While the downturn itself has little affected the retail side of food manufacturers' business, the ongoing no-growth dilemma plaguing the industry continues to demand creative branding strategies. Higher-margin convenience foods were thought to be the answer, but the post-Sept. 11 trend toward nesting at home combined with increased layoffs and growing consumer debt may drive food purchasers toward private-label products and basic ingredients they prepare themselves, industry observers predict.
"As consumers become more cash and credit constrained, they trade down from national brands to private brands, and ultimately, generic," said Burt Flickinger, managing partner of Reach Marketing, Westport, Conn. Rather than buying branded frozen or prepared foods, he said, they will turn to buying rice, pasta and peanut butter and jelly-the private-brand versions.
Mr. Flickinger suggests the way out of this dilemma is advertising-more important now than it has been at any other time in the last 15 years. "In recessionary, depressionary times, the brands that have built themselves the best are those that invest more in advertising as a percentage of total sales relative to regular years," he said.
The hard times also call for a new quality of message. "The accelerating trends are all about brands meaning more, life meaning more, making it more important than ever to build a truly `experiential' brand where there is real involvement," said Don Pettit, president-CEO of Sterling Group, New York.
The focus for many food companies next year will be on investing dollars from restructuring or acquisition savings behind building the fewer, bigger brands within their portfolios that already mean something to consumers. Hershey Foods will put at least $30 million from restructuring toward advertising top brands, while the newly integrated Unilever Bestfoods has pledged to spend at least $50 million more on advertising its top eight brands.
After getting some leeway from Wall Street, some food marketers will have to start "delivering the goods," and proving the worth of recent buys, said Banc of America Securities analyst Bill Leach. Among those under the gun will be General Mills, which in 2001 completed the purchase of Pillsbury; Kellogg Co., which last year pulled advertising on the brands it integrated with its newly acquired Keebler sales force; and the newly merged Nestle Purina PetCare Co., which is likely to heat up the already-active pet food arena.
Masterfoods USA VP-Chocolate Bob Gamgort sees the soft marketplace expected into 2003 as a chance for the food industry to build back its "share of voice" lost to Internet start-ups and others.