Maintaining the Freshness

Nothing had happened to the baby food area since the Second World War.

Lennart Alftren, personal communications, 2014 Alftrén and Lundqvist thought that Otto’s Baby Food was still considered small scale, but they do have big producers watching their moves. Mats Lönne and his wife have been putting a lot of work into the company and represent the main working team (except for Björn and Rikard Öste) together with Olof Böök and the Potato specialist team. There is still a challenge in terms of manufacturing, as the actual production of the baby food is only done in Falköping now. Björn Öste’s experience in the US in terms of co-packer operations, in his view, is very efficient, and many small food companies focus on their product and buy services for all other components of their operation such as packaging and packing services. The food industry in Europe is quite interesting in Björn Öste’s view because the big companies have been stagnant for a long time. There are plenty of opportunities to innovate in the industry,

not just in the food, but also around food, such as packaging and logistics. The network and experience of the team had played an important part in securing the packaging contacts with Falköping. Aventure AB had experience in working with them for another liquid batter product. The key to getting Otto’s Baby Food products to be produced was resolved through networking. Rolf Bjerndell knew the co-packers in Falköping quite well and together Rolf and Björn convinced them to work with Otto’s Baby Food.

The management team for Otto’s Baby Food had initially planned for the business model to be subscription-based; however, it did not grow fast enough.

Lennart Alftrén remarked that it was good that ICA and the other supermarkets were very interested to have the product in their store assortment, so the company was “lucky in a way.” They had thought that the interest from the shop would take a few years, but it actually only took three months. Their other goal had been to create a consumer response that would pressure the retailers to want the product in their stores. The responses from the stores were very rapid (less than a month), which was when ICA from central purchasing called and wanted to be part of the distribution outlets. It was faster than they had expected. They have attributed part of it to influence and buzz created by social media channels (Facebook, blog, Twitter) with famous and loyal subscribers giving good testimonials and supporting what Otto’s Baby Food stands for (fresh, ecological baby food). At the start of the project, they had scouted for 50-60 possible parents, and these parents had followed them from the beginning, acting as customers, helpers, and advocates for the brand. Otto’s Baby Food subsequently handpicked the ICA stores to ensure the delivery and storage of the product met their standards. About 20 stores (large ICA stores and organic stores) in the Stockholm and Uppsala region started carrying the products in 2014. Toward the end of 2014, more ICA and COOP retailers at selected locations in other locations in Sweden in the Skåne and Göteborg regions began selling the product. The aim was that, since they have direct production and delivery, Otto’s Baby Food products could be on retail shelves in fewer than 20 hours from production.

After lots of tests, they started out deliveries to a couple of places in Stockholm. The reason why they did not start out in the direct retail market such as physical shelf space in supermarkets was because they thought the retail-supplier system would crush them even before they could start. Retailers were known to demand terms that might be hard for small suppliers to fulfill, especially new start-ups. Instead, BFR went directly to the consumer, who would be directly influencing the product.

Working 30 years with retailers in Sweden I have never, ever experienced the fact that you come into a store, you talk about a concept, and they said, “Hey, that’s great, can I have it tomorrow?” Or even through clients calling their retail outlets, “Hey, we need to have Otto’s välling, please make sure you can find it somewhere.” And they call us and said, “We want the product.” Nothing I have experienced in my whole life earlier. And this is because of the fact two facts I think: first of all, baby food is very crucial for retailers and also it is fresh and ecological and its very right for the moment, it’s very trendy for the moment.

Pär and Lennart, personal communication, 2014 According to Olof Böök, the novelty of Otto’s Baby Food lies partly with the distribution model and how they have approached the market. The innovation lies in the concept (single brand delivery), how it is promoted, how social media strategy is used, and how it is being distributed. They developed a category in the retail market that had not been developing so much (nothing happened much in 30-40 years, as compared to the dairy category). The original distribution model based on focus groups they had was a good basis to begin operation with 150 families in the Stockholm area. That was the platform to get further venture capital and investors, especially since they already had customers who signed up. The company’s first product, a milk and oat-based baby gruel, contained ingredients sourced from 20 farms close to the company’s base in Stockholm and produced in Falköping. From there, Otto’s Baby Food takes full responsibility for every step in the chain, through manufacture to final delivery to parents in their homes. They started by providing a subscription-based delivery system to guarantee high quality and freshness of their product directly to the customers’ homes. However, they soon found out that it was very hard and because of the erratic ordering schedule, they needed to refine their strategy to be able to expand the retail market. They still wanted to control the distribution and increase sales. When the opportunity came with the big retailers, they met up with a team from ICA and BFR informed the retailers that they would carefully select stores and would promote and educate those stores because they wanted to change this category. However, it would not be sold centrally so as not to lose control of the distribution. They are currently ready for the next phase (with about 35 stores in the Stockholm, Uppsala, Malmö, Lund, etc. as of April 2014) and have begun selling at selected retail outlets and specialty stores in these regions.

