Lecture 5: The Food Marketing Channel

Two major activities of the food marketing system:
physical; economic
Physical activity of the food marketing system:
handling, storage, processing; transportation of raw and finished goods from producers to consumers
Economic activity of the food marketing system:
price setting and exchange
One of the largest US industries
food and fiber sector
Marketing is ______:
– starts on ____, finishes with ______
– producers provide ____ materials
– marketing firms convert to _____ good
complex
– farm; consumers
– raw
– final
Why do producers need marketing services?
– farm products are _____ and vary in ______
– production is ______ and _______ concentrated
– farm products have to be collected, _____, delivered quickly or _____
– _____ activities help accomplish that (processing, storage, transportation)
– perishable; quality
– seasonal; geographically
– sorted; stored
– physical
Marketing margin also called the…
marketing bill
Marketing margin represents…
marketing costs
Marketing adds _____
value
The product of marketing is _____
utility
Time
assists availability
Form
the raw good into final product
Place
transportation
Possession
possession of products
Influences on food industry:
– _______
– _______
– _______
– also government, ______, energy, other sectors
– producers
– consumers
– marketers
– media
Competing concerns:
– consumers: highest ____ at lowest ____
– producers: highest ____ from sale of _____
– marketers: greatest possible _____
– marketing system tries to _____
– value; price
– return; commodities
– profits
– reconcile
Processing and manufacturing:
– responsible for ____ _____
– processing of ____ products
– turn bulky, _____ commodities to storable, ______, appealing food products
– the primary purchasers of ___ products
– form utility
– raw
– perishable; concentrated
– ag
Structure of food processing:
– large processors usually own _____ plants
– with _______, _____ companies
– most new plants are small _____, ____ products
– concentration of ownership is ______
– several
– consolidation; fewer
– startups; niche
– increasing
Consolidation leads to greater ______
efficiency
Processing operations:
– huge investments in ____ and _____
– need to run full-_____, year-round (difficult with wide variation in ____ ______ supply)
– possible solutions: expanded _____; contracts that coordinate ______
– increasing ____ costs: switch from people to ______
– plant; equipment
– capacity; farm product
– storage; supply
– labor; machines
Buying operations:
– processors have great market power at ____ _____
– buy from local suppliers but distribute _____/_____
– no ______ buyers
– _______
– farm level
– regionally; nationally
– competing
– contracting
Globalization
– increased access to foreign markets because of: ______, ______, ______, _____ agreements
– rising ____ and ______ travel
– consumer preferences more _____ diet
– information; transportation; technology; trade
– incomes; international
– diverse
Global strategy
– integrated approach: determine best _____; coordination of ______ across countries; differentiation from global ______
– fastest growing market channel for processors:
– most strategies combine ___ with foreign ____ _____
– location; activities; competitors
– international trade
– trade; direct investment
Foreign direct investment:
– _____ plants located in foreign countries
– advantages over _____ trade
– processing
– international
Foreign direct investment advantages over international trade:
– lower _____ cost
– better insight into local consumer ______ and _____
– get around _____ and _____ market restrictions
– transport
– preferences; policies
– tariffs; domestic
Foreign direct investment:
– US-owned _____ in foreign countries (sales _____ than exports since 2002)
– foreign ______ own plants in the US (______ for US processors at home)
– plants; greater
– processors; competition
High value exports ____ than bulk exports since 1991
greater
High value imports ____ than high value exports since 2002
greater
Distribution strategies (sell to):
– _____ stores
– _____
– _____
– _____
– ___ to ___
– grocery
– restaurants
– vending
– catalog
– door; door
Wholesalers
link processors and retailers
Merchant wholesalers
buy food from processors; resell to retailers
Manuf. Sales’ Branch Office (MSBO)
wholesaler owned by processor
Broker
hired by retailer to procure food
Wholesaling trends:
– traditional wholesalers face _____ market influence (processors and retailers _____ negotiating)
– sector is _____ integrating (concerned that their _____ customers can’t compete with big retail; buying ____ stores)
– some retailers self-_____
– shrinking; directly
– vertically; independent; retail
– distribute
