, per Mintel.

2.  Non-GMO (genetically modified organisms) verified food offerings have tripled since last year, in response to growing consumer demand, as well as organic manufacturers’  efforts. Regardless of where you stand on the contentious GMO discussion, consumers are responding. 93% of Americans said that foods that have been genetically modified or engineered should be identified, per a recent New York Times poll and non-GMO has recently surpassed ‘organic’ among consumers’ desired food claims. Whole Foods’ requirement of GMO labeling on all products in U.S. and Canada by 2018, will also drive non-GMO consumer awareness. Promising, except only 11% of consumers say they are willing to pay more.

Non-GMO food and beverages are projected to grow at a 13% compound annual growth rate for the next few years and account for 30% of retail sales by 2017, even without mandatory labeling, per Packaged Facts. General Mills, Smart Balance, Ben and Jerry’s, Chipotle, and Kashi have all taken proactive stances on GMOs by either eliminating them or pushing for increased labeling. To help manufacturers and consumers with product and ingredient sourcing, the verification body, the Non-GMO Project has established a centralized database. Buckeye brag: Marzetti launched Mamma Bella GMO free garlic breads, led by Fisher alum Adam Koenigsberg.

3. Proteins, Popcorn, Chia and Kale were prevalent in multiple categories. New protein-rich or enhanced products targeted to consumers who are reducing or eliminating red (or all) meat from their diets included yogurts (whey and soy proteins), snack bars (almond and pea protein isolate), and pancakes (oats, quinoa, and whey). Popcorn, with its better-for-you consumer perception, was featured by over 25 companies in every mainstream and exotic flavor. Most intriguing were Popcorn Indiana’s fit brand, positioned as a low-calorie option, and chip’ins, a popcorn-based extruded snack chip. Chia continues to be a hot omega-3 rich and filling superfood in many bars, yogurts, drinks, as well as seeds alone. And kale, which has grown four-fold since 2008, is the hot supergreen in raw snacks, chips, sauces, dressings, and disturbingly: macaroons.

4. More Funding, Investments and Acquisitions – The health and wellness segment’s rapid growth is attracting interest and investment from multiple sources. Major food companies are penetrating the segment via acquisition and joint ventures, such as Coca-Cola (Zico and Honest Tea). Heinz (Hain Celestial), and Campbell Soup (Plum Organics), and the sector has become a darling of private equity leaders such as Sherbrooke Capital (Angie’s Popcorn) and Alliance Consumer Growth (EVOL brand). There is also an explosion of funding available for smaller companies through food incubators and crowd-funding platforms, with over 25 new food and agriculture funding sources launched last year. This foretells both continued growth among increasingly well-capitalized companies, as well as improved product quality and rate of innovation.

5.  Local Participation –  Ohio was well represented by many of our friends at 19 companies. In addition to the aforementioned Marzetti and Donato’s, Almondina, Avitae, Bunker Hill Cheese (Heini’s), Eurochoc Americas Corp., Fit Organic, Fremont Authentic Brands, Garden of Flavor, Gaslamp Popcorn (Rudolph Foods), Graeter’s, Herbal Science, Jeni’s Splendid Ice Creams, 1-2-3 Gluten Free, R.A.W. Real and Wonderful, Swurves (Mike-Sells), Trophy Nut, Unistraw, and Wyandot Snacks exhibited, all of whom we expect are gearing up for the surge in new business… and hiring talented Buckeyes.”

Meet the Expert

Tammy Katz is an Adjunct Professor of Brand Management at the Fisher College of Business, The Ohio State University, and Chief Executive Officer of Katz Marketing Solutions, a marketing and brand management consulting firm. She is particularly interested in brand management, marketing strategy, commercialization, corporate outreach, and consumer-driven innovation.

by Tammy Katz