When it comes to consumer packaged goods, the Kellogg Company is a big player, with about $13.5 billion in revenue. But the company’s best-known breakfast items — grrreeeatt as they may be — face a tougher landscape as more people choose to skip the most important meal of the day. So we wanted to know, “How is Kellogg reimagining their business through R&D?”

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Kaitlin Milliken: Hey, you’re listening to Innovation Answered, the podcast for corporate innovators. In each episode, we talk to experts about how businesses can overcome disruption and create innovations with impact. I’m Kaitlin Milliken from Innovation Leader.

Today, we’re doing something different and focusing on one company: Kellogg. When it comes to CPG, Kellogg is a big player with a $21 billion market cap. If you eat Pringles, Cheez-Its, or Keebler Elf anything, that’s all Kellogg’s. And, of course, the company is best known for it’s breakfast foods.

But as more people skip the most important meal of the day, the way customers interact with their products has shifted.

Sandra Di Capua: So cereal’s, in history’s been a breakfast food. But the realization now is that it’s more and more something people enjoy all day. So I think, traditionally you think of cereal as sitting on a grocery store self. You interact with it in that way. It’s on a grocery store shelf, you pull it down, you take it home, you pour it into a bowl of cereal, you add some milk, and that’s how you enjoy cereal. But what we’re saying here is, “How can you interact with this really familiar product in a way that might be new to you?”

Kaitlin Milliken: That was Sandra Di Capua, a partner at Kellogg’s NYC — a Manhattan-based cereal café. With Instagram-worthy specialty bowls topped with cotton candy, or bacon, or whatever else your heart desires, the space reinvents the basic breakfast as gourmet.

On top of these brand building initiatives, the company has also focused on product innovations. Sales have dipped since twenty-thirteen, and R&D has been tasked with turning the tides. According to Kellogg’s 2017 financial statement: “The company’s success is dependent on…successful new product and process development.”

To find out more, we talked to one of the people with a big mandate: Nigel Hughes, Senior Vice President of Global Research and Development at the Kellogg Company.

Let’s get started. How has research and development at a CPG company really changed overtime?

Today, that’s flipped completely on its head. Now, yes they’re internal teams, but the external world is so much more important to us and the ability to interact with, the ability to collaborate with that external world, and the ability to drive solutions through that are absolutely critical.

Nigel Hughes: It’s changed totally absolutely and completely, I would say. I go back 30 years, I joined Unilever in the late 80s and quite honestly, at that time the environment within Unilever and most of the other big CPG users, was quasi-academic. It was almost like the Unilever University of Port Sunlight that I joined. People absolutely interacted with colleagues, but it was all done at quite a distance.

Kaitlin Milliken: What factors led to that shift in perspective?

Nigel Hughes: There’s a fundamental change in the fact that the way that companies created value. When I first started my career, companies created value by being able to do efficiently and effectively things that they knew how to do. They were proprietary to flavor varianting. So changes to foods, and formulations, and the like. Actually, over the years more and more people have learned how to do those more basic things, and therefore those things don’t create the same value they did. They’re still important from a consumer point of view, it’s important to variant around flavor to bring news and to bring freshness to a brand. However, they’re no longer the big differentiators.

So therefore, less and less time needs to be spent doing those. Those things need to be done more and more efficiently. Hence, those things are done more and more with partners. And internal efforts are dedicated much more to what I would call design integration, bringing together different solution elements and combining them.

So the way that I see my job and the job of my team and the roll of R&D within a consumer goods organization mirrors much, much more the way that tech companies operate. Apple doesn’t make the iPhone. Apple simply designs and aggregates the iPhone from component elements.

Kaitlin Milliken: Now putting things into a Kellogg’s perspective. What changes do you see in the company’s R&D strategy?

Nigel Hughes: Well again, it’s interesting how there have been a number of cycles. Obviously in the food space, the food is critical and the nutritional delivery from that food is critical, and so those essential elements haven’t changed.

However, today from a food point of food, we live in a truly culinary world. We are all exposed to such a wide range of tastes and culinary experience. When I say that, I’m not just talking about Michelin, three-star restaurants. I’m talking about culinary in our everyday life.

If you think about coffee, coffee’s a great example. Ten, 15 years ago, we had coffee. It was either it was black, or we had it with some creamer, maybe some sugar. That was about it. Today, we all go into Starbucks and we have our list of 4 to 5 elements. “I want a latte, with a this, with a that. I want it cold. I want it warm. I want it this. I want it that.” So there’s this incredible culinary sophistication come in to every day life. And that’s a critical, critical part for a company like Kellogg.

