Supply-Side Memo: Dean Foods, Producer of White Wave, Horizon Organic and Silk Organic Is In the Tall Grass and Grazing For More

Dean Foods, which is the largest processor and distributor of fresh fluid milk and dairy products in the U.S., along with being one of the major players in the organic milk (fluid and soy) and natural-organic dairy products categories through its WhiteWave-Morningstar division, held an investor day today which was Webcast via the company's Web site. Some of the company's well-known natural-organic dairy brands are: Horizon Organic, Silk organic soy milk, WhiteWave dairy products and Rachel's Organics. [Click here for a list of all of the company's dairy brands.]

The purpose of Dean Foods' investor day and Webcast was to detail the company's new strategic plan for going forward. The company's natural-organic dairy divisions will play a major part in it's new strategic plan and direction.

Below are the three key planks of its new strategic plan that Dean Foods' executive team described at the meeting/webcast today:

~Dean Foods' said today it plans to extend its current low cost position in the dairy industry. "The first key component of the strategic plan, and the clear focus for the near term, is to reduce costs across the business and extend Dean Foods' low cost position in the marketplace," the company said today.

~Additionally, the company said it will focus on driving revenue and profit growth in its core businesses. "In the DSD dairy platform, the company says it plans to build on its core manufacturing and distribution strengths to continue to increase its market share and drive strong operating returns. This includes branded dairy products and private label.

At its natural-organic WhiteWave-Morningstar division, Dean Foods said it will focus on "leveraging and building upon the strong net sales growth of the branded portfolio to drive continued revenue growth and reignite segment operating profit growth."

~Finally, the dairy giant said it's going to "invest for growth in new capabilities and platforms to drive sustainable long-term growth." In other words its investing despite the current economic recession, at least in a prudent if not massive way.

Dean Foods' CEO Gregg Engles outlined this morning in the webcast a $300 million across the board cost-savings program the dairy processor, marketer and distributor will embark on over the next five years.

He said the majority of the $300 million in cost savings targets what the company calls its DSD Dairy Segment, which involves the production, marketing, distribution and sales of its branded fluid milk, soy beverage and related dairy products. These include the numerous brands under the WhiteWave-Morningstar natural-organic division.

[You can read a detailed summary of the company's specific cost-cutting plans designed to eliminate $300 million in expenses over five years here.]

Dean Foods' organic dairy brands -- Horizon, White Wave, Silk ect. -- have been a leading source of the company's growth since it acquired most of those brands. In the U.S., for example, Organic fluid cow milk and refrigerated, fresh soy milk have gone from mere micro-niche items sold primarily in natural foods stores just five years ago to near-mainstream items today.

Nearly every U.S. supermarket chain and independent grocer today offers organic fluid milk and refrigerated soy milk (as opposed to just the varieties in shelf-stable tetra packaging) for sale, devoting an increasing amount of dairy case display space to the products. Even many convenience stores, drug chain stores, discount stores and dollar stores are selling organic fluid and soy milk today.

Additionally, there's been an explosion in the amount of supermarket shelf space devoted to organic yogurt varieties, beverages and related natural and organic dairy products of all kinds in just the last five years alone. Additionally, many more mainstream supermarkets that in the past never sold natural-organic dairy products at all have added them to their dairy cases.

Dean Foods' biggest advantage in the organic segment is the strong brand identity it has with Horizon, Silk, WhiteWave and the like, in our analysis.

And even though organic category sales are down in the recession, it's surprising that organic dairy items, particular value-added items like yogurt, cottage cheese, ect., are still doing well overall.

Our analysis is this is the case in-part because consumers tend to cut back first on organic shelf-stable packaged food and grocery items in bad economic times, perceiving buying those to be less important to their health and well-being than fresh products like organic produce and dairy products are. In other words, fresh is the last organic segment cash-strapped shoppers will cutback on in many cases.

Milk prices down, good for dairy processors

Big dairy companies like Dean Foods actually are doing well in this economy in a relative sense because the price for milk they purchase from dairy farmers is at the lowest price it has been at in recent, and even not so recent, history. Dramatically lower the primary ingredient in a company's products and lots of good things will follow.

At the other end of that equation though are the dairy farmers, who are suffering.

For example, in California's Central Valley, one of the top milk producing regions in the U.S., a local dairy farmer association just announced a program in which the dairy farmers- members will kill off thousands of cows and sell them to the meat processing industry as a way to reduce their herds and thus lower the supply of milk, resulting, they hope, in higher prices being paid them by processors like Dean Foods (and others), which has a large processing plant under its Morningstar division in the Central Valley County of Merced. Similar scenarios are happening in all of the dairy-producing states.

With the cost of cow milk so low, Dean Foods today actually revised upward its estimate for its first quarter of the new fiscal year earnings. Here is what CFO Jack Callahan said today in the webcast: "As we discussed a few weeks ago in our fourth quarter earnings release, we expected the first quarter to be strong as the commodity environment continues to improve. "Most notably, the Class I Mover milk price will decline in March to $9.43 per hundredweight, which is the lowest price in recent memory. The energy complex also remains favorable. Based on our analysis of the January results and what looks to be, based on preliminary reports, a solid February, the quarter will likely be even stronger than we initially though," he said.

"The Company increased its first quarter 2009 guidance for adjusted diluted earnings per share to at least $0.41 per share, from its prior guidance for at least $0.38 per adjusted diluted share. Additionally, the Company's full year expectations have also increased, with management now expecting adjusted earnings to reach at least $1.55 per diluted share in 2009, representing full year growth of at least 19% from the $1.30 posted in 2008," company CFO Callahan added.

Dean Foods posted its highest-ever quarterly operating income in its recently-ended fourth quarter, which it announced on February 11. [You can Read More on the company's Q4 peformance.]

The solid performance in its fourth quarter and the increase in earnings estimate for the first quarter should allow Dean Foods to continue from a financial perspective the aggressive promotion its been doing of late on many of its organic dairy product brands like yogurts.

One thing we don't see changing at retail is the price of organic milk, Horizon brand or any other. A gallon of organic milk (from a cow) is priced about 50% -to- 60% higher at retail today than a gallon of non-organic milk. That's a stiff premium, which is why many consumers just can't afford to buy organic fluid milk in this economy (and often in a good economy) even though they want to. The core organic milk consumer still seems to be sticking (again our fresh organic cutback last theory) but their is significant overall sales erosion in the category as evidenced by recent data.

A slightly lower organic milk retail price a good goal

We suggest one long-term goal of the milk processing industry is to get the price of organic fluid milk down by at least 20%-25% over the two -to- three years.

Of course retailers can help with this by continuing to take the higher margins they do on organic fluid milk as compared to non-organic (after all they should as the volume is considerably less in organic), but perhaps taking a bit less high margin. A 5% reduction would be a big deal, for example, assuming the dairy processors would toss in 5% in cooperation. Doing so would help to build greater retail demand for organic fluid milk, in our analysis.

Until the price to consumers of organic milk comes down a bit closer to that of non-organic, say 20-25% higher, it will remain a niche product.

Marketing Memo: Global Food & Grocery Company-Brand Marketer CEO's Speaking Out Much More During These Bad Economic Times; Have Your Noticed?

The big, global food, grocery and consumer packaged goods companies and brand marketers are fairing better than similar global companies in other business sectors in the current recession and financial-credit crisis. In part this is because people do have to eat. But it's also because such companies have tended to follow business fundamentals much better than say global financial service firms, the auto industry and a few other sectors. Such fundamentals include not building up too much debt and, most importantly, focusing on being consumer-centric marketers, something the U.S. auto industry has failed to do, for example, but something most big consumer food and grocery companies-brand marketers focus on closely and do well at.

And although people have to eat, they don't have to buy (and eat) your brands, even if you are Nestle, Kraft, or Campbell Soup. Of course having the huge brand portfolios these three global consumer packaged goods marketers do have -- in categories ranging from the most basic food and grocery items on up to niche natural, organic and specialty brands, as well as being the global market leaders in most of those food, grocery and beverage categories -- does help.

And in this serious global recession, which finds consumers trading down and looking for the best price they can find for food and grocery products, even these big food marketers are having to adapt -- searching for ways to lower their cost of goods, reducing expenses, and spending more money on things like price promotion.

We've also noticed another way the CEO's of these big, global food and grocery companies have been dealing with the global recession of late is that they are speaking out much more in to the media (especially the financial press) about what they and the companies they lead are doing to maintain and increase sales and profits in these difficult economic times. We been noticing a significant increase in interviews and the like from food and grocery company CEO's in the last couple months. And not just before earnings report time.

And it's no secret that the big consumer packaged goods marketers are communicating more so because the companies they lead are publicly traded ones. In this economic climate (check the stock market this week), communicating what a company is doing to the stock analysts who follow the companies and the investors, both institutional and individual, who invest in them is paramount -- particularly in relation to what initiatives these CEO's and their teams are taking to keep the company growing during the recession, along with the cost-cutting measures that are being made. Wall Street loves cost-cutting almost as much as it does sales and profit growth.

