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Managing the Food Chain
During New Product
Introduction: The Case of a
High Selenium Food
Product
15th Annual Food and Agribusiness Symposium
Cheryl J. Wachenheim
Department of Agribusiness and Applied Economics
North Dakota State University
(701) 231-7452 [email protected]
Introduction
Assume the role of a consultant to the
South Dakota Wheat Commission
working to evaluate the feasibility of
marketing high-selenium products.
Functional Foods
Foods or dietary components that may provide a
health benefit beyond basic nutrition.
International Food Information Council
Foundation, May, 2004
”Commodity”
Products
Regulation
Science &
Technology
Food Processors & Distributors
Pillars of Marketing
New Product
Development
Promotion
Distribution
Pricing
Consumer Marketplace
Mass Markets
Segmented Markets
Functional Food Sales
 Considerable growth during the past decade
 Increased offerings in main-stream markets
 Global sales of $10.9 billion (2002) with
approximately 10% annual growth.
 Motivated by consumer interest in nutritional
content of their food and search for improved
health through diet.
Consumer Trends
 International Food Information Council Survey, 2002
 93% of adults believe that some foods offer more than nutrition, i.e.,
they are functional
 85% want to learn more about these foods
 Sloan Report, 2003
 One-third of US households increased use of fiber products during
the previous year
 Eight in ten reported trying to PREVENT a condition through a food
purchase; up 10% in one year
 More than half tried to treat or manage an existing condition through
foods
 Nine in ten said healthy eating was a better tool than medications for
illness
Functional Food Market
“It is widely accepted that the future for functional foods is
assured because of consumers’ interest in how their diets
can positively impact health.
J. Mellentin, November, 2002, Dairy Industries International
“This industry is also loaded with hurdles, including a high rate
of product failure, difficulty in defining the type of food and
product labeling for functional products, and tricky
marketing tactics.”
International Food Ingredients, no. 6, 2003
Functional Food Market Segments
 Medically-driven “boomers” aged 45 plus
 “Swing segment” aged 65 plus
 18 - to 34 - year old age category

Represent the “core” of the market due to
receptivity to functional concepts
Mintel Consumer Research, October, 2003
Selenium in the Diet
 Largely favorable health press in part due to
12-year epidemiological study.
 Trace element is an antioxidant that helps
protect the body from damaging effects of
free radicals and is a source of metabolites
which inhibit tumor growth.
Evidence:
 Some cancer risk
inversely correlated with
Se status.
 Se can reduce tumor
yields in animals.
 Inorganic and organic
forms are efficacious.
Dr. Gerald Combs, Selenium
Symposium, November 3, 2004,
Grand Forks, North Dakota
Dr. Gerald Combs, Selenium
Symposium, November 3, 2004,
Grand Forks, North Dakota
North Dakota wheat
superior source of Selenium
Selenium - Based Functional Foods
Today, few in number (excluding dietary
supplements) despite widespread and largely
favorable health press
The First Sale: The Trade
Working Assumptions
 Organic an option for some producers, some product markets

Organic food sales growing (Mintel/ERS)
$ 5.3 billion in 2004, about 2% of total foods
 Forecast to achieve $11.5 billion in 2009

 Preference among producers / trade for natural as
opposed to fortified


Ease/cost of production, clinical efficacy
Preserve promotional edge
Public health posture from the trials?
 Scenario A - favorable trials: Public Health push for fortification?
Implications:


Market narrows to “natural” or organic customer base
Distribution points limited to “natural” (e.g., Wild Oats, GNC, Whole
Foods), and / or FF areas of grocers
 Scenario B, favorable trials: No effective public health action?

Potential for dual market structure to expand


Fortified foods proliferate
Natural growth speeds, aided by favorable press
 Scenario C, unfavorable trials…

Market development slows/stops
Scenario-Dependent Options
Biofortification
not allowed
Health
claims
verified
Today
Biofortification
allowed
Biofortification
delayed
Health
claims not
verified
Co-exist as
“natural”
niche product
All in the strategy
 What is our product? e.g., wheat, bread
 How is the high-selenium feature of our product
specified?


Guaranteed level of selenium
Identity-preserved product
About the marketing channel
Developing a market for a new functional food is likely to be high
cost and of substantial risk
Few are currently interested so you are starting from scratch
There are substantial barriers to entry
 Research, product development, marketing
 FDA approval for health claims
 Rapid, accurate test for selenium level shows promise but not
yet commercialized.
 The marketing channel needs educating
Questions
1. Outline the marketing channel for wheat.



Identify the key functions and the decision makers /
participants.
Include constraints faced (particularly in that they will
affect industry coordination and information flows, and
align incentives of various participants).
Identify potential partnerships.
2. Identify specific products within the marketing channel
(e.g., wheat versus bread). What factors affect the
decision regarding product development?
Questions
3. A high-selenium product can be brought to market with a
guaranteed level of selenium (based on testing) or simply
grown on high-selenium soils (based on identity preservation).
What type of channel relationships are necessary for each?
What option is most appropriate?
4. What additional information is necessary to decide whether it
will be profitable to bring a high-selenium product to market?
5. What are the risks associated with introducing and marketing a
high-selenium product?
Some instructor notes
Partnerships will be important
 Who is well-positioned for partnership?

Check-off groups are an option to provide coordination of
production issues, generate market data, assist with trade
partnerships, interact with scientific communities
 What will define the partnership?
 Can that / those partnership(s) be developed now?
Wheat Marketing Channel
Selenium is currently not a preferred wheat
characteristic (opportunity cost idea)
Issues
 Defining your product and consumer
 Testing
 Storage
 Transportation
 Blending
Wheat Marketing Channel
SJH & Company, Inc. recommended the following
steps
 Implement identity preservation of selenium wheat
 Obtain FDA health claim approval
 Develop a brand concept
 Develop a marketing strategy
 Develop a business plan
 Find a sound business partner
Issues – Information needs
 Testing



Cost
Need (number of tests, point of testing)
Accuracy
 Labeling (what are the rules? what will the market
accommodate?)
Market research needs
Will be product specific
 Value of high-selenium attribute (including stacked with




other traits)
Value of natural source of selenium
Effectiveness within existing marketing channels, of
marketing and promotion strategies
Push versus pull marketing strategies
Products of particular interest and with particular economic
promise.
According to SJH & Company, Inc.
Key success factors (selected and paraphrased)
 Avoid focus on prevention of specific disease promotion and




rather focus on overall health / well - being
Use an extensive marketing campaign to communicate / educa
your market
Rely on science, but do so simply
Work on FDA approval for health claim
Secure broad and dependable channels for product placement
distribution
Take home messages
 We need to change the way we do business, but models exist for us to
follow.
 This is a high cost / high risk venture. Share the cost / risk.
 There is money available -- use it
 Incorporate educating the marketing channel
 Keep an eye on competition from outside and within the marketing
channel