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1 VALUE ADDED FOODS 3203 Steven C Seideman, PhD Extension Food Processing Specialist Extension Food Processing Specialist Cooperative Extension Service.

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Presentation on theme: "1 VALUE ADDED FOODS 3203 Steven C Seideman, PhD Extension Food Processing Specialist Extension Food Processing Specialist Cooperative Extension Service."— Presentation transcript:

1 1 VALUE ADDED FOODS 3203 Steven C Seideman, PhD Extension Food Processing Specialist Extension Food Processing Specialist Cooperative Extension Service University of Arkansas

2 2 Photo courtesy of Department of Food Science

3 3 Value Added Defined as “Food items whose value has been increased through refinement, the addition of ingredients, processing or packaging that makes the whole more attractive to the buyer or readily usable by the consumer than the initial commodity”.

4 4 HISTORY HISTORY We live in a “Value Added” society. Many of our grandparents or great grandparents raised their own hogs and chickens, grew produce in a garden, made their own furniture and probably made their own farm implements. In our current society and because of the industrial revolution, it is now cheaper and easier to buy pork, eggs, produce, furniture and farm implements than it is to make it yourself.

5 5 History-Continued Because of technology, mass production, strategic purchasing etc, Americans live in a value-added society. Americans have a love affair with value-added. They can get what they want, when they want it and at a cheaper price than doing it themselves. No matter how you look at it, “convenience sells”

6 6 VALUE ADDED FOODS VALUE ADDED FOODS Have you been to a food store lately? Look at all the choices there are of various products. Value-added products include anything that is further processed above the commodity itself.

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10 10 EXAMPLE OF VALUE ADDED- DAIRY PRODUCTS EXAMPLE OF VALUE ADDED- DAIRY PRODUCTS Milk is the raw commodity. Dairy field known for being creative. Look at all the value-added products they make. 1%, 2%, skim milk, ice cream, yogurt, and cheeses from cottage cheese to various flavors (cheddar, swiss, colby etc) and they slice it, dice it, shred it and even individually wrap slices. Don’t forget that milk is homogenized and pasteurized- Things you don’t have to do. These are all examples of “value added”.

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16 16 Value Added Examples Value Added Examples Look at the breakfast cereal section and the bakery section. Anything above grain is “value-added”. Look in the meat section. Anything above an unbranded steak is “value-added”.

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24 24 Value-Added Observations Note that almost everything we buy is “value-added”. Note also that the price charged for adding value is substantially more than the price for the raw commodity

25 25 FOOD CHANNELS There are basically 2 channels in food distribution 1)Retail-the goal is to give the consumer what they want at a price they are willing to pay. Examples are further processing over commodities. 1)Retail-the goal is to give the consumer what they want at a price they are willing to pay. Examples are further processing over commodities. 2)Food Service (Restaurants)-Make food products that address restaurant concerns such as food safety and the shortage of good labor (Precooked, marinated, seasoned etc). 2)Food Service (Restaurants)-Make food products that address restaurant concerns such as food safety and the shortage of good labor (Precooked, marinated, seasoned etc). 3)Sales over websites are coming along. 3)Sales over websites are coming along.

26 26 THE RETAIL MARKET This channel represents food stores like Walmart, Kroger, Dillons, etc They are very consumer oriented Heavy up on marketing; All trying to get consumers to buy their product. Crowded; Competitive There are just too many choices to make.

27 27 Photo courtesy of USDA

28 28 THE FOOD SERVICE CHANNEL Includes fast food up to fine table clothe restaurants Fastest growing channel. Use brokers from large full service distributors like Sysco and U.S. FoodService to brokers that just take orders. The brokers do the local selling and can go from just taking orders to delivery. Not heavily marketing oriented

29 29 Photo courtesy of National Restaurant Assoc.

30 30 FOOD SERVICE IS FERTILE GROUND More people eating out than ever before. Retail is very crowded and competitive. Restaurants want items that reduce the probability of a food safety incident and items that reduce the labor “in the backroom”. (e.g. precooked, preportioned, premarinated etc). Let me explain.

