Authors: Michael Moss
The creative juices now flowing, Drane and his team made a key decision: They settled on creating a convenient prepackaged lunch. The questions then became, What kind of container? And what would go in it?
Of course, they would have to use the company’s red meat. That was the whole point of this project, after all, to kick-start stagnant sales. So sliced bologna and ham became the first building blocks. They wanted to add bread, naturally, because who ate bologna without it? But this presented a problem: There was no way bread could stay fresh for the two months their product needed to sit in warehouses or in grocery coolers. Crackers, however, could do that, so they added some Ritz rounds.
In choosing the lunch’s basic components, the toughest decisions involved the cheese. Using cheese was an obvious move, given its increasing presence in processed foods. (When word of the Lunchables project first leaked out in 1987, the addition of cheese had sent ripples of excitement through the dairy industry—offering, as it did, another outlet for their product. The company’s merger with Kraft in 1988, however, nipped that joy in the bud. Oscar Mayer didn’t have to shop for cheese anymore; it got all it wanted from its new sister company, and at cost.) But what kind of cheese? Natural cheddar, which they started off with, crumbled and didn’t slice very well, so they moved on to processed varieties, which could bend and slice and last forever. Then the question became, What shape should
the cheese be? Through tests on consumers, they discovered that cheese sliced into little rounds was a bit more exciting than squares. In their likability matrix, the rounds came in at 80 on a scale of 100, while the squares mustered only a 70. But they also needed to keep their production costs as low as possible, or the retail price would have to be set beyond what people would be willing to pay. Square cheese was easier to cut than round, so they went with that. They looked at everything through the matrix of shrinking the production costs any way they could without hurting the flavor or texture too much. They could use the processed cheese made by Kraft, which was already cheaper than regular cheese, or they could knock another two cents off the per unit price by using a lesser product called “cheese food,” which had scored poorly in the taste tests. Likewise, they compared things like real pepperoni to pepperoni flavoring, a cardboard tray cover to a printed, clear film.
Now that they had the components, the meat, cheese and crackers, and the right shapes, Drane’s team moved their venture into a nearby hotel, where they set out—with no distractions—to find the right mix of components and container. “What principles drive success?” Drane reminded them. “Self-contained, individualized, compact, portable, ready to use, fun, and cool.” They gathered around tables where bagfuls of meat, cheese, crackers and all sorts of wrapping material had been dumped, and they let their imaginations run. In the end, they came up with twenty designs that ranged from the ridiculous (a jumble of meat and cheese in a box with a tiny cellophane window) to the mundane (a single piece of meat wrapped around some cheese on tiny foam tray). A myth later arose, repeated by the company’s top executives, about how the team finally settled on a white plastic tray with several components—that this had been inspired by the Japanese bento box. The reality, Drane told me, was far less exotic: After snipping and taping their way through a host of failures, the model they relied on was the American TV dinner.
Drane’s Montessori School had one task left: bestowing a catchy, approachable name on the trays. The team hung butcher paper up on the wall and picked
Lunchables
from a long list of
puns and catchwords for
fast, fun, and flexible food, including
On-Trays, Crackerwiches, Mini Meals, Lunch Kits, Snackables, Square Meals, Walk Meals, Go-Packs
, and
Fun Mealz
. At the end, when they’d finally chosen a name, the right components, and a prototype tray, the team asked itself: Just how likely was it, really, that America would go for a lunch of plain meat, crackers, and cheese?
Their bosses at Oscar Mayer were asking the same question, so they ran one final test. An outside research firm was hired to perform a process called BehaviorScan, which would help determine if the Lunchables was attractive to schoolchildren, or parents, for their own lunches, and what kind of advertising would compel the most consumption.
A few dozen families were recruited in Grand Junction, Colorado, and Eau Claire, Wisconsin. They were given shopping cards that would record their purchases, that is, how often they bought the Lunchables. Then their TV sets were wired into an electronic device that hijacked their normal programming to display commercials that their neighbors did not see. They were shown commercials for the Lunchables, and the frequency, timing, and tone of these ads were adjusted to test various strategies on how and when to pitch the trays.
