Marketing Agrifood Products to Food Processors
A guide to expanding sales into domestic and export food processing markets
Food processors are high volume buyers of food ingredients who use these ingredients in the manufacture of food products. They typically purchase and manage ingredient volumes in contracted supply agreements and have strong buying power with ingredient suppliers.
Food processors add substantial value through their manufacturing process and typically maintain control of the product marketing through the use of their own brands. Often the supplier contribution will not be visible on the final end product.
Food processors production processes are structured, streamlined and highly dependent on ingredient suppliers. Suppliers can benefit from this by confidently planning outputs and streamlining production. Processors will plan to meet production targets and deadlines, and this is reflected in their relationships with suppliers.
The way that food processors operate means they expect ingredient suppliers to:
- Have efficient logistics that suits their manufacturing process.
- Work to tight product specifications and delivery windows.
- Guarantee security of supply and cope with variations due to unexpected peaks or changes in demand.
- Work with long term price arrangements.
- Want suppliers that understand their businesses.
- Do not consider them as an outlet for low grade product.
The core challenge in servicing food processors is to be more than a supplier with a contract that is renewed through a tender process.
To do this there is a need to understand the food processing customer in detail. Seek to understand their business strategy, the products they offer and the markets they service. This is the information that will help you identify ways to add further value and in doing so build advantages over competitors.
To build customer loyalty beyond a contract arrangement, it is important your ingredient can be differentiated from other supply alternatives.
Some options for how you can add value and differentiate include:
- Further process your product to better suit the food processors manufacturing set up.
- Build a detailed understanding of the processors manufacturing process to find ways you can adjust your product, packaging
and service levels to better suit their requirements.
- Combine with other ingredient suppliers to improve the manufacturing process.
- Gain acknowledgement for regional attributes that evoke positive consumer responses.
- Build in ethical food attributes (e.g. Organic, Health, Animal welfare Friendly etc) that can be conveyed to consumers.
The optimum scenario is to have your ingredient acknowledged as an ingredient in the final end product.
Plan your approach
Make sure you plan your approach, otherwise you may find yourself with warehouses full of unwanted product.
Find a target market – Seek food processing customers that match your capabilities and product offering. You need to understand their operations, strategy and development plans. Key question to answer include:
- Do you have the scale they require?
- Are they located where you can service them?
- Can you work efficiently with their logistics and systems?
- Are their products innovative? Do they differentiate their input ingredients? (e.g. regional, production differences)
Be realistic about the capabilities of your business and match them to potential food processing customers. Find customers who will value your skills, expertise and offering.
Know your target food processing customers – Seek to understand your customers as it can provide you with a competitive advantage. Define their priorities and how your product or service will help them in their business. Look for ways to do more and increase the value you provide.
Decide what you stand for - Determine what it is you will stand for with your customers. This is called positioning for your company and product. Consider why customers will buy from you instead of the competition. You need to look for a 'vacant' position in the market for your business to occupy and defend.
Be open to working with others – Explore the option to combine with others to service a target market. Collaboration lets you share infrastructure, guarantee higher volumes of supply, spread marketing costs and provide scope to build market advantages.
Business arrangements should be based on a clear understanding of 'who does what' and confirmed in written agreements.
Research tips and assessing potential food processing customers
Consider the following tips to find an entry-point that most matches your capabilities, your positioning, and your product.
The availability of information via the internet has changed the dynamics of market research. Basic research can start at your desk; use the web to find out about the market, your competitors or existing product offerings. Make use of news articles and trade or government statistics.
You could also contact government or industry representative organisations to find out more.
Your research can begin by profiling the market's retailing and food service sectors. The successful brands and products present in these sectors will show you which food processors are market leaders and innovators.
Information on retail products can be gained from publications such as FOODweek and product category directories such as Retail World's Australasian Grocery Guide, which provide category value and direction. Major food service distributors are also good contacts for information on their product needs and market preferences.
However, for research to be effective it needs to be guided by an objective framework. Otherwise you may be overwhelmed by data and unable to use it to make good planning decisions.
Your research findings can be assisted by contact with potential food processing customers or by attending trade events. However, the nature and content of this contact should be managed, as it is potentially the start of a commercial arrangement.
More advanced research options should only be considered when all available information has been collected but there are still gaps in the information you need to make a strategic decision. This includes arranging a visit to the target market to confirm your findings and finalise your approach. By doing all of your homework beforehand, you can make the most out of a business trip, domestically or internationally.
Your success with food processing businesses will be influenced by their size and type of operations and whether it suits your product.
A possible framework for assessing a market and identifying potential food processing customers
|Market profile||Key features to profile|
|Retail and Food Service||Current products that can use your ingredients|
|Finished product category growth rates - last three years|| Volumes and dollar value|
Brand and product price relativity
|Major and specialist suppliers into the category, and therefore potential target market|| Sales volume and value|
|Products currently on offer to current finished product category suppliers|| Price range|
Supplier and brand strength
Regional or feature differentiations
Level of innovation
Potential for collaboration
|Target customers' supply chain systems|| Number of locations|
Cool chain requirements
Technology levels (EDI)
Pathways into export
There are various approaches to entering overseas markets, some options to consider are:
- Supplying your product direct to the food processor or the merchant wholesaler/distributor is suitable if your product is highly perishable, or if you have the capacity to ship large quantities.
