When Quality Isn't Everything
What do you do if you build a better mousetrap and no one cares?
Say you and your friends find yourself in a place where there are lots of mice, but not enough cats. What do you do?
Why, you build a (better) mousetrap, of course.
Now that's simple to say, but hard to do. After all, you don't know much about mice and even less about building traps. But you keep at it. You're confident that if you succeed, the world will reward your ingenuity, even though you're out in the middle of nowhere -- say, Fairfield, Iowa, a city of 9,200 people who live a good hour and a half from Cedar Rapids.
So you keep fiddling with springs and types of bait, until you finally think you have THE ANSWER. And maybe -- in our fantasy, anyway -- you do. We'll say People magazine hears about your work and calls it the "Best Mousetrap in America."
Heck, let's keep the dream going. Why not have Playboy write that in a world of imitation, your mousetrap is the real thing. And as long as we have gone this far, let's go all the way. Let's imagine that while still President, Ronald Reagan -- a good midwestern boy himself, after all -- discovers your mousetrap and mandates that from now on, yours will be the only mousetrap used in the White House.
If it all came true, it would be better than a Frank Capra movie, wouldn't it? You'd appear on magazine covers; folks would ask you for your autograph; and you'd be frolicking with Robin Leach on "Lifestyles of the Rich and Famous."
Well, if you substitute ice cream for mousetrap you have the oversimplified story of The Great Midwestern Ice Cream Co. People did say it made the best ice cream in America. Playboy was even more effusive, and President Reagan did serve it at the White House. (Despite reports that he loved the blueberry, here's the real scoop. "Dutch" is a vanilla man.)
So with all this by way of background, you're prepared to hear about how The Great Midwestern Ice Cream Co. -- a 12-person manufacturing operation started when the founder couldn't find any decent ice cream in Iowa, a state with more cows than people -- rose from rags to riches. From laughingstock to ice-cream laureate, from . . . well, from however else those clichés go.
And Lord knows, we'd love to tell you all about it.
But we can't. By the time you read this, it will be virtually impossible to buy a pint of Great Midwestern. The company is now making ice cream for other people. Out of necessity, it has gone into private labeling.
"What happened was we built our whole marketing campaign around our quality; we put the quotes from Playboy and People on everything that came out of here, and we discovered quality is just not a positioning statement," says company president Josh Roberts, 33.
That's a bit harsh, but Roberts has a point, one applicable to everyone who knows they have a better product, but are still waiting for the world to beat a path to their door. First off, the word "quality" has been so debased as to be meaningless. Absolutely everyone today promises quality. Second, Roberts's industry makes competing on quality particularly difficult. If people are going to pay $2 a pint for gourmet ice cream -- which, roughly defined, has a lot more butterfat and a lot less air than the half gallon you buy down at the supermarket -- quality is a given, and rightly so. Häagen-Dazs, Ben & Jerry's Homemade, and Frusen Glädjé all make good ice cream.
So Great Midwestern's sales plan was doomed from the start. "We were coming late to market with what consumers saw as a me-too product," says Roberts. Distribution had been locked up. Häagen-Dazs (owned by Pillsbury Co.) and Frusen Glädjé (Kraft Inc.) had no problems getting shelf space. And after Ben & Jerry's won its highly publicized distribution dispute with Häagen-Dazs, many grocers were willing to stock it, too. But then they shut the freezer case. After all, how much superpremium ice cream could they sell?
Repositioning Great Midwestern was a possibility, but the good images were taken. Häagen-Dazs ads imply that the product is elitist. Serving Ben & Jerry's after dinner tells friends you're hip.
Other options? "Well, given that they make a good ice cream, especially in some unusual flavors like blueberry, I'd forget about national distribution. They don't have the capital," says Mark Stevens, president of The Häagen-Dazs Co. "I'd concentrate on the Midwest, and I'd become a strong regional player."
That, says Jamie Vollmer, Great Midwestern's executive vice-president, won't work. "If you look at where the superpremiums are strong, it is basically on the two coasts. People in the Midwest are just not going to spend $2 a pint on ice cream. We could own the Midwest and still not have a business."
So we're back to square one, with Great Midwestern finding itself trapped in a box that contains many small companies. The product is fine -- maybe even better than the competition's -- but not enough people care. There isn't money for a massive advertising campaign, which might help. And selling out is no longer an option. As demand for superpremium ice cream cools, thanks to concerns about cholesterol and the widespread introduction of frozen yogurts, the days of hypergrowth are over -- and interest in buying small ice-cream companies melts.
So what do you do?
Turn your marketing plan on its head, say Vollmer and Roberts.
Instead of trying to get people to recognize the name Great Midwestern, they plan to spend the rest of their days hiding their light under a bushel.
It is, they say humbly, a perfect solution.
"We have a great product, but instead of concentrating on that, we were spending all our time trying to get distribution," says Roberts. "By concentrating on the private-label business, we won't have to get distribution. The supermarkets will give it to us, since we will be making the ice cream for them. We won't have to market, because the stores will do that for us, and we won't have to worry about building up a name, because there won't be a name to build up. All we have to do is make great ice cream. The plan capitalizes on our strengths and eliminates our weaknesses."