They are always checking how the places and products are displayed and how it fits with the concept, and are embarking on further discussion with other dairy

packers to see how this can be further organized in good premium stores under their control. Business is growing fast and plans to expand to other urban centers across Sweden are already being developed, while new products are being planned and launched.

The future is also looking different, with a new generation of retailers embracing this concept. Magnus Lagnevik shared how Coop, as one of the larger retailers in Sweden, has been stopping innovation for years and was extremely difficult to work with. However, in 2013 a new managing director, who was previously with ICA, took over the reins and has a new strategy. The new Coop management wanted to only concentrate on premium retailers, and sold off the rest of the business. Coop headquarters gave the local stores some freedom to act more independently, since managers in a Coop store are employed as opposed to owning a franchise, unlike ICA. It was through this change in policies at the same time that allowed the opportunity for Otto’s Baby Food. For example, the Coop branch in Lomma had their aim set on positioning their store as having local food produce and an organic assortment.

They also wanted to be an ecological provider in an area where the clientele had the preference to care about their health and to buy organic food. The staff found out about Otto’s Baby Food, and the staff in charge of the organic products section contacted Otto’s Baby Food to indicate their interest in selling the product even though they were not on the “approved list” according to the direct distribution criteria of Otto’s Baby Food. They had heard about the product from other people and their customers. Initially, they were told that because Coop had a long process when it came to new products through central buying, that created problem for new products, and therefore Coop was not on the approved list. The staff managed to persuade Otto’s Baby Food that they were a new store and could take advantage of that to get in the new product. Lomma Coop’s staff member who was in charge of the baby food assortment at the branch convinced Lönne that if there were any problems, the staff would be responsible for dealing with it. The products are delivered directly to their store every two weeks. It has had a good response so far and the customers like that they can buy fresh baby food. The staff in charge also shared that because Lomma Coop is dealing directly with Otto’s Baby Food instead of going through the central purchasing at Coop, it was not a problem getting the product to the store. They are open to new products and to the fact that this product is not like the other ones, and their local clientele are willing to pay more than average to enjoy organic products. Other Coop branches, for example the one in Lund near Lomma, have also requested to be able to carry the product line. Therefore, it was a major achievement that Coop stores

started selling Otto’s Baby Food products. That was how Livsmedelsakademin viewed Otto’s Baby Food and why they financed them—as the hammer that could break down these barriers. Lagnevik considered what Otto’s Baby Food had done to be brave, because they did something that nobody had done before in Sweden, especially through e-tailing (electronic retailing—selling through the Internet). The retailers have been mostly following each other in terms of product assortment and had been following a quite safe strategy.

The plan for Otto’s Baby Food is to grow in volume in the coming year or two and to maintain contact with the consumers. Quite a few subscribers are famous people who have been giving good testimonials about the product, but they need the volume for a sustainable production for the product. Their aim to change the baby food industry in Sweden includes the plan to expand the food assortment for baby food. One of the toughest challenges has been financial resources when in a new field, and in terms of logistics, with doing direct home delivery. The founders and their dream team’s mindset has allowed them to meet whatever challenges have come their way, and that has been the single most important thing with all their knowledge. It is their view that they have passed so many thresholds in this journey to create this platform that can be expanded with new products assortment.

The customers have been very satisfied and they still have an extraordinary customer base because they have spent almost nothing on marketing, as everything works through the Internet and social media. Lönne handles the Otto’s online presence, and the blogger customers are doing it of their own accord. The customers are thankful for this product, and Bjerndell felt that there was another element—sympathy—that led the customers to align themselves with Otto’s as a small company in opposition to bigger baby food conglomerates. This is similar to the phenomenon with Oatly. This is something quite different from the products that the big companies try to push to the consumers. They also have a lot of direct communication, especially when they make the deliveries directly. Lönne’s wife, who used to be an event manager at TV4 in Stockholm, also aided in the proliferation of the product to the parents’ market with her network contacts. However, the favorable response to the product continues to be an important aspect of the marketing message of the company.