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Newsletter  April, 2009 Issue

Scenario Analysis – A Contrarian View

“For second year cool, wet weather delays planting”
– Food Business News, April 28, 2009.

Big or small, all companies have a stake in predicting and adapting to the future. However, we
can’t always predict well…case in point, the companies that got caught in recent peak and
collapse of commodity futures. We can only surmise the future and there are never guarantees
against being surprised and caught unawares. That’s one of the reasons that we at
BEST VANTAGE Inc. like to maintain a healthy skepticism about the future when we develop
scenario analysis for our clients.  We don’t like to take things at face value. We so like to challenge assumptions, examine contrarian points of view and ask ourselves a fundamental, “what’s
missing in this scenario?” 3

Here’s one example: global warming. We have to accept that, whether true or not, Global Warming is a reality…a political and social issue that will need to be addressed.

Because the perception thereof is real,
it must be addressed. Thus, it makes sense to anticipate that there will be political, regulatory, and social decisions
that will impact the food industry and planning for this scenario makes sense. Does it stop there?

No, alternatives scenarios must also be considered. There is a contrarian scenario that
predicts an extended period of cooling rather than warming for our future. This is based on very
real (not modeled) observations that cyclical sun spot activity has declined to practically zero for
the past year or so (the last minimum was around March, 2008) and has not recovered as
predicted. Sun spots reflect solar flare activity that has profound consequences on our climate.
Past periods of extended low sunspot activity (known as Dalton and Maunder Minimums) have
been associated with extremely cold and extended winters at certain periods in history.

So, if your food business depends on
fruit, grains or vegetables grown in
regions susceptible to cold weather
(be it fruit in California, grains from
Canada, southern Brazil and Argentina,
winter wheat in Kansas and Oklahoma,
or orange juice from Florida), you might
want to at least consider both global
warming AND global cooling in your
long-term planning and Supply Chain Optimization in your scenario development.

Both scenarios should also be
considered in planning for plant
upgrades and energy management

When Building Your Image, Details DO Matter!

We presume that your company is trying to build a professional image – one of quality and stability. Well, image really is all about first impressions and small details matter.

Even small things like what font to use in an ad or other marketing materials can make or break
the impression you want to make.  For a financial services firm, for example, you don’t want to
use balloon lettering in a message that asks the reader to trust your long established history
serving the community.  A traditional font or simple sans serif type would be more appropriate.
On the other hand, with a high-tech services ad, you don’t want to use calligraphy. Here you want
to look modern, spare and cutting-edge.  Think about it…would you prefer your ingredient
company looking like a Cracker Barrel, a YUM Brands, or like a Nestle. These are very different
brand images.

We see some mistakes in the food ingredient industry, where the website reflects the tastes
and inclinations of a young and enthusiastic web designer and not that of the company it
represents. We see marketing pieces with great content, but printed on low quality paper with
poor visual presentation. You don’t want there to be a dissonance between what you say you
are and what your marketing materials reflect.  People do judge books by their covers.
Otherwise, all books would have plain brown paper covers.

You need to match your presentation style with your industry segment and your message in
order to convince the potential client that you are a consistently reliable, high-quality firm
that uses good judgment and pays attention to detail at all levels. Here’s an analogy – would
you put your money in a bank with threadbare carpets, dirty ash trays and B&W brochure
printed on cheap paper in Times Roman font?

Hmmm! Contrast that with how you would react to a bank with spotless, marbled entryways,
gleaming floors, polite suited employees, gleaming brochures and Calibri fonts?

It’s the myriad of appropriate details that cumulate to support the central corporate image you
want to portray. When gazing upon a corporate image, all the little things do add up!

Floor Talk

Economic Impact on Food Sales?

As our Executive readership knows, we at BEST VANTAGE Inc. are bullish about our food
industry’s prospects in this economy (see February Issue here: http://www.bestvantageinc.com/bvilibrary2-09.html   ). However…

The April 21st issue of the Wall Street Journal featured a front-page story by Julie Jargon, “Food
Firms Cook Up Ways To Combat Rare Sales Slump”, to promote the idea that consumers
may be significantly readjusting their food expenditures downwards for the long-term. “In the
last quarter of 2008, consumer spending on food fell by an inflation adjusted 3.7% from the
previous quarter, its steepest drop in 62 years,” quoth the U.S. Commerce Department in the
article. The article then cites Kraft launching an iPhone application to help people manage their shopping list, Campbell Soup “creating more sophisticated recipes that mimic restaurant
offerings,” and Nestle offering bulk discounts for its Lean Cuisine products. In the end, the
article focuses on one “typical” New Jersey family that has reacted to the economic downturn by… eating out only three times per week!

Here’s our own interpretation: we are in a transition phase between two very different
economic environments. Whether in nature or economics, transition zones are chaotic.
There is a lot of uncertainty about where our economy is headed and consumers have
reacted by being careful and drawing down refrigerator and pantry inventories while
they wait to see how things evolve. In addition, we see manufacturers and supermarkets
reducing their SKUs and drawing down their own inventories through more careful
supply chain management. For consumers, food ingredient suppliers and manufacturers,
supply chain management remains one of the best ways to recapture serious money from
ongoing operations. It’s easy money.

So, it is far too early to really know how consumers will react to this economy and it will
probably take another 3-6 months before we see how things stabilize. Knowing American
consumers, though, it’s safe bet that Spartan diets enjoy only very time-limited appeal in our
culture (think about how people react to restrictive diets). Our advice is to stay cool, serene
and on message. This certainly isn’t a time to over-react, but it is a time to snatch opportunity
from chaos.

In addition, it’s a really good time for any food ingredient company to trim its sails by
reevaluating its own supply chain for efficiencies (see here: http://www.bestvantageinc.com/bvilibrary2-09.html). So, give us a call.  

Health Trends Merit Gut Check!

As Past Chair of the Chicago Section IFT, I counted myself lucky that I could always count on
Chicago-based MINTEL for a great presentation on product development trends. It’s just
enjoyable to sit back and appreciate the range of products being developed around the
world and why.2

The April monthly Chicago Section – IFT meeting, held at the McDonald’s Campus in Oak Brook, IL, invited Kristen Walker of MINTEL to give us a bang-up overview of global product development trends.

Granted, some caution is merited in projecting these trends too far. For one, April 2009 is a bit early to gauge the effect of the economic crisis that began the second half of 2008. However, some things really stand out:

  • Gut health sells! Since 2005, this category has absolutely dominated global health trends.

  • Second, “gut health” applies to many ingredients (probiotics, bacteria, fibers, inulin, encapsulation technologies, etc.), so you may want to figure out how your ingredient
    portfolio can ride this wave and expand it to other product categories.

  • Even better, you may want to figure out how many of the above-cited health claim
    categories each one of your ingredients can capture. You may be surprised.

Here’s an example of what we mean: we are big, big fans of flaxseed (full disclosure: one of
oldest and favorite Clients is a flaxseed supplier). Flaxseed’s nutritional components (
omega-3s, probiotic fiber, polyunsaturated oils, antioxidants, gluten-free, zero-glycemic, etc.)
are many, and the nutritional literature on flaxseed’s components very well document its
benefits for each one of the categories indicated on that chart. You can be sure that we are
helping our Client’s customers learn about these connections! If you want any assistance
on this, give us a call!

For an assessment of your company’s marketing or business planning needs, call or
email BEST VANTAGE Inc. for more information.  Tel. 1-888-BVI-MKTDev... or info@bestvantageinc.com.

© 2009 to BEST VANTAGE Inc.

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