Attention Online Shoppers
October 1, 2007
Attention Online Shoppers
By Megan Pellegrini, Contributing writer
Mail-order and online companies are using the Internet to promote and expand their brands.
The Internet giveth, and the Internet taketh away.
While it doesn’t require much of an investment to put up a rudimentary Web page to promote and sell one’s meat and poultry products, the costs and challenges associated with marketing, packing and shipping a perishable product on “Internet time” can be daunting. The online mail-order business is generally populated with new (commonly natural and organic processors) meat companies hoping to build brand awareness and long-standing processors hoping to reach new consumers. Whether they can sustain the level of investment required for success is key to their survival.
If it were as easy to ship meat as it is to mail out CDs, the mail-order meat industry would face far less hurdles and misguided expectations from sophisticated consumers, who are used to ordering online. Of course, a CD doesn’t have a ticking expiration date and sensitivity to packaging and shipping conditions.
“Outside the holiday season, 95 percent of our consumers come in over the Internet,” says Joe Miller, president of Chicago’s Heartland Steaks. “But we need to educate them on the costs associated with packaging and shipping a perishable product. They are grounded in a mindset that all orders are instantaneous. We have a longer delivery cycle than books or CDs.”
Generally the online meat consumer is 30 to 50 years old, with a fair amount of disposable income. They want an upscale, high-quality product, and increasingly are interested in where the animal was raised (preferably by a local, U.S. farmer), what it was fed, animal welfare, sustainability issues and traceability.
“We view their decision to order online as part of a lifestyle choice,” says Miller. “They don’t share a standard income level, although they tend to be upper middle class, but they view our meat as a luxury-type item.” His company’s research has also found that most of Heartland Steaks’ customers, at least, tend to be married.
Heartland Steaks markets through direct mail to existing and new prospects, sending non-spam e-mail blasts, local radio advertising with a major station, advertising on their local trucks and strong online presence.
Allen Brothers, based in Chicago, has searched out multiple channels of marketing, and is casting a wider net for all ages and demographics. “All ages enjoy quality food,” says Mark Felix, assistant director of retail operations for Allen Brothers. “Our customers tend to be more affluent, eat out more and have more disposable income, but there are exceptions to that.”
Allen Bros.’ business model is set up to allow employees to quickly respond to consumer demands, providing a value-added experience. “If someone wants his steak cut a certain way, we will do that. Our business model allows us to provide the best quality and selection.”
He notes that the processor’s Chicago location helps Allen Bros. get products out with relative ease. “There are some struggles, but we have tremendous growth every year,” he says.
Creating online shoppers
To encourage consumers to buy product online, instead of from a local online grocer such as Peapod or their nearby grocery store, processors are providing a premium-quality product that is conveniently delivered directly to their home or office.
“Omaha Steaks differ from online grocery store steaks as we specialize in beef, beginning with only premium, heartland quality,” says Beth Weiss, corporate communications director of Omaha Steaks, based in Omaha, Neb. “Our steaks are then aged — something of a lost art in today’s meat industry — hand-trimmed, vacuum-sealed and blast-frozen to preserve them at their absolute peak of flavor and tenderness.” The steaks are delivered directly to the customer in Styrofoam coolers packed in dry ice to ensure the integrity of the product while en route.
In addition, Omaha Steaks offers a variety of shipping options. “If a customer wants the steaks tomorrow, we can make it happen,” she says. Also, all products are unconditionally guaranteed, so consumers can receive a refund or product replacement.
She notes that the challenges Omaha Steaks faces are similar to those encountered by any company involved in online sales, particularly those involved in shipping perishables. The processor always has to be mindful of the costs associated with packaging (including coolers and dry ice), fulfillment and freight.
“Delivery of our product can be affected by situations beyond our control — specifically weather issues — and since our product is perishable, this can be a huge concern,” says Weiss. “Many of our challenges are universal, including the cost of fuel, tight labor markets, etc.”
Building brand awareness
The mail-order business is a growing avenue to build brand name and equity, while reaching untapped markets. Rocke’s Meating Haus’, for example, grew out of requests from retail customers who had either moved away or wanted to share the product with family and friends, says Jordan Rocke, director of Rocke’s Meating Haus, of Smithfield RMH Foods, based in Morton, Ill.
“We were asked to ship our products and saw the opportunity for growth that mail order afforded, so consequently we started developing our mail-order business,” says Rocke.
