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 cwachenh@ndsuext.nodak.edu

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