Marketing Communications

Since people have to eat, the food business (unlike the snack food production industry) is recession-proof. Since snack food manufacturers know that consumers can choose not to purchase their products; they have employed a large amount of capital, technology, and branding expenditures and resources. These investments when combined with high customer loyalty have resulted in sales growth and high profit margins.

During the current crisis, customers are more likely to reduce snack spending, make purchases on promotion, and/or switch to private labels due to an increase in price sensitivity. Another challenge for snack food manufacturers is fluctuating commodity prices. Nevertheless, strong brand loyalty when combined with new product innovations and aggressive marketing tactics should help counter the unfavorable effects of the current recession.

Since the US snack food production industry is mature and saturated, competition is intense. Likewise, below are the key success factors required for manufacturers to either maintain or grow share.

Ability to secure key input supply contracts - to aid production planning and reduce procurement costs, manufacturers need reliable contracts with suppliers of key raw inputs including guaranteed supplies at fixed prices.

Ability to transfer price increases - manufacturers need to continuously pass on unexpected cost increases for supplies without fixed prices to preserve profitability. Due to their products high brand value, the major players have been passing on price increases to offset steep energy and commodity prices. Nevertheless, supermarkets and grocery stores (due to increasing buyer power from consolidation) could stock more of their own private label products and resist price increases to boost profitability.

Ability to reserve coveted shelf space - manufacturers must continue to seek desirable shelf space for their products to boost retail sales. They should continue expansion (or expand) into other distribution channels which include various locations with high foot traffic, drug and discount stores, and convenience stores.

Ability to change via innovation and differentiation - to maintain or grow share, manufacturers must differentiate, anticipate, and respond to changes in both consumer preferences and dietary trends. Population ethnicity and demographic changes have resulted in new preferences and tastes, requiring manufacturers to alter their product lines to meet these needs; by using product, healthier ingredients, packaging, marketing, labeling, and other innovations.

For instance, consumers are becoming more health conscious and pressed for time and as a result are increasing their consumption of tasty, healthy, and convenient snacks. Likewise, the fruit and nut snack bars segment coupled with organic snack, low-fat, and low-sodium food represents a growth opportunity.

Ability to withstand consumer price sensitivity - consumer price sensitivity deviates between product segments. Due to the associated high reputation, image, and product quality perceptions, brand loyal customers are not as sensitive to price changes. Thus, products such as Oreo and Doritos command a premium price. Nonetheless, consumer switching to cheaper alternatives including private labels and/or cheaper substitutes such as muffins and chocolate could result; especially, for product segments that are not perceived as high quality.

Ability to grow internationally - since the saturated domestic market could eventually result in stagnate profit margins, manufacturers should continue to seek growth in Canada, Mexico, Japan, Korea, Taiwan, Philippines, and other countries.

The effects of the recession on the snack food production industry should not inflict much damage. Nonetheless, manufacturers must continue to seek international growth, differentiate, innovate, secure coveted distribution placement, and receive desirable supplier contract terms. Thus, manufacturers will have a better chance of preserving or boosting share, sales, and/or margin over the long haul.

The dairy product production industry’s global demand and dairy prices have declined due to the global economic crisis. A decline in world income and wages and increases in unemployment and supply (predominantly from milk production in New Zealand) have also contributed to a reduction in global demand and dairy prices.

In developed countries, consumption of discretionary dairy products such as ice cream is expected to decline and consumers are expected to switch to cheaper dairy products including private labels. Consumer demand for dairy products in developing countries has declined tremendously since these products are considered more of luxuries than necessities.

For the past ten years, consumption of consumer fluid milk has decreased due to factors such as better convenience, advertising, and better packaging from substitute beverages, an increase in soy milk consumption, and a decrease in the children population.

For the long term, what could dairy product manufacturers do to generate profitable milk revenue growth? Marketing, health campaigns, industry consolidation, and product development are potential measures they could employ.

1. Industry consolidation can provide access to quality milk supplies at fair prices, encourage continued investment in branding and production technology, and provide production efficiency and lower per unit costs - factors that are vital to maintain and/or gain national retailer supply contracts.

2. Continued product development can result in increased milk sales. Flavored milk products with new flavors and energy boosters have been increasing.

3. Catering to the health consciousness of consumers via push and pull marketing strategies for healthier milk products such as value-added milk (milk with added vitamins, nutrients, or low carbs), organic milk, and reduced fat milk can also increase milk revenue.

These marketing strategies could also help resist consumer trade downs from branded organic milk to either conventional milk or private label organic milk.

4. More health campaigns utilized to educate consumers such as young people (main consumers of dairy products) and baby boomers about the importance of calcium and milk could help increase daily milk consumption.

Dairy product manufacturers can cushion or enhance the effects of energy, raw milk, and oil price fluctuations on margin, by using the measures above. In addition to the measures above, what else could manufacturers do to generate revenue and profit growth?