Opportunities And Financial Stability Of The Spread Industry Marketing Essay

1.1 This report gives an analysis and evaluation of the current and future profitability, opportunities and financial stability of the spread industry and Sanitarium Health Company in New Zealand. Methods of analysis include Micro and Macro analyses as well as competitor analyses.

1.2 Results of the data analysed show that the spread industry in New Zealand is a popular one but is widely affected by the increasing prices of food and oil as well as the general cost of living. Consumers are finding it harder and harder to purchase the essential consumer goods like oil, meat, milk, and bread. If consumers are increasingly finding it difficult to purchase these goods, would there be any demand for non-essential food items like spread products?

1.3 The recommendations of the problem stated above might normally be solved just by simply lowering the price for Sanitarium Spread Products like Marmite ($6.95) (500g) and peanut butter ($3.50) (500g) thus making it easier for consumers to purchase these goods. But this may result in a loss of profit. Recommendations that I suggest is to market these products as superior, healthier and safer than its competitors products. New Zealanders are increasingly becoming more concerned about their health and how they are living.

Sanitarium Health Food was founded in 1898 and employs over 1,700 people it operates in Australia and New Zealand (IBISworld, 2010). Sanitarium operates in one main business division, the manufacture and distribution of health food products. Sanitarium separates its product into the following groups:

• Breakfast Foods Weetabix, a range of cereals, Breakfast Bars, Spreads

• Soy Products So Good products

• Vegetarian Foods

• Healthy Snacks Fruitybix Bars, nuts, dried fruits

• D’Vine – Sparkling grape juices

And the main products I will be focusing on Sanitieruim Marmite and Santeriuam Peanut Butter.

P.E.S.T Analysis

Political Factors

International/domestic pressure groups. Pressure groups can influence people and the power holders (Government) for a range of different reasons and can severely disrupt a company’s progress and reputation.

Environmental issues. With a growing number of consumers becoming environmentally conscious about products they use. Consumers are finding out how much pollution there company creates and how large the carbon footprint a particular products generates (how far the product travels, how much energy is used to make the product).

Government Laws. The production and distribution and use of many spread products and food products in New Zealand are subject to many different government laws, such as the Food Act 1981 No 45, Food Amendment Act 1996, and the Children’s Advertising Code from New Zealand Advertising Authority all of which are in place for the safety of consumers. Food Company’s in New Zealand are also subject to international laws.

Economic Factors

Operating cost. Operating cost is high in any company that is producing large amounts of products. Marketing their products and delivering them to their destination is going to have a high operating cost. Strategies should be in place to lower operating cost and correctly managing how it is made.

Rising Consumer Prices. Consumer Price Index measures the rate of price change of goods and services purchased by households. Statistics NZ visits 3,000 shops around New Zealand to collected prices for the CPI and check product sizes and features. New Zealand’s consumer price index rose 0.8 per cent in March 2011 quarter compared with December 2010 quarter. Food prices rose 1.2 per cent (Bascand, 2011).

Social Factors

Growing Population. New Zealand’s population has gone through significant changes in population statistics. A main focus point is the general decline in fertility levels and the decreases in birth rate and an increase of the median age. By 2051 it is projected that half of all New Zealanders will be over 45 years of age (NZstats,2009) Considering the main target market for this product is children with high energy needs we might see a general decline in the purchase of Sanitarium Marmite or any food products that target a younger market.

Lifestyle Changes. Many New Zealanders nowadays are practicing healthier lifestyles. With more and more consumers opting to purchase healthier products.

Technological Factors

New Technologies. The new technology of internet and television and other media outlets have made advertising far more effective in getting the product out to the market. Advertising through the media has never been more effective and efficient

Michael Potters Five Forces model

One model used to asses an industry structure is Michael Potters five force model. According to this model, five competitive forces determine industry profitability

Bargaining power of customers

Threat of substitutions

Barraging power of suppliers

Threat of new entrants

Rivalry among existing firms

The intensity of each of the five forces determines the characteristics of the industry, how profitable it is, and how sustainable that profitability will be.

Force

Consumer Example

Force Strength

Sanatorium Response

Barging power of customers

“I want to pay less”

High

Focus on customer value delivered through superior customer service.

Threat of substitutions

“I think I’ll use cereal products and replace spread products”

Low

The size of the spread industry and popularity of products makes this unlikely.

Barraging power of suppliers

“We are raising the cost of ingredients”

High

Cut cost somewhere else to help with the increasing price of essential ingredients

Threat of new entrants

“That new Marmite product is cheaper”

Medium

The high number of

Marmite/Vegemite products that are already in the New Zealand market makes it unlikely that a new competitor will enter the market. But if so, establishing a relationship and promoting loyalty with your customers could counteract this force.

Rivalry

“I’m going to buy a cheaper brand of spread products”

High

Cultivation of brand loyalty and a superior product.

TOWS Analysis

Threats

There is strong competitive rivalry in the spread market with the amount of products that are available to consumers. The shear amount of spread products and similar products like vegemite to sanatorium marmite it might be difficult for consumers to distinguish what spread product to buy.

Kraft Vegemite has a strong if not stronger brand than Sanitarium marmite partly because its international reputation as second largest branded food and beverage company in the world. Established in 1903, Kraft Australia is headquartered in Melbourne and has sales of $37.2B in 2007 and with over 103,000 employers poses a major threat to the company (NNDB).

