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.
The US snack food production industry is saturated and mature and as a result competition is fierce. Likewise, the key success factors manufacturers can employ to either grow or maintain share are below.
Ability to reserve raw material contracts - to reduce supply costs and aid production planning, manufacturers need dependable contracts with suppliers of key raw inputs including secured supplies at fixed prices.
Ability to pass on cost increases - to maintain profitability, manufacturers need to continue to pass on unexpected costs increases for supplies without secured prices. To offset high commodity and energy prices, the major players have been passing on price increases due to their products' strong brand value. Nonetheless, grocery stores and supermarkets (due to their increasing buyer power) could stock more of their own private labels and resist price increases to strengthen 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 differentiation and innovation - manufacturers must anticipate, differentiate, and respond to changes in both consumer dietary trends and preferences to preserve or grow share. Demographic and population ethnicity shifts have resulted in new tastes and preferences, requiring manufacturers to change their product lines to meet these new requirements; by using healthier ingredients, product, labeling, packaging, marketing, and other innovations.
For instance, consumers are becoming more pressed for time and health conscious and are boosting their consumption of healthy, convenient, and/or tasty snacks. Likewise, the nut snack and fruit bars segment coupled with low-fat, low-sodium, and organic snack food represents a growth opportunity.
Ability to endure consumer price sensitivity - consumer price sensitivity varies between product segments. Brand loyal consumers are not as sensitive to price changes due to the associated high image, reputation, and product quality perceptions. Likewise, a premium price is charged for products such as Oreo and Doritos. Nevertheless, consumer shifts to cheaper alternatives including cheaper substitutes such as chocolate and muffins and/or private labels could take place; especially for product segments not perceived as high quality.
Ability to expand internationally - manufacturers should continue to expand in Mexico, Canada, Philippines, Taiwan, Japan, Korea, and other countries, since saturation in the US market could eventually lead to mediocre profit margins.
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.
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.
The US snack food production industry is saturated and mature and as a result competition is fierce. Likewise, the key success factors manufacturers can employ to either grow or maintain share are below.
Ability to reserve raw material contracts - to reduce supply costs and aid production planning, manufacturers need dependable contracts with suppliers of key raw inputs including secured supplies at fixed prices.
Ability to pass on cost increases - to maintain profitability, manufacturers need to continue to pass on unexpected costs increases for supplies without secured prices. To offset high commodity and energy prices, the major players have been passing on price increases due to their products' strong brand value. Nonetheless, grocery stores and supermarkets (due to their increasing buyer power) could stock more of their own private labels and resist price increases to strengthen 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 differentiation and innovation - manufacturers must anticipate, differentiate, and respond to changes in both consumer dietary trends and preferences to preserve or grow share. Demographic and population ethnicity shifts have resulted in new tastes and preferences, requiring manufacturers to change their product lines to meet these new requirements; by using healthier ingredients, product, labeling, packaging, marketing, and other innovations.
For instance, consumers are becoming more pressed for time and health conscious and are boosting their consumption of healthy, convenient, and/or tasty snacks. Likewise, the nut snack and fruit bars segment coupled with low-fat, low-sodium, and organic snack food represents a growth opportunity.
Ability to endure consumer price sensitivity - consumer price sensitivity varies between product segments. Brand loyal consumers are not as sensitive to price changes due to the associated high image, reputation, and product quality perceptions. Likewise, a premium price is charged for products such as Oreo and Doritos. Nevertheless, consumer shifts to cheaper alternatives including cheaper substitutes such as chocolate and muffins and/or private labels could take place; especially for product segments not perceived as high quality.
Ability to expand internationally - manufacturers should continue to expand in Mexico, Canada, Philippines, Taiwan, Japan, Korea, and other countries, since saturation in the US market could eventually lead to mediocre profit margins.
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 expert who writes articles on industry analysis and the selling process. Feel free to read about other industries by visiting his industry analysis blog. Get a totally unique version of this article from our article submission service
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