A compelling value proposition (CVP) is a simple and clear statement that explains what your product does, how it solves your customers’ needs, and why they should buy the product from you rather than from a competitor. For example, Wal-Mart’s CVP is “everyday low prices for a broad range of goods that are always in stock in convenient geographic locations”.
A business needs to be very clear what it does, how it creates value for customers, and what it does better than its competitors. A business with a clear CVP will find it easier to compete in the market, to create good strategy and to attract funding, compared to a business which is confused about the value if offers.
A look at the Monty’s brand
African Preserves, a portfolio company of the SSCG group where I was based, had been producing canned baked beans in Zimbabwe for several years, alongside its core business of cherry pepper processing. The company fell under my responsibility during my time at SSCG and I was seconded to the company on an interim basis, working alongside the MD and FD to stabilise the company’s cash flows and work on implementing key strategic thrusts.
Baked beans is a popular product in Zimbabwe and throughout the world, often served as beans on toast. The traditional method of manufacturing baked beans is to can the baked beans in raw form, and then cook them at high temperature in the steel cans. African Preserves produced canned baked beans for several food manufacturers and supermarket brands under their own labels, such as National Foods, DGA and SPAR.
The market leader for baked beans in Zimbabwe for many years has been the Cashel Valley brand which is produced by Cairns Foods, a long standing dominant player in the processed food sector in Zimbabwe. Due to its strong brand, it has always been able to price its products above other competing brands.
Discovering Tetra recart
On a business trip to Europe, the MD of the company came across an innovative packaging concept called Tetra Recart, which is part of the Swedish founded company Tetrapak. The MD was convinced this paper carton packaging would be a game changer in the Zimbabwean market, and began to work on a business plan, perfecting the recipe, and stress testing the business case. Tetrapak were offering a second hand machine, for a discounted price, and on favourable financing terms.
When we were discussing the opportunity, I was confused as to why no other baked bean manufacturers in Zimbabwe or even South Africa used this technology. Then I spoke to a friend in Johannesburg to get his view, since he works in the packaging sector, and he said the whole industry in South Africa is focused around cans, and it would make much of the technology obsolete, if companies moved to paper based carton packaging.
In the end, the numbers staked up, the business plan was approved, and funding was mobilised for the investment.
What was the compelling value proposition?
The key benefits of the paper cartons compared to the traditional steel cans are detailed below:
- Price – the selling price would be lower than canned beans, because of the significantly lower cost of the paper cartons compared to traditional steel cans. This would enable the company to undercut existing canned players to gain market share and then to earn strong margins once they increased prices. Lower cost for the same product would be an instant attraction for customers.
- Convenient – the cartons are ultra-convenient to use. They have a zip at the top of the carton which can be stripped open by hand, rather than needing a can opener, and the carton closes conveniently enabling it to be stored away in a fridge and reused multiple times.
- Environmental sustainability – 70% of the carton materials are renewable, and they are estimated to have a carbon footprint of five times less than traditional cans.
- Shelf space – the rectangular shape of cartons takes up 25-40% less space on the supermarket shelf compared to cans, thus providing a CVP to retailers;
- Lower weight – cartons are much lighted than cans, resulting in efficient transportation, with one truckload of Tetra Recart cartons equivalent to nine trucks of empty cans. This has both environmental benefits relating to carbon emissions relating to transport, and cost savings from the lower transport charges.
- High quality printing allows for effective on shelf branding thus creating a billboard effect in the supermarket.
The product launched several weeks ago in Harare, and is now distributed across most major supermarkets. It has been the first Tetra Recart factory to launch in Africa, which is a major achievement for African Preserves. The concept will be applied for many other types of foods such as baby corn and chopped tomatoes. It will be interesting to see how the competition responds. In the short term, their margins will be negatively affected as they are forced to lower their price to become more competitive. Longer term, they may consider a strategy of investing in their own Tetra Recart plant to eventually phase out the cans.