He notes that a great advantage for the online consumer is the wider array of choices available online, as compared to their local options. The ability to buy specialty, unique or high-quality items — for gifts, as well — allows the consumer more buying power. “Gift giving is such a big business and can be daunting for people, but with mail-order stores, a customer can pick out a unique item and have it delivered directly to the door of the recipient,” says Rocke.
He agrees that many challenges and costs are associated with mail-order sales. In particular, maintaining a high-quality e-commerce Web site can require significant time and expense but is absolutely necessary. For smaller companies that have traditional brick-and-mortar stores, such as Rocke’s, the additional labor factor for taking orders and for shipping in an already busy season can be one of the greatest challenges, says Rocke. Moreover, a good software program for both the front-end order taking and back-end order processing and shipping is essential.
“Spending the resources upfront to create a good Web site and purchase a new system may seem daunting at first, but is worth it at the end,” he says. “Our stance has always been that if you have high-quality products and service, the products will sell themselves.”
Establishing trust, naturally
Natural and organic meat companies are finding that a growing number of consumers want premium products that they trust. Continuing problems with bovine spongiform encephalopathy (BSE) and distrust of Chinese products have definitely impacted consumers’ trust of foreign products, says Allen Williams, Ph.D., CEO of Tallgrass Beef Co., located in Sedan, Kan., which was founded by television journalist Bill Kurtis to provide local, grass-fed and grass-finished beef.
“They have responded to that and want to know where their product came from,” he says. Tallgrass’ customers generally report wanting regionally produced product from the U.S. and from family farmers that can be easily traced through the system.
Through extensive research, Tallgrass Beef found three main consumer groups interested in natural, mail-order beef: health- and fitness-conscious consumers, baby boomers, and young professionals, says Williams. The younger customers may have less discretionary income, but they are more conscious with their food purchases to include natural, organics and family-farmed product. Several universities, in fact, are putting natural and organic foods (including grass-fed dairy and beef) into their cafeterias to offer more choices.
Tallgrass Beef entered the mail-order business and employed Internet marketing to get its product direct to customers faster than other methods, create brand awareness and offer a highly differentiated product, says Williams. Tallgrass also uses wholesale marketing with its hotels, restaurants and institutional, retail (including online grocer Peapod) and foodservice customers.
Williams notes that this type of marketing opens up new revenue streams and is helping the company evaluate and define its product mix. “I feel like it’s synergistic and mutually beneficial,” he says. “The marketing methods set each other up. Those who try our product in a restaurant, for example, will then order it online.”
For niche processors, the Internet offers a way to expand its distribution beyond local markets. Indeed, satisfied customers will look for online products at local grocery stores, which helps processors enter new regions when they are ready to expand. “We can say to retailers that we already have a fine, validated customer base ordering online and interested in purchasing our product at their store,” says Williams.
Tallgrass markets to consumers through key Internet search terms and banner ads, and then pores over its weekly Web analysis for further information about its customers. The natural processor also surveys its customers, and benefits from positive word of mouth and customer referrals.
Williams notes that just like any other business, it’s a challenge to get the company name and brand out there in a cost-effective manner. “It can be done with millions of advertising dollars, but the challenge is defining the amount of money and channels to reach the most consumers,” he says.
Tallgrass sells its product online in a ready-to-eat, retail format, which also costs more than boxed beef to store. These cuts need a definitive inventory system that enables pickers to fulfill orders correctly.
Niman Ranch, encompassing more than 500 natural, independent family farms, also benefits from its relationships with grocers. Its meats are cut to order, sent fresh in overnight carriers and available in a full product line online. “A consumer may buy our bacon in their local store, but for a special dinner order our roast online,” says Kelli Harrington, senior director of e-commerce for Niman Ranch, based in Oakland, Calif. The company also does a large gift business during the holidays. And the company can ship meat to customers with a second home or yacht that is potentially not close to a retailer.
Harrington notes there are definitely additional costs involved with an online business and a large investment required for staffing, operations, and marketing support. But it’s the right investment for Niman Ranch to target its customers.
“The Web site can’t be created as an afterthought,” she says. “It needs superior customer service and a marketing investment for brand awareness, and Web resources have to be relevant. Consumers are more savvy and want specific information. We have a great history to tell, and our Web site lets us get our story out to them.”
Niman Ranch also sends out monthly e-mail newsletters, advertises through supply-chain management, SCO and print activities, attends trade shows, creates marketing materials with collateral and brochures, and benefits from word of mouth.
