Former Formula 1 driver Paolo Barilla knows all about the rising pressure, faster speed and mounting retailer power in the manufacturing arena. "As competition heats up, you've got to increase your innovative performance," he says. He's steering AIM into the future.
Elsevier Food International, Vol. 4, Number 1, February2001
Pascal Kuipers

I am delighted to be taking on this role at AIM at such an exciting time", Paolo Barilla stated in the April 2000 press release that announced his appointment as president of the European Brands Association AIM. And he's not just resorting to hyperbole when he says it's "an exciting time"; retail concentration, EU legislation, and rapidly developing technology are forcing manufacturers to innovate like never before. As head of AIM and vice-chairman of the Barilla Group, the privately owned global producer of pasta, bakery, and meal components, Barilla has an invested interest in how these developments will impact on the food industry.

Paolo Barilla (1961) was a well-known racing car driver in the 1980s. He progressed from Formula 3 to Formula 1 and was winner of the 24 hour-race in Le Mans, France, in 1985. Six years later he began working for the Barilla Group, the family-owned pasta, bakery, and meal components company. In 1993, he became a board member and was the company's CEO until February 2000, when he was appointed the Barilla Group's vice-chairman. Since April 2000, Barilla has functioned as president of the Association des Industries de Marque (AIM), the European Brands Association. Barilla belongs to the fourth generation of the Barilla family, which has been running the company since its establishment in 1877.

What do you expect from B2B E-commerce and the possibility of linking retailers' E-marketplaces to those of manufacturers? Will this dramatically change the relationship between the two parties?
"Technology is only a helping aid, providing the food industry with new ways to communicate. Technology does not, however, change the spirit of the business; retailers and manufacturers will always continue to strive to optimise their individual company's performance. The real goal, however, is changing the model of business, namely lower barriers and mutual courage to collaborate in building something new. Theoretically the retailer-manufacturer collaboration already exists, but I've yet to see it in practice. Rapidly developing technology does not immediately change a company's behaviour. Due to the stress of having to meet annual targets, managers focus on short-term gains rather than long-term commitments. Retailers are still reluctant to open their businesses to collaboration with manufacturers. In Italy for instance, lateral competition is more important to money-hungry retailers. This slows down the movement toward a shared retailer-manufacturer business, which, if successful, should provide better customer value at the lowest possible cost. Another problem is a public opinion that can be easily swayed.
The widespread fear of Wal-Mart is a good example. A few years ago everybody in the food industry thought that once in Europe, Wal-Mart would go on a purchasing spree with its massive financial power. The opposite has proven true; even a company like Wal-Mart can change strategy. All this brings me back to the initial idea of technology. Indeed there is a strong technological development, but people haven't yet learned how to utilise it. They're still using the old-fashioned methods. Humans are slow to change, which is why, I believe, so many companies are massively overspending in technology. They simply can't exploit all its possibilities. Return on technological investment is extremely low, but there is a predominant feeling that those who don't invest today will be tomorrow's lossers. "

Nobody wants to be a loser, but which companies will come out on top?
"Those that are able to break through 'the IIuman barrier'. as I just described. People don't change. but change is necessary for survival. ers force retailers and manufacturers to ere rver Deeter proniicrs and' services against the best possible price. The general feeling is that there are huge opportunities to be had from meeting consumers' expectations. At the same time, though, most companies are complex organisations with communication limitations, internally and externally. Reorganisation takes a lot of time. But the first companies to break the barrier will have the edge. What the food industry needs are strong people pulling the strings and setting the pace of change - innovative superstars who inspire the whole industry."

[In the past, both Procter & Gamble and Wal¬Mart may have held the type of 'superstar' status Barilla refers to, as both initiated ECR in the early nineties. Barilla, however, does not identify specific companies that currently hold such a super-status].  
"ECR is very important but needs a new impetus. AIM is involved in the Global Commerce Initiative, which discusses all the changes needed to create the new business model. This model should better manage the speed of information and knowledge via technology-based collaboration between trading partners. Younger generations that grew up with computers and have a totally different attitude toward new technology will provide the food industry with the needed acceleration."