31 31 Food Service Sales Since the 1970s, the percentage of food eaten away from home has been steadily increasing. In 1999, 49% of the food dollar was spent in food service, 41% was spent in retail stores and 10% at other food retailers (c-stores, warehouse clubs). The food service channel a $370.9 B a year business.

32 32 Who is Paying to Eat in Food Service? Age Group 24 & under 25-3435-4445-5455-64 64 + FS Spending/ year $4,600 $4,600 $6,500 $6,500 $8,200 $8,200 $9,800 $9,800 $7,900 $7,900 $5,100 $5,100

33 33 Generational Attitudes Toward Cooking Generation Swing/WWII (55+) Baby Boomers (34-55) Gen-Xers (25-34) Gen-Y (18-24) Attitude “I’m glad I don’t need to cook anymore” “I wish I had time to cook” “What, me cook?” “What’s cooking?”

34 34 Implication; The overall spending per age group may increase as the Gen- Xers and Gen-Ys age.

35 35 TODAY’S CONSUMERS Are more demanding Are more adventurous in restaurants Have more disposable income. Older are sick of self denial and younger lead a more decadent life style. Time starved; Want it “now” Drive through confessional in California Drive through confessional in California “Toot and tell or go to Hell” “Toot and tell or go to Hell” Starbucks Kiosk in California churches Starbucks Kiosk in California churches

36 36 Restaurant Impact Areas Labor -High turnover (96-100% annually) -High turnover (96-100% annually) -Wages /Benefits are up -Wages /Benefits are up -Quality of workforce is down. -Quality of workforce is down. Food Safety -Fear of E Coli/Listeria- lawsuits -Fear of E Coli/Listeria- lawsuits -Linked to labor quality -Linked to labor quality

37 37 Restaurants Demanding Reduced labor in the kitchen-preportioned, seasoned, marinaded, premade. They want to heat and serve. Precooked for food safety reasons Want creative menu ideas and novel cooking methods. “Show me something new”

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39 39 HOW TO DO VALUE-ADDED PRODUCTS An understanding of the business An understanding of the customer An understanding of the market/ demographics Have a creative idea.

40 40 UNDERSTANDING THE BUSINESS Government Regulations. Getting capital to start a business Distribution network Sales strategies

41 41 UNDERSTANDING THE CUSTOMER Fill a customer need Today’s Consumers demand 1)Convenience-time starved 1)Convenience-time starved 2)Value-higher quality at fair price 2)Value-higher quality at fair price 3)Decadence-fairly strong economy and sick of self-denial. 3)Decadence-fairly strong economy and sick of self-denial. 4)Want leisure and fun 4)Want leisure and fun

42 42 UNDERSTANDING THE MARKET Who is your competition ? How to label, package etc ? What is a fair price ? How will people know about your product and where to get it?

43 43 HAVE A CREATIVE IDEA Some people have ability for this. Have brainstorming sessions Look at the dairy field-The mother of Creativity. Go to other places/things,

44 44 WHERE DO IDEAS COME FROM? WHERE DO IDEAS COME FROM? Some people just have the ability to look at something and think beyond it. Ask people who use similar items what they want. “Brainstorming” sessions if conducted properly can be fruitful.

45 45 Innovation Fate What is the success rate of new concepts? *40% rejected by informal evaluation *40% rejected by informal evaluation -Technical, legal, economic problems -Technical, legal, economic problems *41% rejected after formal testing *41% rejected after formal testing -Market tests -Market tests ONLY 19% ever get accepted. ONLY 19% ever get accepted.

46 46 CASHING IN ON VALUE- ADDED High speed, efficient food processing equipment is expensive but saves on labor in the long run.. Farmers have been known to form cooperatives to pool their raw commodities and control the processing aspect to their benefit Examples are Ocean Spray, Welch’s, Sunkist in the beverage industry.

