Lego Bites is a proposed venture that revolutionizes consumer interaction with Lego in both the physical and virtual worlds. While Lego remains among the biggest global toy companies and benefits from outstanding brand recognition, shifting trends toward digitalization and increasing pressure on sustainability have created a need for new innovation. By introducing edible mini Lego sets, further expanded with a complementary mobile game, Lego can greatly reduce their plastic waste and provide entirely new avenues to inspire creativity.

Parent Firm Analysis

Company Overview

Since its foundation in 1932, Lego has become a leading toy manufacturer, achieving a revenue of 5.87 billion euros in 2020 [Statista, 2021] and being ranked as the world's most reputable company by RepTrak in 2021 [Global RepTrak® 100, 2021]. The original Lego brick was patented 60 years ago, followed by the creation of the minifigure 20 years later [Lego, 2020]. After the brick's patent expired in 1978 [Been Patent Law, 2021], Lego faced fierce competition from copycats. They countered this by consistently innovating and delivering high-quality products, whether through theme parks, movies, or new sets, thereby instilling confidence in customers regarding the quality of Lego products. This strategy helped solidify Lego's position, as evidenced by its current large market share of 8.05% [EBSCOhost, 2021].

Industry Overview

Lego competes in the highly concentrated physical toy industry, where a few key players dominate the market. This includes Hasbro, Mattel, and Lego. Their high market share drives this concentration, defined by having a share of over 5% [EBSCOhost, 2021]. This puts Lego in a dominant position, able to continuously expand, shown through large levels of increasing revenue, from 0.9 Billion Euros in 2003, to 5.87 Billion in 2020 [Grand View Research, 2021].

The physical games market has seen profit margins fall from 2.1% in 2016, to 1.7% in 2021 [IBISWorld, 2021], attributed to increasing popularity of electronic games. Even throughout this decline, Lego has been successful in achieving their highest net profit in 2020 at 1.3 Billion euros [Statista, 2021], highlighting their dominance. Medium level of barriers to entry benefits Lego. Their reputational advantage, and high capital required to set up production (especially automated methods), makes it difficult for new manufacturers to compete. Key success factors, such as quality control and stock management are areas of strength for Lego. For example, in the case of missing parts, customer service are quick to send replacements. As Lego produce their own products, this also allows for dynamic production rates, varying on demand, e.g. at Christmas. With the physical toy market reaching maturity, and new manufacturers entering, competition levels remain high. With encroaching threats from virtual and online gaming, it is crucial that Lego keep innovating.

Mission & Vision State

Lego’s mission statement is to ‘Inspire the builders of tomorrow’, aiming to prosper children’s creativity and evolve imaginations. They also adhere to core values, outlined below. ‘Lego’ is Danish for ‘play well’, and they believe in the power of learning whilst having fun. Thus, they envision themselves as ‘a global force for learning-through-play’.

Brand Strategy

Lego utilises a broad differentiation strategy, having built a business based on unique products, and catering for the whole market; boys, girls, different interests, and all ages. An example of this is their new marketing campaign, ‘adults welcome’, aiming to attract adults to the toy market. This features mature and engaging advertisements, showing key benefits such as relieving stress. A further example is through their brand collaborations, including Marvel and Star Wars. These allow Lego to captivate all kinds of interests, enhancing their market size.

Product Portfolio

Lego has an ever-expanding portfolio, from tradition al sets, to movies, clothing and accessories, which has kept users engaged and willing to repurchase. In 2020, 55% of their portfolio was brand new [Brick Fanatics, 2020], including a range of Super Mario products. These brand collaborations have higher emotional value to fans, increasing Lego’s user base, and further diversifying their range.

Blue Ocean Venture

"Lego Bites" revolutionizes how consumers interact with Lego, in both the physical and virtual worlds. The proposed venture introduces edible mini Lego sets, each consisting of 10 tasty bricks. Each packet also contains a redeemable code, allowing the model to be imported into a mobile-based game, "Lego Bites Builder," thus expanding the user's collection.

Lego Bites bricks will be made from a cereal bar interior tailored to the healthy-eating market, coated with a hard exterior, enabling the pieces to fit together in typical Lego fashion. The outer coating will consist of a mix of sugar and corn syrup, similar to M&M’s coating, essential for upholding the brick’s strength and allowing the coating to be dyed with food coloring to retain the vibrancy of classic Lego.

The supporting mobile game will resemble a city-builder, with users responsible for the city’s growth and management strategy, thus enhancing Lego’s educational value. Its unique selling proposition lies in replacing in-game micro-transactions with purchases of real-life Bites packets.

Typically, Lego sets sit on shelves after construction, taking up space before being discarded. By introducing edible Lego bricks, both plastic waste and the need for storage space are eliminated. Lego Bites also caters to health-conscious buyers, offering a gamified alternative to encourage healthy eating, thus providing added incentives for parents. Furthermore, this unique snack interaction allows for a higher price point, enhancing profits. Though Lego Bites can stand alone, the mobile game complements it, addressing concerns about repeated play and ensuring a strong connection between the physical and virtual worlds, enhancing the Lego ecosystem and promoting customer loyalty.

