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In the last two weeks, we have gotten over 50 calls from owners and senior managers of specialty-food companies. They all ask the same question: “Is everyone having as bad of a season as we are?” Therefore, we thought we would devote this issue of the FBMIU to sharing some of the season-to-date trends in sales and order flows we see in our industry.
Our hope is that this information will help you put your results into perspective and that it will be useful to you when evaluating your season.
Season-to-date Trends
We have compiled, aggregated and summarized data from 12 different clients. These companies make up an excellent representative sample of the specialty food by mail industry. Most or all of the items on their websites and in their catalogs are specialty food and food gifts. Product categories include meats, cheeses, nuts, fruits, gift towers/baskets, candy, baked goods and imported foods. Almost all of them sell in multiple channels (i.e., wholesale, company-owned retail stores, catalog and the Internet). Mail order/Internet is not their largest distribution channel, but it’s a significant portion of their overall sales. Their annual mail order/Internet sales range from just under $1 million to over $15 million. Their median annual sales are approximately $6 million.
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This table shows the percent of companies that fall into different ranges of sales growth or decline for the first 14 weeks (Sep 1 – Dec 7) of the season compared to the same period last year.
As you can see, only 9% of the companies reported a sales increase compared to the same period last year; almost half (45.5%) reported a sales decrease greater than 20%.
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The season got off to a slow start and has gone downhill from there.
September’s order volume fell 1.9%, and sales fell 1.4%. October’s order volume fell 4.2%, and sales fell 5.2%. In November, everyone hit the wall! Order volume fell 28.4%, and sales fell 25.1%. The first week of December, orders and sales were both down 27.1%. Through the first 14 weeks of the holiday season, orders and sales were down 20.7% and 18.8%, respectively.
The following table shows the weekly and cumulative results.
As I write this, we are receiving reports that week 15 was stronger for most clients than their recent trends would have indicated. That’s a good sign that in December we might make up some of the ground we lost in the first three months of the season.
Since Christmas falls on Thursday this year, and it was on Tuesday last year, clients have a full week (week 16 of the season ending December 21) to send orders via standard shipping. As a result, week 16 should be significantly stronger than it was last year.
By Christmas week last year, the season was essentially over. However, this year, orders can be shipped via one and two-day air up to Tuesday, December 23 and still arrive by Christmas Eve. Therefore, there is an opportunity in week 17 (week ending December 28) to make up some of the earlier shortfall.
Summary
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The 2008 holiday season will go down as the worst on record in terms of sales, order volume and profits.
Buyers who have purchased in the last 12 months are the lifeblood of any mail order/Internet company; they are the principle asset even though they never appear on the balance sheet. With order volume down this season, companies will go into the holiday 2009 season with fewer of these buyers.
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With fewer prior-year buyers to market to, sales volume will continue to spiral down unless there are aggressive programs to generate more sales per customer, accelerate new-name flow (i.e., add more new customers), or some combination of the two.
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With sales, profits and name flow down, most specialty-food companies will end the year with significantly lower cash balances than in the past. Moreover, it will likely be more difficult to obtain new or additional financing given the current lending environment.
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We believe many companies will not have the needed cash reserves and borrowing capacity to make it through the lean, mean winter, spring and summer months.
Recommendations
Companies with weak balance sheets should focus all efforts on maintaining cash, shoring up relationships with lenders, and scouting out new sources of financing. If they run out of cash, they are out of the game.
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Evaluate your mailing and marketing plans for early 2009. Reforecast response for upcoming mailings based on lower expectations. You may need to reduce circulation and eliminate mailings to the weaker performing segments of your customer file.
However, don’t overreact! In their zeal to reduce expenses, many companies cut profitable programs out of the marketing plan. This accelerates their decline and actually hurts their cash position.
It’s a good exercise to rank all of your major marketing programs in a season from most to least profitable. Any program that is forecasted to produce an immediate profit should be maintained, if not expanded. Go down your list of programs until you reach the point that you will either spend your available marketing budget or you are into programs that are not forecasted to generate a profit. From this exercise you will have a solid marketing plan that will help you weather the current storm.
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Many companies may have to close their doors, take on a partner or sell out. If you have a need or desire to sell your business, we may know of one or more interested buyers. Please feel free to contact me for more information. All calls will be held in strict confidence.
We hope this data gives you a better sense of how your season is stacking up and comparing with your peers in the specialty-food-by-mail and online industry.
This is the last issue of the FBMIU this year. In January, we will present our annual statistical recap of the holiday season.
Warmest regards and happy New Year,
Tony Cox
President
The 5th Food Group and Catalog Solutions, LLC
ABOUT 5TH FOOD GROUP & CATALOG SOLUTIONS
5th Food Group helps specialty-food companies grow and make more money by developing, managing and implementing their mail-order
and online marketing programs.
We are the only catalog/Internet marketing firm that works exclusively in the specialty-food industry.
Helping smaller companies and larger companies with small mail-order or Internet divisions is what we do best.
Visit us online at www.5thFoodGroup.com to download a copy of our free booklet, The Seven Habits of Highly Ineffective Catalogers, and for information on our fully guaranteed introductory program called JumpStart.
If you will be in San Francisco for the 2009 Fancy Food Show (January 17-20, 2009) and would like to meet, please give us a call. We’d love to see you there.
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