Despite all the news about Main Street vs. Wall Street and the economic woes created by sub-prime lending, etc... I have some news about how consumers are stretching their paychecks and how food marketers are reaching out to them.
This story originally came from the Wall Street Journal:
Food companies hope to capitalize on the slumping economy by steering consumers to cheaper, high-margin products.
On Monday, Kellogg Co. is beginning a new advertising push for staple cereals such as Corn Flakes and Rice Krispies, while Campbell Soup Co. is about to launch a multimedia campaign to trumpet its condensed soups as a bargain buy. Kraft Foods Inc. has begun advertising its Kool-Aid powdered beverages on national radio for the first time in 11 years.
Campbell and cheese giant Kraft are also teaming up to promote meals of soup and grilled-cheese sandwiches. Kraft's Web site will add recipes for cheap sandwiches and suggest Campbell soups to pair them with.
On Nov. 2, newspapers nationwide will carry coupon inserts pitching Campbell soups and sandwiches made with Kraft Singles cheese as the "wallet-friendly meal your family will love."
It is a big shift for food makers. For several years they have tried to increase their profit margins by promoting higher-priced "premium" brands such as Campbell's Pepperidge Farm cookies and Kraft's Wheat Thins crackers.
But lower-priced "value" products can also have wide margins because they're cheaper to make. "Food companies will be careful to shift consumers to products that are still high margin," says Robert Moskow, an analyst with Credit Suisse. "Powdered Kool-Aid beverages are one of the most profitable food products in history."
Also Monday, the milk industry will begin running ads touting milk as a bargain. Financial guru Suze Orman will don the familiar milk mustache in a print ad that reads: "Even at today's prices, a glass of milk only costs about a quarter. ..." The ad is a big departure from prior "Got Milk" campaigns that focused on the nutritional value of milk.
The milk industry plans to spend just under $1 million on the Suze Orman ads.
ConAgra Foods Inc. is rolling out a line of single-serve frozen dinners priced at $1.50 each and embarking on a word-of-mouth campaign through PTA meetings and church groups. "So good for so little" goes the slogan planned for part of an ad campaign.
ConAgra's new Banquet dinners - called Banquet Select Recipes - will be priced 41 cents higher than the company's existing Banquet line, giving them a higher profit margin, says Joe Bybel, vice president of strategy at ConAgra. "It's good for ConAgra but also a good value for consumers."
Companies' "value" pitch is, in part, a defensive move against private-label food makers that could steal market share with their cheaper goods. But it's also a response to how consumers have changed their behavior as the U.S. economy has soured. Consumers worried about jobs, 401(k)s, gasoline prices and winter heating bills are eating less often at restaurants and making fewer supermarket trips to stock up on groceries.
Food companies themselves have contributed to the pressure on consumers by raising prices on a host of items - ranging from bread to meat to cereal - in response to rising commodity costs. Prices for food for the home rose 7.5 percent at a seasonally adjusted annualized rate in the first eight months of this year, according to the Bureau of Labor Statistics.
Some consumers are holding off trading down out of concern that lower-priced products are less nutritious. "I'm noticing the higher prices and I'm feeling it, but I want my kids to eat well, so I'm still buying organic," says Becky Jeffers, a 36-year-old yoga therapist and single mother of two who was shopping at a Lake Forest, Ill., Jewel-Osco last week.
Food makers have also been substituting cheaper ingredients and shrinking package sizes for products ranging from cereal to ice cream. While some companies expect their cost inflation to moderate as prices of some commodities fall, they don't expect inflation to drop to its levels in past years.
In any case, the companies won't be able to raise prices indefinitely, says Frank Luby, a partner at Simon-Kucher & Partners, a marketing and strategy firm specializing in pricing. "I don't think food companies have reached a breaking point yet, but they ought to be worried that they're getting close."
High food prices have driven some consumers to trade down to supermarkets' private-label products, particularly in milk, cheese and canned tomatoes. The growth of private-label market share accelerated in the 12 weeks ended Sept. 6, with private-label items in 89 of 105 categories posting gains, compared with 80 in the prior 12-week period, according to a Credit Suisse report.
Food companies continue to tout their high-end offerings, and not all plan to push cheaper goods harder. Spokesmen for ketchup maker H.J. Heinz Co. and Sara Lee Corp., maker of Jimmy Dean sausage and Ball Park hot dogs, say their brands have always stood for good value.
ConAgra, of Omaha, Neb., hasn't advertised its 55-year-old Banquet frozen dinners in more than a decade. Until now, the company's premium line of frozen dinners, Healthy Choice Cafe Steamers, which are double the price of Banquet meals, have gotten more marketing support. But the new Banquet Select Recipes, in varieties including chicken parmesan and home-style pot roast, will be supported by radio spots with country singer Lee Ann Womack.
TV ads show a family eating dinner. When the mom tells the dad that each meal costs $1.50, he looks so shocked that she splashes him with a glass of water.
ConAgra's word-of-mouth effort will enlist hundreds of mothers to provide money-saving tips and free product samples at PTA meetings and church groups across the country. The moms will be paid in Banquet product coupons, the company said.
Kellogg will begin airing TV ads for its Frosted Mini-Wheats, Frosted Flakes, Rice Krispies and Corn Flakes brands, hailing them as affordable breakfast choices. The Battle Creek, Mich., company is also working on search-engine optimization so that when consumers type "cereal" plus "deals" or "value" into an Internet search engine, Kellogg's Web site will pop up.
In mid-October, Campbell Soup will launch TV, radio, print and Internet ads touting its condensed soups as cheap eats, a departure from last year's ads, which played up the soups' quality.
Chief Executive Douglas Conant told investors recently that "we clearly recognize there's a value proposition there and we're going to exploit it."
One print ad shows a lineup of five condensed soups, including chicken noodle and minestrone, calling it the "original dollar menu." Another ad says, "To save you money, we left one ingredient out (we figured you have plenty of water at home)."
In supermarket aisles, Campbell has begun separating higher-priced, ready-to-serve soups from cheaper condensed soups. "It's important for consumers to see value in our category," says Colin Watts, vice president and general manager of Campbell's U.S. soup business.
Mr. Watts says that after Campbell noticed that consumers were making fewer grocery visits, it began offering 10 cans of condensed soup for $10 at some stores. The company's Web site offers recipes for meals that use the company's condensed soups and Swanson broths and cost less than $10 to make.
Kraft's Web site shows visitors how one bag of groceries filled with Kraft products can be stretched to make five dinners. And a 15-second TV commercial for Kool-Aid shows that four pitchers of Kool-Aid cost the same as a two-liter bottle of soda. At the end, a voice-over says, "Kool-Aid: delivering more smiles per gallon."
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