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In this issue of the FBMIU, we will share some of the numbers we have seen from the first eight weeks of the holiday season, and we will provide several suggestions and recommendations to help food mailers make it through what promises to be a very difficult time.
A review of more than a dozen of 5th Food Group’s clients showed the following:
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Eight weeks into the Sep-Dec holiday season, the average company posted a 2.5% increase in bookings (i.e., the dollar value of orders received) and a 1% increase in the number of orders received.
Last year at this time, these companies averaged an 11% increase in bookings, and they finished the season with a 10% bookings increase. Therefore, this season is on pace to be flat compared to holiday 2007.
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The highest reported bookings growth rate was 25%. Last year at this time, of the companies we track, the highest growth rate was 42%.
The lowest reported change in bookings was minus 16%. Last year at this time, there were only two companies who reported a decrease in bookings. One was down 3% and the other was down 7%.
In short: from last year to this year, the specialty food-by-mail industry overall has gone from moderate growth to no growth.
Given current conditions, it’s more important than ever to get a reasonably accurate forecast of where your business will be at the end of the season.
While every business is different, there are a lot of similarities in the order patterns of all specialty-food direct marketers. Therefore, you may be able to use the historical order results below to forecast your end-of-season results based on how much has come in the door so far.
This table shows the five-year average percent of orders and bookings that came in by month for the September-December holiday season for over a dozen specialty-food direct marketers.
This table shows the five-year average percent of orders and bookings that came in cumulatively and weekly for the September-December holiday season for over a dozen specialty-food direct marketers.
Forecasting Your Results Using Historical Order Curves
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Calculate the orders and dollar bookings you have received from the beginning of September to the end of any given week in the holiday season.
Divide your orders and bookings numbers by the corresponding “percent complete” from the table above.
For example, if you have generated 100 orders as of week 8, your forecasted total # of orders for the season will be 100 divided by 12.4% = 806 orders.
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Make any needed adjustments to the forecasted numbers based on your individual situation and circumstances.
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Compare your revised forecast to your original plan/budget for orders and bookings in the holiday season. Hopefully, you are spot on, and no adjustments are needed to your marketing, merchandising, operating or financial plans.
However, given the way the current season is coming in for most companies, your new forecast will probably differ significantly and negatively from your original plan. Therefore, you may need to take several steps to try and get back on track and make the best of a difficult situation.
Action Plan to Reduce the Effect of the Current Economic Conditions
Use the revised bookings forecast to rerun pro-forma income statements and cash-flow projections for the season and for the year. Take a hard look at your projected cash position. Will you have enough cash on hand and from other sources to make it through the spring-summer 2009 seasons? If not, start working now to line up additional financing.
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Review your inventory position. If you based inventory levels on your original sales plan, you are probably sitting on more stock than you will need. It’s far easier to sell off inventory in the season than afterward.
Get aggressive now with markdowns and use the web-specials section of your site to promote them. Use highly targeted promotional emails to lower inventory. Don’t send all emails to all customers. You will have much better success generating additional sales, lowering overstocks and not being branded as a spammer if you target your emails to specific groups of customers. For example, if you are overstocked on olive oil, send an email to past olive oil buyers with a great deal on olive oil. Offer extra discounts on overstocks to your top customers, and position it as an “exclusive best-customer sale.” If you have any self purchasers who are ordering at this time of year, insert clearance flyers inside their boxes. Note: do not put sale flyers or clearance inserts inside gift-recipients’ boxes! If you purchased finished goods from a manufacturer, see if you can return any unsold items. Even if they hit you with a 10% to 20% restocking fee, it will probably be better for you to return the goods than to sit on them until next holiday season.
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If you are like a lot of our clients, you produce much of the food you sell on your website and in your catalog. If you have not built all of the inventory you had planned for the season, review how much you will need based on the revised forecast, and scale back production immediately if need be. Cancel or delay shipments of raw materials.
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If you wholesale to other retailers, get creative to help them sell more of your products—offer extended payment terms (if you have sufficient capital and they are credit worthy), pay all or part of the freight, give them case-pack or volume discounts on smaller orders.
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Evaluate seasonal hiring in your fulfillment operation and call center. Chances are you will only need 90% to 95% of the staff you had last year in these functions, so hire accordingly.
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There is still time to tweak your online marketing efforts and even a few offline programs, too. Review the historical ROAS (return on advertising spend) and rank each program from best to worst. Are there any opportunities to shift funds from a lower ROAS program to a higher one? For example, if an additional $5K or $10K spent on paid search marketing will generate a higher return than a late-season mailing you have planned, you may be better off to cancel the mailing, and shift the money to your paid search program.
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If you have extra staff in your call center, use them for an outbound calling program.
Pull a list of all buyers who had purchased by this time last holiday season but have yet to order this season. Sort them by the dollar volume of their holiday 2007 purchases. Start calling from the top of the list and work your way down. Let the customer know you are here to help them take care of their gifting needs. Have their prior year gift list handy and offer to email or fax it to them. Alert them to your best specials and discounts. Create a few exclusive offers just for this group of customers. Pull a list of your top buyers and call them with exclusive offers and specials. Call all new buyers one or two weeks after they place their first order. Thank them for their business, ask if they were satisfied with the service and give them a great deal to place a second order.
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Extend employee discounts to family and friends.
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Chances are that customers will be looking for lower-priced gifts this year. Create a page on your website of gifts under $X. Send an email featuring X gifts for under $X (the amount will vary depending on your product line and price points). Offer these items as add-on’s or up-sells for phone orders. Test “gourmet gifts under $X” as one of your paid search ad groups.
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Keep pitching and promoting and don’t give up.
In the late-November issue of the FBMIU, we will report on results of the season through the middle of November and share what’s working and what’s not for other specialty-food direct marketers.
Warmest regards and happy holidays,
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, implementing and analyzing 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 or large 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 Jump Start.
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5th Food Group