Communicating more frequently in these bad economic times also is important for these global food and grocery companies in terms of speaking to the food and grocery retailing trade. Grocers and other format retailers are increasing their store brand portfolios -- and devoting more shelf space, shelf space often previously devoted to manufacturers' brands -- as a way to offer lower prices overall in their stores to shoppers. And shoppers are buying more private label brands in-turn in order to save on their grocery bills. Every time a consumer buys a store brand that means a lost sale for a manufacturers' brand -- be it canned milk or pet food (Nestle), canned or packaged soup (Campbell Soup), or salad dressing and marshmallows (Kraft).

These big, global consumer packaged goods marketers therefore want the trade to know about the initiatives they are undertaking to create more value for their brands, even though the respective company sales forces or broker reps communicate such messages one-on-one to the retail buyers.

By speaking out more frequently -- as the CEO's of Nestle, Kraft and Campbell have been doing of late -- they can reach the top of the food retailing chain, CEO's, senior executives, ect. -- as well as consumers. It's part of a multi-communications paradigm. But those stock analysts and investors are at the top of the multi-audience pyramid.

Below are three features from today about each of these major global food and grocery companies -- Nestle, Kraft and Campbell Soup.

~Nestle. Forbes.com: Nestle Feels Confident About 2009.
~Campbell Soup. Rueters: Campbell ready to shop.
~Kraft. PBS-Nightly Biz Report: Kraft CEO talks recession strategies.

A few comments. First, notice that basically all three of these leading global consumer packaged goods companies are planning to grow despite (or perhaps because of) the recession. Second, notice the stress on value -- not just price but value. That's major adaptation from just over a year ago, when value wasn't a real hot button in consumer packaged goods marketing -- or for that matter with consumers. As that old saying goes: "What a difference a year makes." Particularly when the bottom falls out of the credit markets and major world economies.

Third, notice the focus on markets other than the U.S. It's a big world out there. Many people, such as the Chinese, have yet to become big buyers and consumers of Campbell's Chicken Noodle Soup or Kraft Salad Dressing. Imagine the sales growth if they do? Lastly, when reading the three pieces, think about the various audiences the food and grocery marketers are trying to reach -- and why. Doing so makes the reading much more interesting, particularly from a marketing perspective.

Food, Society & Economics Memo USA: Numerous Provisions of the Government's $790 Billion Economic Stimulus Package Good For Grocers and Food-Makers

Numerous provisions in the massive $790 billion comprehensive economic stimulus package approved by a U.S. House-Senate Conference Committee and set to become law possibly as soon as tomorrow, offer significant sales-growth potential for the U.S. food and grocery industry -- retailers, food-makers and marketers. Many of the package's provisions also provide much needed help for American consumers.

It's not by any means a perfect package -- but it could be the nation's best hope right now. And if it builds some real business and consumer confidence, something that's most-lacking in the U.S. economy right now, that accomplishment in and of itself will go a long way towards making the package a successful piece of legislation.

But after all is said about which provisions of the stimulus package help which business sectors -- which we say below in terms of the food and grocery industry -- the most important thing to say is that we are all in this together. United we succeed, overly divided we fail.

It's apt that today we celebrate the real birthday of perhaps America's greatest President -- Abraham Lincoln -- the great unifier. Lincoln staked his Presidency and the country's future on what to him was a crystal clear premise and certain in his soul article of faith -- that America's best hope for the future was as a united nation -- not a confederacy or as a series of blue and red states, as President Obama likes to say, but as a "United States."

President Obama echoed Lincoln, the President he takes as his role model, in his speech today at the annual Lincoln Day event in Illinois. Both Presidents -- both from Illinois -- are right in having that crystal clear premise and certain article of faith that America's last best hope has and always is when her citizens are united. Let's not foget that in these bad economic times, especially.

The $790 billion economic stimulus package agreed upon by a conference committee of the U.S. House of Represenatives and U.S. Senate yesterday -- and which will be voted on and passed by the House today and is set to be voted on and most likely passed by the Senate tomorrow -- includes as one of its provisions a 14% increase in the amount of food stamps the U.S. Department of Agriculture (USDA) will distribute to the millions of Americans who are receiving the food assistance vouchers (food stamps actually come in the form of an EBT debit card these days) in this recessionary (or depression, you choose) economy.

The House-Senate bill allocates $20 billion out of the $790 billion package to increase the food stamp benefits by the 14% for the rest of this year. This is money that will go right into the economy as fast as it is received by food stamp users.

A 14% increase may not sound like much (or perhaps to some too much) but for consumers who are say surviving on say $300 a month in food stamps, that added $42 (14% increase) a month in benefits can go a long way in stretching what is an already very thin food budget.

The 14% increase in food stamp benefits also is good news for America's food and grocery retailers, as well as food manufacturing companies.

By there very nature food stamps can only be used to by food and grocery products, and there are limitations on certain things people can purchase using the stamps, such as alcoholic beverages, tobacco products and a few other products. As a result, consumers spend the food stamps at supermarkets, natural foods stores and other food and grocery format stores almost exclusively, which means added sales for grocers. And because it is food and grocery products in which the extra 14% ($20 billion extra) will be spent on, that offers some very significant added sales for manufacturers and marketers of consumer packaged goods as well.

Additionally, there is no saving of food stamps by users. They spend them as soon as they get them. This is the point of including them in the economic stimulus package -- along with doing so because the human need is so great -- because they are spent as soon as obtained, thereby hopefully provided a cash stimulus to the dead economy.

According to recent figures released by the USDA, there are currently about 31 million Americans, about 10 percent of the total population, (and growing) who need food stamps in order to be able to put food on the table each month.

And with about 1.7 million American workers having been laid off from their jobs from just November, 2008 -to- January, 2009, and likely another 500,000 -to- 7000,000 for February, applications for food stamp assistance are flooding USDA offices, according to the agency. Many Americans are receiving food stamps for the very first time in their lives at present, in large part because in this serious economic downturn it's becoming increasingly likely that both household bread winners in a family are losing their jobs, where as in more recent passed recessions that didn't happen to the degree it is happening now.

CNN newsman launches a food stamp survival experiment

As a way of offering readers a flavor for what it's like to reley on food stamps in order to put food on the table in these bad economic times, CNN's Sean Caleb, who appears on the cable news network's "American Morning" morning news program, has launched an experiment in which he is using the current government allocated amount of food stamps as his only source of food and grocery purchases for a month.

CNN's Caleb is then chronicling his food stamp experiment in his Blog -- Blog: Living On Food Stamps -- at the CNN Website. He has learned much about what it is like to have to get by with just food stamps so far in his month long experiement and is sharing his self-insights in posts on the Blog. Of course, at the end of his one month experiment newsman Sean Caleb gets to go back to using the fine salary provided him by CNN to purchase his food with -- assuming he keeps his job. None of us are immune from losing our jobs in this economy, except perhaps CNN's iron horse of interviewers and network cash cow Larry King.

[You can read Sean Caleb's Blog posts about his life living on food stamps so far at his CNN Blog here.]

Food retailer and food-maker stimulation

The $790 billion economic stimulus bill, which could land on President Obama's desk for his signature as soon as tomorrow, contains a number of other provisions in it that should benefit America's food and grocery retailers, and food and grocery product manufacturers and marketers.

These provisions of the package are the most direct cash-oriented benefits and most immediate tangible ones to consumers, that also it is hoped will begin providing some immediate stimulus to the overall economy shortly after they are distributed.

The provisions of the $790 billion House-Senate economic stimulus package pushed by President Obama we think will benefit the food and grocery industry the most, and the most rapidly, are:

1. AID TO POOR AND UNEMPLOYED
$40 billion to provide extended unemployment benefits through Dec. 31, and increase them by $25 a week; $20 billion to increase food stamp benefits by 14 percent; $4 billion for job training; $3 billion in temporary welfare payments.

The extended unemployment benefits (and $25 a week increase), food stamp increase and $3 billion in temporary welfare payments are likely to provide the biggest and most immediate benefits to food and grocery retailers and food makers. The reason is because people on unemployment, food stamps and welfare spend pretty much every cent they get right away on basic needs like food and groceries. The fact consumers in all three of these categories are getting extensions and increases means more money will be spent, and rapidly, at America's food and grocery stores. The job training provision is a good one but won't have any immediate direct benefit to the food and grocery industry in terms of sales increases.

2. DIRECT CASH PAYMENTS
$14.2 billion to give one-time $250 payments to Social Security recipients (per receipient), poor people on Supplemental Security Income (SSI), and veterans receiving disability and pensions.

Folks receiving SSI benefits are among the poorest of the poor. They spend pretty much all the income they receive. They also spend most of that income on the basics like food and groceries. We suspect they will spend most of the $250 payment on food and groceries, along with using part of it to pay things like the utility bill. Additionally, a great majority of retired folks on Social Security get most of their monthly income from the retirement program. They tend to spend what they get each month, also primarily on the basics like food and groceries, as do veterans living off of disability payments.

