The global tobacco company BAT reported in its business report for the past year that it achieved total revenue of £25.7 billion, which is 0.4 percent less than the previous year. In contrast to the slight decline in total revenue, the revenue from sales of new product categories increased by 51 percent last year, and the number of users of its products from that segment increased by 4.8 million over the year, reaching 18.3 million. Although revenue from sales of new product categories just exceeded £2 billion, BAT’s CEO Jack Bowles emphasizes that the company 'on the right track to achieve revenue of £5 billion by 2025, as well as profitability in new categories'.
If large global tobacco companies had sat idly by while public health campaigns against smoking were being conducted worldwide, they would today be well on their way to near extinction by 2025, as could happen to smaller cigarette manufacturers who do not have the strength to develop a new product category themselves or did not realize it in time and thus sought shelter under the wing of those who can, as the Rovinj Adris Group did by selling TDR to BAT.
Domestic Homework for Companies
New product categories, namely heated tobacco products, thus become what is referred to in business jargon as cash cow. The term originated at the Boston Consulting Group about fifty years ago and refers to a product or service that generates a lot of money over a long period in a company or an entire sector with low growth. Cash cows tend to grow slowly but are usually market leaders in industries with many barriers to entry, which, on the other hand, means there will be less competition.
When we talk about business restructuring in Croatia, we mostly think of financial restructuring, and then concepts such as cost-cutting, optimization of the number of employees, and similar.
– For me, this is the daily job of every manager. Restructuring a company means much more than that: it requires changing the main revenue streams, markets, profitability… and that takes two, three, or more years in companies. True restructuring occurs when, to make a company sustainable in the long term, you change the markets, key products the company works with compared to what it did before. It is difficult to maintain market positions without changing the product portfolio, without creating some new cash cows that companies must constantly develop. This part is a significant challenge for Croatian companies and needs to be addressed. Innovations are the key to survival and long-term development and what is called true business restructuring.
When you look at exports, the markets companies export to, and the competition they face there, it is simply domestic homework that companies must do. It is no longer easy to live off the regional market. The long-term effect of entering the European Union market with one product is much greater than when you sell the entire range in Bosnia and Herzegovina. These are long-term matters; there is no overnight success. First, you must create a good product and then step by step enter the market – shared his view on restructuring consultant Boris Teški.
Too Few Cash Cows
It is not that there are no good examples of new cash cows in Croatian corporate practice, but the fact is that there are too few.
Interestingly, in the search for similar examples of new potential cash cows in recent years, with a few exceptions, we have mostly encountered innovation in production precisely in smaller companies. One of them is the company Naše klasje, a producer of fresh and frozen pasta that recently launched (yet) another new product, fresh pasta and sauce in one package.
– Companies must constantly change. We often want business to run routinely, but that does not exist. We wanted to offer something completely new to the market, but we did not want to go in the direction of ready-made meals because the Croatian market is not inclined to them. This combination of pasta and sauce is a market innovation in the category of quick-preparation meals, so we did not know how the market would react. Fortunately, the initial market response is good. By that, I mean the retailers who were thrilled with our new product and gave us shelf space for it. Now we face the battle for consumer favor – says Zoran Šimunić, owner of Naše klasje.
You can find more examples in the theme of the new printed and digital Lider.
