MARKETING CHANNEL
Adding Utility
•
•
•
•
Processors: form
Wholesalers: place and possession
Retailers: place and possession
Food service: form and possession
Top 5 Food Companies by Stage of Marketing, 2005
Second 5 Food Companies by Stage of Marketing, 2005
FOOD PROCESSING
• Food and beverage manufacturing plants
transform raw agricultural materials into
intermediate foodstuffs or edible products
• Use labor, machinery, energy, and scientific
knowledge.
• In 2005, these plants accounted for 13% of
the value of shipments from all U.S.
manufacturing plants.
FOOD PROCESSING
• Size and location of processing plants:
– Geographic concentration of raw products
– Economies of scale
– Cost of transportation of raw materials vs.
final products
– Cost of labor
FOOD PROCESSING
• Challenges:
– “Right” plant size
• Operational efficiencies vs. transportation
costs
FOOD PROCESSING
Vertical integration to address how to operate
at full capacity with highly fluctuating
supplies
FOOD PROCESSING
• Most processors are highly diversified:
– Multiplant
– Multiproduct
– Multimarket
– Multinational
FOOD PROCESSING
FOOD WHOLESALING
• Food wholesaling consists of that part of food
marketing in which goods are assembled,
stored, and transported to customers, including
retailers, foodservice operators, other
wholesalers, government, and other types of
businesses:
• Sales in 2002, the latest year available.
– Retailers (food-at-home sector) - $282 billion
– Foodservice (food-away-from-home) sector - $118 billion
– Sales to other wholesalers—small specialty wholesalers who
purchase goods from larger wholesalers—were a significant
share (26 percent) of total sales.
Three Types of Wholesalers by
Function
• Manufacturers' sales branches and offices (MSBO)
– Wholesale operations maintained by grocery
manufacturers to market their own products.
• Merchant wholesalers
– Also referred to as third-party wholesalers
– Buy from manufacturers and resell to retailers,
institutions, and other businesses.
– Account for 61% of grocery wholesale sales.
• Brokers and agents
– Buy or sell for a commission as representatives of
others
– Typically do not own or physically handle the products.
Merchant grocery wholesalers by
the types of products distributed:
• General-line distributors
– Also referred to as broadline or full-line distributors
– Handle a broad line of groceries, health and beauty aids, and
household products
– Examples: C&S Grocers, Supervalu, Nash Finch, and Sysco.
• Specialty distributors
– Primarily handle items such as frozen foods, dairy products,
meat and meat products, or fresh fruits and vegetables.
– Specialty wholesalers account for nearly half of grocery
wholesale sales.
• Miscellaneous distributors
– Primarily distribution of a narrow range of dry groceries such as
canned foods, coffee, bread, or soft drinks.
Three types of foodservice
distributors
• Broadline foodservice distributors
– Purchase and stock a wide range of food products from
manufacturers
– Offer value-added services designed to meet the needs of singlestore restaurants and small chains.
– For instance, foodservice operators without the staff to research
new products and plan menus may rely on a distributor's sales
representative for assistance (for example, Sysco and U.S.
Foodservice).
• Specialty distributors
– Operate in niche markets where it is necessary to have
specialized knowledge about the type of product being handled or
type of operator being served.
– For example, specialty cut meats, produce, ice cream, and coffee.
• System distributors
– Serve mostly of chain restaurants with centralized purchasing and
menu development.
Types of Food Retailers for Food at Home
Supermarkets still the largest
Non-traditional continuing to grow
Food Retailing Strategies
• Differentiation of store or company
– Natural, organic
– Upscale products and service
– Life styles: Health, layout, experience
• Cost lowering
– Data synchronization with trading partners
• 29% of retailers and wholesalers using it in 2004
• 29% planning to participate in 2005
• 33% were considering it
Food Service
• Large and growing
– Nearly equal to food at home on a dollar basis
– Buying more than nutrition in the price
Percent of US Food Expenditures on Food at
Home and Away
60
55
50
45
At Home
Away
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
40
Food Service Types
• Full-service establishments, 40%
– Have waitstaff, and other amenities such as ceramic
dishware, nondisposable utensils, and alcohol
service.
• Fast food restaurants, 38%
– Use convenience as a selling point; they have no
waitstaff, limited menus and relatively sparse dining
amenities.
• Noncommercial foodservice operators, 15%
– Institutional and educational settings, such as
schools, nursing homes, child care centers, and
hospitals.
• Other 7%
– Vending, sporting arenas, bars
Trends in Food Marketing
• Trends:
– Mergers and acquisitions
– Concentration
Peaked in late 1990s and has slowed in 2000s
Trends in Food Marketing
• Trends:
– Mergers and acquisitions
– Concentration
– New product introduction
Over 90% considered “non-innovative”
Over 90% failure rate
Upscale = premium, gourmet, CAB, etc
Credence attributes?????