There are many people collecting social security who also have substantial additional income from pensions, 401-K plans and investments. The federal government estimates about 40% of retired Americans today obtain all or nearly all of their monthly income from Social Security. Another about 30% rely on Social Security for 50%-75% of their total monthly income. So even if just 40% and 50%-75% of America's about 30 million Social Security receipients spend half of their $250 check on food and groceries, that will provide a nice shot in the arm to grocers and food makers. (Note: People receieving Social Security have to pay income tax if their adjusted gross income is over $30,000 a year. Those folks in that bracket qualify in the stimulus package for the higher tax rebates listed below, rather than the $250 check.)

3. TAX CREDITS
About $116 billion for a $400 per-worker, $800 per-couple tax credits in 2009 and 2010. For the last half of 2009, workers could expect to see about $13 a week less withheld from their paychecks starting around June. Millions of Americans who don't make enough money to pay federal income taxes could file returns next year and receive checks. Individuals making more than $75,000 and couples making more than $150,000 would receive reduced amounts.

This is much needed money in the pocket for most Americans. We suspect consumes will do three things with their $400 (single filers) and their $800 (joint filers). First, we think they will take about one-third -to- half of the total check amount and use it to pay off past do bills: credit cards, utility bills, cable TV, ect. Many consumers are a month or two behind in these areas, and the utilities and companies are letting them make payments. Therefore we think this is one area where many Americans will first apply their tax rebate monies to.

Second, we think people will then use a third or more of the check amount to buy mostly basic items (read food and groceries and related items) that they've been doing without, along with buying a few more endulgent food items they have been avoiding because of the bad economy. Consumers spending a third or half of their rebate checks at the grocery store will be a big shot in the arm for food retailers and a good one for many food makers and marketers.

Lastly, we think most Americans will attempt to save about a third of their tax rebate checks for emergencies. They know they are going to need it the month after they get it, or the month after that, for example.

4. ALTERNATIVE MINIMUM TAX
About $70 billion to spare about 24 million taxpayers from being hit with the alternative minimum tax in 2009. The change would save a family of four an average of $2,300. The tax was designed to make sure wealthy taxpayers can't use credits and deductions to avoid paying any taxes. But it was never indexed to inflation, so families making as little as $45,000 could get significant increases without the change. Congress addresses it each year, usually in the fall.

This provision will put money in the pockets of a number of tax payers. It won't be enough to buy a new car, or perhaps even a new big screen television. But it will be enough to pay off some bills, buy better and more groceries, and perhaps have a little left over for clothing and a blender or new toaster for the kitchen. It's important to note that this provision only effects a small percentage of America taxpayers. But it still helps.

COLLEGE TUITION TAX CREDIT
5. About $14 billion to provide a $2,500 expanded tax credit for college tuition and related expenses for 2009 and 2010. The credit is phased out for couples making more than $160,000.

Those consumers who can take advantage of this tax provision will end up with more cash in their pockets. That means a bit more disposable income. That's good for grocers and food makers. Many of these folks are married couples with a kid or two at college. They've been really cutting back because of the added tuition and related college expenses. They might take some of the tax savings and buy some premium organic and gourmet foods items, along with some higher-priced wines and craft beers, for example. A little affordable indulgence.

6. CHILD TAX CREDIT
About $15 billion to provide the $1,000 child tax credit to more families that don't make enough money to pay income taxes.

Again, not significant, and not applicable to all consumers. But the amount those who can take advantage of it save is good news to grocers and food makers in that it's not enough to make a major purchase but is enough to spend a bit more at the supermarket.

7. EARNED INCOME TAX CREDIT
$4.7 billion to expand the Earned Income Tax Credit for low-income families with three or more children.

This provision also puts cash into the hands of those consumers who quilify can take advantage of it. And added benefit to grocers and food makers is that those people it applies to are in the lower income segment. This means they tend to spend most of the income they take in. Therefore they are a consumer segment most-likely to spend much of this money at the supermarket for basic needs and essentials like food, groceries and houshold items. They will spend most of the savings rather than save it.

The end-game: Get private sector moving once again

Our focus in this piece is on the provisions of the $790 billion economic stimulus package that in our experience and analysis offer the best opportunity to food and grocery retailers and food markers to gain some increased sales in an overall industry sense . Adding increased profits and income will be tough because retail price and thus margin pressure is intense. And it will get even more competitive and intense.

We say overall because even with the extra cash in their hands consumers will choose where they shop and what brands they buy carefully, as they've been doing for months now. We suspect most shoppers will also continue to shop at food stores that offer them the best value. We also believe shoppers will continue to buy the brands (including store brands increasingly) that also offer them the best price and value.

They also will continue to seek out the best deals and promotions available at retail.

As a result, while the extra cash and food stamps consumers get from the stimulus package provisions will increase sales overall for food retailers and food makers, it won't for all of them. Consumers will continue to go where they perceive the value is, in our analysis.

Aggressive promotion even more important with stimulus

Aggressive marketing and promotion for both food and grocery retailers and food-makers and marketers is even more important now that an economic stimulus package with all of the benefits offered the industry is at hand. Why? because as we mentioned above, shoppers with a little extra cash in their hand don't have to shop at your store or buy your food product brand.

Additionally, consumers have learned some very frugal food and grocery shopping habits over the last six months to a year and they aren't about to dump those money saving habits just because of some extra cash, unemployment benefits or food stamps in their pockets. In our analysis it's the complete opposite in fact. We think shoppers will be looking for even better deals and prices so they can stretch their new found cash from the economic stimulus package.

Therefore, it will be the retailers and food marketers that aggressively launched promotions and related programs tied to the benefits from the stimulus program that will be the winners.

For example, retailers that offer consumers 10% bonuses if they cash their tax rebate checks at their stores, like Wal-Mart, Safeway, Kroger Co, and a few others did with the Bush Administration tax rebate checks, will be the ones that get the lions share of those dollars. Cash the $400 check, get an extra $40 in the form of a store gift card. Cash the $800 check, get an $80 gift card. That's big money to consumers right now.

Wal-Mart, Safeway and Kroger cashed many extra checks than they otherwise would have had not they offered that 10% stimulus bonus package of their own last time around. And most of those conumers who cashed their checks in the stores spent money on food and groceries at the stores.

Retailer's also need to launch promotions with an economic stimulus theme. Disocunted prices under the tag line "An economic stimulus package from Whole Foods," for example. Or "Deals to stimulate your pocketbook," from Safeway, as another example. These need to be product promotions, line drives, in-ad coupons, all sorts of "stimulus" croos-promoted means to get more of the dollar then your competitor.

Food makers and marketers need to do the same, even more so since many shoppers are buying store brands rather than manufacturer brands. Companies need to offer coupons tied to when the tax rebate checks come out. Call the product "cents off" coupons "stimulus extenders," or "stimulus helper," for example.

Additionally, create store-specific product or item promotions with various retailers; the promotions timed with when the rebate checks hit. Play up the "stimulus extender" theme. Do so with item price disounts but also on the company Web site and in public relations efforts. Make it real and it will work. Offer real value not just hype. Get creative. Let the bad economy and the promise the added cash will bring to consumers be your canvas. Encourage confidence with good deals.

It's all about grabbing a share of the extra dollars and doing so by giving consumers a better deal. Help them extend their stimulus money and they will reward you with their business.

We are all in this together. Retailers and food makers can't survive without consumers who have money to buy the goods they offer. Consumers can't survive without jobs. Business can create them with drmatically reduced sales and profits.

The end-game of the mega economic stimulus package is to put some money in the hands of hard-pressed Americans, create some added business for companies, start to improve consumer and business sector confidence, create jobs, and jump-start the private sector so it can get the nation's economic engine going again. It's a social as well as economic package in reality.

Below is a summary of the other provisions in the $790 billion House-Senate economic stimulus package bill that's set to become law, perhaps as soon as tomorrow:

HOMEBUYER CREDIT
> $6.6 billion to repeal a requirement that a $8,000 first-time home buyer tax credit be paid back over time for homes purchased from Jan. 1 to Nov. 30, unless the home is sold within three years.

AUTO SALES
>$1.7 billion to makes sales taxes on paid on new cars, light trucks, recreational vehicles and motorcycles tax deductible through the end of the year.

RENEWABLE ENERGY INCENTIVES
>About 20 billion in tax incentives for renewable energy and energy efficiency over 10 years, including extending tax credits for energy produced from wind, geothermal, hydropower and landfill gas; grants to build renewable energy facilities; tax credits for purchases of energy-efficient furnaces, windows and doors, or insulation; tax credit for families that purchase plug-in hybrid vehicles.

BONUS DEPRECIATION
>$5 billion to extend a provision allowing businesses buying equipment such as computers to speed up its depreciation through 2009.

BANK CREDIT REPEAL
>Repeal a Treasury provision that allowed firms that buy money-losing banks to use more of the losses as tax credits to offset the profits of the merged banks for tax purposes. The change would increase taxes on the merged banks by $7 billion over 10 years.

HEALTH CARE
>$24.7 billion to provide a 65 percent subsidy of health care insurance premiums for the unemployed under the COBRA program; $86.6 billion to help states with Medicaid; $19 billion to modernize health information technology systems; $10 billion for health research and construction of National Institutes of Health facilities; $1 billion for prevention and wellness programs.

