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The year 2007 was a particularly tough one
for manufacturers of snacks and household staples in the US. The
players in the industry had to contend with rising commodity
costs and less display space at retailers, in addition to
intensified competition from private label competition.
This forced the manufacturers to pass on the increased costs to
the consumers. Analysts felt that the changed circumstances had
led to considerable changes in consumer behavior.
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A slowdown in the economy and soaring prices had
already left consumers feeling hard done by and they had to resort to a
lot of juggling to balance their budgets while trying to opt for a
healthier diet.
Analysts noted that this was a challenging situation for the
manufacturers as consumers bought less or switched to lower-priced
substitutes. Data released by research firm AC Nielsen revealed that
while the dollar sales of food products increased in 2007 compared to
2006 largely as a result of the increase in prices, the volumes had come
down.1
Analysts noted that manufacturers in this sector could not even cut
their marketing/advertising budgets like companies in some other
industries. Marketing/advertising was crucial for these companies to
ensure that the price-conscious consumers did not switch to a more
economical substitute.2
Analysts felt that while consumer behavior relating to food products did
not traditionally undergo rapid shifts, the state of the economy in 2007
(particularly the pricing environment) had spurred a considerable change
in this very behavior.
With the beginning of the year 2008 too witnessing an increase in
commodity costs to unprecedented levels and gasoline prices soaring to
newer heights, analysts predicted that consumer behavior was set to
change further.
The world's third largest food and beverage company, Kraft Foods Inc.,
realized the value of observing what consumers chose to eat in these
troubled times. The company contended that despite the challenges posed
by the economy, consumers had to eat and the choices that they made over
time would provide vital learning to the company.
Meanwhile, the company was trying to offset the increase in the costs
for wheat, energy, edible oils, etc., by increasing the prices of its
products and through other cost-cutting measures.
It was also ensuring that the retailers understood that the rise in
prices were justified considering the increased commodity costs, and
worked with the retailers to design sales promotion campaigns targeting
budget-conscious families.
In addition to this, the company was focusing on new products to keep
abreast of the changing times. For instance, it overhauled its salad
dressings line to make it more appealing to consumers who were
considering switching to a lower priced brand, and also to target
consumers who were switching from restaurant foods due to price
considerations.
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1] Brad Dorfman, "Kraft Eyeing Consumer Choices as
Prices Rise," www.reuters.com, March 18, 2008.
2] Shira Ovide and Anjali Cordeiro, "Staples Keep Ad
Market Afloat," http://online.wsj.com, April 8, 2008. |
