Turning rising food costs into opportunities

With the ever-increasing costs of energy and raw materials, soaring food prices are a threatening factor manufacturers struggle with on a daily basis. The fact is, the price of food purchased from stores rose 4.8 per cent from June 2010 to June 2011, according to Statistics Canada. The growing global demand and population also play a part in this emerging food industry trend. Manufacturers are under pressure to ensure consumers are kept from enduring those rising prices for as long as possible.

However, rising food costs can also serve as an opportunity for manufacturers to broaden their product offering and expand their business model to attract new customers. In turn, consumers benefit from innovative products that appeal to their tastes and wallets with a greater overall value proposition.

Branding private labels

In earlier days, private-label foods and beverages were seen by consumers as discounted or lower-quality products. However, more recently, these brands have seen a shift in perception.

Weathering the recent economic downturn, Canadians switched from going out to eat on a regular basis to making meals at home. This translated into a potentially larger pool of budget-conscious consumers unwilling to sacrifice quality for a lower price point.

Private-label products, though not at a drastically lower price point, provide a lower-cost option for consumers. They have the added benefit of capturing a market where there was previously a void – that is the quality-conscious consumer with a refined palate. Manufacturers continue to push their products front and centre by reinvigorating packaging and improving taste to be more attractive to consumers.

For manufacturers, this translates to the opportunity to diversify their product offering. As an example, a manufacturer of a branded product can now produce a similar product with minor variations to satisfy the private-label demand. This helps utilize excess capacity and reduces the exposure associated with producing for a few major brands.

Other challenges associated with rising food costs can also be met with private-label items. Marketing can be less costly and there is no premium as there is with a branded product in terms of hard cost and related co-op advertising/marketing rebates. Private-label items have an enduring benefit as they build their own brand, which can ultimately have an impact on the salability and success of future products offered under the same banner.

Marketing these products is vital in creating awareness that will lead to product purchase. Improving marketability through appearance and taste provides retailers with higher margins and better return on investment, and enhances the demand for this alternative provided by manufacturers.

Capturing Canada’s cultural mosaic

Canada’s growing population and increasingly diverse cultural landscape provide manufacturers with another advantage in gaining customers and widening their margins.

Retailers can offset rising food costs by providing more diversified offerings in response to Canadian consumers’ tastes. We see it more and more on the shelves where familiar products are being reworked to appeal to increasingly diverse tastes. An example is Kraft Food manufacturer’s barbecue sauces. Under the brand name Kraft, the Canadian company manufactures familiar barbecue sauce flavours such as Original and Garlic. Under the private-label Bull’s-Eye, marketed as the official barbecue sauce of the Calgary Stampede, Kraft offers more exotic flavours such as Guinness and Hot Southern Cajun. These flavours are exotic and targeted to various demographics looking for a taste associated with one of their favourite foods or restaurants.