INFRASTRUCTURE
>$46 billion for transportation projects, including $27.5 billion for highway and bridge construction and repair; $8.4 billion for mass transit; $8 billion for construction of high-speed railways and $1.3 billion for Amtrak; $4.6 billion for the Army Corps of Engineers; $4 billion for public housing improvements; $6 billion for clean and drinking water projects; $7.2 billion to bring broadband Internet service to underserved areas; $4.2 billion to repair and modernize Defense Department facilities.

ENERGY
>About $50 billion for energy programs, focused chiefly on efficiency and renewable energy, including $5 billion to weatherize modest-income homes; $6.4 billion to clean up nuclear weapons production sites; $11 billion toward a so-called "smart electricity grid" to reduce waste; $6 billion to subsidize loans for renewable energy projects; $6.3 billion in state energy efficiency and clean energy grants; and $4.5 billion make federal buildings more energy efficient; $2 billion in grants for advanced batteries for electric vehicles.

STATE BLOCK GRANTS
> $8.8 billion in aid to states to defray budget cuts.

EDUCATION
>$44.5 billion in aid to local school districts to prevent layoffs and cutbacks, with flexibility to use the funds for school modernization and repair; $25.2 billion to school districts to fund special education and the No Child Left Behind law for students in K-12; $15.6 billion to boost the maximum Pell Grant by $500 to $5,350; $2 billion for Head Start.

HOUSING PROGRAMS
>$4 billion to repair and make more energy efficient public housing projects; $2 billion for the redevelop foreclosed and abandoned homes; $1.5 billion for homeless shelters; $2 billion to pay off a looming shortfall in public housing accounts.

SCIENCE PROGRAMS
>$3 billion for the National Science Foundation for basic science and engineering research; $1 billion for NASA; $1.6 billion for research in areas such as climate science, biofuels, high-energy physics and nuclear physics.

LAW ENFORCEMENT
>$4 billion in grants to state and local law enforcement to hire officers and purchase equipment.

HOMELAND SECURITY
>$2.8 billion for homeland security programs, including $1 billion for airport screening equipment.

DEBT LIMIT INCREASE
>Increases the statutory limit on the national debt by $789 billion, to $12.1 trillion.

The whole must be greater then the sum of its parts

A number of these provisions also offer benefits to the food and grocery industry, albeit more indirect ones. The Renewable energy, bonus depreciation, energy and health care provisions particularly offer some strong benefits to the food and grocery industry on the investment and expense side of the balance sheet.

But our main focus in this piece is on the provisions that in our analysis offer the most direct benefits to food retailers and food makers on the sales and income side of the ledger. That's why we have separated the various provisions the way we did.

And, of course, overall the goal and hope of the $790 billion comprehensive economic stimulus package (the whole) is that once the spending in its various parts starts happening, all of the provisions (the total sum of the package's parts) will work together and began stimulating the economy, thereby giving a jump-start to the private sector, and to consumers, so that eventually job creation can begin on the business side and increased consumer confidence will start coming back so that people are more willing to spend (of course they have to have the money to spend it). And key to all this is that the credit markets must thaw -- and if and when they will is the $64,000 question?

Lastly, this all comes at an obvious cost -- a bigger deficit and more national debt. Notice the very last provision of the package we listed above -- the Debt Limit Increase -- which increases the statutory limit on the national debt by $789 billion (an interesting number), to $12.1 trillion. That provision, and the $789 billion, is needed in order to create the new government securities (debt) and print the money so the federal government can pay for this $790 billion spending package.

Notice how the debt increase amount is $1 billion less ($789 billion) than the total $790 billion stimulus package? We hope that's because the federal government has that extra billion on hand to apply to the $789 billion to get to the $790 billion, rather than being yet another example of how the government gets the math wrong when it comes to government spending, even on the stimulus package, which we approve of as just about the only alternative available right now to keep the U.S. economy from going all the way over the cliff. But it must be nice to be able to create a line item in your spending plan that pays for your deficit spending.

And once this $790 billion is spent and the debt added to the deficit and the already multi-trillion dollar national debt, President Obama and Congress are going to need going to ask the American people and business community, to paraphrase former President John F. Kennedy: "Ask not what your country can do to stimulate you, but ask what you can do to stimulate your country."

Supply-Side Memo: 'Look What We Found' Sounds Like an Odd Name For A Line of Premium, Prepared Foods; But Read On; It Makes Perfect Sense

British food industry entrepreneur Roger Mckechnie had combined a unique recipe of ingredients -- premium and gourmet, natural, gluten-free, locally-produced, wild-foraged and the use of game meats-- into the creation of his 'Look What We Found' brand of prepared foods, which include ready-meals, soups and sauces at present. Annual sales are £6-million and growing. [Photo Credit: Katie Lee/Sunday Times of London.]

What others are writing: From the Sunday Times of London

Roger Mckechnie had spent most of his career working for the storied British food company United Biscuits, working his way up from a marketing manager for the company to the chief executive of its popular Smith's Crisps' brand.

Born, raised and educated in Northumberland, England, Mckechinie was happy to be able to remain nearby in his job running the Smith's Crisps brand for United Biscuits. However, as often is the case, especially when one performs well, United Biscuits had bigger ideas for the northern England native, and told him they wanted him to move to the south for the company.

He wanted to stay put, despite the fact United Biscuits' told him if he didn't move he would be out of a job in six months, according to a profile of the food industry entrepreneur in tomorrow's Sunday Times of London.

Mckechnie stayed put and left the corporate world to start Derwent Valley Foods, which produced the popular Phileas Fogg tortilla chips in the United Kingdom. Ten years later the corporate food industry executive-turned-entrepreneur sold the company for £24-million (pounds) to none other than his former employer, United Biscuits.

"It was the right time to sell it," he says in the Sunday Times' profile piece. "Once it got to the point where I was employing huge numbers of people and there were politics and organisational issues, I started to lose interest. I'm more of a creative independent."

The "creative independent" bought an old country house, which he converted into an award-winning boutique hotel, after selling Derwent Valley Foods. 'Starting to feel this guy's Midas touch? like we are.'

But the food business remained in the entrepreneur's blood. So in 1999 he went back into the food industry in the UK as a consultant to Northumbria Larder, a group of 60 meat, cheese and game producers.

It's taken the entrepreneur a few years since then to figure out his next new big thing. However, Mckechnie, who went on to launch his current food company, Tanfield Foods in association with these UK meat, game and cheese producers, thinks he's now on to it with his Look What We Found brand of ready-meals (just heat and eat), which feature such interesting varieties as: Herdwick Mutton Stew with Pearl Barley and Root Vegetables; Gloucester Old Spot Pork Meatballs with Butter Beans in a Rich Tomato Sauce; Wild Rabbit in Leek & Elderflower Sauce with Camargue Red Rice; Mushroom Stroganoff with hand-picked Scottish Mushrooms, and a number of other varieties you can view here.

In addition to the line of Look What We Found brand premium ready-meals, the company also markets a line of gourmet soups under the brand name. Some of the varieties in the prepared soup product line are: Country Cured Ham in Delicious Pea Soup, Tweedside Honey in English Parsnip Soup, English Tomato Soup with Cheviot Cheese Pesto and others.

Lastly, the company produces a gourmet sauce line under the brand, which you can view here.
The soups and sauces all are gluten-free and are made using locally-produced (in the UK), premium ingredients.

Most of the upscale ready-meals also are gluten-free. They too feature locally-produced fresh meats and produce and other ingredients; items like locally-foraged wild mushrooms and local dairy products are used in them as well.

You can read the interesting profile by Rose Gamble in the London Times here.

You can view the Look What We Found Web site here.

Marketing Memo - USA: Meet the New 'Middle-Age Simplifiers,' For These Affluent Consumers Less Will Be More Says Harvard Business School Professor

The New Consumer Minimalism

Natural~Specialty Foods Memo has been arguing for many months that upscale food and grocery retailers -- including supermarkets, specialty retailers and premium-oriented natural foods reatilers like Whole Foods Market and others -- must focus on creating, implementing and aggressively communicating value-based retailing propositions during the current, severe economic recession, which we believe will last all of next year, and is going to get worse before it gets better between now and the end of 2009, if it ends then.

We've also offered this same analysis to premium specialty and natural/organic products brand suppliers and marketers in the natural-specialty foods space. Even if they sell specialty and organic brands geared to higher income consumers, value is King in these times, we've argued -- and still do.

By value we certainly mean price -- as low as is possible. But we mean more than that. By a "value proposition" we mean the creation of a marketing strategy (a set of things) that offers consumers a reason to purchase higher priced specialty and organic food and grocery items because doing so, at a decent price, offers value in the ways of good quality (such as nutrition, safety, ect.) combined with an afforable price, along with providing other "value" benefits.

For retailers in the segment it means cutting margins a bit to create a better everyday price profile in their stores. It also means buying smarter; including negotiating more and deeper deals and reflecting that savings at retail to consumers. It also means more solution selling, along with a focus more on specialty-oriented and organic product basics (oils, grains and condiments rather than packaged organic ready-meals, for example) rather than fancy niche items. It even matters how the stores are designed -- too fancy is a turn off; minimal could be in.