The testing, which went on for months, surpassed Oscar Mayer’s highest hopes. Not only did the people in the experiment go for the trays after being exposed to the advertising, the familiarity of the contents, however plain they were, proved to a foundational theorem in processed foods, which Drane calls “the weirdness factor”: If a new product is too unusual, shoppers get scared. “I use the term, ‘80 percent familiar,’ ” Drane told me. “If you’ve got a new thing, it better be 80 percent familiar, or you’ll have people scratching their heads wondering what the hell it is.”
While the Lunchables tray itself was an alien sight in the supermarket aisles, the stuff inside was deeply familiar. The testing also told the company where to start marketing the trays. “The sales we saw in Grand Junction were twice as strong as the sales we saw in Eau Claire,” Drane told me. “And we scratched our heads on that. We had thought meat and cheese and crackers would be right on for good old Eau Claire in the Midwest,
and that Grand Junction in the West would be more kind of leading edge. But no. So we went to the West to roll out the Lunchables, and they started to sell. Then everybody else started to demand it across the country, and we were racing along on the manufacturing side, adding machines and capacity like crazy.”
In the coming months, Drane and his team would uncover even richer insights into who liked the Lunchables and why. But first, they would get some invaluable help from the executives who oversaw not only Oscar Mayer but all of General Foods and Kraft. These were the men who ran Philip Morris, and they were taking a keen interest.
B
y 1990,
Philip Morris had all but cornered the market for cigarettes. Its share of sales had grown to 42 percent, while the nearest rival, R. J. Reynolds, had slipped below 29 percent. With the purchase of General Foods and Kraft, it had also become a consumer goods goliath, posting $3.5 billion in annual profits on $51.2 billion in sales, with 157,000 employees worldwide. Half of its revenue now came from food, but tobacco, led by the Marlboro brand, was still the more lucrative enterprise, pulling in 70 percent of the profits. It was, as Hamish Maxwell said when he retired as the company’s CEO,
“a lovely business, because it’s so relatively easy. Cigarettes have tremendous brand loyalty, you don’t have to bring out new products every five minutes.”
When they did make any changes at Philip Morris, the decisions were quick, almost instinctual.
One Kraft executive recalled being in awe of the way the tobacco executives ran their Corporate Products Committee. At one of the monthly meetings, Marlboro’s manager for Australia had traveled to New York to ask for permission to change the iconic pack design. “Here is the old one,” he said, sliding it down the table. “And here is the new one.” Go for it, the committee said.
The new food division, however, injected some strain into their handling of the company’s affairs. Philip Morris had acquired the two food
giants as a way to take the vast sums of cash the company was earning from cigarettes and put it to work making more money. General Foods (with its Jell-O and Post cereals), and Kraft (with its Velveeta cheese and Miracle Whip) were seen as ways to broaden the company’s portfolio to include brands that were less controversial but still powerful.
But it had paid dearly for General Foods, shelling out some $5.7 billion to buy the food giant in November 1985, and three years later it paid even more handsomely for Kraft in a deal valued at $12.9 billion. The Kraft purchase especially drew complaints from Wall Street that they had overpaid. Though not overly anxious about this criticism, the Philip Morris executives were resolute: They would get their money’s worth.
This is how Geoffrey Bible ended up spending more than a year at Kraft’s headquarters north of Chicago, abandoning his family to sleep in a company apartment three-quarters of a mile down the road, and devoting his days to learning the food trade.
“Hamish Maxwell was a brilliant guy, in my opinion the best CEO we ever had,” Bible told me. “He was the architect of all this buying of food companies and his attitude was, ‘If you gotta do it, do it big, don’t fiddle around.’ We had sort of screwed around with the smaller companies we acquired and hadn’t done well with any of them. He asked me if I’d go out there for a period of eighteen months or so to learn about the food business and, I suppose, maybe as a backup. A little bit of a safety valve.”
I asked Bible about his first impressions of Kraft, whose executives were decidedly more formal and yet less steadfast in their devotion to the company. They tended to build their careers by moving from company to company within the consumer goods and fast food industries, whereas the Philip Morris executives stayed put.