Trends in Food Marketing
• Trends:
– Mergers and acquisitions
– Concentration
– New product introduction
– Globalization
Globalization of Food Business
About the same dollar
amount of US in other
countries and foreign
firm located in the US
US firms mainly
manufacturing
Foreign own
manufacturing and retail
FOOD PROCESSING
Globalization
Global Food Retailing
• Largest 5 worldwide food retailers in 2004
(Source: Supermarket News):
1.
Wal-Mart (U.S.)
•
2.
Carrefour (France)
•
3.
Austria, Belgium, Bulgaria, China, Croatia, Czech Republic, Denmark, France, Germany, Greece,
Hungary, India, Italy, Japan, Luxembourg, Moldova, Morocco, Netherlands, Poland, Portugal, Romania,
Russia, Serbia and Montenegro, Slovakia, Spain, Switzerland, Turkey, Ukraine, U.K., Vietnam
Ahold (Netherlands)
•
5.
Argentina, Bahrain, Belgium, Brazil, China, Colombia, Czech Republic, Dominican Republic, Egypt,
France, French Polynesia, Greece, Guadeloupe, Indonesia, Italy, Japan, Malaysia, Martinique, Mexico,
New Caledonia, Oman, Poland, Portugal, Qatar, Reunion, Romania, Saudi Arabia, Singapore, Slovakia,
Spain, South Korea, Switzerland, Taiwan, Thailand, Tunisia, Turkey, United Arab Emirates
Metro Group (Germany)
•
4.
Argentina, Brazil, Canada, China, Germany, Hong Kong, Japan, Mexico, Puerto Rico, Singapore, South
Korea, U.K., U.S.
Costa Rica, Czech Republic, El Salvador, Estonia, Guatemala, Honduras, Latvia, Lithuania, Netherlands,
Nicaragua, Norway, Poland, Slovakia, Sweden, U.S.
Tesco (United Kingdom)
•
China, Czech Republic, France, Hungary, Ireland, Japan, South Korea, Malaysia, Poland, Slovakia,
Taiwan, Thailand, Turkey, U.K.
Trends in Food Marketing
• Trends:
– Mergers and acquisitions
– Concentration
– New product introduction
– Globalization
– Wholesale club-stores
– Store size
FOOD RETAILING
• Trends:
– Increased market share of supercenters and
wholesale clubs vs. traditional foodstores
Food sales by foodstores and wholesale clubs
1995
($ billion)
2000
($ billion)
Growth rate
(%)
FOODSTORES
402.5
483.7
20.2
WHOLESALE CLUBS
39.9
63.2
58.3
Costco
17.9
31.9
78.5
Sam’s Club
19.8
26.4
33.3
FOOD RETAILING
Number and sales of retail foodstores
Year
Number of
Foodstores (1,000)
Annual Average Sales
per Foodstore
($1,000)
Number of Food
Items Carried
1920
375
30.7
700
1940
446
20.2
1,800
1960
260
198.8
5,900
1980
167
1,321.4
13,000
1992
180
2,043.2
16,000
1997
177
2,429.9
18,000
Trends in Food Marketing
• Trends:
– Mergers and acquisitions
– Concentration
– New product introduction
– Globalization
– Wholesale club-stores
– Store size
– Information technology
Information technology
• Trading partners work closely
together to eliminate excess costs
from the supply chain and efficiently
serve consumers
• Example
– On-time replenishment of products based on
consumer demand that allows manufacturers to
more directly respond to consumer purchase
behavior
» Efficient Consumer Response (ECR)
» Efficient Foodservice Response (EFR)
Trends in Food Marketing
• Trends:
– Mergers and acquisitions
– Concentration
– New product introduction
– Globalization
– Wholesale club-stores
– Store size
– Information technology
– Corporate social responsibility
The Five Stages of Corporate
Responsibility
1. Defensive stage.
When faced with unexpected criticism from media and social
activists, typical deny the allegations or a relationship between
the company’s practices and negative outcomes.
2. Compliance stage.
Corporate policy is formed and observed, and is usually made
visible to critics. Compliance is viewed as a cost of protecting
the company’s reputation and avoiding litigation.
3. Managerial stage.
Companies realize that the problem cannot be deterred by
simple compliance or public relations strategies.
Source: Harvard Business Review excerpt, Zadek (2005)
The Five Stages of Corporate
Responsibility
4. Strategic stage.
Companies learn how establishing strategies to address
responsible business practices can give them a competitive
advantage. One example is food companies that seek greater
awareness of how their products affect consumer health.
5. Civil stage.
Leading companies promote industry guidelines and actions to
address societal concerns. For example, companies may engage
in educational initiatives to promote healthy lifestyle choices, or
refrain from sales promotion strategies that could adversely
affect social welfare. In a 2005 press release, Kraft Foods
announced an initiative to advertise more nutritionally healthy
products in media primarily viewed by children ages 6-11.
Source: Harvard Business Review excerpt, Zadek (2005)
Trends in Food Marketing
• Trends:
–
–
–
–
–
–
–
–
–
Mergers and acquisitions
Concentration
Integration
New product introduction
Globalization
Wholesale club-stores
Store size
Information technology
Corporate social responsibility