Most recently we've been arguing that if the current recession lasts as long and becomes as deep as we think it will, it's likley we could see some long-term changes in consumer behavior in the food and grocery product categories in the natural/organic and specialty segments. These changes could take the form of simplification -- consumers buying considerably fewer higher margin, value-added processed and prepared foods items for example in favor of more ingredient-oriented ones. Back to basics.

We are already seeing this as consumers cook more at home and not only buy more basic items, seeking the best available prices on them, but also are buying less in terms of total weekly grocery purchases. Less is more -- out of economic neccessity. They also are using coupons in record numbers, cheery-picking store weekly ads for bargains and buying items much more often in bulk form.

Harvard Business School marketing professor John Quench argues we're already seeing long- term changes in consumers, particularly in a consumer segment he calls the "middle-aged simplifiers." (His focus is in the United States.) These "new consumers" are the ones who most frequently shop at Whole Foods Market and other upscale chains. They are folks with plenty of money and plenty of education -- the folks who've been driving the U.S. consumer economy for many years.

Professor Quench argues that's over. He says the new, "middle-aged simplifier" "finds herself surrounded by too much stuff acquired. She is increasingly skeptical in the face of a financial meltdown that it was all worth the effort. Out will go luxury purchases, conspicuous consumption, and a trophy culture. Tomorrow's consumer will buy more ephemeral, less cluttering stuff: fleeting, but expensive, experiences, not heavy goods for the home," he says.

While these new consumers still have to eat -- and shop for and buy food and groceries (although it can be done online as well as in person, and that might become a "simple solution") -- its likely, if the professor is correct, they will adapt their new, simplified consumer lifestyle to food and grocery shopping as well as all else.

Lavish food emporiums like Whole Foods' mega-premium organic markets and H-E-B's uber-gourmet Central Market (and those of many other retailers) stores could be out, in favor of no frills, small-format minimalist markets like Sav-A-Lot or Aldi perhaps, as well as the more minimalist natural foods stores like those operated by fast-growing Sunflower Farmers Market and Sprouts Farmers Market, for example. Or, perhaps, the Whole Foods' of the U.S. will adapt and create that value proposition, if the professor is right about the extent of this new, "middle-age simplifier" consumer cohort.

Professor Quench argues his point in a recent essay, "How Recession Will Accelerate Consumer Downsizing," first published in his "Marketing KnowHow" Blog. The thrust of his focus and examples are mostly on premium and luxury consumer durable goods. However, make no mistake about it, if his prognostications are correct, this new, emerging consumer segment could have a profound change on the food and grocery segments in the areas of marketing and retailing.

And like all new consumer trends, this one too offers opportunity to the natural and specialty foods industry.

For example, quality-oriented natural and specialty food and grocery products with minimalistic features could be big with such consumers under the professor's scenario.

In addition, minimal yet attractive specialty supermarkets and natural foods stores that emphasis quality but not conspicuous consumption could be the ticket? (Time to read Thorstein Veblen if you haven't before or re-read him if it's been a while)

The key as always is to capitalize on a new consumer segment and trend in an honest and real way by offering true value and something consumers want to buy and consume regularly -- and in the case of food stores, shop in regularly. Adapt to thrive is always a good mantra. Natural~Specialty Foods Memo believes a new era of consumer minimalism is being ushered in by the current recession.

Below is professor Quench's essay:

How Recession Will Accelerate Consumer Downsizing
By John Quench
Professor of Marketing, Harvard Business School

Watch out for a new brand of consumer in 2008: the middle-aged Simplifier. She finds herself surrounded by too much stuff acquired. She is increasingly skeptical in the face of a financial meltdown that it was all worth the effort. Out will go luxury purchases, conspicuous consumption, and a trophy culture. Tomorrow's consumer will buy more ephemeral, less cluttering stuff: fleeting, but expensive, experiences, not heavy goods for the home.

The economic boom of the 1990s fuelled consumption and democratized access to a wider than ever spectrum of goods transforming former luxuries into "must-have" necessities. Millions played the lotteries or aspired to what they viewed on "Lifestyles of the Rich and Famous". As they grew richer, pressure increased on those below to trade up. And, as they traded up, pressure increased in turn on the well-off to buy even more--the second home, the big screen TV and the latest sport-utility vehicle. Enter the big houses that measured success in thousands of square feet of floor space, topped by the 40,000 square feet, $50m palace that Bill Gates has built outside Seattle. In 2006, 35% of new homes exceeded 2,400 square feet in floor space compared with 18% in 1986. Ironically, these mansions, many owned by business people on the road half the time, grew in number as the size of the average American household declined.

These huge houses had to be filled with more stuff, good news for the home-appliance and home-furnishing industries. Even grocery manufacturers benefited. Larger homes with bigger refrigerators can absorb more inventory. Flat birth rates in developed economies have put pressure on durable consumer-goods companies desperate for top-line growth. Product quality improvements mean these goods break down less often. So durable-goods sales depend on two things: the launch of new, higher-priced, higher-featured, often customized products that persuade consumers to trade in their existing appliances before they break down (think cell phones), as well as household penetration of products such as fax machines and printers previously used only by businesses.

As the world economy slumps, one consumer segment will grow faster than ever. The Simplifiers have four characteristics.

First, they perceive that they have more stuff than they need. Sure, they may collect something specific like porcelain figurines as a hobby, but they are the opposite of the pack rats who fill their attics and basements with "you-never-know-when-you-might-need-it" stuff.

Second, they want to collect experiences, not possessions. And they give experiences rather than goods as gifts to friends and relatives. Experiences may seem ephemeral. They cannot be inventoried except in the form of "Kodak" moments; but they do not tie you down, require no maintenance, and permit variety-seeking instincts to be quickly satisfied. Dining out, foreign travel, learning a new sport will prove more resilient than expected in the face of recession.

Third, their stuff embarrasses them. Their Range Rovers no longer tell the world that they are sophisticated town and country socialites. There are simply too many of them on the road to offer much social status. Worse, they now signal the irresponsible selection of a gas-guzzler.

Fourth, they have wealth that is so assured that it no longer requires conspicuous display. They lease their cars, rent other people's holiday homes, and would happily outsource other aspects of their lifestyles. They reject the marketer's continual pressure to spend more money on possessions rather than on education, health care, and other social goods.

These are the consumers who are now trading in their sport-utility vehicles. They include the empty-nester baby-boomers, less confident than before, who are tired of heating unused spaces in cavernous mansions, now preferring smaller houses with architectural character and intimate spaces, more charm and less maintenance. Their families are scattered, unable to share conveniently the family holiday home and often unwilling to inherit the burden of something they will never use. The new economy has made it even easier for consumers to get rid of their stuff. The high-tech equivalents of the yard sale, electronic auction sites, bring Simplifiers together with those who are yet to catch the habit.

This growing segment of Simplifiers presents a challenge to marketers. These are well-off people who value quality over quantity and do not buy proportionately more goods as their net worth increases. Their increasing reluctance to consume will dampen expected demand growth in developed economies further and therefore slow economic recovery, requiring consumer-goods multinationals to further focus their efforts on emerging markets where stuff will still be king.

Organics Category Memo: Wither Organics? Organic Food & Grocery Category Sales Down; But Double-Digit Growth Still Possible With Mass Market Lift

Category Sales Analysis: United States

Natural~Specialty Foods Memo has been arguing since late last year (we now officially know the U.S. went into economic recession in December 2007) that sales or organic food and grocery products in the U.S. has been decreasing overall for about one year, due primarily to the bad economy. The U.S. economy has been going downhill for far longer than September of this year, when the financial crisis suddenly appeared in the headlines, after all.

Now, new research data from market research firm NPD Group is demonstrating we've been correct all along, including most recently.

In a recent research report, NPD Group, which tracks sales in the organic food and grocery sector closely, said the number of U.S. consumers who reported buying organic products fell 4% in August of this year, compared with a year earlier. While more than one in five consumers surveyed in the latest figures available from NPD purchased organic products, the August 2008 data represented the first customer losses for the sector since February 2006 - a decline that we expect to accelerate in the months ahead, the research form says.

Since we agree with nearly every independent economist, the U.S. Federal Government Economic Research Service and President-elect Barack Obama, all who say the current recession is going to get worse before it gets better, and that the recession will likely linger throughout 2009, we predict sales of organic food and grocery items will decline even further throughout 2009 because cash-strapped consumers will be forced to trade down and buy less expensive conventionally-produced products, as well as buying fewer quantities of organic products overall. We are far from alone in this analysis. Many in the industry agree.

Organic category sales - not including store brands or bulk sales - were forecast to grow by 14 percent in 2008, compared with increases of 16 percent in 2007, 22 percent in 2006 and 21 percent in 2005, according to market research firm Mintel International. We think the 2008 forecast is probably off by about 4-5%, meaning overall organic category growth is more likely in the 10% range for 2008.

A July 2008 survey by Mintel International, based in Chicago, Illinois, found that among customers who reported buying organic products, 56 percent had household incomes of more than $100,000, according to Marcia Mogelonsky, a senior research analyst for the firm. Thirty-six percent had incomes of less than $25,000.

