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

• 15th Annual Food and Agribusiness Symposium
• Cheryl J. Wachenheim
• Department of Agribusiness and Applied Economics
• North Dakota State University
• [phone] cwachenh_at_ndsuext.nodak.edu

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Introduction

• Assume the role of a consultant to the South
  Dakota Wheat Commission working to evaluate the
  feasibility of marketing high-selenium products.

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Functional Foods

• Foods or dietary components that may provide a
  health benefit beyond basic nutrition.
• International Food Information Council
  Foundation, May, 2004

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Commodity Products
Regulation
Science Technology
Food Processors Distributors Pillars of
Marketing
New Product Development
Promotion
Distribution
Pricing
Consumer Marketplace Mass Markets
Segmented Markets
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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.

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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

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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

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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
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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.

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• 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
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Dr. Gerald Combs, Selenium Symposium, November 3,
2004, Grand Forks, North Dakota
North Dakota wheat superior source of
Selenium
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Selenium - Based Functional Foods

• Today, few in number (excluding dietary
  supplements) despite widespread and largely
  favorable health press

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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

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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

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Scenario-Dependent Options
Biofortification not allowed
Biofortification allowed
Health claims verified
Co-exist as natural niche product
Biofortification delayed
Today
Health claims not verified
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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

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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

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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?

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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?

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Some instructor notes
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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?

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Wheat Marketing Channel

• Selenium is currently not a preferred wheat
  characteristic (opportunity cost idea)
• Issues
• Defining your product and consumer
• Testing
• Storage
• Transportation
• Blending

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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

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Issues Information needs

• Testing
• Cost
• Need (number of tests, point of testing)
• Accuracy
• Labeling (what are the rules? what will the
  market accommodate?)

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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.

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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

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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