You are welcome to share your thoughts on this article written by Max Spiegelberg, Brand Director at Bloom.
The UN’s Food and Agricultural Organization (FAO) reported this month that world food prices rose to a record high in January and experts say they show no signs of dropping.
The Grocer predicts that orange juice may soon become a luxury product with factory prices set to rise by 80% in 2011. Adverse weather conditions in key growing areas combined with increasing demand from Asia being a recurring cause. So what does this mean for brands?
Associated British Foods, owner of Kingsmill, warned that profits would be hit if it did not pass on soaring commodity prices. In the last year alone the price of wheat has almost doubled. Naturally retailers are reluctant to raise prices on the shelf. It’s the growers and the brand owners further up the value chain that suffer.
Unilever’s chief executive, Paul Polman said that its margarines and salad dressing would be hardest hit. The price of palm oil and sunflower oil has risen by 75% and 60% respectively since last year.
Business growth is about growing margins. If commodity costs are rising then it’s time to turn to the brand to drive the value.
Beyond a basic price increase, a strategy that tends to hurt both the brand and the consumer, we investigate 5 other strategies for brands to consider for the tough times ahead:
1. Simplify: Brands, by their very definition, have inherent value in the consumer’s mind . What if, in times of austerity and rising prices they offered a stripped down version? Brands that deliver the same quality that we know and love but without the bells and whistles. In the midst of recession, P&G launched Pampers Simply Dry Nappies and Simply Clean Wipes in July 2009, a pared back version of their leading nappy brand. Noticeably different from the core range with its distinctive orange, it is still an obvious relative of the Pampers family. However, this strategy is not without risks. Get it wrong and the ‘simple’ product can cause lasting damage to the brand.
2. Diversify: When William Chase took over his family’s potato farm he soon found himself heavily in debt when the large supermarket chains squeezed him over potato prices. It was time to find a new market. In 2002 he launched the premium crisps brand, Tyrell’s, controlling the whole process from seed to pack. Since 2008, distribution has expanded globally and sales have more than doubled to an expected £26.1 million in 2011. Not content with just crisps, Chase diversified into premium artisan vodka, as a potato based product. His ‘Chase Vodka’ has since received the accolade of the ’World’s Finest Vodka’ from The San Francisco World Spirit Awards.
3. Portioning: It is widely reported that British consumers throw away about a third of all food bought. In light of rising food prices and a damaged economy we are likely to become thriftier with what we consume and what we allow to go to waste. Kingsmill’s Little Big Loaf was the first bread to launch a full sized 525g loaf as opposed to an 800g loaf. Available in 3 different varieties, this format allowed the consumer to purchase for smaller households and to individual preferences within the household. A more economical and convenient way to shop for the consumer, greater margins for the brand owner.
4. Stretch the brand: Increase brand value by moving into new consumption occasions. Dairylea successfully moved from core mealtimes with Triangles to own the kids snacking occasion with Diarylea Dunkers, Bites and Strip Cheese. This tactic requires foresight and strategic investment in a product that logically extends the brand into a lucrative occasion and meets a clear consumer need. If done correctly the high cost of launching a new product will soon be outweighed by lower ingredient costs, greater shelf presence for the brand and a strong position in a growing market.
5. Go Super Premium: It sounds simple but if you are being squeezed at the bottom end then seek out the top. Admittedly you won’t shift product in the same volumes, but the margins tend to be greater. Twinings is a good example of a brand that has capitalised on its heritage and authority in the tea category to launch an elevated premium range, the ‘Tea Deli’. At £8.00 for 75g of loose tea or £6.00 for 25 tea ‘pillows’ (note new premium terminology), the Tea Deli range is clearly designed to appeal to the more discerning, affluent consumer.
It’s a tough world out there, about to get tougher. Whilst we must accept that increasing food prices will likely be reflected on the shelf, brands do have a role to play in driving greater value for the consumer.
About the Author
Max Spiegelberg has over 15 years expertise in branding as a consultant on brand development and innovation programs. He has worked for brands across the globe spanning a broad range of industries including FMCG, technology, pharma, agriculture and professional services.
Max is the Brand Director at Bloom, which is a brand agency dedicated to building brighter brands. Clients include Diageo, Nestlé, Pepsico, P&G and GlaxoSmithKline.