The Chicago-based company chews over—and delivers—new products that keep it as fresh as a new stick of gum
Goose Island in Chicago wouldn't seem a hotbed of innovation to most. Just northwest of the downtown business district known as "The Loop," it is a largely industrial area filled with warehouses and long-forgotten factories from the city's days as a manufacturing hub. Yet for the Wm. Wrigley Jr. Co. (WWY), the area has become the epicenter of its push behind innovation.
For decades, Wrigley was all about gum. But when Bill Wrigley Jr. took over as CEO after the death of his father in 1999, he knew he needed to do something bold or the company was going to get left behind. Early in his tenure, he made the transformative decision to expand beyond gum into the broader world of candy. He knew acquisitions would be an important part of that move. So he eyed chocolate maker Hershey's (HSY)—a deal that didn't pan out after its owners backed out. In 2005, he bought Kraft's Life Savers and Altoids brands for $1.5 billion.
Introducing Global Innovations
But Wrigley also knew that new products would be critical to the company's future. So in 2001, he hired Dr. Surinder Kumar, an alum of consumer-goods giant PepsiCo (PEP) and Bristol-Myers Squibb, to head up his innovation efforts in the newly created position of global innovation officer. As another part of that commitment, the scion broke ground in 2004 on Wrigley's Global Innovation Center (GIC), a two-building complex situated on the northern tip of Goose Island on the Chicago River. It opened in 2005 and two years later, it's a tangible sign that research and development have become key components of Wrigley's growth strategy.
The 153,000-square-foot main building itself is unique. Designed by Gyo Obata of global architecture firm, Hellmuth, Obata + Kassabaum, the three-story, steel-and-glass structure features a glass tension-cabled ceiling made up of 540 glass panels—the only one of its kind in North America and one of only five in the world. The indoor winter garden houses 25 different species of plants from four continents. Special lighting during the night ensures the greenery continues to grow during the dark Chicago winters. There's also a 40,000-square-foot pilot plant on the campus, where the company can test the manufacturing process for its new products on a small scale. Its eco-friendly "green roof" provides extra insulation.
The true import of the GIC, though, is its four on-site labs housed in the main building, where Wrigley can cook up new products—a joint effort by food scientists, researchers, and marketers (some 250 associates work there full-time). On that front, Wrigley has executed a complete turnaround. When he took the helm, there were just a handful of introductions; last year, there were 80 new products across the globe.
"Wrigley has obviously started to step up to the plate in innovation," says Sanford Bernstein analyst Alexia Howard.
One major area for Wrigley Jr. Co. is obviously gum. Last year, it made smart extensions with its Orbit line of sugar-free gums, Wrigley's largest gum brand. New flavors like lemon-lime, crystal mint, and mint mojito helped propel sales by 31% over the past year, ending Feb. 24. In July, 2006, it introduced Eclipse Gum Big-E-Pack in the U.S. and China. It's a unique bottle-like package that holds 40 pieces of gum. Sales were up nearly 6% in that group.
The company has also made a big push to expand its iconic gum brands into new categories including mints. And despite headwinds in the turnaround of Altoids and Life Savers, new innovations are finally starting to pay off in those groups as well. They launched Life Savers Gummies Fruit Splosions, a candy with a liquid-filled center, in cherry flavor and in a variety pack. They also created new flavors for the long-tired Life Savers brand with orange mint and sweet mint. Sales have grown 11% over the past year as a result.
Outpacing the Competition
That new spirit of innovation has made Wrigley a standout in a sluggish sector. Since 2000, the company's revenues have increased from $2.1 billion to $4.7 billion while maintaining fat gross margins and double-digit earnings growth during that period. Wall Street's been pleased: The stock is up more than 85% over that period, while competitors in the broader food sector such as Sara Lee (SLE) and Kraft have stagnated.
Yet as new CEO Bill Perez and Wrigley, now the executive chairman, know, they've got to keep stocking the shelves with new ideas. To that end, this summer the company will launch a new brand of gum called 5, its first new sugar-free stick gum in the U.S. since the launch of Extra 20 years ago. Designed to stimulate the senses, it comes in three flavors: Rain's spearmint flavor tingles the mouth; Cobalt's peppermint flavor cools; and Flare's cinnamon warms. In late December, Wrigley introduced Altoids Dark Chocolate Dipped Mints in peppermint, cinnamon, and ginger. The company will also gain new insights into chocolate from its January, 2007, purchase of A. Korkunov, essentially the Godiva of Russia, for $300 million.
Wrigley has clearly made innovation a priority in his new role: "The biggest thing is coming up with a consistent stream [of new products]," he says. "Sometimes it takes longer to develop some products than others."
Click here to view a slide show of new products from Wrigley.