Newsletter February 2009 Issue
This month's features…
The New Food Economy – Fight or Flight?
Food ingredient companies should be looking up, not down.
How to Design a Good Ad!
Good ads help, bad ads hurt – so do it right!
Meet BEST VANTAGE Inc.’s Supply Chain specialist.
Learn why he is so important. One more way that we can help you
hone your competitive edge
The New Food Economy – Fight or Fright?
Pilgrim’s Pride, an $8.5b (net sales) company, filed for Chapter 11 Bankruptcy on December 1, 2008, despite having posted a 13.7% increase in net sales in FY2008. Reasons cited included:
- High feed costs
- Low meat prices
- High debt
- Major losses on grain hedges
- Reduced restaurant sales
- Poorly timed acquisitions
The main reason for Pilgrim’s Pride’s demise was not the economy, it was that poor market
intelligence that led to bad decision making!
Will 2009 be a year of devastation…or opportunity?
Here are two industry headlines to contemplate in these turbulent times:
“Pilgrim’s Pride Plummets on Warning of Bankruptcy” (NYT, October 30, 2008).
“Europeans Raise Pressure on Detroit: With the 'Big Three' Weakened, VW and BMW Aim
to Expand Their Shares of U.S. Auto Market” (WSJ, January 5, 2008).
In one, a company in an otherwise healthy industry gets hammered. In the other, companies in
an industry that is already getting hammered are about to get hammered even more by healthy competitors.
The most common question we received in 2008 was, “what are your other clients telling you
about the economy?” Good question. Here’s our take:
If one looks at the accompanying chart, things look pretty grim for the economy-at-large as we
enter 2009. Sales inventories have shot up far more-than they did in previous recessions,
suggesting that purchasing and manufacturing activity will grind down to a low idle until inventories
are reduced. Given the unusual rate and amplitude of the Inventory-to-Sales ratio thus far,
we may be in the tank for quite some time. Let’s save a discussion on the reasons for the
overall long-term decline of the Inventory-to-Sales ratio for another day – hint: it has something
to do with BEST VANTAGE Inc. welcoming a Supply Chain specialist into our illustrious talent
So, is the proper response to curl under one’s desk and hope for the best?
Hardly! The food industry is not like just any other manufacturing industry. We’re special.
For one, the adage that “people always have to eat” still applies.
The important questions are: what and where do people eat when times are tough?
Based on past experience, this is what we should expect in tough economic times:
- People stay and eat at home more often (“cocooning”, for those that remember
Faith Popcorn’s trademark phrase) and they purchase more processed foods.
- When people do eat out, they eat at less-expensive restaurants, trading fresh-prepared,
on-site foods for more-pre-processed foods. That’s good, right?
- Americans still spend less of their total budget on food than consumers in any other
major country. This will not change.
- Food is cheap entertainment! People may give up going to the theater or taking
vacations, but food still provides a great and economical entertainment uplift in
depressing economic times (so does alcohol, but that’s a different story). When times
are tough, we party on – in the home and surrounded by friends!
- How many people do you know that are really willing to trade-down on taste,
flavor and convenience to save money? People look for bargains in good taste.
There are other factors weighing in our industry’s favor. Credit standards have tightened
but, right now, the food industry is a very good bet. Fertilizer and transportation costs are
plummeting (bulk carrier rates are down 90%, according to World Grain) and labor costs
should also go down. Reduced demand should lower energy costs as well.
Sure, companies (like Pilgrim’s Pride) that tried to save money by skimping on market
intel and commodity trading fees got burned by market fluctuation. This can happen to any
company. Other food companies, however, were quite successfully in protecting retail
prices while benefiting from plunging commodity costs these past months. It’s anecdotal,
I know, but at a recent Holiday event for the Chicago baking industry, the mood could
only have been summarized as barely suppressed glee. As one attendee told me,
“finally, finally we may make some real money”.
So how should the ingredient industry respond in these volatile times?
