I want to talk about the first food product business incubator, why we created it and how it will evolve in the coming years, and why at this very point in time it is important and beneficial to create such centers. This project isn’t just a trendy know-how, but a solution to many problems that big businesses face today on the food market. And this is the groundwork for development on the international market.
Within three years, we will create an international network of Mabius food startup centers and commercial kitchens all around the world: after Russia, business accelerators will open in Latvia, England, and China. The center helps budding entrepreneurs create a stable business or scale an already-established business. From business plans, recipe development, design and marking, to the sourcing and accessing retail chains – Mabius specialists and experts help along the way. Most importantly, we invest in long-term projects: up to 25 million per project.
If the Russian center is focused on the Russian market, the international centers will focus on the development of new technological solutions that use Russian ingredients and also to enter the Asian market. The project’s investment is more than $25-30 million.
Why are we doing this? I would point out a single trend that is significantly altering the food industry – the consumption increase of niche and personalized products around the world – most notably in markets with growing economies: Russia, China, and India. This term has another definition – “long tail” or to put it more simply, an increase in the cost and demand of niche products.
Long tail is the total amount of large sales of niche products in comparison with the ‘head’ sales chart, where the top hits are located. This term first appeared in 2014 in a Wired article when editor Chris Anderson gave a forecast for the sales of major stores. For a long time, people didn’t pay attention to long tail sales, but now they can generate half of revenue on music sales, books, and now, on the food market.
The market share of ‘long tail’ is growing in so many directions that craft beer became a “threat” to the US beer industry. But market leaders such as P&G, Unilever, LEGA, FIAT, Peugeot, Kraft, Vodafone, Philips, Starbucks, IBM, and many others are quickly discovering and beginning to analyze and use the ideas that are appearing in this environment.
For example, take the smoothie brand ‘innocent’. At first, it was a handmade product and one of the market leaders of drinks in England and was later bought by Coca-Cola. Or Red Bull – first it was a drink only for the extreme, now it’s mainstream.
With the increase in e-commerce, this trend is growing stronger and faster. The Internet is a “never-ending (infinite) shelf” with rent that costs nothing unlike real supermarkets. In this regard, Russia isn’t far behind the rest of the world, as the share of niche products is growing and will continue to grow similarly to the ratio of online and offline shopping.
And this trend will spread offline: before we used to see three types of products on the store shelves, for example, flour. Now there are dozens of different kinds in each product category. And where do companies get new products in time to keep up with market output? Traditional R&D departments at large companies can’t manage on their own and are resorting to the “help room”.
As a representative of a big business, I clearly see how companies are adapting to modern conditions and are changing their development strategy, relying on work with consumers and small businesses using crowd technology. This approach allows us to reduce costs on development and releasing new products on the market by up to 60 percent.