Despite Valuable Brand Equity, Revenues are Falling
Last year, we published a Quaker brand strategy case study. Since then, this valuable equity has underperformed in the market, despite considerable strength with consumers. Our Quaker brand strategy case study update provides insight into how the brand came to be struggling.
Quaker Foods North America (QFNA) recently posted 21% organic unit volume declines compared with a year ago. QFNA revenues fell 6%, from $1.298 billion through 6/13/20 to $1.221 billion in 6/12/21, while operating profit fell 19% to $278 million. Recognizing that all of QFNA is not Quaker-branded, it remains the case that Quaker-branded products drive a large portion of QFNA’s business performance.
Forbes has called Quaker Foods North America “the biggest drag on PEP’s revenue growth,” while Frito-Lay snacks are touted as “surging.” Despite the strength of the Quaker brand, QFNA’s fit in the PepsiCo’s portfolio is questionable over the long term, given these observations and the recent performance.
The recent 2021 declines reverse the growth that Quaker achieved during the stay-at-home elevated grocery demand of 2020. For full year 2020, Quaker’s organic revenue growth was 11%.
“Quaker’s (2020) growth has been driven by strong execution against the elevated demand needs for at-home breakfast and dinner occasions during 2020.”
As background, quantitatively, Quaker has a brand equity that is dominant on trust, health and taste across the generations. The brand has the ability to extend into a wide range of product categories. Currently, the website touts 177 products in the following areas:
- Hot cereals – 80 products
- Cold cereals – 29 products
- Snacks – 27 products
- Rice snacks – 23 products
- Real Medleys (a sub-brand of Quaker) – 10 products
- Other products (barley, corn meal mixes, breakfast cookies, biscuits) – 8 products
Quaker Brand Strategy Case Study: New Products and Innovation
With its strong heritage in oatmeal and health, the Quaker brand has untapped potential to move into a number of other categories, and PepsiCo has chosen to enter oat milk and yogurt with the Quaker brand. Quaker appears a natural to enter the fast growing oat milk category, and Quaker Oat Beverage was launched in January 2019. Despite the brand strategy fit, the product was discontinued in November 2019 for a number of reasons. Earlier, the Quaker brand extended into yogurt with Muller Quaker Dairy with the partnership dissolved in December 2015.
Innovation and new products are essential over the long term to support brand health and growth. And 2020 was an unusual year, where many new products were put on hold in order to focus on the most popular items and meet consumers’ surging demand. Recent TV advertising supported Quaker Breakfast Flats and Quaker Soft Baked Oatmeal Cookies.
Quaker Brand Strategy Case Study: In Store and Online
There is widespread agreement that in-store presence and execution with appropriate displays and price reductions are also important to support brand growth. Our visit to the local Ralphs (division of Kroger) found Quaker products in the oatmeal and bar sections often poorly-positioned on shelf, either on the lower shelves or very high above eye level. Pricing was inconsistent with a mainstream strategy, either well above competitors for a comparable product or labeled on package as a “value” brand. In the bar section, the General Mills temporary display with Cheerios, Cinnamon Trust Crunch and Honey Nut Cheerios completely blocked the Quaker Chewy shelf presence.
The smaller rice crisp section located in a different part of the store found Quaker much better-positioned on shelf.
Overall, we came away with the impression that the Quaker brand is being outmaneuvered at the store level on shelf position, displays and pricing. It may be that PepsiCo and Quaker do particularly poorly at Kroger (Ralphs), and that the brand is performing much better with other key retailers, but the 2021 sales results suggest otherwise.
Searching “oatmeal” on Amazon yields Quaker among the top items, for those who want to purchase large multi-packs, such as 48 packets of the organic or lower-sugar varieties, or 32 packets of the protein variety, or a 48-ounce cannister of Quaker Old-Fashioned Oats. These large packages convey a clear value positioning.
Quaker Brand Strategy Case Study: Marketing Support
According to iSpot.tv, the Quaker brand has a spending rank of #333. Recent executions include Quaker Up! (Quaker’s good energy for go getters) and the power of Quaker enabling epic feats in The Hill and Under the Lake. This spending rank is comparable to Cheerios (#358).