“I never really worried much about the culture there,” he said. “Cultures are cultures and you can’t change them. Believe me, I’ve been through too many acquisitions to think they’re going to change. They were different from us, and I sensed there was a certain … resentment isn’t the right word, but we were a tobacco company, and tobacco wasn’t highly thought of. We had had General Foods for a few years, and to some degree
that was helpful, but there was a clash. The General Foods and the Kraft people didn’t really hit it off. They had different styles. But they both had terrific brands, and I’d say that’s what attracted Hamish, the great brands.”
One of Bible’s goals was to help smooth the merger by fostering a synergy between the food giants that could tie all of their expertise together, from the laboratories in Tarrytown, where people like Al Clausi, the chemist, labored to keep the brands fresh and attractive, to the sales force that roamed the country making sure that those products got the most prominent placement in the grocery store, to the advertising executives at the Leo Burnett agency who dreamed up the campaigns that convinced people to pick up those products and take them home. (The Burnett agency not only worked on food, such as Velveeta cheese for Kraft; in 1955 it created the cowboy known as the Marlboro Man.) To push this concept of synergy along, Philip Morris brought its far-flung staff to a Marriott hotel on the North Shore of Chicago, where they held a two-day retreat in December 1990 that was billed as the “Philip Morris Product Development Symposium.”
Bible helped kick things off with a speech that was part war stories, part pep talk. He focused on the one thing that every one of the food managers needed to do if their products were to continue to dominate the processed food world. They had to understand, deeply, the mind of the consumer. “The simple beauty of the Kraft General Foods challenge is that everybody eats,” Bible told them. “This is part of the new job I’m especially enjoying: The potential is at once limitless and incredibly daunting. The fascinating challenge is to discover unmet needs surrounding this behavior that has been with mankind since day one. The needs are there, waiting in the detritus of modern life to be excavated and defined as likely today to center around time or convenience as they are around taste, value or nutrition, and as likely to involve the subtleties of how, when, why, or where people eat as much as what they eat. So that’s point number one. We don’t create demand. We excavate it. We prospect for it. We dig until we find it.”
For added inspiration, the food managers were treated to the inside story of how Philip Morris turned its own famous brand, Marlboro, from a loser nobody wanted into a cigarette that hooked more people than any other brand in the world, and how it added new brands and line extensions.
Philip Morris didn’t accomplish this by being the smartest cigarette maker; it did it by being the fastest and most aggressive in spotting the consumer’s ever-changing vulnerabilities, as Philip Morris research and development official John Tindall explained. The company had gone from a 9 percent share of the cigarette market in 1954 to a 42 percent share in 1989 not by being the trendsetter but by quickly following its rivals when they came up with blockbuster innovations, like the slimmer cigarette called the 120s, which lent some needed glamour to smoking. It spun potentially devastating developments into gold by always keeping the mind of the consumer at the forefront of everything it did. Lesser companies might have panicked in 1964 when the Royal College of Physicians and Surgeons released its first report on smoking and health, but the Philip Morris managers seized upon it with a brilliant response. They began selling filtered cigarettes as a “healthier” alternative, which in turn broke open an entire new market for sales: women.
“Suddenly, because of the smoking and health publicity, filter cigarettes became not only acceptable but necessary,” Tindall said. “Filter cigarettes offered what smokers perceived as a health benefit, and the rapidly growing demographic segment, smoking women, could smoke filter cigarettes without getting tobacco in their mouths, and with only one end of the cigarette leaking tobacco into their purses.”
One of the best examples of Philip Morris responding quickly to marketplace shifts was happening right at that moment, Tindall said. With the addictive properties of nicotine becoming more widely known, the company was working to create a low-nicotine cigarette, and in this endeavor it had the food scientists to thank. Philip Morris was borrowing the technology General Foods used to extract caffeine from coffee to pull the nicotine out of tobacco.
“Obviously, there was concern that a low-nicotine cigarette
might put the cigarette industry out of business,” Tindall said. “The long-term management philosophy prevailed, though; we would compete in any category that had a chance for success.”
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