- Freight forwarders can offer services to smaller export suppliers that do not have the output to fill whole cargo containers.
- Consider export distributors or consolidators with an established presence in your target market. Working with a suitable consolidator allows you to benefit from their expertise, reputation and infrastructure, minimising risk to your business.
- Cold chain management is even more important for export due to the increase in the number of steps between seller and buyer. Pay careful attention to potential breaks in the cold chain such as un-cooled loading periods, there is a chance that the customer may refuse to pay for substandard goods.
- Some export markets will have weak standards of cold chain management. It can be wrong to assume that the buyers understand what is necessary to keep your goods in optimum condition.
- When negotiating contracts for transport and carriage of goods, be especially clear on transporters' duties and responsibilities as to treatment of cargo. This applies for every step between the goods leaving your premises and arriving at the buyers' premises.
Getting your product into an overseas market involves dealing with several bodies. Austrade, 13 28 78, is a government agency created to assist exporters. You may also request agribusiness related assistance from the Department of Economic Development, Jobs, Transport and Resources (Vic): 136 186, as well as general business assistance from Small Business Victoria: 13 22 15, and Regional Development Victoria.
Your sale of goods will be subject to packaging and labelling requirements. For domestic sales, refer to Food Standards Australia New Zealand. Other countries may require labelling in different languages and have specific laws for terms such as 'used by,' 'best before' and 'packed on.' Austrade can provide some advice on other countries' labelling and packaging regulations.
An export adviser (Customs Broker or Freight Forwarder) can help you comply with regulatory requirements (i.e. customs, quarantine, certification) and set up international transactions (i.e. transport, storage). They can be found in services directories such as SENSIS.
The regulations themselves are administered by the Australian Customs Service: 1300 363 263, and the Australian Quarantine and Inspection Service (AQIS): 1800 020 504.
Customs requires that anything over the value of AU$2,000.00 that is leaving Australia be declared. Contact Customs or your export adviser regarding any produce specific requirements, declarations or form requirements.
AQIS requires that exporters of certain types of produce (meat, fish, fresh produce) must have a 'registered premises.' Export produce is also subject to quality inspection & certification requirements before it will be cleared for export and subsequent import into another country. AQIS has a searchable database on import (quality and certification) requirements by country. Consult AQIS or your customs adviser for advice on fulfilling these requirements.
Familiarise yourself with terms of international trade. Research the meaning and effect of INCOTERMS, letters of credit, bills of lading (Austrade is a good place to start). Also ask your bank about payment options for international sales of goods. You may also need legal advice from an international transactions lawyer about different foreign legal systems and how they can affect your sales transactions. You may also insure your business against risks such as damage of goods in transit or a defaulting purchaser. The Export Finance and Insurance Corporation (EFIC): 1800 887 588 is a good place to find out what kind of insurance is suitable for your transaction.
Case study – Sunsalt
Sunsalt is an agrifood company that was established in 1982, with a business model for farming inland salt from ancient underground deposits in Victoria.
This activity helps to reduce the region's total salt levels. Sunsalt was awarded the 2004 Engineers Australia National Salinity Award for best efforts towards salinity reduction.
Using a process to extract salt from underground saline water, Sunsalt was able to create salt products for a wide range of applications. Applications include: chlorination salts, metal treatment, detergents, hide tanning, pet food salts, cheese-making and gourmet table salt. Residue from the treatment of the harvested salt is also sold for use as fertiliser and as a compound in road dust suppressants.
Sunsalt differentiated its product from other commodity salts by using an environmentally beneficial harvesting method. Its products convey a clear message that customers are supporting the reduction of saline water, a factor which affects the viability of local farmers. The treatment of the salt along with natural minerals gives it a distinctive taste and pink colour.
This pink hue has allowed Sunsalt to differentiate it's products and build a link with the end customer. This value of the product feature was first identified when Sunsalt was dealing directly with customers at fairs and markets.
The company has inland operations, and as such the cost of freight meant that being a commodity trader was not an option; value-adding is a crucial factor for Sunsalt's continued business viability.
An initial challenge faced by Sunsalt was price competition from competitors and price pressure from potential customers. Sunsalt needed to convince potential customers of the value of dealing with an alternative salt supplier. Sunsalt was also faced with the need for quick expansion to ensure the provision of a quality product at reliable volumes.
Sunsalt's products are present in both the domestic and international markets, particularly its gourmet pink table salt. Export markets include, Canada, America, UK, Spain, Japan, Noumea and Switzerland.
- For small businesses attempting to supply traditional commodity products, value adding is a key factor to success (e.g. Sunsalt's pink hue).
- Consider all available opportunities for distribution and marketing what you produce.