The Negotiation

There has been a lot of discussion recently about prices retailers will pay for products in the food industry. It is a contentious issue and one that every food producer and food processor must consider. The days of just adjusting your cost without some detailed justification are over. If you want to get a fair price for your product, you need to do your homework and focus on the facts.

Product cost will always be a negotiation so you need to put yourself where you are negotiating from a position of strength. One such strength is to differentiate your products and deliver value where the customer (the retailer) and the consumer are both willing to pay more.

One opportunity which has become much more prevalent recently is to make claims on your product related to health and wellness.  According to Nancy Gagliardi who is a contributor to Forbes.com, “Consumers’ health is front and center for those who churn out the food products that will line supermarket shelves in the next year”. She goes on to explain that the large manufacturers like Campbell’s are working to develop products where they can make health claims.

I was talking to someone the other day and I said, “grocery store shelves remind me of NASCAR, there are so many logos on the packaging”.  It is true we have never seen so many messages that are not part of the manufacturer’s brand.  They do support the brand positioning, and they are on many products through out the store.

Making claims is not as easy as ordering a new package. There are many we see now such as:

Gluten Free                Organic                       High fibre

Low sodium               Pesticide free             Antioxidants

Non GMO                    Vegan                         Kosher

One of the biggest challenges with this movement is to maintain the integrity of the claims. The consumer will only trust our industry if producers and processors make claims they can substantiate or where there is some form of third party audit. The other side of this coin is that we must keep the costs of the credibility reasonable to ensure there is still value in the final purchase price.

Claims are often related to nutrition and in Canada the regulations are created and monitored by the Canadian Food Inspection Agency CFIA).  It is important to understand the complexities of product labeling. This link will take you to the start of the section on the CFIA website:

There are two reasons these products demand a premium in the market. Consumers want them and they are more expensive to produce, which includes the cost of making, maintaining and promoting the claims.

If you are considering claims on your products review the existing items in the category and determine what level of premium the market will support. It is different in different categories. Research the cost of ingredients, production methods, packaging changes and ongoing costs such as audits and registration fees to determine if the increase you will realize will cover your incremental costs.

Whole Foods have been very clear on their stance with regards to Non GMO. Other retailers will follow, especially if Whole Foods generates more traffic as the leader in this area. All it will take is a few mainstream retailers and the dominoes will start to fall.

Prior to investing in everything required to make a claim I would suggest you discuss it with your customers. Ask them what the premium would be and understand the value they put in it. You should only make the investment where your customer will reward you in the cost you need. This is also an effective means to share where you are going with your product and set the wheels in motion to get a price increase when you are ready to make your case.

There is a perception within retailers that suppliers are pushing prices too high without the justification. True or not that is the perception so you need to demonstrate value that will resonate with consumers that ultimately sells more products. Claims are one means to demonstrate value, just make sure the customer and consumer put the same value in them that you do.