47 47 HOW TO DO VALUE-ADDED HOW TO DO VALUE-ADDED First, think of the area you want to work in. For example, fruit farmers may want to produce beverages or vegetable farmers may want to produce soups. For example, fruit farmers may want to produce beverages or vegetable farmers may want to produce soups. Second, think of how you can do it better, differently or cheaper than the competition in the market. Technology and creativity are the keys

48 48 DETAILS OF PRODUCT DEVELOPMENT Figure 1 (the next slide) shows all the different things one must be cognizant of as they develop a new product. Think of each one of these links as a chain where a chain is as strong as its weakest link. Larger food companies are always determining their weakest link and strengthening it- Called realignment or refocusing.

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50 50 FOOD PRODUCT DEVELOPMENT The next slide (figure 3) shows the steps to be taken in new product development. This is a theoretical chart and sometimes shortcuts can be taken if you know the process and the ramifications of your decisions. For example, line extensions in an already successful company can go from concept to prototype to full scale production (3 steps) in a matter of weeks.

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52 52 Product Development Let’s go through each step in detail.

53 53 Concept One has to have an idea to get started. This idea can come from just about anywhere. Some ideas come from marketing surveys and marketing people who know the consumer and demographics. Some ideas come from less sophisticated sources (e.g. executive overhearing 2 women talk about having to wash diapers-this conversation lead to the advent of the disposable diaper).

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55 55 Prototype Development Concepts are a start but they are words. The words need to be understood and used to make a prototype sample. This prototype may have to be made several times until all those involved can agree on it.

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57 57 Photo courtesy of University of Nebraska

58 58 Photo courtesy of University of Nebraska

59 59 Final Formulation Once all those involved agree on the prototype concept and approve a sample, the final formulation is approved. At this time, those involved in the product development scheme are thinking about safety, quality, durability, economic and legal matters that must be addressed.

60 60 Laboratory and Pilot Plant Scale-Up At this point, larger quantities of the product are made for shelf-life evaluation, sensory panel analysis, and preparation/manufacturing feasibility. This is where preliminary cost buildups are conducted and specialized equipment issues are dealt with.

61 61 Product Testing & Test Marketing After exhaustive internal evaluations, the product is ready for consumer and external review. Consumer focus groups and test market data collection are obtained in this stage. All matters of safety, legality and quality should have already been settled. So a limited introduction in a realistic setting will partially answer the big question-Will it sell?

62 62 Photo courtesy of USDA

63 63 Limited Area Introduction If the product made survives the test market (at best, only 3 of 10 do), based on existing data and more fine tuning, a regional roll-out will follow. This is the step where manufacturing must make their first batch and marketing should be ready to launch their promotional campaign.

64 64 Full Scale Commercialization If everything goes well in the Limited Area Introduction, full scale commercialization is launched. As always, the product may require “tweeking” now or anytime in the future.

65 65 Photo courtesy of USDA

66 66 Income Profile Figure 4 shows an idealized income profile for a new product. From concept generation on, company resources are being devoted to the product and these increase as the idea progresses through the various implementation stages. Even after rollout and limited marketing, profits may not balance expenses.

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68 68 Income Profile Only after market penetration has been achieved do the returns exceed the considerable expenses of development. As time goes along, at some point the product will enter “senility” where the profits begin to fall due to competition and changing demands. To counter this effect, most companies have new products or line extensions being developed all the time, considered to be “next products”.

69 69 Next Products. Figure 5 shows the income profile for a number of new products being launched. As can be seen from the curves, time to turn a profit and the level of that profit vary greatly. Some product success is short lived; others never make it. Even successful products eventually face a downturn that can only be avoided by constant innovation in product improvement and /or marketing strategies.

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71 71 REMEMBER Give the customer want they want and are willing to pay for.

72 72 TECHNOLOGY/CREATIVITY Technology is coming at us faster than ever before. Older, more established companies are more hesitant to adopt to new technology. Creativity abounds in people without regard to education or income but can be substantially amplified via marketing.