Opitutinies

Brand recognition is a significant factor affecting Sanitarium competitive position. Sanitariums brand name is well known in New Zealand households with famous products like Weet-Bix and its healthy support of children. If Sanitarium spread products can get the same reputation as Weet-Bix the product will have a healthy growth similar to the Weet-Bix product.

Sanitarium Health Company could do more to try and push cross category promotion and close the gap between other food items that are used in bread like meat and cheese which would profit and market share.

Weakness

In both Australia and New Zealand, Sanitarium companies do not pay company tax (Just Grumpy, 2009). This could be a weakness in its self as it could damage the trust worthiness brand Sanitarium has. And this is occasionally questioned.

Strength

The reputation in the market place that Sanitarium has as being a trust worthy brand that promotes healthy eating, helping communities, and generosity to charities is strength in its self.

Competitor analysis

The leading players in New Zealand spreads market include H.J. Heinz Company, Sanitarium Health Food Company and New Zealand Honey Producers Co-operative Ltd. But there are far more actual spread products that consumers can purchase. (prices from Countdown) The market for spreads in New Zealand rose at a yearly growth rate of 4.5% between 2003 and 2008 with the honey category leading the spreads market in New Zealand, accounting for a share of 28.7% (Datamonitor, 2009).

Home brand

hazelnut spread chocolate 750g

peanut butter crunchy 1kg $6.09

Select

peanut butter crunchy 500g $3.98

peanut butter smooth lite 500g $3.98

hazelnut spread 400g $4.49

Ceres

Organics peanut butter almond 300g $8.67

Organics peanut butter crunchy 300g $6.11

Kraft

Kraft yeast spread vegemite 400g $6.56

Kraft yeast spread vegemite 150g $3.06

Kraft cheesybite yeast spread 145g $3.67

Nutella

Nutella hazelnut spread 750g $10.21

Nutella hazelnut spread jar 220g $3.77

Our Mate

Our mate yeast spread extract jar 125g $4.83

Sanitarium

sanitarium yeast spread marmite jar 500g $6.95

sanitarium yeast spread marmite jar 175g $3.27

sanitarium yeast spread marmite jar 125g $2.85

sanitarium yeast spread marmite jar 250g $3.50

sanitarium peanut butter crunchy 500g $3.50

All spread products that are sold in the New Zealand market are rivals or competitors against Sanitarium spreads. But since I am focusing more on a specific product which is Sanitariums Marmite, companies who also sell Marmite/Vegemite are in a sense a bigger threat than companies selling other types of spreads.

Customer/Client Analysis

In today’s economy where the cost of living is rising, it would make sense for consumers who are more financially conscious to purchase cheaper spread foods rather than the higher priced products like Sanatorium Marmite which is priced at $6.90 (500g) And the Sanatorium Peanut Butter which is priced at $4.49 (250g) (Countdown)but that may is not the case. These products through the eyes of the consumers are a part of the living healthier movement in New Zealand. Living healthier has been a big movement in New Zealand for a long time now and Sanitarium has long had the reputation of being a trusted brand that promotes a healthy lifestyle while supporting communities and charities. The reputation of Sanitarium already has a major advantage over less known companies who sell spread products.

Identification of the Marketing Opportunity or Problem

From the analysis and research of the spread industry oputuniutes and problems seem revolve around the rising prices of food items. Not necessarily spread prices. Prices of Sanitarium Marmite have actually decreased from 3.30 to 3.00 for a Marmite Jar (Countdown). But the overall price of food items especially essential food items like milk, meat, and cheese. General grocery shaping is on the rise. With the consumer price index rising to 0.8 per cent in March 2011 quarter compared with December 2010 quarter and food prices rising to 1.2 per cent, with prices for grocery food rising to 1.1 per cent and meat, poultry, and fish rising to 2.1 per cent. (Bascand, 2011). And even with the rising petrol prices people are According to the Dominon Post “Kiwis splurge less as food and fuel prices rise”. With all the price increases of consumer goods and essential goods is there going to be any room for products like Sanitarium Marmite?

Basic Marketing Strategy Recommendations

The recommendations of the problem stated above might normally be solved just by simply lowering the price for Sanitarium Spread Products like Marmite ($6.95) (500g) and peanut butter ($3.50) (500g) thus making it easier for consumers that are suffering from the effects of rising prices to purchase these goods. The problem with lowering the price of a particular product it may create a long term price expectation for the product and brand thus not being able to increase prices without backlash from the consumers. Increasing the price however may also cause a consumer backlash. But the unique reputation of Sanitirium as one of the most trusted brands in New Zealand as well as the general movement in New Zealand about living healthy and eating healthy gives the company an opportunity and an advantage over its competitors. Marketing these products as superior, safer, healthier may cater to the increasing amount of consumers who are quality conscious rather than price conscious.

Conclusions and Recommendations

Organisations nowadays are hugely sensitive to political, technological and environmental events. Economic changes as stated in the report affect the whole market. Rising prices of essential goods makes selling non-essential goods difficult. Trying to raise prices of Sanitarium spread products in the middle of a 1.2 per cent price increase of foods is demanding (Bascand, 2011). But brand loyalty and the reputation that Sanitarium has makes the strategy of increasing price for its spread products during a shaky economy makes this strategy less likely to fail compared with its competitors.