by Kenrick Chatman
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.
About the Author:
Kenrick Chatman is a sales and bottom-line growth authority who writes articles on
industry analysis and the selling process. Feel free to read about other industries by visiting his
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