73 73 EXAMPLES OF TECHNOLOGY EXAMPLES OF TECHNOLOGY There are a lot of technologies being developed or can be developed by the university. Here are just a few ideas.

74 74 Fruit Extractors in the Field Fruit Extractors in the Field With the use of a tractor’s hydraulic system, a 3-point portable squeeze apparatus could be developed to extract fruit juices in the field. The resulting fruit extract could then be pumped into large plastic tanks mounted in pickup trucks to be hauled to a centralized processing/bottling facility.

75 75 Portable Vegetable Units Portable Vegetable Units Large trucks with a flatbed could be designed to minimally process vegetables in the field. By “minimally processed” refers to cleaning, sorting, blanching and boxing vegetables so they can immediately be sent to frozen storage. Since they are portable, they could be relocated daily to a different location.

76 76 Genetically Modified Plants Genetically Modified Plants The University of Arkansas is continually developing new and improved varieties of plants. Think of the impact that “Roundup Ready” soybeans have made—minimal tillage, less weeds etc.

77 77 Mechanical Harvesting Mechanical Harvesting Dr Justin Morris at the University of Arkansas recently patented a tractor mounted apparatus to minimize the labor associated with grape vine trimming and hanging, Numerous other projects are being conducted at universities across the United States. Whatever the mind can conceive can be done.

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79 79 CONCERNED ABOUT THE BIG COMPANIES?? CONCERNED ABOUT THE BIG COMPANIES?? Businesses evolve. Remember the big retailers of the 1950-1960s—Sears, Montgomery Ward, J. C. Penney?? Remember the big meat companies of the 1950- 1960s—Wilson,Oscar Mayer, Armour, Swift, Cudahy—Almost out of the market to the new companies. Bigger is not always better. The economies of production go up as a company gets bigger but big companies tend to lose sight of the customer, get sidetracked, lose their competitive edge or get tied up in big labor contracts etc.

80 80 Suggestions Watch out for the old “cheaper is better” philosophy. Customers have money-want quality. Watch for reemergence of “Comfort Foods”. Whole muscle hams, meatloaf, pot roast, sandwiches. Flavor profiles are changing -Young people don’t identify with Italian -Young people don’t identify with Italian -Grilled flavor is “in”. -Grilled flavor is “in”.

81 81 Suggestions Some health issues are fading. Fat steaks, cigars, pizzas are back in style. There is a health market out there and it is going but still fairly small. Reexamine product lines every 2-3 years to make sure it is relevant to today’s dynamic consumer.

82 82 A Word About Marketing Facts do not sell a product. Emotions sell products. Watch some TV ads some time- What message are they selling?? For example, Dockers pants are not sold on the strength of the material or stitching but how well people who wear them entice members of the opposite sex. Sounds ridiculous but it works. Romanticize the product. Make it emotionally appealing in some way to the customer.

83 83 Three Keys to Successful Value-Added Food Products Three Keys to Successful Value-Added Food Products Give the customer what they want and at a price they are willing to pay. Do it cheaper, better or differently than the competition. Market your product well.

84 84 ASSISTANCE AVAILABLE ASSISTANCE AVAILABLE The University of Arkansas has numerous organizations that can assist you get started in areas of raw materials (crops or livestock production), concept development, product development, marketing, business planning etc.. Cooperative Extension Service Institute of Food Science & Engineering Department of Agricultural Economics Sam Walton School of Business

85 85 Why Value-Added in Arkansas Labor pool is good, hard-working and relatively inexpensive compared to some northern states. Arkansas is a “Right to Work” state Good interstate road system Plenty of commodities to process Affordable Utilities Centrally located in the U.S.

86 86 Why We Want Value-Added in Arkansas Pay better wages than commodity production. Increases state tax revenues Reduces Unemployment Creates a healthy economy We already have it to an extent

87 87 CONCLUSIONS We are optimistic about value-added foods in Arkansas. The University of Arkansas can provide assistance in technology and business. We welcome entrepreneurs to work with.

88 88 Photo courtesy of IFS&E

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