Quaker: Case Study of a Valuable, Powerful and Extendible Brand
The Quaker brand is extremely valuable and powerful. Adding the Quaker name to many food and beverage categories adds to the product’s appeal. It’s not hard to field a piece of quantitative research demonstrating that adding the Quaker name boosts a new product line’s appeal.
Quaker Oats was bought by PepsiCo in 2001 for $13.4 billion, mostly for the then-$2 billion Gatorade beverage brand and for the sports drink’s complementarity to PepsiCo’s beverage portfolio. Another synergy for PepsiCo was in snacks, with Quaker’s Chewy snack bars. PepsiCo has a broad portfolio of beverages, snacks and foods.
While Quaker tends to be associated with healthier products, consumers find it highly appealing and appropriate for Quaker to offer indulgent baked goods like cookies, pies or brownies.
Similarly, while Quaker is mainly known for foods, consumers also find it highly appealing and appropriate for Quaker to offer beverages like water (and PepsiCo is in the water business) or milk.
As far as pricing, Quaker is traditionally known for good quality products at mainstream prices, but research has been done to justify using the name on a value-oriented line of waters, when there was a gap in the PepsiCo portfolio. Recent pricing we’ve seen suggests Quaker is moving towards more of a value brand position.
Quaker’s brand extension power also presents a challenge, and a need for guidelines. Unchecked extension without guidelines is a choice that could mean the Quaker brand becomes a high-level trademark and quality endorser, or as it appears to be trending a value brand.
Quaker Brand Strategy Case Study Research Approach
The historical Quaker brand strategy leveraged prior research and also included new quantitative brand equity research among 2,850 primary grocery shoppers ages 18-70. There were over 1,100 shoppers of organic/natural food and beverage channels. In addition to Quaker, the mainstream megabrand competitive set included:
- Dannon
- Sara Lee
- Kellogg’s
- Dole
- Tropicana
- Cheerios
- Pepperidge Farm
- And others
All of the large megabrands had high levels of aided awareness (90%+) and past 12-month purchase incidence (most at 50%+).
At the time, Quaker’s strength was found across all generations, but was particularly strong among Boomers and Matures, indicating an opportunity to increase relevance to Millennials.
Quaker Brand Strategy Leverages Multi-Dimensional Strengths
On rational benefits, Quaker outdistanced the other megabrands on health and nutrition. Other strong health equities were Tropicana, Dannon, Healthy Choice and Dole. Quaker was also good tasting, while more indulgent megabrands are more likely to be great tasting (e.g., Pepperidge Farm, Sara Lee, Pillsbury). Quaker stands out from other close-in “healthy” breakfast competitors like Cheerios and Kellogg’s on hunger satisfaction – a point of differentiation.
Emotionally, the Quaker brand had strength around being a smart choice for taking care of self and also for putting families first.
Related to the emotional benefits, Quaker’s brand was genuine, family-oriented, caring and knowledgeable. It was less innovative and contemporary.
Quaker Brand Strategy Case Study: Category Expansion Zones
Quantitative research looked at category extension opportunities. The assessment was extensive, with 47 categories and multiple approaches (i.e., direct fit, indirect fit, packaging illustrations).
Consumers expressed interest in Quaker brand expanding from its current strength in the breakfast occasion to additional snacks, healthy breads and healthy beverages.
When asked directly which categories Quaker is best suited for, consumers are most likely to stay “closer to home” and generate healthy food items, particularly breakfast foods (e.g., whole grain bread), bakery items (cookies, mixes) and also other healthy snacks (e.g., fruit/fruit snacks, snack nuts/mixes, etc.) Quaker’s core equities also suggested that it could offer several other nutrient-rich products, including whole grain bread, fruits and vegetables, yogurt and dairy beverages.
The Quaker brand strategy category expansion zones were identified, suggesting additional healthy snacks, and breads. Importantly, danger zones were also identified to not expand into, such as breakfast meats, pastry and doughnuts.
To maintain a strong brand long-term, innovation in new categories and products continues to be important, along with store and online presence, marketing and advertising and aligned pricing. Quaker is a very strong brand, but the QFNA division lags other Pepsi divisions like Frito Lay, so that it may not achieve its full potential under this ownership.
Does your brand have a clear brand strategy based on a robust understanding? Visit the brand strategy resources page or contact Insight to Action to learn more.
