Editorial: Redefining innovation to reflect marketplace reality

by Keith Nunes
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This past February, during the conference of the Consumer Analyst Group of New York in Florida, executives from food manufacturers such as Kraft Foods, General Mills, Sara Lee and ConAgra said in presentations and interviews that, despite the fast rise in food prices and gasoline as well as negative news about the economy, they had seen little or no shift in consumer purchasing patterns. Four months later, the news is quite different and food processors will now have to rethink how they go to market with products in order to maintain and improve performance.

In the past, innovation has been defined by a product’s contents — whether a positive attribute has been added or a negative attribute removed — and the technology around it, such as packaging design or functionality. But as consumers strive to stretch their budgets further, the concept of innovation will continue to be re-defined in new ways as manufacturers seek new incentives to spur demand for their products.

In early June, The Nielsen Co. held its Consumer 360 conference and many of the presentations focused on how consumers are altering their shopping patterns. Limiting trips to only a few retailers to save on gas costs and focusing more on items on sale were two of the main changes cited.

Ironically, despite the traditional belief that private label products thrive during a period of economic stress, Nielsen said its research showed otherwise. Private label food manufacturers are facing the same pressures as branded food companies and there is little or no advantage in pricing.

Nielsen representatives also presented information on what they deemed to be "recessionproof" foods, identifying seafood, pasta, candy and pasta sauces in this category. Carbonated beverages and eggs were singled out as the most vulnerable food categories during a recession.

"Consumers are feeling the squeeze as they are caught between rising costs and lower spending power," said Eugene Roytburg, managing director with The Nielsen Co. "As a result many consumers are reprioritizing or altogether changing their spending habits. For C.P.G. manufacturers and retailers, this requires a change in the way you market to consumers."

The changes in marketing strategies may take many forms. For products that have shown a history of being recession-proof, manufacturers may want to increase their exposure in this market. For products that may have a more difficult time during a recession, marketers will have to develop creative programs that stimulate purchases.

Retailers have developed sophisticated loyalty programs over the years to provide incentives to bring consumers back to their stores. There may be opportunities for food processors in developing similar programs.

The Internet makes developing such relationships with consumers relatively seamless. Beverage companies such as PepsiCo and The Coca-Cola Co. have excelled at developing such programs in an effort to help spur carbonated beverage sales.

In reaction to a weak economy, consumers will likely forgo big ticket items in an effort to stretch their budgets. Often, they will offset that change with smaller, more frequent indulgence-oriented purchases. What is to prevent a food company from developing a loyalty program that makes it easier for consumers to afford such smaller indulgences?

The dynamics of food marketing are changing. With savings in mind, consumers will increasingly become proactive planners, such as buying products in bulk when items are on sale. They also will be more willing to switch brands with savings in mind.

To profit from these changes in consumer purchasing patterns, food marketers will have to look for new ways to communicate and draw consumers. Internet-based initiatives, loyalty programs and even partnerships will be key attributes of innovative and successful strategies.

This article can also be found in the digital edition of Food Business News, June 24, 2008, starting on Page 9. Click here to search that archive.

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