Consumers in the United States are so increasingly into fresh, local, and carbon neutral that if someone figured out how to grow a tomato that could walk itself to the grocery store, they'd be a millionaire.
So why is Mutti S.p.a., a tomato processing company based in Italy, trying to make a dent in the canned goods aisle of a stateside supermarket?
That's one of the questions Mary L. Shelman, director of Harvard Business School's Agribusiness Program, explores in the case study Mutti S.p.a., coauthored with colleagues Senior Lecturer José B. Alvarez and Carin-Isabel Knoop, executive director of the Case Research and Writing Group.
“No one believed that you could create a brand in tomatoes—a commodity!”
The case details how, during an economic downturn, a small business in its fourth generation of family ownership became one of the best-selling brands of canned tomatoes in Italy, with sales growing from €11 million in 1995 to €185 million in 2011. And it offers important insights on supply chain management, innovation, and risk-taking.
But it also provides lessons to anyone selling a commodity—after all is said and done Mutti sells tomatoes in a can.
The Early Years
Mutti S.p.a. got its start in Parma, Italy, in 1899, when the great-grandfather of current CEO-owner Francesco Mutti canned and sold tomatoes to an illiterate rural population that identified the product by the two lions on its label.
Even from the start innovation characterized how Mutti does business, with advancements in canning and processing helping the brand make its mark. In 1951, for instance, Francesco's great-uncle Ugo Mutti developed thimble tube packaging—essentially a coated aluminum toothpaste tube with a twist-off cap—to keep tomato paste fresher longer after opening. Later, in the 1970s, Ugo created polpa: cans of peeled, finely chopped tomatoes meant to save time without sacrificing flavor. The product was wildly popular with the restaurants that made up the bulk of Mutti customers at the time.
Shelman first came across the brand on a supermarket shelf in Parma a few years ago. She then met Francesco Mutti when he attended Harvard Business School's Executive Education Agribusiness Seminar, held that year in São Paulo, Brazil. "Because he was from Parma and I am familiar with the area, we spent a lot of time together," says Shelman. "He's quintessentially Italian but also travels widely to see what is happening in other markets. It was clear that unlike many small companies that are insular…he was always looking outside and bringing ideas back in."
Shelman was curious about whether Mutti was encountering the same competitive troubles experienced by other food companies such as Barilla in the home country. Like many national brands in Italy, Barilla was being squeezed by private-label products—store brands that had been created in response to consumer demand for low prices in the face of a severe economic downturn.
"An Italian friend in the business kept saying this is horrible, look what the retailers are doing to us," says Shelman. But Francesco told Shelman that the company was doing quite well. "And I said, you've got a bad economy, you've got these supermarket chains that are getting stronger and coming in with their own brands, and you're telling me you're growing. What am I not getting?"
It became evident to her that Francesco had a quite sophisticated view not just of the category but also of the food industry. He was building his brand through investments in ideas unheard of in long-running family agricultural businesses: emphasizing high-quality raw materials, building close relationships with farmers, and spending on vigorous marketing and advertising.
Born To Innovate
Born in 1968, Francesco was full of energy and ideas from the start, but the company he began to take over in the mid-1990s had slowed. Most of the management team were from the same area, were around the same age, and had been hired around the same time. Polpa, still a favorite among foodservice companies, was processed on antiquated equipment. "It was," notes Francesco in the case, "a quiet, conservative €11 million company."
He immediately began to shake things up. While Mutti did well in the retail arena with its tomato paste, the market was small and getting smaller since fewer Italians were cooking from scratch. Other tomato processing companies weren't faring well. Given the growth of chain supermarkets over independent shops and the fact that processed tomatoes were considered a commodity, fierce competition for miniscule profits was the norm.
So Francesco decided to close Mutti's side businesses in cheese and cattle and focus solely on tomatoes. But rather than compete on price, he wanted to compete on quality.
"Barilla was the first to see the need to invest in brand building to protect its shelf price and maintain share," Francesco observes in the case. "However, no one believed that you could create a brand in tomatoes—a commodity! The other processors all thought the answer was to lower their prices by paying less for their tomatoes. We took a different approach and concentrated on quality."
This meant going to the start of the supply chain: the tomato farmers. ("You can't put the brand on it, get the premium, and then work backward to bring in higher quality raw materials," says Shelman.) Most processors try to pay farmers as little as possible for their tomatoes. They enter contracts with farmers early in the year, but in years with large harvests they might find reasons to discount that price for poor quality.
By contrast, Mutti decided to pay farmers both a fixed price no matter how many tomatoes were produced and a premium for better quality. Farmers were asked to harvest five days later than normal, which produces a riper, tastier product without adding sweeteners but increases the level of risk for grower and processor.
Francesco also manages quality through direct interaction with the growers. Each year he presents a "Golden Tomato" award at a ceremony attended by all Mutti farmers. It's an opportunity not only to recognize them for a job well done and to share ideas, but also to educate on subjects like precision agriculture and other green techniques—though Francesco admits in the case that this is an uphill battle.
The way Francesco handles quality control inside the plant is especially unique. While most companies package and label their products separately, the bulk of the tomatoes Mutti processes—80 percent—go directly into its final packaging. This means managers must specify product type, unit size, and market before the harvest. And given that there is just one tomato harvest—of tomatoes from northern Italy, taking around 60 days of round-the-clock processing from the first to the last picked tomato—there is very little room for error.
"I'm still scratching my head" about the practice, says Shelman, wondering if Mutti wouldn't be better off just putting the tomatoes in unlabeled cans so they could be shifted around as market demand developed or dropped. "If these tomatoes took off like crazy in the United States, Mutti couldn't do anything about it until the next harvest," she says. "What they have is already there in a printed can, so they have to sell it in the market it was packed for."
“The system builds in quality by making mistakes more costly”
Francesco is well aware of this limitation but says in the case that "knowing exactly what you have to produce and sell provides a strong incentive" for the production and sales teams. And, he adds, "if you reduce the possibility of change, there will be less change…the system builds in quality by making mistakes more costly."
Although the recipe for success seems nontraditional, it's worked well enough in Italy that Mutti has a symbiotic rather than a tense relationship with retailers.
"The retailer looks to Mutti because it is a quality product that shoppers are willing to pay more for. This sets the price umbrella for the category," says Shelman. Francesco's changes have meant that supermarkets can price their private-label brands higher. He's also constantly introducing new products to keep the category exciting to both retailers and consumers, even though most don't stay long on the shelf. And through this approach, Mutti has increased market share (both volume and value) through the rough waves of the Italian economy.
Facing The Future
How Mutti will fare globally is up for debate. Its products are sold in 25 countries, including Russia, Australia, and the United States. "It's really a challenge to bring a product like this to a new market, even if it's superior quality, and to actually have it stand out," says Shelman. And since there's a limited supply of product—Mutti's packaging boasts that the tomatoes inside are 100 percent Italian—there's a limit to how far the company can expand.
But change is important, even for the smallest of companies.
"It comes back to innovation," she adds. "You can't stay the same because if you stay the same it's like you're going backwards…companies continually need to bring in new thinking. If not, someone else will come in and take over."
Given that Francesco continues to put out new products, and travel the world in search of new ideas, it's unlikely Mutti will meet such a fate anytime soon.