Current trends indicate the need for bold, new innovations, notably the plateau of the physical toy market due to the rise of virtual games [Play Mr, 2020]. Lego Bites opens up a new market - ‘gamified snacks,’ moving away from head-to-head competition and reinstating Lego’s position as market drivers. There is a growing shift towards sustainable purchasing, with over 65% of buyers aiming to limit their use of single-use plastics [Deloitte, 2020]. Reduction of plastic waste was favoured by 1 in 3 surveyed users, indicating readiness for eco-conscious choices. Additionally, there is a growing demand for convenient and healthy snack options [Mordor Intelligence, 2021], with around 30% of surveyed users indicating that the healthy-eating aspect was the most important feature. Lego Bites Builder caters to the digital transformation in the toy industry, ensuring that Lego remains competitive in the video game market and widening its market size.

Lego’s key innovation strategy, "Obviously Lego, never seen before," aligns perfectly with Lego Bites, offering new avenues for creativity and fulfilling its vision of "Inventing the future of play." The venture also aligns with Lego’s commitment to environmental protection, contributing to its goal of eliminating single-use plastics in all their boxes by 2025 [Lego, 2021].

Related Industry Analysis

Focusing on snackifying Lego, the food industry, particularly cereal-based foods, presents a lucrative avenue. With revenue at £2.4BN in 20-21 and a projected compound annual growth rate of 3.2% over the next five years to reach £2.8 billion [MyIBISWorld, 2021], this mature industry is fueled by rising health consciousness. Cereal bars and snacks hold a significant share, constituting 13.3% of the market, driven by their perceived health benefits [Dee H., 2021].

The snack industry, witnessing rapid growth post-lockdown, caters to both children and adults, with 69% of parents reporting increased snack consumption among their children during lockdown. Additionally, 32% of adults admit to daily snack consumption, highlighting a substantial market. Leveraging Lego's integration with the fast-growing video game industry, which is set to exceed £5.97 billion in revenue by 2025 in the UK alone [Statista, 2021], presents an opportunity for more immersive experiences.

However, the sector faces intense competition from major brands like Weetabix and PepsiCo, who invest heavily in branding. Customer loyalty is crucial, with quality often prioritized over price. Barriers to entry are moderate but diminishing, with established competition posing the greatest threat. The trend towards sugar-free snacks and gamified consumption offers avenues for innovation. Government policies aimed at reducing sugar content and consumer interest in nutritional content drive this shift [Statista, 2021].

Trade limitations with the EU and fluctuations in funding for the agricultural sector pose challenges. Yet, innovation in healthy cereal products is expected to sustain revenue growth, forecasted at a compound annual rate of 3.2% over the next five years [Dee H., 2021]. While the profit margins for healthy snacks outpace processed foods, competition and market dynamics impact bottom-line profitability. Rising wheat prices may further strain profitability, though automation presents a cost-saving opportunity.

Market Analysis

LEGO Bites will target a health and eco-conscious psychographic of parents, who are the target buyers. Children typically only use their own money after the age of 10 [Derbyshire Live, 2018], so for a large portion of the child’s life, parents make the final decisions on what they eat. Their main criteria for snacks are the organic factor and low sugar levels [Food Dive, 2021], which Lego Bites will cater to. The end-user will be the demographic market segment of 3-14-year-olds. This is the largest audience that plays with both physical toys and/or mobile games, as seen in figure 5. As the end-user, they will influence their parents’ decision of what snacks to buy and become the early adopters of the product [Foulkes L, Et al., 2018]. Launching the product in the UK, with cities like London commonplace for innovative food launches [Statista, 2018], and a population inclined towards healthy eating, is a smart decision.

According to research by Soreen [Soreen, 2020], the average number of snacks eaten by children per week is 28, showing the large potential for this product. Children that enjoy playing with building toys and also play mobile-based games will be targeted. There are around 8.3 million children between ages 3-14 in the UK [Statista, 2019]. Narrowing this down to children that play with either building and construction toys or electronic devices, the highest percentage in each age group averages 82.2% [Statista, 2020], and so the serviceable addressable market becomes 6.8 million. A trend is that as construction toys’ usage tails off, electronic devices’ usage picks up. Thus, the mobile game integration of LEGO Bites will maintain end users for longer. From the survey, 79.3% said they would buy LEGO Bites, giving an obtainable market size of 5.4 million in the UK, between 3-14. Figure 11 reinforces that by having a complementary mobile game, a greater age range can be persuaded to play. This highlights the strength of this new market, which gamifies snacking.

LEGO Bites give an alternative to buying plastic which leaves zero waste. Furthermore, there is a growing trend in gamification [Trend Hunter, 2021], which Lego Bites also utilizes. In terms of technology, although the most feasible method to produce LEGO Bites would be through molds, advancements in the speed of 3D printed food could provide an alternative method. This could achieve higher levels of accuracy around the brick-linking mechanism, ensuring they function as intended.