Wholesaling:
– _____ integration expected to continue
– ______ expected
– ____ negotiations leaving them out
– vertical
– consolidation
– direct
Largest of all retail sectors
food retailing
Food retailing:
– food expenditures are ___ of all retail sales
– most _____ part of food marketing system
– employs ___ of food marketing workers
– directly serves the final _____
– includes _____ and _____
– 25%
– expensive
– 80%
– consumer
– supermarkets; restaurants
Traditional grocery stores
supermarkets
Nontraditional food retailers
supercenters; warehouse clubs; drugstores; dollar stores
Food service
full service restaurants; fast food restaurants
Drugstores:
– drugs are ____ business
– food sales provide higher ____ _____
– offer small range of ____, _____
– customers use the _____ (food items are ______)
– core
– profit margin
– food; beverages
– pharmacy; convenience
Dollar stores:
– appeal to _____ and ___-income shoppers
– products priced at __-__
– groceries from ___-___ of sales
– sales growth from new ____, adding _____
– bargain; low
– $1; $2
– 20%; 80%
– stores; groceries
Warehouse clubs:
– cater to ____ business, ____/____ income customers
– _____ variety of products
– groceries in ____ packages
– ____ sales
– small; middle; upper
– limited
– large
– bulk
Fresh format stores:
– specialty stores targeting _____ customer segment
– perishables, _____, natural, ____ assortments
– specific
– organic; ethnic
United Natural Foods
wholesaler of organic and natural foods
Supercenters:
– offer ____ and non-____ items
– prices ____ than ______
– food; food
– lower; supermarkets
Supercenters have made ______ a major player
Walmart
Walmart:
– innovative ____ _____ management
– steady growth in _____ and _____ sales
– opening “______ _____”
– supply chain
– grocery; tobacco
– Neighborhood Markets
Walmart’s innovative management:
– _____ and ____ sharing with suppliers
– can tailor products to local _____ preferences
– suppliers must manage store ______
– ____-docking (don’t store products at own warehouse; products go from supplier truck to delivery truck)
– logistics; data
– consumer
– inventory
– cross
Walmart’s innovative management:
– _____ ______ ________ (RFID)
– ____ enhanced bar code
– radio frequency identification
– digitally
Food service:
– full service ______, ____ ____
– slowly _____ share of food sales
– strategy is to offer new _____, _____
– added ____-conscious menu items
– added services for ____-paced customers
– restaurants; fast food
– increasing
– products; services
– health
– fast
McDonald’s and apples:
– employed advances in ___-___ produce technology
– modified _____ packaging
– _____ coatings
– sub sliced apples for ____ in Happy Meals
– fresh; cut
– atmosphere
– mineral
– fries
______ and ______ show nutritional information
Hardees; McDonald’s
Limited service chains:
– cater to consumers’ preference for “______ ______”
– offer ______ items
– _____/_____ ingredients
– casual indulgence
– upscale
– premium; gourmet
Traditional grocer response:
– have to compete in ____
– understand consumer ______ (market segments)
– expand product _____
– change store _____
– adopt new _____
– costs
– preference
– offerings
– layout
– technology
Expanding product offerings:
– ____ foods
– _____ label products
– organic
– private
Private label products:
– store’s own ____
– brand name created by _____
– private label sales growing faster than national ____ sales
– name
– retailer
– brand
Partnerships with processors:
– national brand processors make ____ brands (provide _____, excess ____ capacity)
– _____ processors (owned by _____ brands; specialize in ____ label, _____ lines)
– _____ processors make for specific markets
– store; expertise; plant
– small; national; store; product
– regional
Expanding product offerings:
– adding _____ sections
– adding more _____ foods to compete with food service
– adding ____ _____
– dollar
– prepared
– fuel pumps
Store layout:
– aim at _____ experience
– rent space to ____ companies
– safeway “_____” stores
– _____ bought a _____ chain
– upscale
– outside
– lifestyle
– Kroger; supercenter
Innovative technology:
– ___-_____ lanes
– ______ technology (fingerprint releases payment; not yet widely adopted)
– self checkout
– biometric
Cost-lowering strategies:
– trying to emulate ______ (inventory control; consumer tracking)
– retailers initially ______
– wide adoption of _____
– looking into _____
– Walmart
– reluctant
– UCCnet
– RFID
Restructuring operations:
– chains selling/closing ____ stores
– focusing on _____ markets
– older
– core
Grocery store mergers:
– number of stores ____, 1997-2002
– _____ sales growth
– growing concentration of grocery ______
– concern for ______
– decline
– stagnant
– retailers
– processors