It’s been a tough year for local food and beverage manufacturers. Shoppers have reduced their retail spending to cope with a rising cost of living and higher interest rates. Per capita retail spending has been falling since January, in tandem with a weakening labour market and rising unemployment.
When households cut spending, they don’t stop buying food, but they change their choices. They switch to lower-cost options, buy in bulk, pick more frozen items and shop around. It helps keep grocery bills under control, but it means there’s not much tolerance for rising prices – if a favourite brand puts prices up, people will often just pick a cheaper option.
If you run a local food business, this means you don’t have much capacity to recoup higher outgoings by raising prices. Instead, you may be facing reduced demand for your products, and grumpy customers if you so much as think about putting up prices.
With headwinds like these, what can food and beverage producers do to ride out an economic downturn? These five concepts can help FMCG businesses thrive when times are tough.
1. Diversification
If a specific product isn’t doing well in the current climate, how do you develop something that hits the spot for price-sensitive shoppers? How can you use what you already have to diversify your range? Think about multipacks, a budget-conscious version of your product, or even ‘home brand’ supply agreements.
Let’s say a business sells premium block chocolate in supermarkets. Sales of its product are down, so the company diversifies by formulating a lower-priced block. Using generic cacao beans instead of high-grade beans from Ghana, it launches a new product with minimal packaging under a new brand. The business could also launch a supersized economy version of its flagship block, with a 15% lower retail price per 100g.
Another option, especially if you have excess capacity, could be looking at home brand opportunities. This is where you could supply your product at a lower price point to supermarkets, labelled with the supermarket’s own brand. This could lead to higher overall sales but will reduce your margins, so it’s important to weigh up the pros and cons and understand how this ties into your overall strategy.
2. Product innovation
Developing a completely new product is a bold move, but one that can reinvigorate a brand. Innovating has its risks and costs, but it can allow you to target a product to a niche you know exists. Whether that’s reaching a different target market, appealing to the big spenders, or undercutting an existing market leader.
For example, if sales are flat at the chocolate company, the team might have time to work on a Kiwi version of an individually wrapped chocolate product like Ferrero Rocher. Can they make a premium treat that appeals to shoppers at Christmas when they’re willing to splurge a little more?
Businesses don’t have to innovate all alone either. Help is available from the New Zealand Food Innovation Network, which has open-access production facilities and expertise designed to help local FMCG businesses grow. Research and development tax credits are also well worth exploring to help fund new products and services.
3. Product collaboration
Why not put a Jaffa at the centre of that new chocolate treat? Collaboration can be a fantastic win-win strategy for food brands. We worked with a business that dramatically grew its market share after collaborating with two other well-known brands on flavours and products. It could also be a collaboration with a high-profile chef or a celebrity.
Collaboration can produce popular novel products, raise your company’s profile, and allow you to piggy-back on the marketing power of another brand. This can create a buzz that has a massive impact on your brand. We all know that Whittaker’s is a master of collaboration, since its Lewis Road Creamery chocolate milk become a must-have item in 2012. It has since collaborated regularly with brands like Jelly Tip and K Bar. This year, local gelato business Giapo partnered with singer Cher on a range called ‘Cherlato’. And Graham Norton’s collaboration with Invivo Wines has led to 10 vintages which have won hundreds of awards.
4. Exportation
New Zealand is a small market – can you increase sales by expanding into new territories?
Many of our FMCG clients have had sales stalled here in Aotearoa but their products are selling like hotcakes in the USA. The revenue from their exports is more than enough to help them ride out an economic downturn on home soil.
Even if you’ve considered exporting in the past and the numbers didn’t add up, it might be worth taking a second look. Over the past few years New Zealand has entered into several new free trade agreements that have made exporting our goods more feasible and profitable than ever before. You may also be able to access support and/or funding from New Zealand Trade & Enterprise (“NZTE”) or support from the New Zealand Export Credit Office (“NZEC”). For example, Ozone Coffee recently expanded its UK operations with a loan guarantee from NZEC; it now employs over 150 people across the UK and Aotearoa.
5. Automation
Can your business improve process efficiency using automation or AI? Can you invest in the production process to reduce wastage and increase efficiencies so your long-term costs decrease? If sales are down, can you use this time to research how to set your business up for better efficiency and resilience in years to come?
You might also find ways to reduce other costs. Can you modernise your technology? Investing in apps to better monitor energy use, for example. Or installing solar panels, which can be funded with lower-cost green finance.
Can you invest in packaging or logistics technology that cuts down on wastage during shipping? In many cases, efficiency improvements can also improve your company’s carbon footprint, providing a win-win outcome.
Now is the time to set yourself up for the next boom
If your business is experiencing a slow patch, use that time to strategise. Who are your customers? What is your direction? What do you want the future to look like?
By thinking ahead and positioning your company for success, your operation can go gangbusters when the market picks up again – which it will. Smart decisions and careful pivots can help you survive right now, so that when conditions improve, your company is stronger and more profitable than it’s ever been.