It's this 36%, those making under $25,000 annually, that in our analysis have dramatically cut back and are even eliminating purchases of organic food and grocery products completely, unless the items are super-discount priced.

However, our analysis also is that those in the higher income segment, the 56% of consumers making $100,000 or more, also are cutting back on the amount of organic category items they are purchasing in these bad economic times.

After all, for a family of say four, $100,000 a year doesn't constitute wealthy, especially when family's are seeing the price of all food rise, their housing values sink like a dead weight, and their 401-K retirement plans drop in value by high double-digit percentages.

We've also written -- both in relation to changing consumer shopping behavior in general and specifically in relation to why we believe the U.S. Federal Trade Commission's (FTC) argument that Whole Foods Market, Inc. holds a monopoly in the organic products retailing segment in numerous U.S. markets is folly -- that where U.S. consumers are buying organic category products is shifting in part.

We've observed a shift from shoppers buying the majority of organic food and grocery products at natural foods retailers like Whole Foods Market, Inc. to seeing a greater "cherry picking" of category items, ranging from shopping dollar stores and discounters like Wal-Mart, Costco and Target, to supermarket chains like Kroger and Safeway Stores, Inc., among other retail outlets and classes of trade, in addition to still shopping Whole Foods and other natural foods class of trade retailers, but buying less at those stores.

This shift is most pronounced in our analysis in the packaged goods segment, where a package of organic Annie's Macaroni and Cheese or a can of Health Valley Organic Chicken Broth is the same product at Whole Foods or Wal-Mart, but might be lower priced at Wal-Mart or the supermarket.

Consumers also are buying more supermarket and discount format (Wal-mart, Target, Costco)store branded organic packaged goods items, such as Safeway's O' Organics brand and the store brand organics offered by supermarket chains like Supervalu and Kroger, as well as the many store brands offered for discount prices by regional supermarket chains throughout the U.S.

We've received numerous e-mails from consumers who read the Blog telling us just this. We've also talked to scores of consumers throughout the U.S. who tell us they are shopping around much more for organic products rather than buying the items at Whole Foods and other natural foods stores exclusively or even primarily.

Wal-Mart, Target and Costco have all reported increased sales of store brand and manufacturer brand organic food and grocery products this year. Even online mega-retailer Amazon.com has reported seeing increased sales of the organic products it sells online.

Supermarket chain buyers also report significant sales increases in the organics segment across the board.

The good news is this means consumers are still buying organics, albeit not as much as in the past. But it also is bad news for retailers like Whole Foods, which is why the natural foods grocer has been discounting organic products across all categories in its stores.

Ironically, the U.S. Federal Trade Commission (FTC) is attempting to overturn the Whole Foods-Wild Oats merger at the very same time Whole Foods is losing organic category share to discounters like Wal-Mart, Target and Costco, as well as to supermarkets, particularly to their store brand organic items.

We believe the core organic food and grocery consumer will continue to buy organic (but less of it) in this severe economic recession. However, we argue even the core organic consumer is and will continue to do two things: (1) cut back on his or her volume of organic category purchases and (2) switch or trade-down within the organics category more frequently, for example buying more budget-oriented organic products such as organic chicken instead of organic steak and organic mac & cheese instead of more expensive organic packaged goods and the like.

Some evidence of this phenomenon is that Napa, California-based Annie's, which makes budget-oriented organic packaged goods like its popular macaroni & cheese and pasta lines, are doing well despite the economic recession, for example.

Annie's 2008 profits are up about 30% from last year, and CEO John Foraker recently commented: "Our business has been getting stronger as the economy is getting weaker," attributing it to the more budget-oriented of the organic brands it markets. He added a cautious note though, saying: "It doesn't mean we're immune if things continue to get worse."

Hain-Celestial Foods, which has organic brands across a wide spectrum of categories, also is doing well despite the recession. The company, which owns the Health Valley, Hain, Celestial Seasonings and Arrowhead Mills brands, along with dozens more, reported a $7 million profit on sales growth of 22% for the quarter ended September 22, 2008.

Hain-Celestial said part of its growth was attributed to the fact it holds a very diverse portfolio of brands, including many in the budget segment of the organics category. This fact has helped it in the current economic downturn. The retailer also said it has been seeing somewhat of a consumer flight away from more premium-type organic food and grocery products to more reasonably priced goods.

Hain-Celestial CEO Irwin Simon told cable business news channel CNBC ta couple days before the Thanksgiving holiday that increased distribution of the company's brands into supermarkets and discount stores like Wal-Mart over the last year was part of the reason for its increased sales growth and profits. Simon told CNBC news anchor Erin Burnett, who hosts the program "Street Signs," that the company has seen increased sales in these channels of retail distribution since early this year, attributing the increase to a shift by many consumers way from Whole Foods and other natural foods class of trade retailers in part to the discounters and supermarkets.

Simon's comments also tend to prove our analysis that such a class of trade shift is happening in part among U.S. organic food and grocery category shoppers. We aren't quantifying the shift, that is either small or huge. But it is happening.

We see continued growth in the organics category. But we see less growth in 2009 than is predicted. We also see a continued trading down by consumers within the category and an increase in the shopping for organic food and grocery products in alternative retail channels.

The Organic Trade Association (OTC) forecasts sales of organic foods will rise by 18 percent a year, on average, through 2010. The association expects its customer base to grow on the assumption that prices will drop and mainstream retailers will stock a wider variety of products.

We agree in part with the OTC's forecast, particularly that prices on organic products will drop and that distribution will increase in the supermarket and discount store retail channels.

We do however think the 18% growth forecast is too optimistic. Out projection, at least for 2009-2010 is more like a 12-14% growth rate, which still is strong, especially considering the rotten economy.

In addition to increased distribution in the mass market channels and the decreased consumer demand forcing both suppliers and retailers to lower prices like Whole Foods market is doing, we also are observing an increased promotional emphasis on the part of organic category manufacturers and marketers.

In order to stem the organic category and brand sales decline, numerous company's, including Hain-Celestial, Annie's, Stonyfield Farms, Earthbound Farms and others, are increasing their promotional and advertising activity. The companies are offering deeper discounts to retailers, issuing more coupons and launching advertising campaigns.

For example, Annie's recently launched a magazine advertising campaign for its brands, and Hain-Celestial has been partnering with retailers much more, offering store-specific promotions and other activities.

Stonyfield Farms recently offered FSI's (and if offering regular coupons online) for its organic dairy products in numerous U.S. markets, and Earthbound Farms has stepped up its use of coupons, as well as increasing the "cents off" value of the coupons it distributes via FSI's.

Meanwhile, part of the shift in shoppers buying more organic category products at mass merchandisers and supermarkets has to do with the aggressive store brand organics programs many of these retailers are conducting.

For example, Safeway Stores, Inc. continues to expand its O' Organics store brand. It's currently estimated sales of the brand in the U.S. are now about $500 million annually. Safeway is in the process of marketing the O' Organics brand to other retailers in the U.S. and globally, taking it from a store brand to a national and international organic food and grocery brand.

Wal-Mart also continues to expand its own private label organics brands and to carry more manufacturers' brands in its stores. In both its Supercenters and Sam's Club stores, Wal-Mart is offering and selling more organic food and grocery products. And because in the current recession Wal-Mart stores are experiencing increased customers counts, including among higher income consumer segments, many more shoppers are discovering and buying organics at Wal-Mart.

Kroger Co., Target and Costco have all increased the number of private label organic products they produce and sell in their stores as well, as have other supermarket chains throughout the U.S. Earlier this year Kroger lowered the everyday prices on its organic food and grocery store brands by 10-20% across all categories. It's CEO says the giant supermarket chain wants to be the organics' retailer "to the masses."

In large part its this increased mass market channel distribution, both of store brands and manufacturer's brands, that will keep the organic category sales growth growing over the next few years.

However, with organics as with conventional food and grocery products, there is only so much share of consumer stomach. That means this mass market growth has to come at the expense of sales, at least for many organics categories, in the natural foods class of trade retail channel. This includes at Whole Foods Market stores, in our analysis.

This is why Whole Foods will continue to lower prices in its stores and continue its "Whole Deals" promotional program. It has to or it will lose share in the organics segment, which is the natural grocery chain's bread and butter.

It's also why Whole Foods Market, Inc., despite the FTC's argument, isn't monopolistic post the Wild Oats' acquisition. There's just too much alternative channel, and in channel as well (Sunflower Farmers Market, Sprouts, Trader Joe's), competition in the multi-format U.S. food and grocery retailing world to make it true.

Marketing Memo: Paramount Farms Creates Sales of Hundreds of Millions Annually By Branding the Pomegrante and its Essense

Just a few years ago the probability of finding fresh pomegranates, sometimes called the "ugly fruit," in the produce department of the average American supermarket or natural foods market was low. Many stores would offer the hard-skinned fruits for sale seasonally, devoting a small area in the produce department to displaying pomegranates, but that was about it. The demand for the fresh, purple fruit in the U.S. was minimal, except in areas where there were substantial populations of immigrants from the middle-east and Asian or Mediterranean countries, where pomegranates are a staple fruit.