Our marketing strategy will send two different messages, targeting the two parts of our market. Using conative marketing, a fun and immersive message will create an impulse for children, encouraging them to want the product. Meanwhile, parents will be targeted with an affectionate message, focusing on the importance of sustainability in society, as well as healthy eating for children.

The marketing campaign will begin with a concentrated blitz, raising initial product awareness. Via word of mouth, children will continue to spread awareness, owing to their large influence on each other's decisions [Foulkes L, Et al., 2018]. This will be followed by a pulsing policy, with themed snacks released in collaboration with LEGO’s partnered brands - e.g., Marvel. This aligns with how Lego promotes current themed products.

LEGO reaches over 50 million consumers per month on social media. Of those, about 30 million are through the company’s own YouTube channels, with their main channel having over 7 million subscribers. They could begin by uploading promotional Lego Bites videos there at no external cost. They also have multiple accounts, such as Lego City and Batman, on multiple social media platforms, narrowing down fans by similar interests. Therefore, new social media channels for LEGO Bites would be created. The most effective channel method would be ‘Through the Line’, combining both above the line and below the line. ATL strategies such as TV adverts and print would raise broad awareness of the product and promote positive sustainability and health messages, targeting parents. Whereas, BTL would target specific 3-14-year-olds and their interests, such as if they are watching toy, food, or games channels on Youtube.

LEGO Bites would be sold in LEGO stores, as well as supermarkets and toy shops, using an intensive strategy. Although Lego Bites creates an entirely new product market, they would be positioned in the confectionery or healthy snack aisles within supermarkets, as opposed to the toys section. A penetration price strategy would be used, introducing them at a discounted price to help increase initial popularity before raising them to standard RRP.

Financial Projections

Graze’s (another innovative blue ocean snack) revenue was analyzed [Craft, 2021] to help predict LEGO Bites’ sales. In year 1, q1 and q2 will be spent developing the product. For product launch in q3, we predict 0.8 million users will purchase the snacks. By year 2, after blitz marketing, we expect to have a market size of 2 million. ‘Clash of Clans’, a similar mobile game, had 29 million users 2 years after launch [Business of Apps, 2021], suggesting that 2 million users are feasible. This conservative prediction assumes that the product is used by the target range of 3-14-year-olds. However, it will likely be bought by others who enjoy the gamified product. Year 3 includes expanding into North America and continental Europe, along with limited edition themed snack releases, e.g., Marvel. By then, there will be 3.8 million users in the UK, and 13.3 million in other regions (14% of North America and Europe’s SOM). From the survey, the average user would buy Lego Bites 54 times a year. With over 400 Million people worldwide having used LEGO [SidmartinBio, 2021], these figures are reasonable.

From the survey, over 50% said they would pay between £1-2.50 for LEGO Bites. Through the analysis of similar snacks, LEGO Bites have been priced at £2.00 RRP. This is above the average price of healthy snacks, justified by the gamification of the product, the attraction of the mobile game, and LEGO’s reputable image. Kinder Surprise validates this markup as they charge over 7 times the average price per kg of chocolate [Statista, 2020]. As supermarkets buy goods at around 70% of the RRP [Thegrocerystoreguy, 2021], LEGO will make £1.40 per snack.

Snack development is estimated to take 6 months [INC., 2010]. Initial costs for R&D as well as manufacturing would be around £1.8 million, based on Trig’s method of using a 30% confidence level (effectively, spending 30% of gross margins). Mobile game development will cost £300,000 [Game Developer, 2017], also taking 6 months. Therefore, total costs will amount to £2.1 million. Game server costs amount to £100,000 per year. Additionally, by using LEGO’s 2020 income statement [Brick Fanatics, 2020], operating expenses are estimated at 57.5% of gross profit, and tax expenses at 8.4%. Production costs in the snack industry are secretive, as low production costs being published may give the impression of bad value for money. Thus, finding precise figures is difficult. Production costs were, therefore, based on gross profit margins. The healthy snack-bar industry’s gross profit margins are between 40-50% [Business Insider, 2021]. Therefore, production unit cost comes to £0.77. The aforementioned figures combine to give a year 1 cost of £20 million, before marketing. On average, consumer goods companies spend 24% [Deloitte, 2017] of their total budget on blitz marketing. LEGO Bites would, therefore, require a £7.01m spend.

The pulsing policy would see marketing expenditure reduced to 5% of the total budget, for subsequent years. Lego Bites venture will break even around Q2 of 2023.

Cumulative net profit after 4 years will equate to £487 million, with a net profit margin of 11%. Healthy snack net profit margins are around 10.5% [Imarc Group, 2021], which supports our predictions. Based on the aforementioned calculations, the total initial budget sought for year 1 (R&D at 2.1mil, and marketing at 7.01mil), equates to £9.11 million.

Summary

In summary, Lego Bites presents a potential venture that merges edible mini Lego sets with a mobile game, offering a novel approach to consumer engagement with Lego. This concept showcases the potential to reduce plastic waste and provide a gamified, healthy snacking alternative.

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