There are always timid souls that will shun Teddy Roosevelt’s famous arena. There are
those that react to rather than be proactive to change. There are those that treat their companies as
cash-cow commodities and others that depend upon the kindness of their customers.
There are others, over-leveraged perhaps, that will not or cannot invest enough in market
research, innovation, advertising or any other forms of forward investment. These lack the
capital and instincts to seize opportunity in turbulent times. These will be the companies
that scurry for shelter, fold their wings and huddle in fright against the storm.
There is another class of companies, however, that will research, plan, invest, expand
market share and otherwise seize opportunities in these stormy times. This class will
be many well-run, high-energy food ingredient companies (read about OODA loop
marketing[link]) perfectly positioned to nimbly expand market share and prosper at the
expense of their more timid, low-energy competitors.
So, “fight” or “fright” …which will it be?
It was John Wanamaker, the “father of modern advertising”, who famously stated, “I know
that I am wasting 50% of my advertising dollars, I just don’t know what 50%”.
Our commitment to our clients is to design ADS THAT WORK! We do this by controlling
the message. [to see how this defines us as an agency, see [link] here).
There are many bad ads in the food industry trade press. Here are some of the adjectives
that we would apply to what’s currently out there:
Try leafing through a trade journal and try to spot which of these adjectives apply. Then
ask yourself, “what would an ad like this say about my company?”
The key to great B2B ads that target technically savvy food scientists, product developers,
QA/QC and purchasing personnel is to be able to see the ads through their eyes.
Food ingredient purchasers are typically left-brain, analytical people. They focus on the
message, not so much the image. They ask the salient questions, like “is this worth reading?”
and “what can you do for me?”
Here are just three simple guidelines to get you started:
Understand how marketing agencies sell!
Understand that most advertising agencies “sell” on the basis of their “creative”
capabilities. This is a culture largely defined by graphic artists who want to create…
(drum roll!) art! Thus, many ads tend to be designed more as fashion statements
than for the message. This may work to get your ad noticed by consumers, but it
isn’t enough to grab the attention of tech-savvy, left-brain, message-focused food
ingredient users. So, when you see an ad concept, ask yourself “sure, it may be cute…
but what does it mean?”
Ask: what is the objective?
Just getting noticed isn’t enough. Do you want to remind customers of your brand, inform
them of a new development, provide your sales people with talking points, project an image
of professionalism, encourage your customers to think of your ingredient or company in
new ways, or establish your image in a new market?
Ads have different objectives. But all ads should encourage further inquiry! Your Agency
should be able to work with you to help you find the best way to articulate your ad’s key objective.
Don’t be too cute – it’s counter-productive.
There is a tendency by some to use ads as fashion statements – to celebrate a company’s self image. This is especially true of European companies. In the U.S., overworked product developers, however, want information and they want it fast! So, take your customer seriously – food product developers tend to be technically proficient, analytical, and in a hurry. They see through nonsense and silly ads make you look, well….silly. Snorkeling cows? C’mon. Pictures of happy, healthy cheering children is nice, especially when they are your own. But exactly who are you selling to…happy children? Remember, an ad should be an invitation to further inquiry!
Of course, there is much, much more to designing an effective ad campaign. If you want to know more, give us a call.
Welcome Gerry Batsford – Supply Chain Specialist!
With the arrival of 2009, we welcomed the addition of our newest core associate,
Gerry Batsford to BEST VANTAGE Inc. Gerry Batsford is a supply-chain specialist who
has worked with a broad range of companies to optimize their manufacturing logistics,
domestically and internationally. His clients have included Sara Lee Corp.,
Armour Swift-Eckrich, Wal-Mart and A.T. Kearney.
Gerry's addition to our team is timely, as we expect to see an upsurge in efforts by U.S.
food and food ingredient companies to reexamine and optimize their supply chains in
response to the dynamic changes to our world economy. Supply chain optimization
provides us with another key ingredient in our mission of helping our clients create
new value through innovation – that’s what we’re about.
Call us at BEST VANTAGE Inc. to further discuss your advertising and marketing issues.
© 2009 to BEST VANTAGE Inc.