managing the food chain during new product introduction: the case of a high selenium food product
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Managing the Food Chain During New Product Introduction: The Case of a High Selenium Food Product. 15 th Annual Food and Agribusiness Symposium Cheryl J. Wachenheim Department of Agribusiness and Applied Economics North Dakota State University (701) 231-7452 [email protected]. - PowerPoint PPT PresentationTRANSCRIPT
Managing the Food Chain During New Product Introduction: The Case of a High Selenium Food Product
15th Annual Food and Agribusiness SymposiumCheryl J. WachenheimDepartment of Agribusiness and Applied EconomicsNorth Dakota State University(701) 231-7452 [email protected]
Introduction
Assume the role of a consultant to the South Dakota Wheat Commission working to evaluate the feasibility of marketing high-selenium products.
Functional Foods
Foods or dietary components that may provide a health benefit beyond basic nutrition.
International Food Information Council Foundation, May, 2004
”Commodity”ProductsRegulation Science &
Technology
New Product Development
Promotion Distribution Pricing
Food Processors & Distributors
Pillars of Marketing
Consumer Marketplace
Mass Markets Segmented Markets
Functional Food Sales
Considerable growth during the past decade
Increased offerings in main-stream markets
Global sales of $10.9 billion (2002) with approximately 10% annual growth.
Motivated by consumer interest in nutritional content of their food and search for improved health through diet.
Consumer Trends
International Food Information Council Survey, 2002 93% of adults believe that some foods offer more than nutrition, i.e.,
they are functional 85% want to learn more about these foods
Sloan Report, 2003 One-third of US households increased use of fiber products during
the previous year Eight in ten reported trying to PREVENT a condition through a food
purchase; up 10% in one year More than half tried to treat or manage an existing condition through
foods Nine in ten said healthy eating was a better tool than medications for
illness
Functional Food Market
“It is widely accepted that the future for functional foods is assured because of consumers’ interest in how their diets can positively impact health.
J. Mellentin, November, 2002, Dairy Industries International
“This industry is also loaded with hurdles, including a high rate of product failure, difficulty in defining the type of food and product labeling for functional products, and tricky marketing tactics.”
International Food Ingredients, no. 6, 2003
Functional Food Market Segments
Medically-driven “boomers” aged 45 plus “Swing segment” aged 65 plus 18 - to 34 - year old age category
Represent the “core” of the market due to receptivity to functional concepts
Mintel Consumer Research, October, 2003
Selenium in the Diet
Largely favorable health press in part due to 12-year epidemiological study.
Trace element is an antioxidant that helps protect the body from damaging effects of free radicals and is a source of metabolites which inhibit tumor growth.
Evidence: Some cancer risk
inversely correlated with Se status.
Se can reduce tumor yields in animals.
Inorganic and organic forms are efficacious.
Dr. Gerald Combs, Selenium Symposium, November 3, 2004, Grand Forks, North Dakota
North Dakota wheat superior source of Seleniumsuperior source of Selenium
Dr. Gerald Combs, Selenium Symposium, November 3, 2004, Grand Forks, North Dakota
Selenium - Based Functional Foods
Today, few in number (excluding dietary supplements) despite widespread and largely favorable health press
The First Sale: The TradeWorking Assumptions
Organic an option for some producers, some product markets Organic food sales growing (Mintel/ERS)
$ 5.3 billion in 2004, about 2% of total foods Forecast to achieve $11.5 billion in 2009
Preference among producers / trade for natural as opposed to fortified Ease/cost of production, clinical efficacy Preserve promotional edge
Public health posture from the trials?
Scenario A - favorable trials: Public Health push for fortification? Implications: Market narrows to “natural” or organic customer base Distribution points limited to “natural” (e.g., Wild Oats, GNC, Whole
Foods), and / or FF areas of grocers
Scenario B, favorable trials: No effective public health action? Potential for dual market structure to expand
Fortified foods proliferate Natural growth speeds, aided by favorable press
Scenario C, unfavorable trials… Market development slows/stops
Scenario-Dependent Options
Today
Health claims not
verified
Healthclaims
verified
Biofortificationnot allowed
Biofortificationallowed
Biofortificationdelayed
Co-exist as “natural”
niche product
All in the strategy
What is our product? e.g., wheat, bread
How is the high-selenium feature of our product specified? Guaranteed level of selenium Identity-preserved product
About the marketing channel
Developing a market for a new functional food is likely to be high cost and of substantial risk
Few are currently interested so you are starting from scratch
There are substantial barriers to entry Research, product development, marketing FDA approval for health claims Rapid, accurate test for selenium level shows promise but not
yet commercialized. The marketing channel needs educating
Questions
1. Outline the marketing channel for wheat. Identify the key functions and the decision makers /
participants. Include constraints faced (particularly in that they will
affect industry coordination and information flows, and align incentives of various participants).
Identify potential partnerships.
2. Identify specific products within the marketing channel (e.g., wheat versus bread). What factors affect the decision regarding product development?
Questions
3. A high-selenium product can be brought to market with a guaranteed level of selenium (based on testing) or simply grown on high-selenium soils (based on identity preservation). What type of channel relationships are necessary for each?What option is most appropriate?
4. What additional information is necessary to decide whether it will be profitable to bring a high-selenium product to market?
5. What are the risks associated with introducing and marketing a high-selenium product?
Some instructor notes
Partnerships will be important
Who is well-positioned for partnership? Check-off groups are an option to provide coordination of
production issues, generate market data, assist with trade partnerships, interact with scientific communities
What will define the partnership?
Can that / those partnership(s) be developed now?
Wheat Marketing Channel
Selenium is currently not a preferred wheat characteristic (opportunity cost idea)
Issues Defining your product and consumer Testing Storage Transportation Blending
Wheat Marketing Channel
SJH & Company, Inc. recommended the following steps
Implement identity preservation of selenium wheat Obtain FDA health claim approval Develop a brand concept Develop a marketing strategy Develop a business plan Find a sound business partner
Issues – Information needs
Testing Cost Need (number of tests, point of testing) Accuracy
Labeling (what are the rules? what will the market accommodate?)
Market research needs
Will be product specific
Value of high-selenium attribute (including stacked with other traits)
Value of natural source of selenium Effectiveness within existing marketing channels, of
marketing and promotion strategies Push versus pull marketing strategies Products of particular interest and with particular economic
promise.
According to SJH & Company, Inc.
Key success factors (selected and paraphrased)
Avoid focus on prevention of specific disease promotion and rather focus on overall health / well - being
Use an extensive marketing campaign to communicate / educate your market
Rely on science, but do so simply Work on FDA approval for health claim Secure broad and dependable channels for product placement /
distribution
Take home messages
We need to change the way we do business, but models exist for us to follow.
This is a high cost / high risk venture. Share the cost / risk.
There is money available -- use it
Incorporate educating the marketing channel
Keep an eye on competition from outside and within the marketing channel