Rod Street, executive vice president for the international consulting group at SymphonyIRI, was the expert analyst on the webinar to discuss the results of just-food’s Confidence Survey. He outlines how tough it will be to find growth this year but offers some ways businesses could succeed in 2012.
just-food’s recent Confidence Survey highlighted an enormous amount of optimism among global food manufacturers for growth this year. The uncertainty in the industry that has been present over the last four years seems to be falling back, with more than half of the survey respondents expecting growth of up to 10% this year. But is this new optimism misplaced?
The immediate economic pressure points have not changed, as evidenced by concerns in Greece and Spain this month. An unwelcome reminder of how fragile the position is. However, these factors have not altered some of the underlying trends in the industry: international growth or the focus on the health properties of products, despite the worst recession since the war.
It is clear that international expansion is of critical importance to delivering this optimistic growth figure. More than half of the respondents to the survey said they would be focusing heavily on international growth this year – but it is not clear to me how much of this growth can really come simply from international and emerging markets. Much will depend on the strength of the base already established and the solidity of the plans. These are difficult to gauge from the research but a quick look at the growth rates of some of the majors will quickly highlight the challenge.
For the quarter of respondents that said they did not plan any international expansion, I wonder what strategies are in place to achieve growth in virtually static and even declining markets? SymphonyIRI data reports a sustained reduction in volumes of grocery products for the first time in nearly 20 years in some European markets. There will not be much respite in the Western economies with the consumer recession in full flow, unemployment figures rising and recent surprisingly poor results in the US and the UK.
Similarly challenging in the big picture, food inflation still looks like it will be more than a short roller-coaster ride. This is confirmed in the survey, where 41% of respondents expect commodity prices to be higher this year than last.
With three-quarters of manufacturers claiming they will pass through rising costs to customers, it is clear the industry no longer has room for manoeuvre and has accepted that prices will need to give. Offsetting growth in price promotions is not a long-term strategy they are comfortable employing.
So in the face of all of these, how can suppliers remain so optimistic about growth? And in passing on food cost increases to consumers, how can they avoid a further negative impact on sales volumes? In this climate, is growth really possible?
Possibly – but only with a real entrepreneurial approach from food companies. Relying on past promotional strategies and simply ‘trying harder’ is unlikely to deliver.
Critical factors seem to me to include:
- Getting pricing right and applying science to the decision. This needs to draw on a more precise and granular approach that looks across the portfolio, across channels and price tiers and works up both everyday and promotional prices carefully to minimise the volume. It needs a good appreciation of price elasticities and competitive responses. It needs careful negotiation and positioning. But that precision will be critical when the game is played on such a narrow playing field.
- Innovation too is critical. According to the just-food Confidence Survey, 92% of you will launch at least the same amount of products this year. However, it has always been a challenge for food brands. Food and drink brands represent 56% of all new FMCG lines but can still only achieve a lower than average share of sales than other FMCG categories. Food brands will need to change these dynamics to build growth and look even more carefully at their market structure and adjacencies to identify new usage and shopping occasions or cross-category positions that might improve success and sustainability.
- Distribution is another area for innovation. Breadth is key here as shoppers increasingly shop closer to home. Coca-Cola’s aim to have its product within an arm’s reach of every single consumer paints a fair sense of an aspect of the marketing mix that few mainstream food manufacturers have perhaps seriously reviewed for some time. Growth might be tougher in traditional channels, but products can focus on the right mix and breadth of channels – including those currently experiencing growth like online and convenience stores – to succeed. As consumers increasingly shop in multiple channels, brands will need to be present in more places too. Nonetheless, manufacturers said in the survey that their focus for 2012 would be on traditional markets. Maybe that will need stretching to achieve ambitious growth goals? Or maybe there is an expectation of growth through different marketing levers? Do share your views.
What will you do to make a meaningful difference to the top and bottom line in 2012? How will you make this year different from last year to achieve growth?
Using an entrepreneur’s head and driving to innovate across all the marketing Ps (however many of them you happen to use!) will perhaps be the critical differentiator between growth and stagnation as the world economy continues to present challenges to all businesses.