Marketing Agrifood Products to Food Service
A guide to expanding sales into domestic and export food service markets
Food service operators combine the food and beverage ingredients they buy to provide meals, snacks or drinks to customers. The diverse number of operators in the food service sector, which spans from Cafés to Hospitals, means suppliers need to understand different priorities and needs. The food service sector is divided into four major channels and a number of sub-channels (Figure 1).
The Takeaway channel seeks to provide convenience and everyday value. Operators focus on filling customer orders quickly and are continuously looking to improve ways to provide food on the go. Operators can range from major franchises like McDonalds and Subway to family run fish & chip shops.
The Dining Out channel typically seeks to add value to the meals they provide. Operators focus on providing an eating experience with degrees of convenience. Expect dining out operators to request small volumes of supply with frequent delivery times, sometimes at short notice.
The Event & Leisure channel provides food for specific events, usually for large gatherings of people. Operators will require large deliveries at tightly specified delivery times.
The Institutional channel provides large volumes of food for in-house residents. Operators typically have in-house equipment and the tools to prepare meals from scratch. Some operators, for example schools and aged care, will expect suppliers to meet certain nutritional standards.
Food service operators' expectations of suppliers will differ with their mode of operation. However, some key and common expectations are:
- Reliable product supply at agreed quality levels.
- Products provided at consistent prices.
- Early notification about changes in product availability.
- Providing products with a shelf life to and a portion size that will suit their operation.
- Responsive order processing and deliveries to cater for changes in demand.
- Order sizes and frequency of delivery that minimises stock and wastage.
Information technology support that reduces paperwork. The food service operator will be attracted to a product with a fixed price and a known supply window. This allows organisation of menu offerings with protection from unexpected changes. To offset shortages in supply, food service operators often combine with others or deal through agents or wholesalers that manage supply.
Most food service operators benefit greatly from value-added products. This includes products that are ready to use, packed in meal portions and have a shelf life that reduces reordering but maintains quality.
Innovations that make it easier or faster to combine ingredients to make the meal or beverage are likely to be well received. Remember, some channels use their own inhouse skills (Dining Out) or facilities (Institutions) to add value, and a supplier's products need to reflect the operators capacity.
Figure 1 Major Food Service Channels
For a more comprehensive food distribution analysis please refer to the FOODmap publication at Department of Agriculture and and Water Resources website.
Plan your approach
The better planned your approach is, the higher the chances of success. Adjusting your plan is easier than trying to sell a warehouse full of product that no customer finds appealing. You will be able to find some of the information you need online, however due to the complex nature of the food service channels, more research will be required to get the quality information required to guide your planning decisions.
Find a target market – Drawing on the channel profile in Figure 1, set out to find operators that match your capabilities and product offering. Key questions to answer include:
- Do you have the scale they require?
- Do they have the capacity or desire to buy and use the products you can produce?
- Are they located where you can service them?
- Can you provide the logistics and systems they require?
Be realistic about the capabilities of your business and match them to potential types of food service operators. Find those who will value your skills, expertise and offering. Assess how easy it is for others to copy your offer, because this forms the basis of your competitive advantage.
Know your target food service customers – Seek to understand your customers as it can provide you the basis for a competitive advantage. Define their priorities and how your product and service levels will help them in their business. Look for ways to do more and increase the total value of what you provide. Customers will welcome suppliers that show an understanding of food service operators' needs and operating methods.
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. It will require you to consider your company and product's point of difference and why customers will buy from you instead of your competition. Your positioning may include; unique products, supply from specialist regions, security of supply, organic or animal-welfare friendly. 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 can allow you share infrastructure, explore higher volume markets, spread marketing costs and in general build market advantages. Collaboration is particularly valuable in servicing export markets where the entry cost can be higher. Business arrangements should be based on a clear understanding of 'who does what' and confirmed in written agreements.
Research tips and assessing potential food service customers
Consider the following tips to find an entry-point that most matches your capabilities, your positioning, and your product and service offer.