Another topic: CIES has established a task force to create global standards on food safety. It first applies to private label items and eventually will become applicable to the entire food industry. Are retailers more pro-active to assess the food safety issue then manufacturers?
"Manufacturers do not lag behind retailers in this respect. The way the consumer perceives the brands is crucial to branded goods manufacturers who have a responsibility not to betray consumer trust and loyalty. If we fail to live up to our responsibility in the field of food safety we will feel it, namely in our main assets: our brands. That's our responsibility. It is the retailers' responsibility to provide their customers with the best products on offer in a well-equipped and maintained store. Retailers cannot control ail of their suppliers' systems. That's far too complex. Food safety is therefore the responsibility of both the retailers and the manufacturers, each in its own way. Historically, all our efforts and investments have been aimed at safe, healthy, and innovative products - the life lines for our brands. We have to inform consumers that the price they pay for branded products is not without reason. They are paying for safety and innovation."

Last year when you became AIM president, you said that innovation is hampered by restrictive EU legislation, which makes it impossible for manufacturers to adequately inform consumers about their products. How does this harm innovation?
"The law is designed to protect the consumer, which is of course good. But what concerns me is the fact that manufacturers are bound up in conservative EU legislation, which contains all kinds of prohibitions. In the end this penalises both the consumers and the companies because it restricts innovation. And the economy benefits from innovation. Yet if advertising fails to explain the benefits of a new product, then you won't even think about setting up a challenging R&D project to further innovate your products and brands. And why is comparative advertising still not allowed in Europe like it is in the US?"

Is lobbying the highest levels of the European Union one of AIM's main tasks?
"We continually discuss with the EU the flip side of legislation. The EU is of course dedicated to Europe as a whole, and it's good that an association like AIM keeps it abreast of practical implications for branded goods manufacturers. There are many concerns on EU level. Look at last year's summit in Nice, France, where Europe's unitary progress appeared to be far less advanced than initially thought. Trying to unite all these countries, economies and cultures is a very complex job and involves a lot of compromises, which are as a rule not very straightforward. With the importance and relevance of communicating to the consumer, more and more precautions are being taken. It is our task to defend our members' interests in this important issue."

How will the ongoing retail consolidation impact the relationship between retailers and manufacturers? Won't it create a vacuum in which a few retailers have all the power? And aren't manufacturers becoming too dependent on a limited number of retailers?  
"Despite new ways of collaboration between business partners, the traditional rules of the game never change. Competition will become tougher than ever and retailers will put more pressure on their suppliers in the coming years. In doing so, they are determining which suppliers will survive and become bigger players and which will disappear from the retail arena entirely, become local niche players, or private label suppliers. Different levels of competition will arise and the best way for manufacturers to deal with this is to concentrate on the innovative power of their brands. If you do it right, you'll steer clear of the trouble, because consumer loyalty offers enough margin to keep the R&D engine going. You can compare it to the early 1980s when car manufacturers expected the industry would become a commodity business since they assumed they'd reach the peak of technological development. And look what happened; it turned out they were just at the front end of drastic improvements in safety measures and comfort, amongst others - all improvements driven by technology. In my office I have a revolutionary new brake developed by Ferrari, which contains a special fibre that performs increasingly well as it heats up. This is a good example for branded goods suppliers to follow - increase innovative performance as competition heats up!"

How does this apply to your company Barilla?
"Barilla is constantly looking at new ways to communicate with its consumers. For example, we are testing a new food service concept connected to the restaurant business, a concept that will of course be branded as Barilla. As a rule of thumb, manufacturers have more room to innovate in an open system. Europe can learn a thing or two from Japan. I know of a Japanese bakery company that continually innovates under a single barcode! In Europe, we introduce a new barcode for even the slightest differences in products. Even at Barilla, we have a whole system of barcoding for every single variation, which not only creates unnecessary internal costs for both us and our retailers, but increases complexity as well. Europeans are striving for much too high a level of sophistication in category management. If we would cut back a little in our category management demands, the innovations and earnings would be much higher. Ongoing discussions and all sorts of checkpoints are slowing down our innovation rate. In Japan, the retail trade demands ten new products per supplier each year. This is because Japanese consumers want perpetual change. As a manufacturer, the only way to live up to such high demands is if more leeway is granted, enabling you to concentrate on the important aspects of category performance."

Barilla is a private company. Will it be forced to go public to retain its independence in the consolidating food industry?
"Maybe we'll decide to go public somewhere in the future, but it won't be forced upon us. Right now we don't have any plans. Going public is a strategic choice. If you want to double your business in three to four years via acquisitions, for example, you'll have to attract capital via the stock exchange. Being a private company puts you in a position where you can grow slowly but securely, something that investors keen on profit would never allow. They're not interested in future growth promises unless you promise extraordinary growth. Last year in the US about 300 CEOs were fired because they could not fulfil the optimistic growth expectations they had promised ¬incredible promises devoid of reality made under the pressure of shareholders. This is especially true for the food industry, but not for Barilla."