COMING UP FAST: How to make risk-prone products pay off

COMING UP FAST: How to make risk-prone products pay off - Few firms can be more at the mercy of trends than Kinnerton, maker of 'character' sweets for kids. But by knowing how to assess and spread risk, it keeps its fortunes sweet. Rhymer Rigby reports.

by Rhymer Rigby
Last Updated: 31 Aug 2010

Few firms can be more at the mercy of trends than Kinnerton, maker of 'character' sweets for kids. But by knowing how to assess and spread risk, it keeps its fortunes sweet. Rhymer Rigby reports.

We are sitting at a glass table in a rather stylish office conversion off the Kentish Town Road, north London, discussing the fate of a packet of chocolate bars. There's no doubting that these are fine-looking, tasty sweets - chocolate and toffee-flavoured bars with a 'mean & green' centre as their USP. But their quality, attractiveness and flavour will play a minor role in whether they succeed or not. In fact, their fate is almost totally out of their maker's hands. He's done his bit - now it's all down to the Incredible Hulk. If Ang Lee's big-screen adaptation of the jade-skinned Marvel antihero brings in the green, then the bars will sell well.

If nobody likes the Hulk (angry or otherwise), well, they won't be wanting chocolate bars with mean green centres.

Kinnerton is an unusual company in that the success of most of its products is usually down to external factors. And although to some extent this is true of most businesses - anything from ice-cream sales on a hot day to travel and terrorism - there can be few firms for whom the causal relationship is quite so clear-cut. After all, a bakery will hardly see demand for bread rolls dry up if Baps - The Movie fails to make dough. But such tribulations are what everyday life is like when you are the country's biggest maker of character confectionery.

'Basically,' says managing director and owner Clive Beecham, 'these brands are out of our control in two areas. Number one, we don't own them and, number two, their shelf life could be anything and everything. It may never even happen: you sign a (character) licence that might be on TV and it isn't, or you do things like S-Club Seven which rapidly becomes S-Club Six.'

And even if they are successful, they'll often last for under a year.

With a character like the Hulk, explains Beecham, 'you get the duration of the film, so that's the length of the summer. Then you get the DVD for November, which stimulates the market for Christmas, right the way through to Easter. Then that's it.'

So the Hulk can expect a mean green Easter egg as his swansong - until, of course, he's exhumed for a sequel.

Moreover, not only is the character confectionery business a fickle one, it's also highly seasonal. Beecham reckons a third of sales come from Christmas, another third from Easter - 'nothing more useless than an Easter egg the day after' - and the remainder from the rest of the year. This is largely because people are happy most of the year with the candy offerings made by the big three - Nestle, Cadbury and Mars - which between them account for 80% of the confectionery market. Only at Christmas and Easter do the punters switch their allegiances and decide they want something a bit different, a novelty that will raise a smile.

If all this sounds terribly insecure, there are also what the industry calls evergreens. 'Some licences,' says Beecham, 'like Thomas the Tank Engine and the Simpsons are pretty much perennial and your business should be based around those. You just develop the products as the characters develop.'

In the case of the Simpsons, this means that Homer now has adult ranges that include beer mugs, as well as children's ranges. This reflects his broad-spectrum appeal.

'Then there'll be the high-fliers,' he says, though he cautions that there is a lot of luck involved in spotting them. 'If you haven't signed the licence, by the time you actually know something's going to be really big, it's too late.'

This is why Shrek, despite being a hugely successful film, had very little in the way of associated merchandising - hardly anyone thought it was worth a punt. This time round, of course, things will be very different indeed. But now the Shrek licence will be very expensive, whereas last time it would (in retrospect) have been an outstanding bargain.

There are a huge number of licences floating about, most for characters that you won't have heard of, because the films, toys, books or programmes don't succeed. Beecham reckons he sees about two a week - and not just would-be blockbusters but greetings cards, toys, TV ... and, although people talk and there is a definite buzz about some, others must be a gamble. For Kinnerton, he says, the 80-20 rule is upped to 90-10. A year or so ago, he says, he worked out that the business had done about 150 characters, of which 'at least half have been commercially unsuccessful'. At present, it has about 25 going at any one time.

But when bets pay off they do so in style - at its peak, a big-selling character range can supply up to 25% of the firm's pounds 43 million turnover.

One such success was Teletubbies. 'That,' he says, 'just shot way up. I remember seeing it and thinking: 'What the hell have I set myself up for'. But kids loved it. Students loved it - there was even a sizeable gay market. There is no way anyone could have predicted that.'

The Tubbies illustrate another interesting point. Children's TV tends to be very manichean. 'You're stuffed if you're a number two going up against a number one,' insists Beecham. 'That's the nature of crazes. You can do everything right and still get it wrong. If you've got a seven out of 10 that would normally do pretty well and the other side is showing a nine out of 10 at the same time, your seven out of 10 is worthless.'

Best of all perhaps is something like Bob the Builder, which was a craze but is now sloping off and heading not for oblivion, but for evergreen territory. What about a real failure? Hmmm ... he thinks for a moment. 'Jimmy Neutron. It was a property a few years back. The film didn't excite, the TV didn't excite.' Poor Jimmy: he could have been the next Buzz Lightyear except he wasn't, and most people won't have heard of him unless they picked him up in a chocolate remainders bin at Woolies.

