Dan Malovany: The Naked Truth
BakingBusiness.com, July 1, 2010
by Dan Malovany
Once in a while, I can’t help feeling like the court jester who everyone in the crowd laughs at until he tells the king: “Dude. You’ve got no clothes on. What’s that all about?”

Usually, that prompts a response like “Don’t listen to him. He’s just the village idiot.”

Well, stupid ol’ me has been on a rant lately about the ridiculously low prices and silly deep discounting that runs rampant in the retail channel. It’s one thing for private-label producers to slash their prices, but it’s crazy for premium branded manufacturers to be practically giving their products away.

Fortunately, I’m not alone in seeing this naked truth. In an interview that I recently updated with Katie Kelsey, the director of marketing at La Brea Bakery, she bemoaned how media hype and misinformation about the economy and the state of the consumer have prompted detrimental knee-jerk reactions on the part of retailers. Specifically, she’s frustrated by the proliferation of commentaries from pundits preaching about a permanent “new frugality” that consumers have adopted as a result of the recession.

“Analysts continue to give the impression that their incredibly thrifty behavior is here to stay forever,” Ms. Kelsey said. “This has caused retailers to panic and to immediately begin shifting the entire paradigm of their positioning from quality value, convenience and service to one of low prices. Period.”

Such dramatic price-cutting occurs not only in the snack and bread aisles but also in the in-store bakery channel, where La Brea Bakery is one of the nation’s largest premium branded players. Ms. Kelsey said it’s incredibly dangerous for every supermarket chain to try to compete with the Wal-Marts of the world, which continue to slash “everyday low prices” to levels even lower than before the recent recession started.

“Today’s grocery retailers would be much better served if they were to hunker down and stick to their proverbial guns, so to speak, when it comes to their original philosophies and points of difference” she explained.

Yes, Ms. Kelsey added, spending behavior did change during the recession just like it did during previous economic slowdowns throughout history, but there is no evidence that consumers have permanently cut back on what they are willing to pay for premium snacks and baked foods.

In fact, according to archived Federal Reserve data, she noted, consumer spending since 1976 has trended upward while their savings steadily dwindled despite four recessions during that period.

“While these two trends stray ever so slightly from their trajectories during periods of recession, they have always returned to their trending lines. Always,” Ms. Kelsey said.

Once the recession officially ends and economic recovery takes hold, Ms. Kelsey believes that retailers will be faced with what she calls “a serious identity crisis,” and she doesn’t mince words on that topic.

“For some, the fallout might be fatal,” she said. “Sure, they were able to sustain or somewhat salvage sales rates during the worst of it by lowering prices across the board, but at what real cost? As consumers start spending again and seeking out higher-end, quality retail experiences, they may feel that they have very few places to turn. There will be significant confusion about formerly premium players who turned solely to low prices and, at times, inferior products. As a result, those retailers and brands who maintained their commitment to quality throughout the recession will be the ones who come out on top.”

In many ways, the market is not a perfect place. If it were, Ms. Kelsey said, companies wouldn’t be pandering to the so-called new consumer mindset. “In an ideal world, retailers would be able to make thoughtful, truly analytical decisions based on longterm growth and success as opposed to potential short-term gains,” she said. Now that’s the naked truth.