October Squeeze Play - Costs, Consumers & Marketing

John Panaseny
Wed, Oct 19, 2016

Maximizing Operational Equipment Effectiveness (OEE) for Vertical Bagging OperationsIn Atlanta we can concentrate on business.....

October in Atlanta this year....well for us Braves fans it means we can concentrate on business.

Rovema_vertical_baggers_for_powder_products_550x370.jpgBut while we may not be watching playoff action heating up on TBS, there's another squeeze play that is developing in the world of food manufacturing and production.

Raw material costs are rising VERY quickly, while consumer's expectations of package form & function are simultaneously increasing. That's putting marketing in a really tough position around the packaged food industry.

UN Food Price Index

October 6th marked the release of September food price data from the United Nations Food & Agriculture Organization (FAO.)

The results were startling:

  • Overall - up 2.9% from August and up 10% YoY
  • Cereal - down 1.9%
  • Vegetable Oil - up 1.7%
  • Dairy - up 13.8%
  • Meat - flat (estimated NOT observed)
  • Sugar - up 6.7%

That's a serious headwind for food manufacturers. And it's contrary to recent trends as shown in the graph. In 2013, 2014 & 2015 food prices declined for most of the year. Yet 2016 shows nearly uninterrupted increases for the entire year.

Is this just a fluke, or is something structural changing the cost trends of food?

Conscious & subconscious

We wrote recently about the power of improved package functionality to grow sales. (See our article on how qualitative research helped Reese's redefine a product category with a different recloseable bag style.)

That reached into the realm of how package design and functionality can strengthen the consumer "relationship" with a product. That's distinct from the ongoing challenge of differentiating a CPG product during the "First Moment of Truth." While that's not new, it remains important for manufacturers as highlighted by stats from a recent PackagingWorld article:

  • 70% of decisions are made in the store
  • 28% of shoppers with a plan still leave brand decision to the store environment
  • 10% of shoppers will switch brands in the store
  • 20% of shoppers buy impulsively in categories they had no intention of purchasing in

The bottom line? Andrew Hurley draws an interesting analogy between retail packaging and search engine optimization - the frantic competition for attention is common across business disciplines.

Performance demands

Of course it doesn't stop there....in addition to higher food costs and unrelenting pressure to perform on the shelf, you've also got to extend shelf life, support source reduction initiatives, reduce material costs, increase output, etc.

The evolution in film and laminate structures offers some real progress in both source reduction and materials cost areas. Unfortunately it often comes with some negative impacts on cycle speed and throughput because of machining, tracking and especially sealing challenges on vertical baggers.

The good news is that machine innovation is starting to catch up. Call us if you'd like some detailed info on new innovations that will help you increase your vertical bagger performance.

Don't get thrown out in '17

So to complete the cheesy analogy (hey - give us a break, we're kind of feeling baseball nostalgic...) you've come a long way. You're racing around 3rd, breathing hard and headed for home. It's going to be close at the plate - that's the nature of business today.

Food prices are your headwind and fickle consumers are the feisty crowd while you're playing on the road. But there are resources that may give you the edge you need to slide into home under the tag as you head into 2017.

Let's talk.

In the meantime download our free guide to increasing vertical form/fill/seal OEE