However that situation started changing about five years ago, primarily because of the savvy and aggressive marketing efforts of California's Paramount Farms, which began branding fresh Pomegranates with its then newly-created POM Wonderful brand, along with creating its popular POM Wonderful fresh pomegranate juice.

The catalyst or opportunity for this branding effort by Paramount Farms were numerous scientific research reports, followed by lots of popular press attention in the form of news stories and broadcast reports, about the amazing antioxidant properties of fresh pomegranates and pomegranate Juice.

Many people are calling the pomegranate the "new cranberry" for its combination of good taste and health benefits. The cranberry and pomegranate also have something in common commercially as well: both were niche, commodity items until branded as fresh produce products -- Ocean Spray fresh, bagged cranberries and POM Wonderful fresh pomegranates -- and had juices produced from them. The latter development, the development of cranberry juice decades ago and now pomegranate juice, is when sales started to soar for both previous commodities.

Paramount Farms/POM Wonderful was able to jump on this positive health news, gaining widespread retail and foodservice distribution for its branded, fresh pomegranates and POM Wonderful pomegranate juice in nearly every natural foods store and supermarket in the U.S.

The company focused the distribution of its POM Wonderful juice at retail in supermarket and natural foods market produce departments because it had already established strong relationships with chain and independent store produce buyers in addition to the fact that by doing so it was able to avoid expensive slotting and pay-to-play fees required to get the juice on supermarket grocery shelves.

Along with gaining mass distribution in retail stores, Paramount Farms launched a heavy promotional and advertising campaign, focused primarily at first on obtaining free media publicity via public relations efforts, for its Pom Wonderful pomegranate juice, playing up the health benefits to consumers of drinking it, which has seen the sales of the POM Wonderful brand pomegranate Juice soar from $12 in 2003 to $100 million in 2007. And sales are currently growing in double digits over last year.

Distribution and sales of Paramount Farm's fresh pomegranates have also soared. Thousands of supermarkets that just a few years ago didn't even sell the ancient fruit now do so. The company also has created numerous recipes designed to feature pomegranates, which has dramatically increased the sales of the healthy fruit.

Numerous higher-end restaurants also today feature dishes using pomegranates, ranging from meats to desserts, which has helped give publicity to and make the healthy fruit increasingly popular. America's newspaper food sections and food and lifestyle-related television shows also have fell in love with the pomegranate, featuring it and recipes using it at every turn. The result: more awareness of and increased popularity for the ancient fruit.

Paramount Farms also introduced a line of branded pomegranate teas two years ago. Sales of the teas are soaring as additional research has demonstrated the healthy properties of the ancient fruit, along with the fact consumers have discovered how tasty the POM Wonderful Pomegranate juice and now the teas are. The company is introducing additional pomegranate juice-based value-added products (and other types of products using the fruit, including a recently introduced dietary supplement tablet and liquid extract under the brand) and continues to gain additional distribution, both in the U.S. and abroad, for its branded fresh pomegranates.

Paramount Farms recently expanded its POM Wonderful pomegranate juice plant near Fresno, California, which is in California's Central Valley. The Fresno Bee newspaper recently profiled the company, which has created a brand out of what just a few years ago was a niche fruit commodity product, as well as developed a $100 million brand in its POM Wonderful juice.

Numerous other companies are now marketing fresh pomegranates and juice aggressively. However, none has come as close to creating a brand near as strong as Pom Wonderful.

Pomegranates also are increasingly becoming used in other value-added food products. For example, we've recently seen two premium milk and dark chocolate chocolate bars featuring Pomegranate, one under the World Market store brand (Cost Plus chain) and the other under the Trader Joe's brand.

There's an explosion of products featuring the pomegranate in fact. These include teas, confections, ready-to-drink beverages, breakfast syrups and many others.

We love marketing stories in which a company or individual is able to create a strong brand from a commodity which previously was at best a niche crop that others didn't see the potential in. Paramount Farms has done that -- and continues to build on the Pom Wonderful brand franchise by introducing new lines like the teas and others.

Read the Fresno Bee profile of Paramount Farms and its Pom Wonderful brand here. The profile offers marketing and branding lessons for all food companies, particularly those looking to establish brand identity (and soaring sales) in the natural and specialty product segments.

Paramount Farms, which is the creator and parent of Pom Wonderful, is a large, vertically integrated processor and marketer of almonds and pistachio nuts -- the largest in the world in fact.

The company is currently looking to brand and add value to those nuts like it has to the pomegrante with its POM Wonderful subsidiary and brand. The company is following a similar model in doing so to its POM Wonderful apprach with the once commodity fruit the pomegrante. It promises to be an interesting marketing and branding development in our analysis.

Supply-Side Memo: From a Near-Heretic Product to a Near-Mainstream One, Turtle Island Foods' 'Tofurky' Will Grace Many a Thanksgiving Table Tomorrow

When Oregon USA-based natural foods company Turtle Island Foods first launched its non-meat, soy foods-based Tofurky whole turkeys and turkey roasts over a decade ago, many retailers and consumers met the Thanksgiving holiday center of the plate alternative to the great bird with shock and trepidation. After all they exclaimed, a real turkey, that once living bird, is a sacred Thanksgiving holiday dinner centerpiece.

Vegetarians and vegans praised the Tofurkey though. And today, with many more vegetarians and vegans in the U.S. and throughout the world (not to mention people looking for alternatives to animal fats), Turtle Island Foods' Tofurkey mock-turkeys not only continue to get praise, and more of it, but sales of the products for the Thanksgiving holiday particularly continue to soar.

For example, Last year, the company sold 275,634 of its Tofurky Turkey roasts (pictured at left), an increase of 37 percent over 2006 sales. Many of the roasts are sold throughout the year, not just for the Thanksgiving and Christmas holidays. The Thanksgiving holiday is the single-biggest sales period for the turkey roasts though.

Turtle Island said today that it expects 2008 revenues to grow by about 20 percent over last year's sales, adding that a significant part of the company's growth comes in the fall from Tofurky sales for the twin holidays.

That's exceptional growth in these tough times. Any time for that matter.

Turtle Island, and the Tofurky, has some heavy weights in the animal rights, vegetarian and vegan movements behind it.

Virginia-based People for the Ethical Treatment of Animals, or PETA, is a supporter of the company and encourages vegans and vegetarians to buy Tofurky meals during the holidays, for example.

In addition, natural foods retailers and many supermarkets devote substantial space in their stores to the Tofurky birds and roasts, particularly in the fall. When the products were first introduced it was difficult to get a single facing in a store's refrigerated or frozen foods case.

In addition to its mock turkey center of the plate products, this year Turtle Island Foods is marketing a value-added special holiday meal geared specifically geared toward vegetarians. The meals include a Tofurky roast, giblet and mushroom gravy, wild rice and mushroom stuffing and cranberry apple potato dumplings. There are additional variations, different side dish combinations, as well.

And of course, Turtle Island Foods' markets a complete line of meat alternative foods, in addition to the mock-turkey items. These include: mock deli meats, chicken, sausage, hot dogs and other non-meat meat analog products. All of the mock-meats are made using a combination of organic tofu and wheat gluten. Today, natural foods stores and most supermarkets devote an entire section, featuring multiple brands, to meat-alternative products like those produced and marketed by Turtle Island Foods.

The natural foods company was founded in Oregon in 1980 by Seth Tibbot. It's seen growth each year since then, including the double-digit sales growth described earlier over the last few years.

In recent years many non-vegetarians and consumers who aren't anti-animal eating also have been serving the Tofurkey mock-turkey roasts at their Thanksgiving tables, along with the real birds, offering an alternative to their guests who are vegetarian. This has opened up an entire new holiday sales avenue for the natural foods company.

Similarly, sales of its complete line of organic tofu and wheat gluten-based mock-meats benefit not just from consumers who don't eat meat, but also from those looking for healthier foods. With people wanting to eat meat and animal fat less these days but still enjoy a meat-like taste, Turtle Island's products have filled this niche for many consumers, opening another new market niche for the company's products.

the sales growth and success of the Tofurky brand hasn't been lost on the advertising industry trade publication Advertising Age. It named the brand one of its "Top 50 Brands of 2008" in the publication this year. That's a major achievement for any company, in any industry.

Supply-Side Memo: Kraft Foods, Inc. CEO Irene Rosenfeld is 'Rewiring' the Food Giant's Culture, Focusing on Organic Growth and Revitalizing Brands

Irene Rosenfeld is an unfortunate rarity in the food and grocery industry. No, she's not an industry rarity because of anything "exceptional" such as having a photographic memory or having been raised by wolves in the Australian outback until age 18--although her friends and associates say she is rather exceptional in many ways.

Rather, as the CEO of Kraft Foods, Inc., which is the world's second-largest food company in terms of total annual sales, Ms. Rosenfeld is one of the rare few woman at the top of a major global food company in an industry that across all segments--manufacturing, marketing, sales and retailing--is still headed by and large by men.

Ms. Rosenfeld also might be a rarity in that she is in the process of "rewiring" what many food and grocery industry analysts and observers (and Ms. Rosenfeld herself publicly admits) say has been a rather tired corporate culture and company of late--Kraft Foods, Inc.

