FOOD CATALOGS FACE CONSOLIDATION

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The food-by-mail industry is heading into its prime selling season, hoping for improved growth while facing a wave of industry consolidation and higher postal rates next year.

The $1.1 billion food-by-mail business is growing at an annual rate of 7%, far less than the 12% rate of the catalog industry in general, said Maxwell Sroge, president, Maxwell Sroge Co., an Evanston, Ill., catalog consultancy. Food catalogs do about 70% of their annual business during the upcoming holidays, he said.

About 7.6 million Americans ordered food by mail or phone in 1993, or 4.1% of the U.S. adult population, according to Simmons Market Research Bureau, up 46% from 1992.

But the number of catalogs offering food items will decline 20% to 30% in the next five years, Mr. Sroge projects. Now, more than 1,000 food catalogs exist, with the top 15 generating 30% of the industry's sales, he said. Another 2,000 catalogs, like Neiman Marcus and Bloomingdale's by Mail, offer food and other gifts.

Companies not specializing in food mail order are likely to divest such operations, like Fingerhut Corp. is doing with its Figi's subsidiary and Con-Agra did in October by selling Pfaelzer Bros. (premium meats) and Ace (nuts and snacks) catalog businesses to Hickory Farms of Ohio.

Hickory Farms expanded earlier by buying premium food catalogs, including Almond Plaza nut catalog in 1991 from Blue Diamond Growers; Mission Orchards and California Cuisine from George A. Hormel & Co. in 1992; and Pinnacle Orchards in 1993.

"Companies are looking for economies of scale in mailing and fulfillment costs," said Katie Muldoon, president, Muldoon & Baer, a New York consultancy specializing in catalogs.

"Consolidation is the nature of this business," said Alfred Schmidt, president, Schmidt Group International, a Spring Lake, N.J., consultancy. "The most valuable asset is the database and one way to increase business dramatically is to increase the database by acquiring another catalog company that would be synergistic."

Consolidation could be pressed further by the proposed 10.3% postal rate increase, which may be implemented as soon as January.

Mr. Sroge said food sales are lagging the catalog industry's growth rate because the segment is slow to adapt to changing consumer tastes for healthier, more diversified and exotic fare. "Food is a fashion business."

He says fast-growing companies more in step with consumer tastes include: Balducci's, New York; Harry & David, Medford Ore.; Omaha (Neb.) Steaks International, the No. 1 food-by-mail catalog as rated by Mr. Sroge; and Starbucks Coffee Co., Seattle.

Harry & David's new offerings include a fresh veggie basket; holiday health basket of cholesterol-free, low-fat loaf cakes; and "good-for-you" breads in addition to its premium fruit offerings.

Omaha Steaks expanded gourmet offerings to include soups and pasta. It also gives customers a "Good Life Guide & Cookbook."

Starbucks created more gift packs with mugs, specialty coffees, espresso machines, upscale candy, cookies and other dessert items.

Balducci's, the mail-order arm of the famed New York take out store, offers guaranteed day-of-delivery service.

Mr. Sroge is especially critical of "the old-line" meat-and-cheese companies like Figi's, the Swiss Colony and the Wisconsin Cheeseman, which are believed to be experiencing flat to slow-growth sales.

The Wisconsin Cheeseman, Madison, and Swiss Colony, Monroe, say they are diversifying.

"Customers are interested in more variety in food gift packs including chocolate, jams, jellies, cookies and baked gifts," said Jim Berkenstadt, Wisconsin Cheeseman public service director. "Also they enjoy gift packs with reusable items, such as baskets or ceramics."

"We're doing a lot more in the way of chocolate pastry items," said John Baumann, VP-marketing, Swiss Colony. "We're hearing more and more of our customers ask about [items for diabetics or that are lower in fat] and we're looking at that." But "the typical Swiss Colony customer is very middle America and middle America still likes meat and cheese."

Growth in food catalogs also is being kept in check by increasing competition from retail stores.

Food-by-mail shoppers generally also buy from other catalogs, said Chet Dalzell, public relations and communications director, Direct Marketing Association.

Such companies generally mail unsolicited catalogs using lists of upscale-demographic users of other catalogs when prospecting for new customers. They also mail to people who have been the recipient of their gifts.

But some companies do advertise. Starbucks includes its mail-order phone number in newspaper ads, from the EvansGroup, Seattle. The Swiss Colony uses in-house produced free standing inserts in major newspapers. Omaha Steaks and Harry & David employ in-house produced print ads in upscale food magazines. Both also have corporate gifts and incentive sales departments.

Citing upscale demographics, two catalog analysts think Wal-Mart Stores' Sam's Club Gift Express discount holiday food mail-order catalog will fail (AA, Oct. 31).

"Most food catalog shoppers are upper-income buyers and Sam's Wholesale Club members are not in that category," Mr. Sroge said. "You can't mail catalogs indiscriminately and hope to be successful. The only way to build catalog business is on repeat business ... The idea of [test mailing 8 million copies] is like exploding an atomic bomb when you want to shoot a squirrel. They don't know what they're doing."

Arnold Fishman, president of Marketing Logistics, a Lincolnshire, Ill., catalog consultancy, said a gift from Sam's Club Gift Express "is like buying fashion at Sears."

A Sam's Wholesale Club spokesman declined comment.

Gary Levin coordinates Direct Marketing News.

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