“As consumers care more about where their meat comes from and how it’s raised, we’re filling a niche,” she says. “Our price points accurately reflect the care given to our animals and the results.”
Keeping costs down
Some companies tackle high costs by keeping their expenses as low as possible. Since 1986, Lone Star Foodservice Ltd., based in Austin, Texas, a wholesale meat processing and distribution company, has been involved in the mail-order business. According to Franklin Hall, CEO, it was a natural way for Lone Star to grow its business, and in some ways complements what it was already doing by providing high-quality, high-volume steak cutting for steakhouses.
“So, why not cut a few extra?” he says.
Although Lone Star has some individual customers, most of its online customers are businesses buying steaks for gift packages. “Food is a festive, great way to express appreciation,” he notes. He shares that it took Lone Star a few years to break even and see a return on its investment. The processor had to cover startup costs from streamlining operations and then achieving a critical mass of customers to deliver an appropriate return. In addition, its mail-order business model had to be more consumer-oriented with customer service and smaller packaging.
Hall notes that many people say $50 to $60 a box for steaks is a lot of money to spend, but he points out that a lot of effort goes into creating the final product. First, the steak is packaged with a thermal wrap; then that packaging goes into an interior box, which is put in a Styrofoam box with dry ice; then a cardboard box; and finally protective cardboard, which is in a refrigerated truck.
To save additional money, Lone Star hasn’t spent money on advertising in 20 years. Yet the company has a repeat rate of 90 percent, says Hall. The mail-order and online business has slowly grown through word of mouth, its Web site, and a mailing list of those who have done business with Lone Star. “I keep the costs reasonable, instead of spending money on advertising,” says Hall. “Then, I can put that money in the product so it’s the best it can be.”
Buckhead Beef, located in Atlanta, also tries to keep costs down by seamlessly coordinating its mail-order and online business with its foodservice orders. According to Rick Morris, marketing manager, the company hasn’t acquired additional equipment, staff or packaging materials, and uses it trucks normally to transport the mail-order requests. He notes that weather can be a problem when temperatures reach 105 F in the summer. However, “we’ve been doing this for five years and haven’t had any returns, except one due to the shipper’s problem,” he says.
Buckhead Beef employees are used to running larger products — in quantities of 100 at least — for restaurants and hotels, but Morris says it’s not a problem to cut smaller, individual-customer orders fresh. “We’re capable of doing both,” he says. “When the order comes in, the meat is cut and shipped, and arrives within two days.” Buckhead only ships Monday through Wednesday, so the perishable product will not sit in a warehouse over the weekend.
The processor markets its product through local magazines, the Internet, its retail Web site, search engines, and the Atlanta Business Chronicle. In 2008, the company plans to roll out more high-quality options for consumers such as fresh game, all-natural product and poultry.
“If someone orders once, they will continue to order forever,” says Morris. “Someone who doesn’t mind spending $40 on a steak is looking for the finest quality meat, and they will prefer it to mass-produced meat that is marinated, frozen and sitting around the store.”
Developing a personal connection
According to Heartland Steaks’ Miller, there are still many consumers who want to talk to a live person while completing their order, even in an age when people are so tech-savvy and the Internet is such a prominent place to advertise. “It’s still a people business, and there remains an element of personal contact,” he says. “They look for that, and it helps legitimize your business. Gifts, for example, are an emotional purchase, and it gives them security, affirmation and confirmation when they talk to someone on the other line.”
Williams notes that because mail-order and online businesses have higher price points for their products, they have to justify them to their consumers. “It’s important to clearly communicate the points of differentiation for your product that are most important to your consumers,” he says.
Cyber attack: Consumers shop online year round
For many, Cyber Monday has replaced Black Friday after Thanksgiving as the most popular day to begin holiday shopping. According to Packaged Facts, consumers are using the Internet to send food gifts year round. It’s “Food Gifting in the U.S.” report noted that food gifts increased 56 percent from 2004 to 2006, at a time when most consumers were tightening their belts with gift purchases (a decrease of 8 percent in the consumer gift market). Businesses purchased 14 percent more food gifts online, as well.
Consumers are looking for unique, personal, indulgent and convenient gifts, in addition to gourmet, natural and organic and specialty foods. For last-minute gifts, they are increasingly turning to grocery stores.
The report stated that 47 percent of food gift sales come from brick-and-mortar retailers, 32 percent from online and direct marketers, and 21 percent from independents, franchises and distributorships.