Kraft, which is headquartered in Chicago, Illinois USA owns some of the most iconic food brands in the world, including its Kraft brand, which in addition serving as the company name also graces the packages of such globally iconic products as Kraft Macaroni & Cheese, Kraft Mayonnaise, Kraft Miracle Whip, Kraft Velveeta Cheese, Kraft Marshmallows and numerous others. The Kraft brand is a global billion dollar brand all by itself, according to the company.

Other global Kraft-owned brands include Nabisco (cookies and crackers), Philadelphia brand Cream Cheese, Oscar Mayer (meats), A1 Steak Sauce, Maxwell House (coffee), Kool Aid, Tang, Cool Whip, Post Cereals, Planters Peanuts, Capri Sun (drinks) and numerous others.

Kraft Foods, Inc. also is a major global player in the heath and wellness and specialty and premium foods segments.

Its premium and specialty brands include the LU brand line of European-style biscuits and cookies and the Cote d 'Or, Milka, Toblerone and Marabou premium confections brands, among many other brands in the categories.

Other specialty and premium category brands Kraft owns include California Pizza Kitchen (gourmet frozen pizza), DigGiorno Ultimate (pizza and Italian prepared foods) Tassimo premium coffee and others.

In the health and wellness segment, Kraft owns and is aggressively marketing its South Beach Living brand of food products, which are designed after the popular South Beach Diet, popularized in the best selling book of the same name.

Kraft also owns the popular Balance nutritional bar brand in the natural sports nutrition category, and has extended its Kraft brand onto dozens of products in the healthy snacks, cereal bar, cereal and meals categories, including its new Kraft Golden Harvest brand of snacks and related food items.

View a list of Kraft's largest brands across all categories here.

Health and wellness, including numerous natural foods product categories, along with the specialty and premium foods categories, are two chief global growth segments for Kraft, under the leadership of CEO Irene Rosenfeld, who told the Financial Times newspaper in an interview piece published in today's edition that her goal as a young girl wasn't to be the CEO of one of the world's largest companies, but rather to be President of the United States.

Ms. Rosenfeld is still young enough, and Hillary Clinton has put as she said lots of cracks on the Presidential male gender-bias glass ceiling by nearly being the first woman to be nominated by either political party in the U.S. as candidate for President this year, so we suggest the current Kraft Foods' CEO not give up on her childhood goal just yet. After all, presumptive Republican Party candidate for President John McCain turns 72-years old soon.

There can be life after Kraft. And if Ms. Rosenfeld were elected President, say nine years from now, not only would she be the first female President of the United States, she also would be the first food company CEO every elected to the highest office in the land.

But we digress.

It isn't thoughts of U.S. Presidential politics Kraft Foods' CEO Irene Rosenfeld is focusing on these days. Rather, it's what she calls "rewiring" the company's culture, which she says in the Financial Times interview requires first admitting past mistakes Kraft has made, then moving forward in three key ways: reworking some top management, promoting organic (growth from existing brands) growth, and tweaking, improving and extending on many existing brands.

Read the Financial Times interview piece about Kraft Foods' CEO Irene Rosenfeld here.

Supply-Side Memo: Food Industry Giant Campbell's is Making a Big 'Locally-Grown' Push as Part of a Tomato Processing Plant Expansion in California

Natural~Specialty Foods Memo learned at the recently concluded FMI (Food Marketing Institute) annual convention in Las Vegas, Nevada, that food industry giant Campbell Co., marketers of both conventional and organic food brands like Campbell's Soup, Prego pasta sauce (both conventional and organic), V-8 vegetable juice and V-8 juice drinks (conventional and organic), Pace Salsa (also conventional and organic) and numerous other brands, plans to increase its use of locally-grown California produce as part of a $23 million expansion and upgrading to its tomato processing plant in Dixon, California USA, near Sacramento.

The company's Dixon, California tomato processing plant is located in an agricultural and tomato processing-rich valley about 15 miles from Sacramento and about 50 miles from the San Francisco Bay Area.

The plant processes tomatoes and vegetables for Campbell's flagship soups, its sauces, salsa varieties and V-8 vegetable juice, V-8 V-Fusion and V-8 Splash vegetable drinks.

The $23 million expansion and remodeling of the plant will increase its size, add new, state of the art equipment, and boost overall plant production by about 15%.

The Dixon plant in Solano County in California's Sacramento Valley agricultural region is Campbell's largest tomato processing plant in the U.S. The plant was built in 1975, according to the company, and currently employees close to 200 people.

Campbell's has become an increasingly bigger player in the organic foods sector, with introductions of its organic versions of its Campbell's tomato juice, V-8 vegetable juice, Prego pasta sauce and Pace salsa, along with a few other brands and products.

As part of the plant's expansion, Campbell's Anthony Sanzio says the company will be buying more organic vegetables to process at the facility for these organic food and beverage product brands and lines.

Campbell's has plans to line-extend its current organic product offerings and to create new products, according to Sanzio.

The locally-grown angle

Because the Dixon plant is located in a tomato and vegetable-growing region, as well as being very close to the heartland of California agriculture in the San Joaquin Valley, along with near the central coastal region where numerous vegetables also are grown, Campbell's sees an opportunity to add the "local" angle in a big way to both the conventional and organic produce it buys to process at the facility for its soup, juice, beverage, pasta sauce and salsa brands and products.

The food company correctly sees numerous similarities between the organic foods and local foods consumer, and wants to play that fact up at least in California by increasing the capacity of the Dixon plant so that it can process, and thus allow Campbell's to buy, more locally-grown conventional and organic produce. IT also says it wants to further support local farmers.

As part of its plant expansion plan and locally-grown foods procurement emphasis, Campbell's Sazio says the company will increase agricultural production with farmers it contracts with in Solano County, as well as in neighboring Yolo and Sacramento counties, along with those in nearby Colusa, San Joaquin, Contra Costa, Sutter and Monterey counties.

This expansion of vegetable production includes organic as well as conventionally-grown produce.

Local agricultural industry officials and observers say the Campbell's Dixon plant expansion will be good for both local conventional and organic farmers.

For example, even though Solano County has urbanized considerably over the last two decades, agriculture, including tomato growing and processing, remains a significant industry in the area. Last year's tomato crop value in the county for example was about $23 million. Other double digit (in millions) crops in the county include walnuts and almonds and alfalfa, along with a few others. Numerous other fruit and vegetable crops are grown throughout the region as well, including an increasing amount and variety of organic crops.

Michael Amman, who heads up the Solano County Economic Development Corp., a nonprofit entity, says Campbell's Dixon plant expansion will be a big boost for local agricultural, locally-grown foods and local farmers, many of whom are smaller family farmers.

He says a major benefit will be that the local farmers will be able to get longer-term contracts with Campbell's because of the plant's increased capacity and emphasis on organic and locally-produced produce. In other words, Campbell's will put its emphasis on vegetables grown by local farmers even if they can buy produce for less money from farther away. As a result, the food company will need to sign longer contracts with the local farmers so it can ensure enough supply of the local produce to meet its needs. This is particularly true in the case of organic produce.

Campbell's says it may flag (on the labels) some of its conventional and organic food products produced at the Dixon plant with all locally-grown produce as "local" or "Made with California Produce," or something similar. However, the food giant isn't sure of that since what's local in California isn't local in Chicago or New York. In order to flag the products as local on the labels, the plant would have to produce certain runs just for California, after all.

However, Campbell's marketing and sales teams will be able to conduct "local foods" promotions with supermarkets in the region, including the Bay Area, with those products produced at the Dixon plant. (Shelf talkers identifying the "locally-grown" aspect of the products would be a simple and cheap way to promote the local angle of the products in-store.)

The important local foods aspect of Campbell's Dixon, California plant expansion and emphasis on using produce produced by local farmers though is the huge boost it could give to the region specifically and to local foods procurement in general. After all, many food processing plants, even in California, truck-in produce from a long way away rather than use that produced locally because they can obtain it for a cheaper cost.

As we've suggested numerous times on Natural~Specialty Foods Memo, we see the "local foods" movement growing in size and popularity to equal that of the organic foods movement.

Local is a bit harder to define than organic? Is it the strict locavore definition of food from no farther than 100 miles from where a person lives.? If so, why not 200 miles? That's still local to many, and it makes a bit difference in terms of increasing the variety and amount of "local foods." "Local" does have some wiggle room, in other words.

But, when it comes to locally-produced, most of us basically know it when we see it. If you live in Los Angeles, even though the city is about 400 miles from Sacramento, produce or food products bought in LA and produced completely in Sacramento are pretty "local," even though it doesn't meet the 100-mile locavore definition.

In the case of produce used for processing like at the Campbell's plant in Dixon, the important fact is that local farmers, ranging from those just down the street from the facility, to others as far as 150 -to- 200 miles away (Monterey County), are providing the vegetables.

This practice will be using locally-produced crops, which supports local communities, and offers those consumers who live nearby an opportunity to buy packaged food and beverage products at the supermarket which in turn will benefit their local economies if they do so.

Doing so, in a widespread way, is essentially a major aspect of the local foods' movement philosophy, it just pertains to processed food products rather than fresh ones. We think Campbell's is on to something in Dixon.