A Different Crop of Businesses Take Root

by Elizabeth Han, MBA '13 Kashi

It must seem odd that a basic element of survival passes for a trend, but nutritious food has long been a strange phenomenon in American culture. An object of suspicion, derision and confusion, health food attracts two kinds of criticisms: "It's not really healthy," and "It's not really food."

These charges represent the type of resistance that health-oriented food companies have historically faced in introducing their products. Recently, though, the market has become noticeably more hospitable to businesses promoting nutritious, wholesome food. Lately, consumers' tastes have skewed toward foods that are perceived as natural, a label that has not escaped controversy (think all-natural Cheetos). According to the Organic Trade Association, the past two decades have seen strong growth in the organic food and beverage market. Sales of these products have skyrocketed from $1 billion in 1990 to more than $26 billion in 2010. Whether that trend can be explained by the popularity of books such as "The Omnivore's Dilemma" by Michael Pollan or mounting concern about obesity is a matter of debate. But there's no disputing the rise of businesses such as Whole Foods and Kashi, which make a point of disclosing their sourcing practices for ingredients.

As the food culture in the U.S. changes, momentum could build for scrutinizing the quality of ingredients. "If this is the case, then Kashi is in a strong position because it already pays close attention to detail and ensures that its products live up to the Kashi brand promise," said Professor Jenny Darroch. Darroch is a visiting professor of marketing at the Rady School of Management and regularly teaches classes at the Drucker School of Management at Claremont Graduate University. Her analysis of Kashi's brand promise zeroes in on a core value. "When I looked at Kashi's marketing material," she wrote, "you get a real sense of passion behind the brand and it seems that the folks who work at Kashi truly believe in what they do."

The label "crunchy" is a good fit for the La Jolla-based natural-foods company, which specializes in healthy breakfast items. Not quite "hippie" yet a close cousin to "granola," "crunchy" captures the progressive attitude of Kashi and its larger surroundings. As the Rady Business Journal staff discovered on a trip to Kashi's offices, the company is true to its beachy La Jolla roots-serious about nutrition and health, but not preachy or uptight about it. A certain laidback attitude pervades the office décor — a ping-pong table in the kitchen, a rock-star setup in the common space and photos of employees' pets and hiking adventures. Yet there's no mistaking the sense of purpose that Kashi's staff brings to developing and marketing its unique products.

"We want to be a brand that's leading the way, that's setting trends within the health and nutrition landscape," said Michelle Raab, senior manager of consumer insights. What is striking about Kashi is its emphasis on authenticity: even the individuals featured in their television commercials are actual Kashi employees. Raab added, "When the campaign first started, [customers would] say, 'Do you really know that person?'" — revealing how people thought the employees in commercials were paid actors. Raab would respond, "Yeah, I was in a meeting with her for four hours today; I know her well."

Raab's position in the consumer insights area makes her keenly attuned to the opinions and behavior of the company's target market, whom she described as knowledgeable about nutrition and intent on pursuing healthy lifestyles. Kashi considers its customers to be educated and sophisticated, and their level of savviness is only enhanced by the great equalizer of the 21st century: digital media. The ability to instantly assess the credibility of a company's nutritional claims marks a departure from the past, when verifying or debunking information took time and expertise. "Consumers are changing the game and demanding more from brands like us because they have the ability to access more information in real time," Raab said. "They could be in the store, not know what an ingredient is in the product, Google it right there on the spot; and if it doesn't meet their needs, they're not going to buy it."

As Raab explained, the firm aims to not simply respond to the market, but to open new spaces in it. "A lot of times what we've learned is that consumers can answer what they want right now. If it's something new... and they haven't heard of it or they're not familiar with it, they can't really evaluate that," she said. After all, consumer-insights research can only go so far when a firm is trying to invent new foods to eat. "What we have to do is also just go with our gut and say, ‘You know, we want to be pioneering.'... Sometimes you just have to lead the way and customers will come."

Kashi employees get inspiration by reviewing reports on flavor trends around the world — in particular, the offerings in Australia, the U.K. and Canada tend to fall in line with Kashi's forward-thinking orientation. They also consider gaps in their product lines, new products from other firms and any risk of cannibalizing their own business. And where there's risk, there's data analysis. Raab frequently references company databases that are crucial to evaluating new food concepts as well as potential advertising campaigns. And the units that populate these studies are the focus group participants whom Kashi enlists to evaluate both the flavor of new products and advertising messages.

The results from these studies are cross-tabulated, helping Kashi identify related trends. For example, if 60 percent of participants rate a product as being too salty, and if overall they like the product significantly less than other people, then Kashi will review the salt content. The company's methods help isolate the effect of certain ingredients on a product's flavor and add a level of rigor to its analyses. It brings that same measure of precision to tastings with the staff. For example, Kashi employs expert taste testers with highly trained palates to gauge qualities such as sweetness and bitterness, which may seem subjective to many. "Their palate is really sophisticated, where they can calibrate to a known scale," Raab said.

The details matter when it comes to developing new food products, as being a "picky" eater becomes less of a nuisance and almost more of an obligation these days. Kashi's early strategy of differentiation involved creating unabashedly healthy foods from a blend of whole grains. It pioneered a grain mix that is now a standard ingredient in many of its diverse products. The firm's consistent focus has paid off, making it seem as if the company were ahead of its time in creating a new flavor of innovation.

Back in 1984, when Kashi launched its first product, a breakfast pilaf, who could have predicted that the firm would become mainstream other than the usual early adopters? After all, the name "Kashi" probably sounded too "exotic" to most consumers back then. Over the past three decades, though, the food industry has evolved considerably in terms of its openness to diversity. Now, businesses such as Chipotle, Trader Joe's and Whole Foods — which are associated with healthy food — practically flaunt their nontraditional approaches and use of exotic-seeming ingredients. Indeed, the very label of "exotic" has undergone transformations as America itself has become a place of increasing diversity. It cannot be a coincidence that America's food culture has changed along with its demographics.

Larger social issues play a role in scenario-planning analyses for food companies that aim for palatable as well as profitable products. These issues include cultural diversity, high demand for more nutritious food, and increasing consumer awareness of ingredients. As the comfort zones of American consumers shift, companies must be nimble and adapt while maintaining credibility. For food companies that aim to connect with consumers by promoting healthy lifestyles, a key intangible asset has to be authenticity.

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Summer 2012

Table of Contents


Editorial & Production Staff

Joseph Dodson ('12), Co-Editor-in-Chief

Berna Kamyar ('12), Co-Editor-in-Chief

Mike Taylor ('13), Editor

William Seith ('13), Associate Editor

Drew Beal ('13), Associate Editor

Patrick Kelly('13), Business Manager

Barbra Blake, Editorial Director

Melinda Battenberg, Managing Editor

Maria G. Tasigiannis, Creative Director

Faculty Review Board

Robert S. Sullivan, Founding Dean,
Stanley and Pauline Foster Endowed Chair

Terrence W. August, Assistant Professor

Vish Krishnan, Professor,
Sheryl and Harvey White Endowed Chair

Rossen Valkanov, Professor of Finance