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In “The F&F Horizon: 2009 and Beyond,” a number of F&F experts discussed their views on the state and future of the industry from the vantage point of formulation to raw materials to the marketplace. (Perfumer & Flavorist magazine, January 2009, Page 45.) In this week’s edition of P&Fnow, we present several extended commentaries from our panel of experts and industry voices.
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Suppliers were overjoyed when Whole Foods Market Inc. announced on Nov. 5, 2008, that Leonard Green & Partners, L.P. were providing $425 million of additional equity from the sale of series A preferred stock to Green Equity Investors V, L.P., an affiliate of Leonard Green, which equates to an ownership interest (assuming conversion of the preferred stock to common stock) of approximately 17%. However, shortly after that announcement Whole Foods Market Inc. said that its profit plunged in the fourth quarter largely due to costs related to its acquisition of Wild Oats Markets Inc. The Austin, Texas-based grocer also cut its earning forecast for the year as sales continued to slow.
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During this unprecedented period of financial and economic instability, Whole Foods is fortunate that Leonard Green & Partners, L.P. stepped forward, for it underlies the environment many companies find themselves in today. That is, shrinking income statement values and financial liquidity. Industry after industry, company after company today are faced with this same dilemma. Many are fighting daily to survive. Many will not survive. But all is not doom and gloom.
The natural and organic market continues to grow at an 8–10% rate. This may slow a bit over the next 18 months, but it will continue to outpace conventional personal care growth by a 3:1 ratio in the United States. While slow sales for Whole Foods do not bode well for natural and organic personal care marketers, it is fortunately temporary. The next 12–18 months will require these companies to:
- Re-assess short-term marketing plans and new product introductions, perhaps delaying or scaling back their original plans, i.e. number of SKUs.
- Introduce lower-priced SKUs.
- Consider other distribution channels including the Internet. Costco, Walmart and Target will likely fare better during this downturn as consumers search for more value.
- Differentiate products in the marketplace, i.e. apply for Natural Product Association (NPA) certification to show consumers their level of commitment.
- Review all cost variables and analyze ways to reduce costs without compromising product (formulation) integrity, i.e. consider alternative packaging, product sizes, etc.
- Engage suppliers and consider proactive and creative ways to partner with them to reduce overall costs.
- Review results of past trade shows; spend more on fewer, more productive shows.
- Consider export markets hungry for natural and organic personal care, particularly South Korea, Taiwan, Japan, Russia and Saudi Arabia.
- Plan, plan, plan for the future. The economy will recover, and when it does, companies will want to be ready to move quickly. Most personal care product development cycles can take six to 18 months … probably the length of this economic contraction.
Consumers now view natural and organic personal care as contributing to a healthy lifestyle and a way to reduce their carbon footprint. They will continue to expect their personal care manufacturers to support “green” initiatives and introduce new, healthy and environmentally friendly products in this category, irrespective of the economy. Something to think about!
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