True. And it would be true for anyone with a great product who is finding sales hard to come by.
Well, maybe almost anyone. At first blush, private-label superpremium ice cream sounds like an oxymoron, something along the lines of cut-rate caviar or no-name champagne. As with any quality product, part of the allure of gourmet ice cream is its snob appeal. The names of Häagen-Dazs and Frusen Glädjé, both made in the United States, were fabricated with just that in mind. How much appeal is something called Acme's superpremium ice cream going to have?
Probably not much, says Roberts. But, he adds, nobody ever said you have to use the store's name. "There are some places -- like Marks & Spencer, in London -- where everything in the store is private label. There the expectation is since the product carries the store's name, it's the best there is. In supermarkets that are known for having excellent private-label products, we will use the store's name. In places where the store's name is not as good, we'll make one up."
And Roberts has a third option. He's willing to give the store the exclusive use of the Great Midwestern logo within its selling area. In addition to capitalizing on whatever equity the name has, that will allow Great Midwestern to use up all those pint containers it has sitting in the backroom.
If you look at the numbers, the idea of selling private-label superpremium ice cream makes sense for both Great Midwestern and the supermarkets. Let's deal with the company first.
Despite the wonderful reviews, Great Midwestern, founded in 1979, hasn't been profitable since it expanded beyond Iowa. In 1987, its best year -- in terms of revenues, anyway -- the company had sales of $2.7 million and lost $1.2 million. Last year, Great Midwestern lost $400,000 on about $2 million in sales. By going private label, the company should be profitable, because almost all marketing costs will be eliminated. And without those costs, the company can offer the supermarkets a better price.
Supermarkets like the fact that they can buy cheaper and that there is no middleman to deal with. Those savings should allow stores to make 10% to 15% more on their private-label line, even though it will be sold at a slight discount (see "The Private-Label Route," page 3). And as Roberts points out, falling into his sales pitch, the supermarkets can use Great Midwestern's ice cream as the cornerstone for upgrading the image of the rest of their store brands. So far three supermarket chains have signed contracts, although none will talk about its deal.
Will the idea work? Well, there is precedent. Recently department stores have taken to aggressively promoting expensive private-label brands in an effort to increase margins and customer loyalty. But it's one thing to outline the economics of the arrangement; it's another to convince consumers to buy a luxury item with a name no one has heard of.
Still, people keep flying out to Fairfield to talk, and as of this writing Great Midwestern seems confident of signing at least three more contracts by year's end. If that happens, the company expects to show a $20,000 profit on $2 million in sales in 1989. While a 1% margin is not something that causes you to send up fireworks, it sure beats losing money.
But what of the loss of ego involved? After all, the initial dream was to make the name Great Midwestern as famous as Coca-Cola. Under the new plan, the name is guaranteed to remain only in Iowa, where the company expects to continue selling ice cream on its own.
"I never lost a minute of sleep over it," Roberts says. "I want to build a successful company. Selling under our own name, we couldn't do it. This way, we think we can."
THE PRIVATE-LABEL ROUTE
Five rules for creating a competitive private-label product
We all scream for ice cream.
So goes the childhood nursery rhyme. But when the folks at The Great Midwestern Ice Cream Co. found no one was screaming for a superpremium ice cream with their name on it, they got to wondering whether their fortunes might improve if they prepared their confections for someone else.
Here are the five things they keep in mind as they go about private labeling:
* Packaging. The package is the first thing consumers notice, and the trick here is to make yours look similar in quality to the competition's. If you are selling an expensive product, as Great Midwestern is, the package should be classy. These days, black packages with gold lettering usually contain a quality product. So, too, boxes with subtle shadings and delicate artwork. If you are making a less expensive product, look at the competition's package. Don't copy it. But approach it in style and color.
* Ingredients/components. They should be identical. If Häagen-Dazs vanilla is made with nothing but "fresh cream, skim milk, cane sugar, yolk of egg, [and] natural vanilla flavor," those are the only things you'll find in the private-label vanilla produced by Great Midwestern. If the market leader in metal fences uses only galvanized steel, that's what your private-label fence should be made of.
* Pricing. If you're going to use identical components, you won't be able to charge a lot less than the competitor -- nor should you. A consumer who holds up a pint of Häagen-Dazs and a private-label pint and reads the same list of ingredients but notices the private-label brand sells for one-third less, is going to get nervous. "What are they leaving out?" he will ask himself. Nervous consumers don't buy. You probably have to charge only 10% less than the market leader.
* Quality. Roberts and Vollmer are adamant on this point. Your private-label product must be as good, or better than, the competition's. Otherwise, consumers won't feel they are getting a bargain.
* Name. If the store or company for which you are making your product has a wonderful name, by all means use it. If not, invent one of your own, but have it reflect the kind of product you're selling. Bentley's superpremium ice cream makes sense. Cheapo superpremium doesn't.