On the nutrition side, we’ve gone from basically a nutrition world where we’re serving those basic needs of insuring that you have the right micro-nutrients into this great new frontier, which is all around the micro-biome and the link between nutrition and wellness.

Kaitlin Milliken: You mention this science and technology story, which may be really important on that back end. Is that something that doesn’t really get shown to consumers? Or do you have to break it down to your customers in a way that they can understand it?

Nigel Hughes: It depends. With some brands and some propositions, the science and technology story can be quite prominent. In other cases, it’s absolutely not seen by the consumer. But the important thing is that it’s underpinning. And the important thing is that it provides stimulus and richness for the proposition, both internally to bring people along with the opportunity but also externally.

I spend a lot of time talking to customers these days, because customers are interested in the richness of the story and how they can make that a point of differentiation in the store or through e-commerce etcetera.

Kaitlin Milliken: So you mention nutrition, as well as people having higher culinary expectations from their food. Are there any examples of initiatives at Kellogg’s that really reflect these trends?

Nigel Hughes: Well, we’re building these fundamental elements into everything that we’re doing, or everything that we’re trying to do. So if I give a simple example, we recently launched — I don’t want to say in a test market, we call them transactional learnings — but we’ve recently launched a new brand called joybowl. joybowl is a smoothie that to be eaten at your desk, because all you need to do is add water and stir. It’s really really important that that food has the true experience of a smoothie. This is not just some pastiche. We really aim for authenticity.

If I think of another initiative that we’re launching which is in the whole space of digestive wellness, we’re launching a new brand called High Happy Inside. That’s literally going into market right now. And that’s tapping into the whole space of the micro-biome, and consumers understanding that what happens in terms of their micro-biome and the diversity of their micro-biome relates to their overall well being.

Kaitlin Milliken: R&D and the customer experience are so entertwined. When you’re testing these new ideas, do you get any form of consumer feedback and how do you approach that?

Nigel Hughes: That’s really critical for us, and going back to your first question about what’s changed throughout my career, that’s one of the biggest things that has changed. If I think of some area where I’ve seen more money wasted, over my career, it’s been in conceptual consumer testing. Because the simple fact is, I can create any concept that you will in theory buy. Unfortunately, when it comes to the reality then you will not stick your hand in your pocket and pay for it.

And so what we’re doing now is moving to what we call transactional learning. Essentially, it’s being able to create experiments, commercial experiments, where people will actually put their hand in their pocket and pay for the food. We then get fast iteration around that, essentially cutting out a lot of that theoretical consumer testing that’s been done in the past.

Kaitlin Milliken: There’s this idea that companies should let customers pay with actual money for things they want to see from the company. I know you have Kellogg’s Cereal Cafe that let’s people buy it, new products when they’re sort of getting tested before they roll out nationwide. Is that a big part of the strategy?

Nigel Hughes: Exactly. The Cereal Cafe is one, but more and more we’re creating relationships to do that. A nice example…in Australia. We were actually selling food at one of the biggest health and fitness conventions there because the target consumer, this is food around Special K, the target consumer there is it’s about stronger women. It is one where you’re going to access that consumer at that kind of convention.

And that’s the most important thing. That’s the most important thing that we go to where the consumer is looking to experience new foods. You do not experience new food anymore by watching a TV commercial and going into a super market to buy.

Kaitlin Milliken: Do you have any tips for other innovators in the food and beverage space?

Nigel Hughes: Oh my word, advice. We have a family motto: “Advice is free is free and you can choose to ignore it,” which I think is important. If I were to give advice, the core piece of advice I would give is it’s about the story.

We all know that but we all forget it. If you truly can create an engaging story, human being are story tellers, we learn through stories. And if you can truly create an engaging story, then you can start to shape the way consumer behave and the way that consumers think. And therefore, you can’t spend too long on that story. You really got to work that story. And that story’s not just a thing that the advertising agency does, or a thing that the marketing team does. The science and technology story is critically important as underpinning. If you really crack that, then you’ll find the true richness of opportunities.

Kaitlin Milliken: You’ve been listening to Innovation Answered. This episode was written and produced by me, Kaitlin Milliken. Special thanks to Nigel Hughes for being on our show. Check out innovationleader.com/podcast for more insights from Nigel and other great resources.

We’re taking a break next week before our last episode of the season. Until then, you can rate and review us on apple podcast. that helps other innovators find the show. Thanks for listening and see you soon.

[SPONSOR MESSAGE]

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