Food for Thought: Q&A with 5th Food Group’s Tony Cox

Food and gift merchants face unique challenges with shipping costs, profit margins and seasonality. We asked Tony Cox, founder of multichannel food consultancy 5th Food Group, to share his thoughts and discuss some of the latest trends in the food and gift industry.

Multichannel Merchant: You just came back from the New York Fancy Foods Show – What was the atmosphere like? Did merchants seem to be relieved that 2009 is in the past, or did they have concerns about the new economy?

Cox: Buyer optimism was as high as I’ve seen since the summer 2008 show, which was just before the industry felt the effect of the economic meltdown that hit most specialty food companies.

According to the NASFT (National Association of the Specialty Food Trade—the show sponsor), exhibiter booth space was sold out at this year’s show, and there were a record number of attendees. That was very encouraging.

In spite of all of that optimism, the general consensus is that we are a ways away from the “good old days.” Consumers are not spending as freely as they were in the past on higher-end products like specialty food, and corporate gifting is way down, too. So we are working harder and smarter to build back sales and profits, and it’s working. Most of our clients expect to be as profitable as ever in 2010.

MCM: You did a presentation called “Making E-Commerce Work for You” at the show. Were the attendees seasoned food merchants that were looking to add a direct channel, or were they looking to refine their online strategies?

Cox: There was a nice mix of attendees at the workshop. A few were from established companies that are already selling direct to consumers from their own Websites and catalogs—they were looking for new ideas.

About half the attendees were from established companies who have not yet taken the plunge into selling direct, but are considering it. They were looking for success requirements and a basic roadmap of what they would need to do to get an e-commerce business up and running.

There were also attendees from relatively new and small companies that are dabbling in direct online sales. They were looking for ideas on ways to drive more traffic to and sales from their sites.

MCM: What about catalogs? Do you still recommend mailing catalogs, or do you think catalogs are playing a new role for direct merchants in an online world?

Cox: Most of our clients mail catalogs. They are a very effective way to drive existing customers to their Website. But fewer companies are using catalogs to prospect for new customers.

It’s simple economics — as costs for paper and postage continue to rise, and response rates stay flat or fall, the costs of acquiring customers via list rental is becoming prohibitively expensive. Case in point, if the proposed postal rate increase goes through in January, it will be another nail in the coffin for both the USPS and for smaller catalog companies.

The biggest change we see in catalogs is their purpose in the overall marketing plan. In the past, catalogs were a stand-alone selling vehicle, so for example, if you wanted to sell item X, it had to be in the catalog for customers to see it.

That’s obviously no longer the case. Consumers can search for the item online and get directed to your site where they can see it, read about it, read what others say about it and buy it.

This is allowing companies to cut page counts and costs in their catalogs. They are featuring only best-selling and new items in their catalogs and telling customers to go to the Web to see the complete line.

MCM: With the smaller guys taking a hit in 2009 and needing to spend too much on prospecting just to get back to their 2008 sales, does this mean 2010 is a good time to start a direct food and gifts company from scratch?

Cox: I think it’s a better time to buy a smaller mail order/Internet company than to start one from scratch. With zero sales and literally no customers to mail to, it’s harder to get traction than if you can buy a company that has a revenue base and customer list. Of course it all depends on what the seller wants for his or her business.

The best situation we see is for a specialty-food manufacturing company that is already established and profitably selling via wholesale to other retailers and/or distributors to launch an add-on e-commerce business. In these situations, you already have infrastructure in place, proven products, packaging with your URL and 800-number on it that can help generate name flow with little or no cost, and the wholesale business peaks in the third quarter whereas mail order peaks in the fourth, so it adds a season to the business with very little increase in fixed costs or head count.

Mail order also helps build brand awareness, has much higher gross margins than wholesale and has no receivables, so it can be a very profitable add-on business to a food manufacturer’s operation.

MCM: Based on what you’re seeing with economic or other trends right now, what’s the biggest thing food and gifts merchants need to do to get ready for the holiday?

Cox: It’s late in the year, but there is still time to improve the look and functionality of their Websites. Focus on the basics: make it easy to send multiple gifts from the same buyer, improve product presentation with better photos, make sure all of the key gifting price points are covered with your product line. Some of these can be very low cost fixes that will pay huge dividends, if executed correctly.

For catalog marketing, be sure to have a gift list mailing in place — this is the most important mailing of the season. Segment your customer file by splitting offline and online buyers by recency or season of last purchase; and use key codes, match back analysis and holdout group testing to read results from each group.