Basic research can start at your desk; use the web to find out about the market, your competitors or existing product offerings. Food service market information is scarce. You will need to make use of news articles, directories and then contact distributors and food service operators, as they are the best sources of information.
Trade and government statistics are generally only available at a high level for the food service channel. The lack of information on food service means that research is more difficult. It may be worth investing in some support from an experienced researcher.
For research to be effective it needs to be guided by an objective framework. Without a framework to guide your research you may be swamped by data and unable to use it to make informed planning decisions.
Your research findings can be complemented by contact with potential food service customers, such as attending trade events. However, the nature and content of this contact should be managed, as it is potentially the start of a commercial arrangement.
Other more advanced research options, such as surveys, should only be considered when all available information has been collected and you have identified gaps in the market information you need to make a 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.
Pathways into export
There are various approaches to entering overseas markets, some options to consider are:
- Supplying your product direct to the food service operator 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 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.
A possible framework for assessing a market and identifying potential food service customers
|Market profile||Key features|
|Market growth rates - last 3 years||Volume & $ value|
Population, households and growth
Consumption per capita away from home
|Food service market segments and therefore potential target market||Number of operators, stores per operator|
Sales by operator/by store
New Store growth plans
|Products currently on offer in your category in the market||Number of products/brands|
Price range of products
Brand strength & brand pricing
Level of new products
|Supply chain systems||Use of brokers or agents|
Consolidation warehouses or direct supply
Key food service terminology
|Day parts||The occasion or time of day that a meal or snack is consumed i.e. Breakfast, Lunch and Dinner.|
|Export service providers who handle the important steps in shipping merchandise, including providing shipping rates, routing your cargo, and booking storage space.|
|Institutions||Large volume buyers of food ingredients that typically provide service for semi permanent residents i.e. Hospitals, Rest Homes and Correctional.|
|Inventory Cover||Typically expressed as the weeks of stock on hand at the rate it is currently selling.|
|Labour cost||The sum cost of the people employed, which is often expressed as a percentage of sales.|
|Portion control||Combinations of systems and packing that provide ingredients in portions suitable to the food service operators intended use.|
|QSR/Fast food||Quick service restaurants that have strong capability to turn around order in minutes|
|Using ingredients in their primary form and undertaking all the preparation.|
|Trading terms||The financial structure that will be the basis for transacting.|
Getting your product into an overseas market involves dealing with several bodies. Austrade, 13 28 78, is a government agency created to assist exporters. Also you may request agribusiness related assistance from the Victorian Department of Economic Development, Jobs, Transport and Resources, 136 186, Agribusiness as well as 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 foreign 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 purchasers. 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: Ballantyne Foods
Ballantyne is a Melbourne based dairy and food ingredient production company. The company first began exporting in 1936 and is currently the world's largest producer of canned butter with exports throughout Asia, the Pacific, the Middle East and Americas.
Ballantyne's products include the popular 'Golden Churn' butter; portion controlled butter and a range of food ingredients including cheese powders, dairy preparations, pre-mixes and cultured dairy products (used in snack foods, sauces, bakery products and prepared meals).
The Ballantyne portion control range is served by airlines, international hotels, major hospitals, and other leading institutions. Ballantyne's retail butter packs are seen in supermarkets around the world.
Ballantyne is faced with challenges in providing continuous supply during difficult times such as drought. Other challenges include the need to provide emergency orders, adapt labels or work within private labels to satisfy customer requirements.
Ballantyne has implemented several strategies for expansion into export markets. Networking with local companies that were sensitive to regional tastes, customs and market conditions allowed the company to better understand the end consumer. The company also makes its presence known at various 'Food Ingredient' conventions in markets such as China and Thailand in an effort to generate demand for the brand and its products.
Ballantyne's extensive research into target markets has allowed the company to provide innovative offerings tailored to specific markets. For example, their research showed that American consumers prefer to have their butter wrapped in parchment and contained in a cardboard box. The product was then tailored to suit the American consumer market.
- Identify and respect the needs of different markets. This knowledge could be the basis on which you compete.
- Building relationships with potential customers is a key and ongoing requirement.