Regardless of what sector a business operates in, innovation is the heart and soul of what drives differentiation from competitors and what pushes profits higher.
Whether we're talking about a pharmaceutical company developing the latest treatment to fight cancer, a bank testing a new mobile payment system to heighten banking security and improve convenience for customers, or a restaurant testing out a new dinner menu and looking to boost dining traffic and please palates, innovation is the foundation from which great businesses grow.
Of course, innovation is somewhat of an intangible factor that has long been inferred by investors, but was extremely difficult to quantify. Additionally, businesses not only had to be innovative with their products, but they had to know how to relate these new products to consumers. In other words, there's a constant evolution of both the product line and a business as it relates to consumers.
Thankfully, Forbes has done the hard work for us and created a top 100 list of America's most innovative companies. The list is sorted by what Forbes refers to as an "Innovation Premium," which measures how high investors have bid the shares of a stock up above the value of its existing business based on the expectation of future innovation driving results. The higher up you go on the list, the more innovation would be expected to boost results in the future.
Today, we're going to take a look at five of the most innovative consumer companies on Forbes list and briefly discuss why investors remain so keen on their ability to develop and deliver products consumers desire. But, one thing worth noting up front is that you won't find Apple, perhaps the progenitor of consumer electronics innovation, on this list, which certainly makes you wonder: What's more innovative than Apple?
According to Forbes, these five consumer companies are.
Whole Foods Market (NASDAQ:WFM): 45.6% innovation premium
When it comes to the grocery aisle, few companies have been on the leading edge of innovation more so than Whole Foods.
While most grocers focus on reigning in costs and offering consumers a complement of foods, including inexpensive store brands, Whole Foods decided to take a completely different approach to its business model. Instead, Whole Foods offers all-natural and organic items that are certainly costlier to consumers, but are perceived to be healthier. Also, by purchasing fruits and vegetables from local growers, Whole Foods has retained its hometown feel despite growing into a mammoth national chain.
Whole Foods is also a revolutionary when it comes to caring for its workers. Employees who work more than 20 hours a week and have completed a mandatory probationary period of employment are entitled to medical, dental, and vision care, ample store discounts, a retirement savings plan, and they likely enjoy that executives' pay is capped at 19 times the average salary of a Whole Foods employee.
Starbucks (NASDAQ: SBUX): 45.6% innovation premium
There's a reason Starbucks has become such a giant in the food industry: its innovation. Starbucks, like Whole Foods, understood quickly that consumers are willing to pay more for what's perceived to be higher-quality products, thus it focused on stocking its shelves with high-quality natural and organic foods.
But, that's just the tip of the iceberg when it comes to innovation for Starbucks. The company is also experimenting with offering alcohol in the evenings in some of its locations throughout the country; is testing wireless charging stations in a handful of stores; and is testing an option whereby consumers can pay in advance by smartphone for their drinks and food. In sum, more choice, quality products, and more convenience equal happy consumers.
Netflix (NASDAQ:NFLX): 47.2% innovation premium
If you want innovation on your television, look no further than the company that took traditional networks and turned them on their heads.
Prior to Netflix, the idea of content on demand really didn't exist unless you wanted to get off your couch and head to your local Blockbuster or video rental store. However, Netflix has redefined content delivery to your door twice since its inception. First, it delivered DVDs to consumers' doorsteps for a flat monthly fee, and now it allows those same users to stream their favorite shows and movies right to their various devices (TV, computer, smartphone, and tablet) for a flat monthly fee.
Furthermore, Netflix has moved away from the "one plan fits all" approach and now offers more plans that can allow multiple devices to stream content at the same time. With an incredible media library, Netflix remains in the driver's seat when it comes to content delivery.
Chipotle Mexican Grill (NYSE:CMG): 50.5% innovation premium
Based on Chipotle Mexican Grill's phenomenal growth rate, investors have to be wondering what they're putting in those burritos. The answer is a lot of fresh ingredients, which are mixed together right in front of patrons' eyes. Like Starbucks and Whole Foods, Chipotle is capitalizing on consumers' desire for higher-quality food and rightly understands that consumers are willing to pay more for healthier products.
Chipotle isn't staying static with its menu, either. This month, the company is debuting its Sofritas, a vegan tofu-based item that is being permanently added to the menu in nine states in the South and Southeastern U.S. Why is the move so exciting? Because it's being spearheaded by Nate DeMercurio, one of Chipotle's marketing strategists who is himself a vegetarian. By having capable people who understand what consumers are looking for in a product in leadership positions, Chipotle continues to hit the ball out of the park.
Monster Beverage (NASDAQ:MNST): 54.1% innovation premium
Topping the list of the most innovative consumer products companies is Monster Beverage, a provider of energy drinks, natural soft drinks, and fruit drinks. Because consumers' palates are constantly changing, Monster regularly comes out with new products. Though not all of its products succeed, all it takes is a big hit every now and then to more than make up for its failed innovations.
Though highly caffeinated drinks make up the bulk of Monster's rapidly growing product portfolio, the company isn't afraid to try new things. For instance, Monster recently announced the introduction of a new product called Monster Unleaded, which will be caffeine-free. Last year, Monster also added a new line of protein drinks known as Muscle Monster to cater to a wider audience of consumers. It's this drive to offer a full complement of beverages, and the positive response received by consumers in the form of a solid growth rate, that makes Monster Beverage America's most innovative consumer company.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. The Motley Fool owns shares of, and recommends Apple, Chipotle Mexican Grill, Monster Beverage, Netflix, Starbucks, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.