Nor is the gamble here shared between manufacturer and retailer. The days of firm orders are over and manufacturers get a shelf space, which is refilled if it's empty. For this reason, says Beecham, it's important to advise buyers. For instance, he says: 'I remember telling a Sainsbury's buyer to buy less Star Wars.' (This was for The Phantom Menace film, a notable disappointment, with a plot one critic memorably described as 'sounding like an EU trade directive'.) Says Beecham: 'You are so entwined with retailers that if they do badly, you do badly.'

There are, of course, other things you do to reduce risk. And one of them is to have your own manufacturing facilities. That way, you can at least be sure that, if you need twice as many Hulk bars, you're not going to be told, sorry, our production lines are being used for another comic-book character.

'I think it's helped a lot by having our own factory - in the context of our industry that makes us pretty flexible,' Beecham reveals. 'We've invested a lot and we've become a lot more capital intensive. We can turn it up, and I can schedule my own production lines; my priorities are my own.'

Beecham does admit, however, that Kinnerton doesn't make everything.

He points to a Homer Simpson beer mug: 'Those come from China and if we run out, it's a six-week wait, as it's too expensive to fly them in. It's a balance of risks.'

Colin Barrow, head of the enterprise group at Cranfield University, says the whole issue of risk can be looked at in terms of layers. 'If you're going to have big uncontrollable financial risks, you need to compensate in other areas.' So, having risks in product is fine as long as you aren't saddled with tons of debt or wholly dependent on outside manufacturers.

'You can't cope with several high layers of risk. Take Laker Airways, for example. It was very highly geared; the planes were bought in dollars; and it was a new idea. It wasn't a bad idea in itself. It's just there was risk everywhere. You don't want to put yourself in a position where you're playing a fruit machine and the whole thing hinges on trying to get four bells in a row.'

The need for its own production facilities gives Kinnerton a rather curious history - and one that goes against the grain of the British economy.

For it is very rare to find a marketing company that goes on to become a manufacturer.

The business was founded in 1978. Beecham says he would love to claim the idea as his, but it was his father's. Dad had been on a trip to Disney and had seen those big swirly lollipops with the Mouse's likeness on them; it occurred to him that such things just weren't available back home.

At the time he was a toymaker and had wanted to run the business himself as a subsidiary, but his company was already in difficulties that would ultimately lead to liquidation. In no position to produce the British candy characters himself, he suggested the idea to his son, who then worked with Unilever. 'So I just fell into it, really.'

Kinnerton first opened its doors as a marketing business, having outsiders do its manufacturing. Eleven years later it decided to take manufacturing in-house and opened its factory in Norfolk, employing an average of 500 staff, though this may rise to 750 depending on the season.

Recently, the company opened an office in Australia, where the confectionery market is much like that in the UK. But says, Beecham, the home market is a pretty mature one, probably the most sophisticated in the world.

And kids are becoming wised-up little consumers earlier and earlier in childhood: pre-schoolers absolutely love character sweets, although a nine-year-old would not be seen dead eating them. As with trainers, so with chocolate bars: Cadbury and Mars are the Nike and Adidas of the confectionery world.

With this in mind, Kinnerton has already opened offices in France and is eyeing up the rest of Europe, which lacks our corner-shop kaleidoscope of candy bars and is almost devoid of character chocs. Although there are a few - notably Germany's 'Bob der Bauermeister' - the growth of pan-European characters like Spiderman means that the EU is the really exciting market.

The US market, on the other hand, is in a rather more mature state.

Intriguingly, for a company whose own brand - although it appears on wrappers - has always taken a back seat to the likes of Hulk, Homer and Spidey, Kinnerton may now be making a foray into the limelight.

Over the past few years it has been a leader in providing products for Britain's burgeoning allergic and food-intolerant population. Specifically, it makes dairy-free chocolate for kids and has a totally divided factory - one half nut-free, one half nutty - and employees have to change colour-coded kit when moving from one half to the other. Even different sets of tools are used to service the nut-free lines.

Crucially, these special products look just like the ones ordinary kids get, covered in characters, rather than the sterile hospital food usually offered to those with such conditions. This kind of thing is important beyond measure when you're 10. The company has had letters from parents saying: 'Thank you so much, this is the first time my child has had a normal Easter egg,' says Beecham. So they are now making dairy- and nut-free chocolate bars, and a business that has spent its life producing other people's brand names may finally be making one of its own.

NURTURING A RISKY BUSINESS

- If you know that some areas of your product range are highly prone to risk, try to balance them out with products that have a longer, more stable appeal.

- Control at least some of your production facilities. This ensures manufacturing priorities are yours.

- Make these facilities as flexible as possible. You don't want to be locked into one superhero if the kids want another.

- Work with your customers: you'll know more than they do about managing the risks peculiar to your business. This may involve asking them to scale down orders.

- Be ready for products that look great to disappoint and products that look sketchy to succeed beyond the wildest expectations. Neither necessarily means anything: you are working with fashions.

- Recognise that some of your greatest successes will be rare phenomena, more likely to happen once a decade than once a year.

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